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Fox to Affils: Need Dough For D'oh!

News Corp. President and COO Peter Chernin put Fox affiliates on notice at NATPE: Get ready to help the network pay to produce entertainment fare, not just sports.

It's not just cash that Fox is looking for, although it sure will be nice to have affiliates help pay for 24
or The Simpsons. The network seeks a broader value shift that would also take the form of collapsed exclusivity windows and new revenue opportunities, such as video-on-demand services.

Over time, such changes in the business model, as Chernin put it, may translate to hundreds of millions of dollars of wealth transfer to the network, at least if Fox gets its way.

Chernin was vague about to what extent affiliates would have to help pay the freight for entertainment fare. "But he stressed that the business model absolutely has to and will change," said one source who was at the meeting.

It remains to be seen what kind of additional payments the Fox stations can financially afford and would be willing to fork over. John Tupper, the immediate past chairman of the Fox affiliates board of governors, characterized Fox's stand as "a real problem. It's like trying to get blood from a stone."

Ron Crowder, newly elected board chairman and general manager of KWKT(TV) Waco, Texas, said demand for additional programming payments is a definite concern to stations. "Anytime you affect the profit-and-loss statements of the affiliates, it's a little disconcerting."

More philosophically, another station executive at the meeting said, "It's better to know what's coming than not to know."

Station group executives affiliated with other networks say they also expect to be asked to pony up more dollars to help finance big sports and entertainment programming. What they insist on, however, is that they have a chance to say no before the network commits to a big program-rights payment.

"I am sure there will be times when funding is asked for," said the head of a top-25 group. "But I also think it is only fair not to ask for funding after
a deal has been made. That's the big issue."

Indeed, part of the reason NBC walked away from a renewal for the National Basketball Association rights contract two years ago was that the network knew it wouldn't get financial support from affiliates. And it knew because it asked before hand.

"When we heard the numbers that NBC thought it would take to get the deal and what they would want from the affiliates," said one source familiar with the situation, "we agreed we should pass."

Chernin's comments came at the Fox affiliate meeting in Las Vegas last week on the eve of the annual NATPE conference.

Commenting on the meeting, Fox Network Group President Tony Vinciquerra insisted that affiliates would not be writing checks for hundreds of millions of dollars. "What Peter said was that the model is changing and that stations will continue to have to participate in paying for entertainment and sports programming."

But the ante gets upped going forward, he added, and a major shift in value has to occur in the network's favor because Fox will no longer tolerate huge losses like the $900 million it has taken on its current NFL and Major League Baseball rights agreements.

Will cash payments increase? "Could be, but that's not the sole intention," said Vinciquerra. "The intention of the [Chernin] speech was to suggest there are different ways to do business and we need to find them."

Currently, affiliates contribute about $50 million a year in cash and inventory to help the network pay for the NFL. At its closed-door affiliate session in Las Vegas Jan. 17, Fox Sports Chairman David Hill told stations Fox will "do what it takes," as one affiliate source put it afterward, to renew the NFL deal, which has another two seasons to run under the current contract. That will likely mean a hefty increase in the rights fee, already somewhere around $500 million a year.

At the meeting, he tried to make the case that sports is too important a franchise for Fox to abandon. Five of the top 10 shows this season will be baseball and football playoff games seen on Fox, he told affiliates. (According to Hill, if Fox Sports were a separate network it would be the third-highest-rated network overall.)

But stations have to be prepared to shoulder more of the deficit associated with rights fees or make other compromises that effectively relieve the network of shouldering the burden to the extent it does today.

In private conversations with some affiliates after the meeting, "Peter Chernin made it clear the company will not let that happen again," said one affiliate source, referring to the huge losses from the sports-rights contracts.

Sources at the meeting said Fox made it clear that stations will be getting a bill for MLB and NASCAR rights, although the timetable has not been spelled out.