The New Rules Of Syndication

Every year brings a new roll of the dice at the NATPE convention. Traditionally, station executives hope they've found a hit. And studios bet that their new offerings will sell.

But the game has become a lot more complicated. The business of syndication is rapidly evolving into a new model.

Stations, recognizing that their biggest branding advantage is their connection to local audiences, are turning away from syndication to program their own shows.

New technology—mobile phones, iPods, Webcasts and even video-on-demand (VOD)—is changing how and when people watch TV. (NATPE on Monday spends the entire day exploring mobile video.)

And as exciting advertising schemes evolve around those new media, Madison Avenue is a much harder sale for syndicated shows. Here's a look at four ways the nature of syndication is changing.

1. New Tech Will Provide A Lab for Launches

Syndicators will test fresh shows on new media before making a larger commitment

The big story at NATPE isn't the latest talk show. It's the explosion of mobile video devices and other ways to watch TV. But the fact is, there are 285 million TV sets in 110 million TV households. By comparison, Microsoft estimates there might be just 10 million cellphones capable of receiving video.

That doesn't mean syndicators find new delivery systems irrelevant. Several syndicators say they increasingly will incubate new offerings, bringing shows to broadcast audiences after testing them on Webcasts, VOD channels, cable networks, and even on their co-owned stations.

In the new model, studios may make economic decisions to greenlight characters and franchises for traditional media once they've gained traction somewhere else, says NBC Universal Television Distribution President Frederick Huntsberry.

Syndicated shows have a high failure rate, even though a 2 rating is sometimes considered a success. So trying out new shows and talent on smaller platforms makes sense. A less radical version of the same idea is Fox's Twentieth Television model. It often shuns September premieres in the syndication market in favor of year-round launches spawned at its owned stations, which reach 45% of the U.S.

Fox-owned stations, in essence, become a laboratory. But with a proliferation of new places to display content beyond broadcast, the same thing could happen with other distribution modes, such as VOD, Webcasts and cable.

This revolution won't happen overnight. Making television on the level syndicators expect to market is not cheap. “With the money we get from barter and cash-plus-barter broadcast shows, it would be tough to produce a show [just for cable initially],” admits John Weiser, president of domestic distribution for Sony Pictures Television (SPT). “But we're constantly kicking tires.”

Huntsberry, who led NBC U's recent Apple iTunes TV-content deals, expects the syndication model to eventually undergo radical change. “We're constantly talking about it in meetings,” he says. “It is obviously a material change for any studio, and the economics need to be there first. They're not there yet.”

But there are some who believe that syndicators are taking their eyes off the ball by doting on new-tech delivery modes that only a sliver of the public currently owns or uses. King World Chairman Roger King, whose CBS Corp.-owned company controls a majority of the top-10 syndicated shows, believes dabbling in new media threatens the health of the traditional broadcast-only windows.

“Our philosophy is completely different than other philosophies of grabbing a buck, selling to cable, iPods, so on and so forth,” he says. “To me, the television business is to make sure the over-the-air broadcaster maintains the mega-hits. If they're watered down, it will water [broadcasters] down,” he adds. “It is more important to support the stations than it is the other technologies.”

King maintains that, to build into a franchise, a show, such as his upcoming Rachael Ray, should appear in only one place. “In New York, [Ray] will be on [WABC] Channel 7 at 10:00 in the morning,” he says. “It's not going to be on Oxygen or any of these other cable networks or some of the other technologies.”

Countering that attitude is Twentieth TV President Bob Cook: “There is no set formula anymore.”

2. A New-Media War With Stations Looms

Syndicators are braced for a battle with stations over revenues from emerging platforms

Since syndicators started dipping their toes in the new-technology waters, their involvement has been limited primarily to free promotional platforms, such as cellphone podcasts for Paramount's Entertainment Tonight and NBC U's Access Hollywood.

But as they begin experimenting with revenue-generating models, some syndicators expect difficult negotiations with broadcast and cable outlets, which also are looking to boost profit margins and find new ways to grow. Those syndication customers think they ought to get a slice from any other use of syndicated product.

“It's all uncharted territory right now,” say Paramount Domestic Television President John Nogawski. “I don't think anybody's got the formula that is going to be adhered to. Everybody will be asking for everything. On the station and cable-network side, they would love to have a share. On our side, we would like to retain all those rights.”

Nogawski looks forward to the day when the studio “can, say, make $5 million from [a show's] license and barter fees and another $5 million from all the other media. But it's not about new revenue streams—yet. No one is making so much money off the iPod, Google or Yahoo!.”

Paramount obviously is in a hurry to further monetize its library. It has 55,000 hours of TV programming, and the studio has been reluctant to relinquish or share its VOD, DVD, Web or other new-media rights.

“I think [stations] will fight for what they'd like to have. It's all going to be a negotiation,” Nogawski says. “It's no different than when I want $1 million an episode and stations may only want to pay me $600,000.”

CBS, with its V Cast mobile-phone deal, is believed to get a one-time fee from Verizon, which in turn charges customers who download on their monthly phone bills. It's all part of an attempt to attract a younger, tech-savvy viewer to ET outside of its core women 25-54 audience.

NBC U, meanwhile, is looking to expand its mobile presence for Access Hollywood to multiple providers in the coming months. And Twentieth is examining text messaging and Web-site development for Geraldo at Large.

Syndication is simply following the lead of the networks, which only recently began their foray into the tech area.

“While everybody is looking at these new windows, the networks have been more aggressive,” says SPT's Weiser. “Their relationship with affiliates gives them greater flexibility [than syndicators] to experiment with iPod deals, mobile, the Web.”

NBC U's Huntsberry had to address affiliate concerns when leading iTunes deals. Should broadcasters and cable networks ever come knocking, he says, he'll argue that new windows will help them by expanding interest in shows, which in turn will lead to more episodes' being produced for the after-market.

Station managers say new-media ventures now factor into nearly all of their syndication negotiations, and executives are trying to anticipate new trends. “Two years ago, I don't think any of us thought of a video iPod when we were doing a syndication deal,” says Steve Schwaid, senior VP of news and programming for the NBC Universal Television Stations. Now he does.

NBC U's most recent syndication deals give the station group input into any new-technology play and, in some instances, call for revenue sharing or consideration in a license fee. So far, the stations have offered some special Martha clips on their Web sites that link back to the show's site.

But Nogawski knows that, in the future, stations buying syndicated programming from studios are going to want a more significant piece of the action. “The person who is acquiring the rental from us does not also acquire the other rights,” he says. “That's at least the initial stance. This is all so new.”

3. Stations Will Take Back The Morning– And Night

Burned by too many syndicated flameouts, stations will create homegrown shows

Tired of being scorched by one-season syndication flameouts like The Larry Elders Show and Living It Up With Ali & Jack in recent years, many TV stations are freeing themselves from the parade of syndicated failures by taking back control of their programming.

Nationwide, local talk and entertainment shows are popping up, such as the 10 a.m. shows on several NBC O&Os that resemble the third hour of Today. WBIR Knoxville, Tenn., runs its own Live With Regis and Kelly clone against The Oprah Winfrey Show and regularly comes within a few ratings points.

Other stations, including some CBS-owned stations, counter the lock Oprah has at 4 p.m. in many markets by adding a newscast in the slot, opting for news as the best lead-in to more-lucrative news at 5 p.m. All of that local fare is taking over time slots traditionally devoted to syndication.

Courting advertisers also plays a factor in these new shows. Some local businesses that couldn't afford spots in the prime 11 p.m. news could buy into a morning talk show. Even more enticing for some advertisers are new “advertainment” programs.

Several Gannett-owned affiliates have added shows that blend “lite” morning news with advertiser-sponsored segments. KUSA's successful Colorado & Company, for instance, often wins its time slot in female demos. For a Father's Day gift guide, for example, Home Depot might buy time to showcase its power tools, and Sears could pay to plug its grills.

These stations say they carefully identify the sponsorships and produce the shows separate from the news department. In Grand Rapids, Mich., Gannett's WZZM runs such a show: Take Five Grand Rapids.

“Most syndication fails, and we wanted to take control of our air time,” says General Manager Janet Mason.

Some critics lament that audiences may not see the difference between infotainment and news.

Buying a new syndicated show is often a leap of faith. Stations commit to a license fee and barter away some of their advertising time, but the failure rate for new strips is high. One large-market general manager calls the recent string of flops “the bum-of-the-month club.” Conversely, a local show is all about control. Station managers can keep a lid on costs and keep all the revenues from ad sales.

“Some stations are frustrated with buying product and coming in second,” says Tom Kane, president/CEO of the CBS station group, referring most pointedly to competing against Oprah. Several CBS O&Os have added 4 p.m. newscasts instead. “For a mature station, the cost of adding another newscast is not that high,” Kane adds.

Adding local shows is also a way of playing defense in a fast-changing industry. Broadcasters are seeing their share of audience decline. Younger viewers are being pulled away from live TV by technology that lets them watch at will—on iPods, TiVos, the Internet, cellphones. To stay relevant, station managers say they must deliver something viewers can't get elsewhere: hometown content.

“Whether it is expanding news or live sports, you've gotta go local,” says Vinnie Malcolm, general manager for Tribune-owned KTLA Los Angeles.

Whether a station opts for a straight newscast or a product-placement vehicle, the “make-our-own” local trend is getting attention at the highest levels. “It comes up in every discussion that I have with stations over time periods,” says Bruce Northcott, a partner in TV-station consulting firm Crawford, Johnson & Northcott. “There is an awful lot of appeal to anything local. Advertisers relish it.”

4. Syndicators Will Struggle To Get Ad Dollars

Amid new platforms, syndication has little Madison Avenue buzz

Syndicators boast that their top shows get better Nielsens than some of the hottest broadcast networks. But they're missing one “demo”: Madison Avenue.

Ad buyers often treat syndication as an afterthought. Advertisers covet top-tier shows like Seinfeld reruns or Wheel of Fortune, but syndication sales reps often find other product lost in an undistinguished sea competing against cable's middling and low-rated product.

Syndicators' problems connecting with advertisers can be seen in the recent cancellation of their Syndication Day held by the industry-backed Syndicated Network Television Association (SNTA). The organization launched the day-long series of pitch meetings capped by talent-filled cocktail parties in 2004, hoping to create a better upfront profile. But in October, SNTA's board scrapped the effort as too expensive and ineffective.

Syndication ad data is fuzzy. Universal McCann forecaster Bob Coen pegs it at $3.7 billion for 2005, up around 5% from the previous year. But that's based on data complied by CMR/TNS Media Intelligence, which counts The WB and UPN's prime time in their estimates. One major media-buying agency estimates that syndicators' sales during last year's upfront selling season dropped 9%.

According to SNTA President Mitch Burg, CMR/TNS estimates that syndication ad spending increased 13% during the third quarter but went flat after that.

Top-tier programs, particularly those scheduled in “prime access” slots, get top dollar. “The pricing for good first-run stuff is close to prime time shows,” says Tim Spengler, executive VP of national broadcast for Initiative Media. “The pricing swings between the first-tier product and the third tier are dramatic.”

Advertisers also like shows offering big reach that are causing buzz in the market. At broadcast networks, eight out of the top 10 shows debuted in 2000 or later, and basic cable networks often pump out shows with high buzz. But syndication has warhorses like Jeopardy! and Entertainment Tonight. “A lack of new exciting product makes it hard for any medium to get a lot of attention,” says one veteran buyer. Add that to the list of syndication's many upcoming challenges.