Nbc And Cbs Throw Down Gauntlet To Affiliates

Television Digest with Consumer Electronics, March 29, 1999

NBC CEO Robert Wright and CBS TV CEO Leslie Moonves made it clear in N.Y.C. March 24 that, if affiliates don't cooperate in changing TV's "business model," their networks won't hesitate to move their programming from over-air TV stations to cable. "We have to change the business model," Wright said on panel at Variety/Schroeders "Big Picture" media conference.

New affiliation contracts have "got to be drafted in a sensible fashion," he said. "In situations where that isn't possible, we are not going across the street to another broadcast outlet. We are going to be looking to take our programming into cable." Moonves said "I agree totally with Bob." He said he was envious of fellow panelist Jamie Kellner, WB CEO, who has "reverse compensation" arrangement whereby affiliates pay WB for programming. Word "compensation" wasn't mentioned by Wright or Moonves, but it was clear that that and program repurposing were what they were talking about. Big 3 networks have been unsuccessful in previous attempts to cut compensation, and in fact increased payments to stations -- particularly large groups -- and signed 10-year contracts several years ago during height of affiliate raids by Fox. Wright said it would be "too disruptive" simply to change affiliations in same market and NBC "might as well go to a better business model." Moving its programming to cable wouldn't be NBC's objective, he said, but "clearly [it's] the best alternative we have if we can't negotiate" with stations. Wright said affiliate "business plan" must be put on more "economic basis" in network's behalf, while at same time providing "direct value" for stations. Moonves said that as negotiations for new contracts with stations begin, "we're not going to stand for the affiliates to continue to make the money they're making" while CBS TV Network is losing money: "The model as the game was played before doesn't work anymore." Stations, he said, now have many new opportunities to make money and networks no longer are their major profit source. In bringing up network-affiliate relationship, moderator and former NBC executive Herbert Schlosser referred to comments last fall by Disney Chmn. Michael Eisner (TVD Oct 5 p1) that ABC affiliates can refuse to help pay for NFL rights but if they do, "I have a long memory." ABC, owned by Disney, and Fox weren't represented on panel. On CBS's winning NFL rights from NBC in Jan. 1998, after NBC dropped out because of high price, Moonves said it was "a very good investment... It was something we absolutely had to do" after losing rights to Fox 4 years earlier because "it put us back on the map." Disputing Wright's contention that CBS would lose money throughout life of 8-year contract (which can be renegotiated after 5 years), Moonves said CBS made money with NFL in 1998. Wright said "only reason" NBC didn't stay in bidding was because "I couldn't take a $150-million yearly loss." Appearing in afternoon, CBS CEO Mel Karmazin shot back: "Bob Wright ought to be dealing with the problems in his sales department" if he expected to lose $150 million on football while CBS made money in first year of contract. Philip Guarascio, GM vp-ad and corporate marketing, disputed statement by Schlosser that advertisers would "have to pay the freight" for football. Guarascio said that there are "lots of upsides" for advertisers in using TV and that GM spends $1 billion in TV spots annually. Carmaker's current effort is directed toward Internet, he said, with 30% of car buyers going there first: "We're in the program promotion business in trying to draw people to our Web site." Asked why start Oxygen cable network for women and "why now," founder-CEO Geraldine Laybourne said TV industry today is "based on old ideas" about women and there's "a need for a new voice." To accomplish that, she said, new medium to serve women needs to "start from scratch." Cablevision Systems CEO James Dolan said Oxygen could get distribution on cable systems by developing same kinds of values as over-air TV. Dolan was asked why Cablevision has gotten into so many businesses, such as Madison Sq. Garden, ownership of professional sports teams and even retail chain The Wiz. Wiz was purchased, he said, because of coming DTV era, plus other services such as video-on-demand. FCC Chmn. Kennard told conference that agency's job in development of digital and HDTV is to make sure technology doesn't "get mired in petty squabbles and that it becomes more than pretty pictures. That it inspires and uplifts. That it acts as a window on our world and a catalyst for change." Agency's role, he said, "is to bring the parties to the table and facilitate solutions. At this point, we'd rather facilitate than regulate... There is no single transformation that is having a more profound impact on communications today than the transition from analog to digital." But, Kennard warned, if DTV gets "stuck at the starting gate... what I won't tolerate are strategic delaying tactics -- companies refusing to come to the bargaining table or squabbling for short-term advantages." If consumers lose out by such tactics, he said, "and we see gridlock and delay... the FCC will have to act. And believe me, you do not want this." Commission will be "diligent" in monitoring industry negotiations, Kennard said. On earlier panel, Kellner said industry is being "squashed on all sides" by developing technology and "we're just scratching the surface." Guarascio said DTV will provide substantial new revenue opportunities for media: "You guys have a lot of work to do with the consumer... You guys are going to have to get your act together." He said there's "management gap of mainline media executives who don't have the expertise to make correct decisions. My concern is that all we're doing is raising the cost of doing business." Karmazin said that "there are business models sitting in my office" for HDTV and digital era. But, he said, it's "too early to make a decision on such things as multiplexing... I'm sure half of what we [now] believe will turn out to be wrong." All but first few minutes of Karmazin's presentation consisted of Q&A, and he replied no comment when asked about CBS negotiations to acquire King World Productions (TVD March 22 p2). He said CBS ownership of programmer would be advantage but "do I believe we need a studio to compete? Absolutely not." On govt. regulation, he said "we have to do a better job" in convincing FCC to repeal outdated regulations such as 35% ownership cap and prohibition against owning 2 networks. But, he conceded, "we have an industry that's not united," pointing out that most major group owners oppose TV networks on both issues. Karmazin said Internet will "enhance our current business and we are totally committed to becoming a major Internet player." CBS, he said, already has in place programming and marketing needed -- with 3,500 CBS sales people making 15,000 calls on advertisers daily -- and that CBS is seeking Internet entrepreneurs as partners. Microsoft Chmn.-CEO Bill Gates, questioned by TV personality David Frost, said it would be "very inexpensive" for TV stations "to take advantage of the opportunities out there" on Internet. Benefits to consumers, Gates said, "unquestionably are going to be dramatic." Of antitrust trial in govt. suit against Microsoft, he said "we had a great desire to settle" with Justice Dept. before lawsuit was filed and recently spent 10 days in so-far- unsuccessful negotiations, which continued last week. Time Warner Chmn.-CEO Gerald Levin asked, and answered his own question: "Is network television good? Absolutely not... It's very different [today] from the old-style network television." As for scarcity rationale, he said "looking at it from a business perspective, there are a million channels out there... I agree, take all the rules off." Govt. focus, he said, should be on cooperation by industries and making sure that standards are uniform. DVD on Web is coming, Levin said, along with digital set-top box providing platform for "whole host of things." Entertainment business is good and prime reason is new technology that "clearly makes content and entertainment a remarkable business." He predicted DVD would become "fastest growing consumer electronic product in history" and would enhance and encompass every form of entertainment.