The TV networks versus their affiliates
We've reported on the Federal Communication Commission (FCC)'s attempt to ease ownership restriction on television stations. Since that policy was announced, there has been a bipartisan movement in Congress to roll that ruling back, in opposition to administration policy.
A Wall Street Journal article ("Behind Media-Ownership Fight", 10/15/03) sheds some light on the struggle. Much of it comes down to a fight between local affiliate television stations and the big networks. The big networks want to integrate vertically, in order to reap the profits of the middlemen. It's a case of one business interest against another, rather than the ostensible aim of protecting the consumer.
According to the article, it all breaks down to one big factor, "the rising antagonism between broadcast networks and their local affiliate stations, whose partnership forms the backbone of the TV industry."
Most of the nation's television stations are owned by independent companies that contract with the national networks, much as car dealerships are linked to auto makers. The local stations, or affiliates, usually take their network partner's prime-time lineup, morning and late-night show, soap operas and weekend sports events. The affiliates assemble the rest of the schedule themselves, either buying reruns and talk shows or making their own programs, most importantly the local news. Networks need affiliates to reach the biggest possible audience and command higher rates from advertisers. Affiliates need strong network programming to help their own local ratings,
At one time, the networks courted, and even paid the affiliates. But now the operation of individual stations is far more profitable than running the network. The networks want to grab as many local stations as they can. And they want to make sure that those stations, like the ones they already own, broadcast network offerings faithfully and pretty much exclusively.
Today affiliates say they're getting squeezed as the networks acquire more stations of their own. They complain the networks increasingly interfere with the way they want to run their local stations, clamping down, for example, on longstanding "pre-empting" rules that allow affiliates to tinker with network programming lineups to cater to local audience tastes.
It's not just pride and independence at stake. Affiliates get to sell only a couple of minutes' worth of ads on network shows, and they have to give up more and more of their own airtime to promote network lineups.
Networks claim they have to buy up stations to defend themselves against the onslaught of cable. Of course, they omit the fact that they already own most of the cable channels. The new FCC rules would let any company to own stations reaching up to 43% of the population.
The balance of power began to shift in the early 1990s after networks were allowed to acquire more local stations. For example, Viacom, through its ownership of CBS and UPN stations, now owns 39 stations reaching 39% of the nation's audience, compared with 10 years ago when it owned six stations reaching just 19%.
The local affiliates are using their influence on local legislators to try to defeat the FCC ruling. Like some other industries, networks want to disintermediate, in order to profit and control. The local affiliates have too much independence, and they can stand up against the network oligopolies all too well.
The networks are trying to vertically integrate in the other direction. More and more of the programs they run are produced by the network, not by independent studios. As we've mentioned elsewhere, NBC's purchase of Universal from Vivendi was, in part, to give NBC much desired production capacity.
In a desperate attempt to soften the disruption of their oligopoly, the networks are eager to expand their roles vertically (by acquiring local channels and studio capacity) as well as horizontally (by acquiring and developing new cable channels).
