Viewers will pay if Fox TV gets affiliates to give up more revenue

The squabbling between television networks and cable companies over broadcast fees had a brief heyday as a source of suspenseful entertainment for the viewing public. Will ABC cut off the Oscars for Cablevision subscribers as the first spiked heel hits the red carpet? Will Fox black out the Super Bowl for Time Warner customers? Tune in and find out!

The warring parties typically pull back from the brink before pulling the plug — but not always. And for most pay-TV customers, the thrill of being pigeons caught in a video industry crossfire disappeared faster than Charlie Sheen’s reputation for self-denial.

But now the networks are sticking their hands deeper into another pocket — that of their own broadcast affiliates.

What’s at issue are the “retransmission fees” that cable and satellite companies pay local broadcasters for the right to carry the latters’ signals on their systems. The fees generally come to 10 to 20 cents per pay-TV subscriber per month, industry executives say.

In other words, if you’re a local TV station and your local cable company has 1 million subscribers, it will pay you $100,000 to $200,000 a month to feed your broadcast to its customers.

All four major networks have been hungering for a piece of the local affiliates’ action, arguing that much of what the affiliates are feeding the pay-TV systems is network content.

But local stations say Fox has taken a far more aggressive stance toward its 186 independently owned affiliates than the other networks have.

CBS, for instance, has reportedly asked for half the local affiliates’ take from cable and satellite. Fox wants a flat rate — starting at 25 cents per subscriber per month in the first year of a four-year deal it is pressing its affiliates to accept, and rising to 50 cents in the fourth. That’s for stations in the top 125 TV markets; the rate is less for smaller operations.

That makes a direct comparison difficult, but affiliate owners say that demand is so stiff that the toll could amount to more than some stations actually collect from pay TV. And Fox is threatening to drop affiliates that don’t pay up.

To put it more precisely, Fox told the affiliates it would “pursue different distribution channels to receive fair value for our programming” in cases where it doesn’t get what it asks.

“We don’t want that to sound like a threat, but it’s a fact,” Fox’s affiliate boss, Michael C. Hopkins, told them in a Feb. 4 letter. (Actually, it sounds like a threat, not a fact.)

What’s more, the network has the upper hand — local stations need Fox’s top-rated programs, such as “Glee” and “American Idol,” more than the network needs any individual station or group.

The conflict between Fox and the stations involves broadcast content, not cable channels like Fox News, which are subject to separate network deals with cable and satellite providers. Nor does it involve Fox’s wholly owned affiliates, including KTTV-TV Channel 11 in Los Angeles. (Fox also owns KCOP-TV Channel 13, but it carries non-network programming and is not involved in the dispute.)

But the stakes are still high for you, the television viewer.

The fight could mean more local blackouts if Fox decides to play hardball with its own affiliates. It could mean less public-interest programming on your local station, if it compensates for its higher network fees by cheaping out on news. It could mean higher cable and satellite bills, because the local affiliates will have to negotiate more aggressively with pay-TV providers to try to recoup their higher expenses. Who pays if your local station charges your cable provider more for its signal? You do.

It’s certainly a reminder of how dumb it was for the Federal Communications Commission to wave through NBC’s merger with the cable company Comcast in January. Fox has almost all the leverage in its dealings with its affiliates, even without owning a cable operation. The merged Comcast-NBC will be even more powerful than that.

“Their current ask is not anything I’ve found that an affiliate would consider acceptable,” Perry Sook, chief executive of Irving, Texas-based Nexstar Broadcasting, says of the Fox proposal.

Sook, whose company counts eight Fox affiliates among the 34 stations it owns, told me he’s especially irked that the network is trying to grab revenues that the affiliates obtained through their own hard negotiations.

Hopkins’ letter was designed to answer an earlier letter to the affiliates from Brian Brady, CEO of Michigan-based Northwest Broadcasting and the head of the Fox Affiliate Board. His Jan. 28 letter accused Fox of playing “divide and conquer” — refusing to sit down with the board but trying to negotiate with each affiliate company. This strategy bore fruit in January, when Fox cut a special deal with Maryland-based Sinclair Broadcast Group, which with 20 Fox stations is its largest affiliate group.

“Fox believes that no station or group alone can withstand their assault,” Brady wrote.

Hopkins, in response, called Brady’s letter “offensive” and dismissed his crack about divide-and-conquer as “unfortunate rhetoric.” He said he was concerned about “the effectiveness of negotiating with a large body instead of each station or station group individually.” That sounds a bit like a factory boss saying it would be “more effective” for him to negotiate individually with 1,500 employees than with a single union committee. In a way, of course, he’s right. But it’s not very likely that the individuals will come out ahead.

Fox and the other network owners — CBS, Walt Disney Co. and NBC Universal — already get retransmission and other payments from cable and satellite firms. These fees cover the signals from both the networks’ wholly owned local stations and their specialty cable channels, such as Disney’s ESPN, NBC’s CNBC and Fox’s FX and Fox News. They come to about $30 billion a year, according to authoritative estimates. By contrast, the local broadcasters collect about $1 billion a year.

Sook says Fox and its affiliates should be cooperating in trying to pump up that $1-billion pie. Fox is playing “a silly zero-sum game of ‘you have it, we want it,’ ” he says. “The discussion should really be about how to make it a $7-to-$8-billion pie.”

Fox says it won’t talk about what it calls “confidential” discussions with affiliates. But its executives — like those of the other networks — are determined to remake their business into one that more closely resembles the cable industry — that is, collecting two revenue streams, advertising and subscriber fees. They talk about traditional network economics, based mostly on advertising, as “unsustainable” — though you can’t tell that from Fox’s financial results.

Its parent, News Corp., reported an operating profit from television of $220 million last year on revenue of $4.2 billion, but it doesn’t distinguish between results from its network and its 17 company-owned affiliates, which are in major cities (including Los Angeles). Its cable channels are reported separately, and are much more profitable. In any case, News Corp. has enough spare cash to be paying $675 million to buy Shine Group, a TV production company owned by News Corp. Chairman Rupert Murdoch’s daughter Elisabeth.

That suggests that Murdoch is the kind of dad who loves to embrace his family in a bear hug. Fox’s TV affiliates must belong to a different branch of the family; he’s inviting them to a knife fight.

Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at mhiltzik@latimes.com, read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.