NBC Will Cut Payout to Local Stations by 10%

NBC, which experienced a precipitous drop in its ratings and revenue this past season, has notified its local affiliate stations that it will cut by 10% the amount of money it pays them to carry network programming.

The news comes at a time many NBC affiliates are unhappy about the performance of the “Today” show, which has slipped from first to second place and is an important moneymaker for local stations. It is also in a year when the network has begun taking 11 30-second prime-time spots away from its affiliates each week to help defray a projected shortfall in ad revenue.

In letters to its 209 affiliates, NBC said most stations would see a cut in the payments under an 18-month-old formula that calls for a rollback when NBC’s ratings fall below a certain level.

Bill Fauch, vice president of affiliate marketing for NBC, said in the letter that the adjustments would be more or less than 10% at some stations, depending on such factors as local ratings performance and market size.

NBC’s affiliate compensation totals $146 million, an amount that has essentially been frozen since the network adopted the policy in January, 1989. The payments have been considered compensation for commercial time the network takes away from local stations to sell to national advertisers.

Compensation--called simply “comp” in the trade--is a key component of the local TV station’s revenue mix and helps determine how much will be spent on programming and news. Because there are no accompanying costs, the payments flow directly to the station’s bottom line.

But in the mid-1980s, under pressure from new owners, all three networks began to review their longstanding compensation policies as a way of trimming corporate overhead.

Stations protested loudly against the measures and compromises were worked out. In NBC’s case, the network pegged compensation payments to the local performance of the network programs.

“It’s important bucks to all stations, but especially vital to smaller stations,” said Eric Bremmer, president of King Broadcasting Co., which owns NBC affiliates KGW-TV, in Portland, Ore., and KING-TV in Seattle.

ABC and CBS also pay affiliate compensation. ABC is again making money, and many local stations are hoping for a bump up in compensation payments as a reward. Third-place CBS, on the other hand, does not want to cut compensation out of fear of further angering affiliates and causing them to leave the fold.