CBS to Review Its Ties to 214 Local Affiliates

CBS says it is undertaking a “comprehensive review” of its relationship with affiliates --a study that some believe will lead to a radical restructuring of the network’s ties with 214 local TV stations.

The plan was disclosed during a meeting between CBS executives and leading affiliates in Washington last week. It is likely to set the stage for similar actions at ABC and NBC.

Affiliate station managers said they left the meeting with the impression that CBS planned within two years to eliminate the $122.4 million in compensation it pays stations to carry network programming.

Such a move would have a significant impact on the profits of many local TV stations; in medium-to-small markets, network compensation can account for 10% or more of a station’s revenue.

“We are going to reduce compensation in coming years, but how fast or in what manner is still not known,” said a senior CBS official who asked not to be identified. Last year, CBS cut $30 million out of its compensation budget.

CBS officials also privately told the affiliates that the network would be “lucky” to lose $50 million this year, despite recent improvements in prime-time ratings. Several analysts, in fact, expect the CBS network to lose upwards of $100 million this year because of costly sports contracts and a weak advertsing market.

Because of the recession, which has severly restricted spending on ads, the ABC and NBC television networks are also expected to lose money this year

The network informed the affiliates that it could no longer afford to pay them for carrying such sports programs as PGA golf tournaments and U.S. Open tennis after January, 1992.

Previously, the network had stopped compensation payments for major sports events, including the Super Bowl and Olympics. CBS said that the remaining sports compensation payments that will now be cut total $6 million--4% of the total annual pool.

“CBS has to do this while it has ratings momentum,” said Jessica Reif, an analyst with Oppenheimer & Co. in New York. However, she called the action a “two-edged sword,” since affiliates are more likely to drop network shows when they don’t have an incentive to carry them.

All three networks are struggling with ways to cut their huge cost structures in the face of declining audiences and more competition for advertising from cable and other sources.