Disney to Launch Channel Airing ABC Soaps at Night

Signaling an escalation in the friction between TV networks with their affiliates, Walt Disney Co. said Thursday that it would launch a new channel that will allow cable and satellite subscribers to watch soap operas at night that air during the day on its ABC network.

The new service, to be launched in January, represents the first time that the same television programs will air on a network and a basic cable channel on the same day--and is the latest salvo in the war between networks and affiliates over how to realign their financial relationship to address the changing economics of broadcasting.

Networks are eager to repackage programming on their schedules for new cable channels as a way to cushion the blow of rising costs and declining ratings that have squeezed their profitability.

While only NBC is making significant money among the networks, most affiliates are handsomely profitable because they don’t pay for most of their programming, but rather receive fees from ABC, CBS and NBC to carry it to households across the country.

The networks are eager to reduce those payments--and to get their affiliates to help shoulder the ballooning costs for such programming as professional sports. While affiliates would like exclusive rights to air network programming for a given period, most networks are offering to cut affiliates in on the profits of new cable channels that use “repurposed” network fare.

The networks are in various stages of negotiations, with only CBS agreeing to give affiliates the exclusive rights to air network programming in exchange for financial help for football.

Though Fox also collected money from its affiliates for football last year, it threw that agreement into question this week after informing affiliates that it would reclaim 22% of their local advertising inventory if they didn’t agree to purchase that block of time at a specified price from the network. Shares of Sinclair Broadcasting Group Inc., Fox’s largest affiliate, fell 23% on Thursday, because of the plan, which the company said would reduce its revenue by as much as $10 million this year.

NBC has also inflamed relations with affiliates recently with an unprecedented agreement for the renewal of “Law & Order” that gave the network the hit show for a lower price in exchange for airing episodes of a new program from its producer, USA Networks, that would run the next week on USA’s cable channel.

NBC affiliates worry that such agreements invite further erosion of broadcast ratings as viewers watch cable rather than the original broadcast.

Likewise, ABC affiliates are concerned that the new soap channel could cut into their viewership during the day and drive audiences to cable at night, hurting their prime-time ratings as well.

But Patricia Fili-Krushel, the president of ABC Television Network, said market tests of the soap opera channel on cable systems in Chicago and Houston last year indicated the channel brought back those who couldn’t watch during the day and encouraged current viewers to watch additional episodes. “Overall viewership of soaps went up,” she said, adding that the daytime soap opera block accounts for only 3% to 5% of affiliate revenue.

ABC and its affiliates have been in negotiations for more than a year about how to overhaul their relationship, but the talks reached an impasse last week. ABC was offering to give affiliates a stake in the soap channel but announced the launch Thursday without any such agreement. ABC was also eager to get the affiliates to chip in for “Monday Night Football” before the prime-time advertising season kicks off at the end of May.

“We still hope to reach a deal with the affiliates,” said Fili-Krushel, adding that the timing of the new channel announcement was not an effort to leverage affiliates into an agreement. “We need to stay on our original timeline.”

Anne Sweeney, president of Disney/ABC Cable Networks, said soaps represent one of the few programming categories that the company can take to cable because of the unique ownership of its four soap operas, which are “All My Children,” “General Hospital,” “One Life to Live” and “Port Charles.” The other networks do not produce all their own soap operas. Fox and NBC have created news channels to squeeze more value from their existing overhead, but none of the programs is the same.

Cable operators were skeptical about the appeal of a channel that duplicated what viewers could already see.