Nexstar Learns That Loyalty Is All About The Benjamins

“Loyalty that is bought with money may be overcome by money.” - Seneca

A brief bit of history: Lucius Annaeus Seneca was a Roman Stoic philosopher who became a key advisor to the Emperor Nero during the Roman Empire’s “go-go” years around 50 AD. He delivered the famous quote above with irony, because even though he was a Stoic who was supposed to be detached from the trappings of wealth, he was one of the richest men in ancient Rome.

We think today that in our more modern current times, Perry Sook, Chairman and CEO of Nexstar Media, could have used an advisor like Seneca to remind him of the key weakness of loyalty that is purchased. That being in simpler terms, somebody can always come along and pay more for it.

Because that sure seems like what went down this past week when it was announced that Nexstar had renewed its affiliation agreement with CBS for its local stations that carry the Paramount-owned broadcast network. That would be for most of those stations, at least.

Because as FTVLive.com began reporting earlier this week that the famous CBS “Eye” logo was being quietly scrubbed off of Nexstar’s KRQE in Albuquerque, our friends over at TheDesk.Net broke the larger story yesterday that as of this August 1st, the CBS trademark will be coming off of no less than six different Nexstar-owned stations in the following markets:

WSPA-TV 7 in Greenville/Spartanburg, SC (Market #36)

WIAT 42 in Birmingham, AL (Market #45)

KRQE 13 in Albuquerque-Santa Fe, NM (Market #48)

WJTV 12 in Jackson, MS (Market #99)

KXMA 2 in Minot, ND and KXMB 12 in Bismarck, ND (plus satellite stations KXMA & KXMC, all located in Market #147)

Where is CBS headed in these five markets? More on that in a moment.

First, let’s consider the impact of this announcement. The largest owner of local television stations in the nation just lost six of its affiliations with one of the biggest broadcast television networks. How could this happen? Well, as that rich Roman Seneca would have said, had he ever heard the music stylings of Puff Daddy:

“It’s all about the benjamins.”

Rumblings in the industry suggest that Nexstar’s Sook has told the networks his group has been negotiating with that Nexstar will hold the line on “reverse compensation.” That’s the money that local stations pay to the network for the privilege of carrying that network’s programming. It is called “reverse compensation” because for the first four decades of the network-affiliate business model, the networks paid the affiliates to carry their programming and the national advertising contained within those programs.

But when local stations began collecting income from cable and satellite television providers for carrying their signals (alongside other cable networks to which they paid a “per subscriber” rate to carry), the networks wanted a piece of that action and “reversed” the affiliation model. As you might imagine, the amounts involved have increased over the years, and each time an affiliated station renews its agreement with the network, negotiations become increasingly difficult.

For Sook and Nexstar, the whole network relationship issue has become more complicated because of Nexstar’s acquisition of rival group owner TEGNA and its local stations. Industry sources suggest that TEGNA had network agreements that were sending more money back to the networks than Nexstar has been doing. Thus Nexstar has been letting the networks know that it will seek to have all renewal agreements set at the current, lower amounts of “reverse compensation” that Nexstar enjoys.

That might have been fine before the situation in Miami unfolded last year.

When longtime ABC affiliate WPLG-TV, the sole television station owned by Berkshire-Hathaway, tried to play hardball with that network during its affiliation renewal, ABC basically said: “Fine, we’ll take our network programming somewhere else.” Now, this threat didn’t mean much at the time because there were only a few full-power television channels available in each local market across the country. For networks to have coverage across an entire market, they had to be on one of these channels. While there have been a few moves over the years (Indianapolis comes to mind, when CBS left its home of 58 years on WISH-TV 8 in 2015 to move to crosstown rival WTTV 4), most networks have stayed put because there just weren’t any real alternatives to move to.

But the situation in Miami changed all that. ABC moved from its home on WPLG’s Channel 10 to a new location, the digital 7.2 “subchannel” of Miami’s WSVN, the Sunbeam Television-owned station that carries the FOX network on its 7.1 signal. The surprise move put two networks on a single full-power digital television station and left WPLG to forge a future as what Greek lifers in College would know as a “GDI.” (The last initial standing for “independent”; the first two can represent varying emphatic adjectives.)

Apparently, while Nexstar was negotiating “down to the wire” on its CBS affiliation agreement, the good folks at Hearst Television let it be known that they would be just fine with following the Miami example and taking on the CBS network on the so-called “dot-two” digital subchannels of their stations—and just like that, CBS will be moving to those new homes in the following four markets:

WYFF 4.2 in Greenville/Spartanburg, SC (Market #36)

WVTM 13.2 in Birmingham, AL (Market #45)

KOAT 7.2 in Albuquerque-Santa Fe, NM (Market #48)

WAPT 16.2 in Jackson, MS (Market #99)

In North Dakota, CBS will move to the digital subchannels of two stations owned by Fargo-based Forum Communications, along with another station in that smaller group based in Rapid City, South Dakota, which will also pick up CBS on its digital subchannel.

This wasn’t a single market seeing a network affiliation move. Still, one group owner in Hearst made a major play for a group of markets where it will now program two of the “big four” broadcast networks over a single station. Before this, large-group owners had acquired second stations (either outright or through what were known as “sidecar” companies) to operate two major networks.

To simplify this idea: instead of two houses on two parcels, you build one multi-family unit on a single piece of land—one kitchen serving both families instead of two. You can charge each family less rent and still come out ahead, because your costs dropped more than your revenue did.

Given the current ever-declining economics of the local television station business, this “higher density usage” of the over-the-air “real estate” makes a lot of business sense, and there may well be more of it to come.

In fact, late last night, TheDesk.net reported that the ABC affiliation in St. Louis may be heading from its present home on Sinclair-owned KDNL 30 to the 4.2 digital subchannel of KMOV, owned by Gray Television.

All of this will mean that viewers may have to do a little more work to find their favorite network programs at their new home addresses. And that the previous addresses will have to find new tenants, or rather, networks to occupy them. In Nexstar’s case, it will move the FOX network in Albuquerque from co-owned KASA 2 to KRQE to replace the CBS fare. In the other markets, it will elevate the CW—which Nexstar itself holds a controlling stake in—to replace CBS. Worth noting: these stations aren’t changing hands. Nexstar keeps the real estate; it’s just swapping out “the tenant”. It says it will use the opportunity to add more hours of local news programming to those stations’ schedules, which these days is seemingly the default option for filling whatever holes exist in a local station’s broadcast day.

The problem with that plan is that very few resources are typically added to the news department at said local stations to produce all the additional hours of news content. In turn, the overall quality tends to suffer, and there is a lot of repetition in hour after hour of more local news.

But that’s a topic for another column, on another day.

Today, the Roman Seneca might put it this way:

Loyalty is worth exactly what you are willing to pay for it.

Never has that been more true in the broadcast television business than right now.

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