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A Look to the Past: The Evolving Relationship of TV Networks and Station Groups

August 7th, 2018   ||    by John R. Osborn   ||    No Comments

Will the relationship between TV networks and station groups remain important as broadcast/cable TV and streaming video converge into T/V (television/video)? A look at the past can help to determine the answer.

The business model for station groups was one of the great innovations of twentieth century media. It all began with radio in the 1920s, and was reinvented for television at mid-century. It ensured that local audiences would receive strong broadcast signals with locally relevant programming, while cleverly and efficiently spreading out the cost of large national program productions.

In the 1980s, the broadcast distribution system was dramatically changed with the arrival, at scale, of cable TV. In exchange for huge local infrastructure investment, cable system operators received exclusive geographic rights. By 2004, according to a study cited in Broadcasting & Cable, 81 percent of TV programming was delivered through pay cable or satellite systems, which in turn paid retransmission fees to local stations.

With increased revenues for local TV stations and station groups, the affiliate business model with parent networks changed. Instead of the original model where networks paid station groups for carriage of programming, reverse retransmission fees were established: local stations shared the revenue with the parent program producers.

When broadband reached a level of critical mass around 2005, viewers could stream video over the internet. With this change, a slew of tech-savvy distributors arrived on the scene with a host of new descriptors like linear over-the-top (OTT) channels, full-episode players, and other streaming video-on-demand providers.

The arrival of Hulu in 2008 really changed the game for the affiliate model. The platform was founded by three of the four major broadcast networks: ABC, Fox, and NBC. These parent networks could offer programming nationally—initially on-demand and later with live streaming, essentially bypassing local broadcast stations. CBS, the fourth major network, carried its programs through its on-demand platform, now known as CBS All-Access.

This led to another rewriting of affiliate agreements where, according to Variety, NBC, ABC and CBS, all agreed to share streaming revenue with station groups. Broadcasting & Cable reported that Fox, instead of negotiating with its affiliate board, is leveraging for more favorable deals with each station group, using tactics like signing a streaming agreement with Hulu in which stations may or may not opt in.

Change will continue to happen—eMarketer predicts that the number of U.S. TV viewers will decrease by .2 percent this year, while the number of OTT viewers will increase by 2.7 percent. Ad spending will correspondingly decrease or increase in those areas.

Technology disrupts. This was true in 1920 when radio changed the print advertising model, and it’s even truer now. Those companies that can quickly understand and manage change to new marketplace processes, tools, and skills have succeeded and will continue to succeed. CBS and NBC sprung from radio and survived cable by lithely adapting to TV’s distribution technology disruptions. How? By building on the consumer and business relationships they had established over time.

Local broadcast stations have been instrumental in TV’s success over 70 years, and have similar relationships, particularly with traditional TV networks and local viewers. So as technology drives more change in media, the answer to the opening question is—yes. The relationship between TV networks and station groups is important for future success, no matter how it may shift over time.

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