News Corp.'s Fox Network Says It May Drop Stations in Dispute Over Fees

News Corp.’s Fox network said it may drop some affiliates if the local TV stations are unwilling to pay a program fee sought by the broadcaster.

Without an agreement on a new fee schedule, Fox “will have to pursue different distribution channels to receive fair value for our programming and continue to serve our viewers,” Michael C. Hopkins, president of affiliate sales and marketing, said in a Feb. 4 letter to station owners.

Fox said it would seek direct talks with station owners after nine months of discussions with the affiliates’ board “made no progress.” Fox is demanding a share of so-called retransmission fees that stations are starting to receive from cable and satellite-TV systems for access to local signals.

“I don’t think they’re bluffing,” said Laura Martin, an analyst with Needham & Co. in Pasadena, California. “They were tough when they negotiated with Time Warner and other cable operators.”

Fox network shows American Idol,” “Glee,” and NFL and Major League Baseball games are part of the programming that local affiliates air, Martin said. “They think their content is worth more than they are being paid for it.”

News Corp. climbed 32 cents to $16.91 yesterday in Nasdaq Stock Market trading. The shares have risen 16 percent this year.

“Fox’s negotiations with our affiliates are a private business matter and as such those discussions are private,” the network said yesterday in a statement provided by its spokesman, Scott Grogin.

Broadcast Profit

Fox is seeking to generate as much as $1 billion in annual operating earnings at its U.S. broadcast business within the next couple of years, News Corp. Chief Operating Officer Chase Carey said on a Feb. 2 conference call. He said the amounts being sought are in the hundreds of millions of dollars.

“This is a big number,” Carey said. “It changes the nature of this business, and in many ways I think the broadcast network should look like a cable network and should have two meaningful streams of revenue -- subscription and advertising.”

The affiliates’ negotiating committee said in a Jan. 28 letter to members that Fox “summarily rejected” several proposals to share revenue over the next 10 years. Fox’s offer is “substantially worse” than what NBC, CBS and ABC, are proposing, they said.

“We are now deeply concerned Fox may have no intention of negotiating such an equitable deal,” Brian Brady, president and chief executive officer of Northwest Broadcasting in Okemos, Michigan and chairman of the Fox affiliate board, said in the letter.

Fox is attempting a “strategy to divide and conquer,” Brady said. He said the network has already identified affiliates “to use as an example” and by taking away one station’s affiliation it can force the others to “fall into line.”

Brady “unfairly characterizes” Fox’s negotiating stance, network executive Hopkins said in his letter.

To contact the reporter on this story: Ronald Grover in Los Angeles at Rgrover5@bloomberg.net;

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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