Fox's Crafty New-Media Deal

Rupert Murdoch’s Fox TV has cut an unprecedented deal to share revenues from the Web with its affiliate stations.

At a time when a string of new deals to offer current TV shows on the Web and for video-on-demand is further straining relationships between broadcast networks and their affiliates, Fox Television has signed a deal allowing its roughly 150 affiliates to share a slice of the new-media pie, BusinessWeek has learned. The deal could serve as a model for other television networks, such as ABC. The Walt Disney-owned network (DIS) said on Apr. 10 that it plans to offer free, next-day downloads of some of its popular programs on its Web site (see BW Online, 4/11/06, "Disney's Internet Adventure").

Such moves have sparked an outcry from affiliate stations of ABC and the other big networks who fear their revenues will suffer if viewers have the alternative of watching shows on other platforms, including iTunes and mobile phones. Affiliates help publicize the programs, they argue, and should thus share in any extra revenues the shows generate.


 The agreement by Fox, owned by News Corp. (NWS), would allow stations to get a portion of the extra revenues for up to a year after they air a program. The precise percentage could not be learned.

"This is a way to get the affiliates to stop whining. It's a negotiating chip," says Josh Bernoff, an analyst with Forrester Research. "A network that doesn't do this will just have to deal with it sooner or later in negotiating renewals of affiliate agreements." The Fox pact was hammered out over the past several months by Fox Television President Ed Wilson and Brian Brady, chairman of the Fox affiliates and president of Northwest Broadcasting Corp., which owns several stations in Washington State, Oregon, and New York.


  "This is a precedent-setting deal for the affiliates to be able to participate in the near term in revenues from reruns shown on platforms other than the stations," says Wade Hargrove, a media lawyer representing the affiliates. A Fox network spokesman declined to comment. News Corp., under Chairman Rupert Murdoch, has proven itself to be one of the most aggressive media companies on the Internet. In July, the company bought the fast-growing social networking site MySpace as part of a $580 million deal (see BW Online, 7/19/05, "News Corp.'s Place in MySpace"). More recently, Murdoch has been pushing to make DirecTV (DTV) a more significant provider of Internet services (see BW Online, 1/17/06, "Can Murdoch Win on the Web?").

In January, Fox announced that it would offer some of its network TV shows, including the Kiefer Sutherland hit 24 for up to a week after they aired nationally. The shows would be available for 99 cents to on-demand customers of DirecTV, the satellite service partly owned by News Corp.


  That arrangement infuriated Fox affiliates, say sources. Now Comcast (CMCSA), the nation's largest cable operator and a fierce competitor of DirecTV, is negotiating the same rights with Fox, BusinessWeek has learned. Affiliates would presumably share in any revenues from those deals under their new agreement.

Each week seems to bring another announcement that rankles TV affiliates across the country. (The networks have 1,700 local TV affiliates in the U.S. The four major networks own 128 of them directly).

It all started last November when Robert Iger, CEO of ABC parent Disney stunned the industry by saying ABC would offer hit shows like Desperate Housewives for sale on Apple's (AAPL) iTunes service a week or so after they aired on the network.


  NBC (GE) then made a similar deal, upsetting its own affiliates even more in February when it said it would launch its new legal drama Conviction on iTunes before it aired on broadcast TV. In March, CBS (CBS) offered NCAA tournament basketball games directly on the Internet, and has negotiated video-on-demand deals with Comcast to offer shows in markets where it owns the TV stations themselves.

For ABC, sharing revenue for reruns not shown on the network would not break new ground. In 1999, it reached an agreement with its affiliates to share revenues from soap operas shown again the same night on Disney's cable outlet SoapNet.