Fox Family Fee Hike Wont Be Slam Dunk

9/10/2000 8:00 PM Eastern

Fox Family Channel, which is seeking a license-fee increase, faces strong resistance from cable operators, which are concerned about the service's diminished ratings and its programming direction, several industry sources said.

The network-which relaunched with a new programming format two years ago-is working on contract renewals for as many as one-half of its major MSO deals, which expire this year, one source said.

Fox Family officials are telling operators the network deserves a price hike for several reasons. The service-owned by a partnership of Saban Entertainment and News Corp.-made the case that it is investing heavily in programming, original and acquired, to the tune of $400 million. That outlay helps warrant a license-fee increase, Fox Family told operators.

Second, Fox Family-which doesn't have retransmission consent as a bargaining chip-argues that it is severely underpriced for a general-entertainment network. Its monthly per-subscriber license fee is in the range of 15 cents to 17 cents, depending on the operator.

One industry source said Fox Family is looking to increase that to 20 cents. Another source said his rate would jump by 2 cents, from 17 cents to 19 cents, in the first year of the new contract. In the case of that operator, the increase would be roughly 12 percent, while one executive put the proposed license-fee hike at a relatively modest 8 percent for next year.

"It's not a huge amount of money in cents or in percentages, really, but they're having a hard time because there's a lot of concern about the direction of the channel," another industry source said. "Has it really created any kind of momentum or identity for itself? What niche is it filling? Fox Family is a bit down now in terms of perceived value."

Fox Family's battle for license-fee increases will probably stand in stark contrast to NBC Cable's recently completed, successful bid to extract sizable, double-digit increases for both CNBC and MSNBC.

NBC Cable secured those price hikes because they were part of a complex package that included five Olympic Games, until the year 2008, as well as retransmission consent for NBC owned-and-operated TV stations.

As part of the NBC deal, MSOs- despite their cries about being under government and competitive pressure to keep programming costs down-agreed to ante up a $1-plus-per-subscriber yearly surcharge for the Olympic coverage on CNBC and MSNBC.

Last week, Fox Family executive vice president Maureen Smith said her network doesn't comment on license fees or deals with MSOs. But she added that in meetings with operators, Fox Family cites increased spending on both marketing and programming. The programmer recently pulled the plug on two digital networks to focus on its core analog channel.

Smith also said Fox Family is trying to work more closely with operators, providing more lead time for local market promotions and local ad-sales initiatives.

"We think we are an amazing value to cable operators," she said. "We're putting our money into the channel. And our investment in programming has grown dramatically."

Smith said recent off-network acquisitions, such as Providence and Early Edition, are performing well in terms of ratings. Fox Family had scrapped its older-skewing lineup to target kids during the day and adults and families at night. But it has had trouble drawing the new, younger audience it wants.

In August, for total-day, Fox Family's ratings were up 33 percent, to a 0.4 from a 0.3 a year ago, according to Nielsen Media Research. But the network still has ratings problems. In August in primetime, its ratings dropped 30 percent to a 0.7 from a 1.0 last year, according to Nielsen.

Smith accentuates the positive with operators. "We're not focusing on the declines in the past. There's nothing but growth ahead for the future," she said.


The distribution landscape has gotten so difficult that some second-tier networks, lacking retransmission-consent leverage, are actually taking cuts or keeping license fees flat in exchange for increased carriage commitments, industry sources said.

And this year, Fox Family doesn't have president Rich Cronin-a popular figure with operators-to work on its contract renewals. He left the channel earlier this year.

Although Fox Family is half-owned by News Corp., the network's affiliate sales are handled in-house, and not by Rupert Murdoch's empire. As a result, Fox Family doesn't have the benefit of using retransmission consent for Fox Broadcasting Co. owned-and-operated TV stations as a negotiating tool with MSOs.

News Corp. has used retransmission consent for its Fox stations to gain and increase carriage for its own networks, recently Fox Sports World and Fox Movie Channel.

News Corp. also exchanged sweeter long-term deals for its regional sports channels for contract renewals and rollout commitments for FX.

After a two-year campaign, NBC Cable was able to sign up every major MSO and direct-broadcast satellite provider-distributors representing 98 percent of subscribers-for its Olympic deals. The last holdout was Comcast Corp., which just did a deal that includes retransmission consent for NBC's TV stations.

NBC Cable president David Zaslav said operators were willing to pay programming increases for product that deserves it-not only for Olympic coverage, but also for CNBC, which has seen its ratings soar and which is attracting an upscale audience with its business programming, making it a lucrative channel for local ad sales.

But the National Cable Television Cooperative-which represents small and midsized operators with 13 million subscribers-opted not to sign an Olympic pact.

"We just feel that it's a bad deal," NCTC senior vice president of programming Frank Hughes said. "NBC has really written off the small cable operator with the Olympics."

Apart from the surcharge and price hikes for NBC's two cable channels, Hughes said, smaller systems don't have the capacity to give MSNBC the distribution gains the Olympic deal called for. Nor do they have the space to launch ValueVision, another part of the deal.

A number of NCTC member companies opted to do their own individual deals with NBC Cable for the Olympics, some because they needed retransmission consent or face overbuild competitors that would be offering the games.

But NCTC member Galaxy Cablevision, which has about 160,000 subscribers, agreed that the Olympic deal was too expensive, and it won't carry the coverage this month.

"Our position for our customers is that they can get all of the Olympic coverage they want at night on NBC [the broadcast network]," Galaxy vice president of marketing Doug Montandon said.

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