Network Affiliate Agreements: Follow The Money
When several Nexstar and Sinclair-owned stations declined to resume broadcasting Jimmy Kimmel Live! following its reinstatement by ABC, it raised a critical question: how much control do networks really have over their affiliates? This situation highlights the delicate balance, and potential financial fallout, embedded in network affiliate agreements when programming decisions become points of contention.
Both sides had much to lose:
ABC stood to lose national reach (which reduces value of national ad slots) when affiliates preempt network shows in large markets. That would have potentially forced ABC to give “makegoods” to national advertisers or reduce their rates or future capacity.
Nexstar and Sinclair affiliates may have gained local goodwill with some of their audience… but they risked breach of contract, penalties, loss of shared ad inventory and other benefits. Had the breach lasted for weeks, they could have potentially lost their affiliation with ABC.
Clearance Obligation Clause
Standard station affiliation agreements include a Clearance Obligation clause whereby the station must “clear” (i.e., broadcast) network programming in specified time slots except under limited, agreed circumstances:
“Station shall broadcast such Programs, subject to its clearance obligations, in their entirety, including all ‘Program Related Material’, without interruption, modification, deletion or addition of any kind (except as compliance with law or emergency local matters requires).”
FCC Regulations
FCC regulations limit what can or cannot be in network-affiliate agreements. Important ones:
- 47 CFR § 73.658 –Among other things, prohibits exclusive affiliation agreements that prevent a station from airing programs of another network; prevents time-optioning that gives network control over station schedule to an extreme degree.
- FCC “public interest” obligations: stations must serve their local communities, with local news, emergency alerting, etc.
Network Affiliate Agreements: Follow The Money
Afer many television affiliates owned by Nexstar and Sinclair refused to resume airing Jimmy Kimmel Live! after ABC reinstated the program (after its temporary suspension), we wanted to better understand how network affiliate agreements work and what leverage a network has in requiring its affiliates to air network programming. And importantly, what is the potential financial impact on both network and affiliates?
Both sides had much to lose:
ABC stood to lose national reach (which reduces value of national ad slots) when affiliates preempt network shows in large markets. That would have potentially forced ABC to give “makegoods” to national advertisers or reduce their rates or future capacity.
Nexstar and Sinclair affiliates may have gained local goodwill with some of their audience… but they risked breach of contract, penalties, loss of shared ad inventory and other benefits. Had the breach lasted for weeks, they could have potentially lost their affiliation with ABC.
Clearance Obligation Clause
Standard station affiliation agreements include a Clearance Obligation clause whereby the station must “clear” (i.e., broadcast) network programming in specified time slots except under limited, agreed circumstances:
“Station shall broadcast such Programs, subject to its clearance obligations, in their entirety, including all ‘Program Related Material’, without interruption, modification, deletion or addition of any kind (except as compliance with law or emergency local matters requires).”
FCC Regulations
FCC regulations limit what can or cannot be in network-affiliate agreements. Important ones:
- 47 CFR § 73.658 –Among other things, prohibits exclusive affiliation agreements that prevent a station from airing programs of another network; prevents time-optioning that gives network control over station schedule to an extreme degree.
- FCC “public interest” obligations: stations must serve their local communities, with local news, emergency alerting, etc.
Key Metrics Overview
Network – Affiliate Revenue & Compensation
Below are typical ways that money flows between network and affiliate, including reverse compensation practices (“Reverse compensation” means the station pays the network for affiliation rather than the network paying the station.)
Revenue Source
Who Sells / Controls It
Who Keeps It / Sharing
National Advertising Slots
Network typically sells ad time for national advertisers in network programming.
Revenue largely to Network, but affiliates may receive some share / “national ad inventory units” in their market. Contracts often guarantee affiliates some local ad inventory (for local insertion) in network programs. e.g. “Guaranteed Local Inventory Level” can be specified; if network doesn’t offer enough, network must “make whole” station.
Local Advertising
Affiliate sells local ad time during local breaks inserted within network programming slots.
Affiliate keeps that revenue. This is key local revenue source.
Retransmission Consent Fees
Station negotiates with MVPDs (cable, satellite).
Stations (or station group) typically keep most or all of these fees, though network contracts may take a share or impose obligations related to retransmission rights.
License / Affiliation Fees
Station may pay the network (reverse
compensation) for the right to affiliate,
especially in more valuable markets.
Network receives; amount depends on market, bargaining strength, size, ratings, etc.
Syndication & Non-Network Programming
Station controls separately.
Affiliates typically keep all revenue from these, but network agreements may restrict exclusivity or syndication rights in certain cases.
Summary
The network-affiliate system is held together by detailed contracts with obligations to clear national programming, share revenues in particular ways, and ensure that local affiliates maintain certain technical and public interest standards. When affiliates diverge (e.g. refuse to air certain content), it tests those contracts: networks can threaten penalties or pull affiliation, but affiliates have leverage too (especially groups owning many stations). Regulators (FCC) also provide a backdrop of rules and threat of regulatory action, especially if contracts go too far in restricting station autonomy or public interest obligations.