Government Handouts and Playing Hardball with Cable and Satellite Win Big Money for Nexstar & Sinclair

Nexstar is this year’s Sinclair Broadcast Group — a medium-sized TV station owner getting aggressive about squeezing cash out of stations any way possible. Nexstar isn’t as outwardly political as Sinclair is — there’s no Nexstar equivalent to Mark Hyman‘s The Point — although it recently refused to air NBC’s controversial “Book of Daniel” on two stations, and now has dropped the program on two more in Fayetteville, Arkansas.

Friday, Mediaweek reported that Nexstar raked in a whopping $40 million in direct-paid carriage fees from cable and satellite companies. According to law, broadcast stations are entitled to charge these fees in exchange for letting cable and satellite operators carry their channels. Until very recently (like, this year) not much cash changed hands — instead they’d work deals where cable operators would buy full-rate ad time. But Nexstar spent 2005 pushing cable operators to ante up cold hard cash, even if that meant pulling their channels off systems for months at a time.

sinclair and nexstar squeeze out bucks

Apparently that hardball strategy has paid off handsomely, making up about a fifth of the company’s anticipated 2005 revenue.

Nexstar isn’t alone — Sinclair made $20 million this year, half of Nexstary’s booty. But Sinclair is actually a bigger company, although it hasn’t been as aggressive with cable and satellite operators. Maybe Sinclair spent too much effort on getting Bush re-elected (hope the $20 million was worth it).

The bigger story is that ad revenue, the traditional windfall of owning a broadcast TV station, isn’t cutting it for Nexstar and its ilk. Like the gift of a fee broadcast license, the carriage fees Nexstar gets from cable and satellite fees is a government enforced gift — without it, Nexstar would be in a bigger financial hole than it is already.

Nexstar and Sinclair are busy frantically cutting local news budgets to save costs. For instance, Sinclair recently closed newsrooms in Pittsburgh and Milwaukee. These sort of actions erode the value of the stations to local audiences, and erode ad revenue.

It’s all the more ironic that Nexstar is kicking back at NBC over “Daniel,” since it’s the affiliate status of its stations that make it so valuable to cable and satellite. You see, the Satellite Home Viewer Act makes it illegal for Dish, DirecTV or a cable company to provide an out-of-town network TV signal to subscriber without the permission of the local affiliate. So, the only way a cable company in Champaign, IL can offer CBS programming to its subscribers is to contract with WCIA, or obtain WCIA’s permission to offer the signal from another affiliate, which WCIA would never give.

Thus, the value of a Nexstar or Sinclair network affiliate station has nothing to do with whatever the station passes off as news or programs outside of network sports or primetime. It’s only value is its network programming, and they’re leveraging the hell of it.

So, right now Nexstar is trying to leverage itself against NBC and having to play NBC’s game in having to carry whatever NBC says to. But how much longer will it be until NBC and other networks start offering their own programs directly to satellite and cable? What will Nexstar be left with, then?

That’s why I call Nexstar and Sinclair the Clear Channels of TV. They’ve created growing networks of stations through highly leveraged purchases, cannibalizing each station to buy the next. They only suck value from each community, both in ad dollars and in terms of the public interest, without giving a damn thing back.

It’s a cynical, selfish and greedy game, epitomized by the likes of Duane Lammers, Nexstar VP and General Manager of Nexstar’s WTWO who glibly admits that refusing to carry “Book of Daniel” is more about spitting in the face of NBC than the perceived “values” of the program.

I don’t care about “Book of Daniel” or any particular program on any network — that’s not the point. The point is that whatever meager amount of public service local TV stations have provided over the years is being siphoned away, along with valuable local ad dollars, in sinking ships and the corrupt pockets of these station owners.

While Lammers disingenuously declares that “I think the regulatory environment is flawed,” if it weren’t for the protection of federal law, Nexstar’s newfound $40 million would be just a wet dream in Terre Haute and Irving.

And who pays the costs? We do, through increased cable and satellite rates, and through the extra costs of our local goods and services that are funneled to pay for ads. Yeah, tell me about free TV.




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