UPN and WB to Merge into One Broadcast Network
Wednesday, January 25, 2006

Upheaval in the Lineup of Local Television Stations

The announcement today by CBS and Tribune of the merging of the WB and UPN network into a new network called "CW" cannot be understated in terms of its importance. Given the tremendous competition in the video marketplace, it is not surprising to see companies respond and respond in a very dramatic way. By taking the best programming from the two weakest of the over-the-air networks, the new owners of the CW network are trying to compete with the many other over-the-air and cable networks for both ratings and accessibility to top creative talents.

Both the WB and UPN have struggled to find an identity that would allow for their long term survival. In its early days UPN struggled to not only make money for the original Viacom/Chris Craft partnership, but also did not attract top talent. WB did a better job of finding its niche amongst the 12-24 audience with hits like the Gilmore Girls, which is in its sixth season and has a loyal following. However, overall, WB has had difficulty of late as some of its best and most creative shows such as Buffy the Vampire Slayer and Seventh Heaven have reached the end of a successful run. Given the recent split of Viacom into two parts, CBS' new leadership is under pressure to show results from the legacy media portions of its portfolio. Time Warner and its equity partner in the WB, Tribune, are also struggling to make the most of its assets, too. This move will eliminate primetime inventory and should have some impact in firming up rates for network prime in the local and spot markets. UPN and WB offer buyers package areas in prime that can be used to bring in other more expensive prime product on competing networks. With some of that inventory eliminated, the CW should see some better rates for its offerings.

This contraction of over-the-air networks will have a dramatic impact on many local television markets. There are 61 markets where there is both a full-power UPN and WB affiliate. Which one ends up with the CW affiliation? It appears that in the markets where either CBS or Tribune Corporation owns one of those affiliations, that station will be awarded the CW prize. In seven of the top twenty markets both CBS and Tribune own WB and UPN affiliates. In a fairly even division of those markets, Tribune will get the CW affiliations in Boston, Dallas, Miami and New Orleans, while CBS gets the affiliation in Philadelphia, Atlanta and Seattle.

Those broadcast companies that have either WB or UPN affiliations and will not be awarded the CW affiliation will clearly suffer as a result in the short term at the very least. Perhaps the biggest impact is on Fox which owns UPN affiliates in six of the top eleven ranked markets, including New York, Los Angeles and Chicago, and in each of those markets Tribune owns the WB affiliation and will be awarded the CW affiliation. What does Fox do with those stations? Given the vast amount of syndicated programming owned by that corporation, it is certainly possible that Fox may opt to develop yet another network, this one using over-the-air television stations.

Some long-time CBS network veterans may not lose a wink of sleep in this move that decreases the value and heightens the stress level of the Fox TV Stations Group given the mayhem that Rupert Murdoch unleashed on CBS when it took away the NFC Football rights from it and subsequently several of its affiliates in key NFC markets in the New World acquisition. CBS is still working to undo some of that damage, particularly in Detroit. The damage done to Fox is an increase in the cost to program these newly "independent" stations plus the lessened price tag that these non-network replacement shows are likely to fetch in the advertising marketplace where these stations trade. Roger Ailes has been a miracle worker in the Fox empire, it looks like his skills maybe tested once more.

Other players in the local television market will also be greatly affected by this new network. With a stronger program lineup and the removal of a competitor, the new CW affiliates will be more effective competitors in the local television marketplace. Affiliates of the other networks will feel that increased competition soon, like this September.

Will there also be a shuffle of affiliations in other markets where Tribune owns Fox affiliates? Would it be likely that Fox may attempt to unsettle the folks at Tribune when the Fox affiliations in those markets expire? Who said old media was boring?

(1) In six of the 61 markets the same owner has the UPN and WB affiliation. While they may benefit from a stronger CW affiliation, they also have to determine what programming to put on their other station in those markets.