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Slicing the pie thin; independent TV advertising shares already are small; now channels 16 and 38 are cutting each other.

Slicing The Pie Thin

Independent TV Advertising Shares Already Are Small; Now Channels 16 and 38 Are Cutting Each Other

There's been an explosion of viewing choices in recent years that is creating stiff competition and strained relations throughout the television industry.

Whether a station is affiliated with a major network or is operating as an independent, the lifeblood of both is programing. Advertising dollars are tied to ratings, ratings are dependent upon programing and while the major networks pay their affiliates to carry network programs, the affiliates must buy other programs from program syndicators just as independents buy all of their programing from syndicators.

In some markets like Chicago, New York, Los Angeles and Dallas, the independent stations either match or surpass network affiliates in ratings and billings.

But in Little Rock's $40 million television market where the network affiliates have been on the air for more than three decades, the new kids on the block -- independents -- have had trouble establishing themselves with both viewers and advertisers.

What's more, the oldest independent, KLRT, is locked in litigation with three-year-old KASN, with charges that KLRT tried to strip KASN of its Fox Network affiliation.

For KASN and KLRT, there's a vicious cycle. Both need more viewers to get better ratings to buy programs that will attract more viewers. And the high cost of program purchases has been cited as the single most important factor in the financial problems faced by many independents.

THE INDEPENDENT television industry across the country enjoyed booming growth from 1979 until 1989 when the numbers of stations went from 102 to 323. In its infancy the industry enjoyed prosperous times, and viewers seemed glad to have something other than network television to watch. But it didn't take long for all of that to change. By 1985, 25 independent stations were in Chapter 11 bankruptcy proceedings. Melvin Bell's station KRZB-TV in Hot Springs was one of the independents to become such a casualty. The reason?

"The demand for programing came so much faster than the supply, it drove programing prices to the roof," says Lawrence Laurent, VP of communications INTV Journal, a magazine aimed at the independent television broadcaster.

Laurent says programing prices have been coming down in the last few years, all but three of the troubled stations "straightened out" and another 16 independents went on the air during 1989.

Programing costs and ratings aren't the only problems that independents face. Historically, independent stations and cable companies wrangled over such questions as will cable systems carry independents, and where on the dial will they be carried if they are carried at all.

Lately, there have been new threats to the security of independents. Take, for example, an experiment in upstate New York where a local cable company is operating one of its channels like an independent station. Understandably, independents are expected to launch an attack on this new development, and according to Laurent, it is a question that will probably be taken before the Federal Communications Commission.

Meanwhile, syndication exclusivity (SYNDEX) is a regulation that seems to be helping not only the network affiliated stations but the independents as well. If a program is sold to a television station in a particular market with an exclusivity clause in the contract, then a cable system that is carrying that same program must black it out on the cable channel.

Often, cable systems have programs originating from stations such as Chicago's WGN or KTVT in Dallas/Fort Worth that have been sold to a local station with an exclusive agreement. Mike Wilson, manager of Storer Cable in Little Rock, says it's too early to see what kind of effect SYNDEX will have on cable viewers here.

"The first week we had to black out four programs due to exclusive contracts," he says. "The only station that will be affected at the present time is KTVT Dallas/Fort Worth."

There is sure to be more controversy over SYNDEX, and no one knows if it is here to stay, but one thing is certain, it doesn't help ease the tension that already exists between the cable industry and the independent television industry. Independents are also worried that if cable becomes a lucrative market for program syndicators, then independents will again be paying premium prices for programing.

DESPITE THE FACT that independent TV as a whole seems to be gaining back its health, observers see the conflict between cable and broadcasters entering a new era.

That may or may not be true, but one thing is certain. Little Rock's two independents have been having their own set of problems in recent months. The owners of KASN, Ch. 38, sued the owners of KLRT, Ch. 16, in federal court in Chicago over a soured business deal, setting off a legal battle that could hurt the financial health of both stations. (KASN's owners are based in Chicago.)

During the course of the events that led up the the lawsuit, 38 lost its Fox Broadcasting affiliation to its rival for a period of 42 days. Looking at the allegations contained in the complaint filed by MMC Television Corp. of Evanston, Ill., Ch. 38's parent firm, and the answers filed by Gary Scollard, Steven Scollard, Little Rock Communications Associates and Scollard Communications, Inc., the owners of Ch. 16, it is apparent that the independent market locally isn't all that profitable.

(The license to operate KLRT, which went on the air in 1983, is owned by Little Rock Communications Associates, with Scollard Communications, a Delaware corporation, operating as the GP. Gary Scollard is the sole owner of Scollard Communications and Steven Scollard, Gary's son, is the current VP/GM of the station.

The chief executive officers of MMC Television, also a Delaware corporation, are Paula Pruett, CEO, and her husband, Steven, is VP. The Pruetts purchased Ch. 38 in May 1988 for $6 million from TVX, a company that owns several independent stations in larger markets. TVX had established Ch. 38 in 1986.)

The Pruetts claim that shortly after they acquired Ch. 38, Gary Scollard contacted Steven Pruett and indicated he believed that the Little Rock broadcast market could not sustain two viable commercial independent stations.

In his answer, Scollard denies that claim but admits that there were discussions between the two parties last June regarding a possible sale of Ch. 16 to MMC Television. The Pruetts also claim, and Scollard denies, that during the week of July 17, Gary Scollard had approached MMC Television and Phillips Credit Co. to acquire 38's assets, except its broadcast transmitter and the FCC broadcast license. Scollard Communications would then assume the station's liabilities, financing through Phillips.

Another allegation made by the Pruetts is that Scollard sent a letter dated July 26 with a memorandum of agreement to a Phillips executive setting out the terms relating to the acquisition. Scollard's answer admits only that he sent a letter to the executive on July 25 "with an unsigned Memorandum of Agreement attached."

Scollard also denies an allegation that he agreed to "work out" the past due accounts of Ch. 38 with the program syndicators.

The Pruetts allege that Scollard told them MMC Television should not attempt to negotiate such work outs. The disagreement between the two independents has resulted in some serious allegations flying back and forth. Ch. 38's owners are accusing Ch. 16's owners of fraud, misappropriation of trade secrets, interference with business relationships, breach of contract and racketeering activities.

Ch. 16 's owners have filed a counterclaim against the Pruetts alleging fraudulent misrepresentation and concealment of Ch. 38's financial problems and defamation.

The counterclaim alleges that the Pruetts have "willfully, wantonly and recklessly made statements to the press, to syndicators, to Fox Broadcasting Co., to advertisers and suppliers, and to others, declaring or implying that they [the Scollards] breached a contract with MMC, misappropriated trade secrets, interfered with MMC's business relationships, defrauded and conspired against MMC, and attempted to dismantle Ch. 38."

Paula Pruett gets quite emotional over the situation that exists between Ch. 38 and Ch. 16, particularly when discussing her allegation that the Scollards attempted to "dismantle" her station. She says the Fox affiliation went to KLRT because everyone involved was certain the proposed sale of Ch. 38's assets to Ch. 16 would go off without a hitch.

She says, however, she had a "side contract" with Fox that stated if the proposed sale of Ch. 38's assets to Ch. 16 did not go through by Oct. 21, the Fox affiliation would revert to Ch. 38, which is exactly what happened.

Pruett adds that the Fox switch hurt her business because it came during a crucial time for broadcasters, immediately prior to the fall ratings sweep.

"It was a good move for Fox.... Supposedly it would end up having a stronger base.... That was what the whole objective was when we talked all year about this consolidation," she says.

After the asset acquisition, Ch. 38 would have become a Home Shopping Network licensee. Pruett claims she and her husband did nothing to stand in the way of the acquisition. "There wasn't anything that they did not know about this TV station.... We're so absolutely convinced that they set us up," Pruett says.

Steven Scollard, on the other hand, is not as willing to discuss the lawsuit, neither is the attorney for Fox. But Scollard willingly talks about his view of the local television market. "In Little Rock there is certainly room for four stations," says Steven Scollard. "I am not sure five can survive."

KLRT faced some "lean years in the beginning," and Scollard admits the station lost money some years, but he believes the station is on the "track for turning a positive cash flow."

Scollard estimates one share point being worth as much as $500,000 for Little Rock broadcasters. He says Channel 16 billed more than $4 million last year.

"As an independent, there's an old formula that says your revenue should index to 150 percent of your sign-on-to-sign-off share. For example, if you do a 10 share of the marketplace, you should do 15 percent of the dollars. Independents expect to be more aggressive and work harder for the advertising dollar."

He says independents not only work harder at selling themselves, but they have had to become more cost conscious and more responsible. "There was a time when money was abundant, but that disappeared about five years ago with the influx of all the viewing choices.... Let's face it we're the underdog. We've really got to sell ourselves."

PHOTO : Steven Scollard says he's not sure five stations can survive in Little Rock.

Jan Meins is a free-lance writer based in Little Rock.
COPYRIGHT 1990 Journal Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Little Rock, Arkansas
Author:Meins, Jan
Publication:Arkansas Business
Date:Jan 29, 1990
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