• by Wayne Friedman , David Goetzl  @dgoetzl, February 24, 2006

Station group Acme Communications has deep ties to the WB. Chairman and CEO Jamie Kellner held those same posts at the WB for more than a decade, while Acme was formed expressly to build a portfolio of stations affiliated with the once fast-growing network.

So, when Warner Bros. and CBS declared last month that they would disband The WB and UPN to jointly form the new CW network, Acme said in an SEC filing it expected all its WB stations to join the CW fold.

While that's still likely, it's far from a sure thing. Fox's announcement this week that it will launch another new network this fall, My Network TV, gives Acme another option and some negotiating leverage vis-à-vis the CW--as it considers the future of its eight WB affiliates in mid-size markets such as Knoxville, Dayton, and Madison.

"Every affiliate out there who's currently a WB or UPN affiliate will be looking closely at both options," said Tom Allen, Acme's executive vice president and CFO.

In deciding which new network to affiliate with, Acme executives are weighing factors such as whether they'll have to pay to carry the network (known as reverse compensation), how much local ad time they'll have to sell, and the potential ratings of each new network.

At its most basic, the choice is between the better-known programming of the CW versus the considerably lower overhead costs of My Network TV. But those metrics may be moot in a matter of months.

"When Fox came out in '87, no one would have said they're going to be around 10 years later and have the NFL and all these big properties like 'American Idol,'" said Mark Prince, broadcast buying director for Omnicom agency GSD&M.

Besides Acme, station groups such as Belo, Sinclair, and Clear Channel have WB or UPN stations in mid-size markets that could go with the CW or My Network TV (or perhaps become independent). "We're going to be reviewing all our options related to the future programming of (our) stations," said Carey Hendrickson, vice president of investor relations at Belo, which has a WB station in Phoenix and a UPN affiliate in San Antonio. Similarly, a spokesman for Hearst-Argyle, which operates the UPN affiliate in the 31st largest market, Kansas City, said the company is reviewing the matter.

The CW has 48 percent of the country covered so far, while My Network TV starts with 24 percent--so the choices these ownership groups make could go a long way in determining the viability of the new networks, which need extensive coverage to attract large national advertisers. Of course, the CW holds many of the cards as well and, in a competitive situation, could select the station with the stronger local visibility.

At Wednesday's news conference to announce My Network TV, Roger Ailes, the chairman of Fox Television Stations, said the venture is a more "station-friendly alternative" to the CW. Fox representatives wasted little time trying to spread that gospel, showing up at the office of at least one station group that afternoon with a stack of videotapes in tow ready to showcase programming and make a deal.

On the one hand, the CW promises a lineup heavy with established shows culled from the best of The WB and UPN. The recognized shows--including the WB's "Gilmore Girls," which launched when Kellner headed the network and UPN's "America's Next Top Model"--have existing consumer awareness and will likely deliver higher ratings at first than My Network TV, which is debuting with two telenovelas in prime time.

But the CW will cost stations more. The network is asking for reverse compensation--an amount still to be determined--while giving stations three minutes of ad time an hour in prime time to sell. In contrast, My Network TV is making an aggressive bid to attract stations on financial grounds by asking for no reverse compensation and offering nine minutes an hour. (Both the WB and UPN make three minutes an hour available to stations; UPN does not receive reverse compensation, though the WB does.)

"If you were to get the same ratings for the CW that you'd get for the Fox network, you'd say: 'Hey, I'll take nine over three (minutes of local ad inventory) any day,'" said Acme's Allen. "But if you get two or three times the ratings from CW than what you'll get out of Fox, then it's not such a no-brainer."

Stations could, however, do better from a "p & l" standpoint with My Network TV--even with less impressive ratings, since the network is giving stations threefold more ad time to sell than CW.

"Lower-rated with more inventory might potentially generate more revenue for a station than a slightly higher rating with less inventory," said Sue Johenning, executive vice president and director of local broadcast for IPG agency Initiative.

The CW is also asking for longer-term deals than My Network TV and greater promotion commitments from stations, including more on-air spots in the hour leading into prime time and more dollars for print and other advertising in their market. "They're expecting you to court them," said Bill Carroll, vice president and director of programming for Katz Television Group, which sells national ads for local stations.

The CW is also programming the Monday through Friday afternoon block from 3-5 p.m. EST/PST and five hours on Saturday morning, depriving stations of filling those potentially lucrative dayparts themselves. That stands to have the greatest impact on current UPN stations, which program those times on their own (the WB offers programming in those slots). "If they're used to selling all that time and having all the inventory, and now it switches back to the network, then that could be a factor," said GSD&M's Prince.

My Network TV, in contrast, is programming only 12 hours a week, Monday through Saturday from 8-10 p.m.

"They're trying to differentiate themselves as much as possible from the CW," said Acme's Allen. "They're trying to be station-friendly and they can legitimately claim that by giving the stations more inventory, not expecting compensation on top of the inventory split, and not trying to grab other dayparts that currently aren't programmed by the network."

Another issue for stations to consider is the long-term prospects of the two networks. While both CW and My Network TV say they expect to be profitable from day one, both The WB and UPN were losing money, raising questions about how many networks the market can support.

"If Fox ultimately can't make their programming work and gets out of the prime-time network business, you may not have the recourse to come back and try to do a deal with CW because, presumably, by that time they'll have already done a deal with the other option in the market," Allen said.

Much of My Network TV's initial success, of course, hinges on whether a mass audience adopts the telenovela format, which has been successful with Hispanic audiences--particularly on Univision. The hour-long dramas run each night for about three months. Fox is launching with "Desire" (about two brothers on the run from the mafia who face off over a woman they both love) at 8PM followed by "Secrets" (a narrative that goes behind the scenes of the dog-eat-dog fashion industry).

"There clearly is a risk of people not being ready to commit to watch a show every single night of the week that has a continuing storyline," Allen said. "But there's also a keen upside if they hook an audience that is prepared to be there night-in and night-out or can sustain missing it a few nights."

As Allen and Acme executives wrestle with whether to affiliate with CW or My Network TV, they will also take into account the preference of another station group: Clear Channel. Last summer, Acme reached an $18.5 million deal to sell Clear Channel its Salt Lake City WB station. The sale is expected to close by May, but Clear Channel could renege if it's not satisfied with the station's new network link (an investment group recently pulled out of a deal to buy Granite Broadcasting's WB stations in Detroit and San Francisco, since they have no chance of an affiliation with the CW).

"We're not going to decide the future of that station in a vacuum from what Clear Channel wants," Allen said. "We have an interest in making sure the new buyer gets what they want."

Ironically, in the end, Allen will probably be rooting for both the CW and My Network TV to succeed. Acme's lone non-WB affiliate is the UPN station in Albuquerque, where the company has a duopoly and owns both the WB and UPN affiliates. It expects one to go with the CW and the other with My Network TV.

John Wolfe contributed to this story.