Broadcaster to Pay NBC in Turnabout

In a precedent-setting agreement, Granite Broadcasting Corp., which owns nine television stations, said Monday that it had agreed to pay NBC $362 million over nine years to become the network’s affiliate in San Francisco when the current affiliation contract expires in 2001.

The agreement underscores the shift in power between networks and their television station affiliates. Although networks historically have paid affiliates “compensation fees” to carry their programming, the networks have been eager to reduce those fees as programming costs have soared and profits have sunk. Stations owners, which enjoy much larger profit margins than networks do, have aggressively fought against such proposals.

Granite, which also announced the renewal of three other affiliation agreements with NBC, is one of the first broadcasters to agree to pay in what analysts predict will become a new model for all networks.

As part of the deal with Granite, NBC also acquired warrants to buy 4.5 million shares, or an 18% stake, in Granite Broadcasting.

NBC announced the new television station affiliation for San Francisco after Young Broadcasting Co., which has agreed to buy the current affiliate, balked last week at the network’s demand for a payment of $10 million a year.

Young Chairman Vincent Young said he found NBC’s financial terms “totally unacceptable” and said he would turn KRON-TV into an independent after the station’s NBC affiliation runs out Dec. 31, 2001. But sources say the development could jeopardize Young’s acquisition of the San Francisco station.

Young’s stock has plunged since last week, bringing the broadcaster’s market cap to less than half the proposed, record-setting price of $823 million it agreed to pay for KRON. Young said it expected to complete the purchase in the first quarter.

The deal is not ideal for NBC either. KRON is the strongest station in San Francisco, and the Granite station, soon to be an independent, lacks news. New York-based Granite, which owns a WB network affiliate in San Francisco, said it would build a San Francisco cable news service with NBC by linking KNTV’s news with NBC’s CNBC and MSNBC channels and NBC Internet.

KNTV is also about 40 miles south of San Francisco Bay, meaning that its signal will have trouble reaching all of San Francisco.

Granite Chief Executive Don Cornwell acknowledged that even with cable’s carriage of the station, 20% of viewers north of San Jose may not be able to pick up KNTV’s signal. But he said that the station has federal permission to double its transmission power and that it is exploring other options, such as moving its transmitter farther north.

Concerned about the drag on its bottom line, investors pushed Granite’s shares sharply lower. Granite’s stock tumbled 22%, or $2.81, to $9.94 on Nasdaq. Shares in NBC’s parent company, General Electric Co., rose 63 cents to $134.38 on the New York Stock Exchange.