ABC is challenging the decades-old system of how networks and its affiliates share ad revenue with the launch of Inventory Exchange System. Traditionally, the networks sell the majority of their ad inventory nationally on the upfront and scatter markets, while their affiliate stations get a fixed small number of units. With IES, ABC will become the first network to break the pattern by exchanging additional ad inventory with its 200 affiliates throughout the year. For now, the exchange will only go in one direction – from the network to the affiliates who will be able to buy additional ad units to sell locally at a profit. The original idea for the initiative came a couple of years ago from ABC CFO Jim Hedges who argued that the current system does not follow the basic principle of supply and demand. Under it, in periods when there is great demand in local markets, like local elections, holiday shopping, etc., the local stations couldn’t get more ad time to meet it. As part of IES, now they will be able to do it. Here is how it will work. ABC will put aside a small amount (5-6) of extra units, most of them in prime real estate like Grey’s Anatomy and Modern Family, that will be made available to affiliates starting with the current election period. ABC will put a premium on the asking price for each market through a computer program whose patent is pending. If enough affiliates opt in (I hear the threshold is about 50-60%), the IES will go into affect and the unit will be transferred to the stations. In the markets where the affiliates didn’t want the extra ad inventory, ABC will run a promo or sell the unit through ABC’s regional sales forces. ABC’s 10 O&O stations will also be part of the equation. So in an ideal situation, the network will make a profit by handing the ad units to its affiliates for more that what it could get on the national market, and the affiliate stations would profit by selling it higher in a competitive environment. “With this groundbreaking announcement, we’re creating a new industry paradigm, one that benefits both the network and our affiliates,” said Anne Sweeney, president of Disney/ABC Television Group.  “With a relationship built on trust and cooperation, we’ll continue to work with our affiliates to challenge the status quo and identify more opportunities that leverage our unique national and local strengths.”