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Ownership

Ownership

By the Project for Excellence in Journalism

As 2007 drew to a close, Wall Street continued to see local television stations as a good business bet.

The top ownership groups remained stable, but some companies, including Belo, split themselves in two, separating their print and broadcast operations to highlight the higher value of their television holdings.

And, continuing a trend notable the previous year, stations were often bought and sold in 2007.

Also during 2007, media ownership rules again made headlines. Federal Communications Commission Chairman Kevin Martin pushed the panel for a contentious, late-year vote as he tried to advance an overhaul of media ownership regulations.

A Season of Sales

One indicator of the strength of local television news — particularly in contrast with print — was that sales of local television stations once again were plentiful in 2007, fueled by their attractiveness to investors and advertisers, although they did not match total dollars from 2006 sales.

In 2007, 294 stations changed hands, according to market research firm BIA Financial Network, compared to the 202 sold in 2006. There were no big-name station sales, and all of this activity amounted to just $4.6 billion in sales; in 2006, the stations sold had a price of $18.1 billion.1

Transaction Value of TV Station Sales
2002-2007
Design Your Own Chart
Source: Broadcasting & Cable, April 24, 2006; BIA Press Release, January 10, 2008

According to thinking on Wall Street, television stations continue to make good business sense for a number of reasons.

In the summer of 2007, BIA Financial reported stock prices of publicly traded television groups had shown double or triple the growth of the overall market.2

And not only do stations continue to bring in money on their traditional strength – regional advertising (see Economics) – but buyers also were betting on their revenue potential in three other areas: the digital spectrum, station Web sites (see Online Trends) and retransmission fees from local cable operators that pay for content.

The first two both offer local stations more ways to attract advertisers – the digital spectrum will give a station the ability to air multiple streams of content, each of which could be a source of advertising revenue, while the Web sites are being developed to attract both viewers and advertisers who prefer the Internet.

Retransmission fees, which refer to the fees local stations charge cable, satellite and telephone companies for transmitting their content, are a new and growing source of revenue for local television stations. According to Veronis Suhler Stevenson, stations earned 30 cents to 50 cents per subscriber in 2006, resulting in millions of dollars of revenue. Local station groups cite retransmission consent as a big boost to their bottom line, and see it as a potential to offset weak ad sales.

In November 2007, LIN TV announced that retransmission fees contributed substantially to the 134% increase in its third-quarter revenues in 2007. The Sinclair Broadcast group and Hearst-Argyle also saw third quarter revenues rise 6% and 18% respectively, and attributed growth to the retransmission fees.3

Several of the specific sales and acquisitions — including those by Nexstar Broadcasting, LIN TV, Raycom Media and Fox Television — appeared to continue a trend that began when Emmis and Clear Channel found they could sell their television stations for a profit (see last year’s Report).

In May 2007, LIN TV and Nexstar Broadcasting Group hired consultants to advise on a potential sale of their television properties – each company owns, operates or provides content to 29 stations across the country . LIN TV is one of the top 20 broadcast owners in terms of revenue and operates in the top markets as well. Eventually, both companies took themselves off the market after a strategic review. In August 2007, Nexstar announced that market conditions were not conducive to a sale. In December 2007, LIN TV also took itself off the market, deciding to build its business before considering a sale.4 However, this decision was more an indicator of the market than the station groups and analysts remained optimistic about its chances. According to Mark Fratrik, vice president of BIA Financial Network, “the business is good and, while companies see a good opportunity in private-equity bids, for most, the event is not make or break.”5

In November, Raycom Media, one of the top 20 local station groups in the country, added three more stations to its roster. The deal, for which Raycom paid $583 million, will close in December 2008.6 This was the second-largest television station sale of the year.

The largest was when News Corp., the owner of Fox Television, put nine of its small-market stations up for sale in June 2007. These were bought by the private equity firm Oak Hill Partners for $1.1 billion in December. (Oak Hill had bought the nine stations put up for sale by the New York Times in 2006.) Once the deal is complete, it will leave News Corp. with 26 owned-and-operated stations, down from 35. That decision freed up some money for News Corp., which acquired Dow Jones, publisher of the Wall Street Journal (see Newspaper Chapter).7

The sales were seen as an indication that television stations continue to be seen as valuable acquisitions, a trend expected to continue into 2008.

Other aspect of these sales are the amount of debt that station groups are taking on from the acquisitions and what impact this will have on them in the future.

Stations with more debt have less cash to put into their product to pay for syndicated programming, to build into their newscasts or to pay talent. It becomes a matter of simple math. In a competitive marketplace where one is fighting for market share of audience, even if the audience over all is declining, less money to put into the product can easily translate into lower ratings.

Case in point is Young Broadcasting, which put its San Francisco station KRON-TV up for sale in January 2008, and was aiming for a sale by March to make money in the first quarter of its fiscal year. It had bought the former NBC affiliate at a then-record $823 million in 2000, and some analysts thought it had overbid for the station, given that it was a small broadcasting group. The criticism bore fruit when KRON lost its NBC affiliation, became an independent station and soon dropped in ratings (which did not improve even after it became a MyNetwork affiliate in 2006). It was seen to be financial millstone for the parent company, and analysts did not expect it to make any profit at sale.8

The broadcaster, which owns just 10 stations in the country, is now financially strained. It made only about $230 million in revenues 2006, and said that it lost about $70 million during the first nine months of 2007.9 It cut staff and programming at its other stations, and trade magazines reported that it was trying to slash costs at the television stations by $20 million.10

The FCC Regulations

In 2008, new rules regarding ownership could fuel even more activity.

The reason is that late in 2007, Kevin Martin, the chairman of the Federal Communications Commission, made a sudden push to relax the rules forbidding companies from owning properties across mediums in the same market, the so-called cross-ownership ban.

Presenting what he called a compromise, Martin called for relaxing the ban on cross-ownership only in the top 20 markets. His plan gave companies, under certain conditions, the right to own both a newspaper and a television or radio station in those larger markets.11

In doing so, Martin, despite protests and a divided vote, in the end succeeded in navigating some of the more controversial terrain in communications regulation.

The current rules, put into effect in 1975, prohibit the “common ownership of a full-service broadcast station and a daily newspaper when the station’s “contour” or service area encompasses the newspaper’s city of publication.”12

The last attempt to revise them, under former FCC Chairman Michael Powell in 2003, proved highly charged. Powell, whose deregulatory efforts went much farther than Martin’s, became a political lightening rod, and his plan ultimately was beaten both by political opposition and court order (also see last year’s Report.)

Martin, Powell’s successor, took up the ownership issue again in June 2006, but at a leisurely pace. Six public hearings were scheduled, but a year later, only four had been held. In October 2007, however, Martin suddenly announced a fifth and last hearing, and scheduled it for December. He also called for just a one-month public comment period, compared to the traditional three-month period.

The reaction to his proposal was swift and deeply divided.

Those who backed Martin’s push for deregulation argued that the ban was created for an era when newspapers and television stations dominated news and information but was moot in an age of online news access.

The Newspaper Association of America, a trade organization representing newspaper companies, supported overhauling the rules and criticized Martin for not doing enough. It called for the rule to be relaxed in all markets, not just the top ones.

That is because, although local television will be affected by the rule change, the industry at the heart of this argument is newspapers. Faced with declining ad revenues and readership, the medium is seen as unable to compete with other media (see Newspaper Chapter.) In a New York Times op-ed, Martin contended that “newspapers [will] wither and die” if action is not taken and that his proposed “relatively minor loosening” of the rules will help “forestall the erosion in local news coverage by enabling companies that own both newspapers and broadcast stations to share some costs.”13

There also was equally strong opposition to relaxing the rules. According to the New York Times, the FCC received three million comments in opposition to changing the ownership rules in November 2007 alone.14 Activists and civil rights and labor groups, afraid their issues would get lost in the shuffle, wanted them included in cross-ownership deliberations.

Organizations as diverse as the Parents Television Council, the National Organization for Women and the National Rifle Association weighed in, arguing that the FCC was rushing in to help the media conglomerates at the expense of other important considerations, such as the chance of increasing minority ownership and assuring coverage of local events.

Opposition also came from within the FCC. Standing in Martin’s way were two Democratic FCC commissioners. While the three Republicans on the panel were in favor, Democrats Michael Copps and Jonathan Adelstein immediately voiced opposition. They argued that not only did the new proposal cover most of the country (more than 40% of television households), but that it also would encourage more waivers for markets outside the top 20.

Allowing dual ownership in certain markets could set a precedent in all markets, with companies asking for the relaxation of the rule everywhere. Or they could keep applying for waivers in specific markets, a practice the FCC frequently follows, making the restrictions ineffective.

In November, a group of Democrats, led by North Dakota Sen. Byron Dorgan, introduced a bill calling for a 90-day public comment on any FCC changes, which would have effectively prevented a vote on the media ownership bill until an unspecified date in 2008. Dorgan’s bill also called for a separate proceeding on the issue of localism. The bill was supported by leading Democrats, including presidential hopeful Barack Obama.15

On December 18, 2007, the commission voted 3-2 to lift the ban on owning both newspapers and TV stations in the top 20 markets. It also approved 42 waivers to companies that own both types of holdings in the other markets, the majority of which (36) had been exempt from the ban because their ownership predated the 1975 regulations.16

According to media reports, the vote was better positioned to withstand a court challenge or a congressional debate this time around, due to evolving media landscape in which fewer media companies are interested in keeping their newspaper holdings.

The lifting of the cross-ownership rule held special significance for the Tribune Company. It owns both newspapers and television stations in five markets, four of which are in the top 20, and has so far operated through FCC waivers.17

In early 2007, the Tribune Company was sold to Samuel Zell, a Chicago investor best known for his real estate activities, who hoped to have his purchase approved and completed so he could take the company private by December 31 to avoid financial penalties.

In late November, the FCC gave the company a permanent waiver for its properties in Chicago and two-year waivers to cover its other four markets, effective January 1, 2008. The waivers saved the newly formed company more than $100 million in compensation for the higher payments that would have been owed to shareholders to cover the rise in share price in 2008 (estimated to be 8 percent).18

Even with the ruling, the Tribune Company, hoping for permanent waivers for all markets, filed a notice of appeal challenging the FCC’s decision. According to the trade press, if Tribune loses its appeal, it still has the waivers. But if it wins, it could mean the cross-ownership rules as a whole get overthrown. The changes also affect other media companies, but to a lesser degree. Both News Corp. and Gannett benefit from the rule relaxation since they owned properties in the top markets, while Media General, which had four waivers for its properties in smaller markets, was given permanent waivers, much like Tribune.19

The Top Local TV Companies by Revenue

For now, and for the foreseeable future, the local TV industry continues to be dominated by familiar names, as least as of 2006, the last full year revenues are available.

If we look at the top parent companies that year, three media conglomerates led the local television industry. News Corp., which operates nationally through the Fox Television group, continues to earn the highest revenues in the television sector. General Electric follows with its NBC stations and the CBS Corp. (formed after it split from Viacom in 2006).

Top Local TV Parent Companies by Revenue
February 2008

Rank
Name of Company Number of Local Stations it Owns
1
News Corp.
35
2
NBC/ GE
32*
3
CBS Corp.
31
4
ABC/ Disney
10
5
Tribune Company
27
6
Gannett
23
7
Hearst Corp.
26
8
Belo Corp.
23
9
Broadcasting Media Partners
69
10
Raycom Media Inc.
42
11
Sinclair Broadcast Group
58
12
Cox Enterprises Inc.
15
13
LIN TV
45
14
E.W. Scripps Co.
10
15
Washington Post Co.
6
16
Media General
22
17
Meredith Corp.
26
18
Gray Television
34
19
FoxCo Acquisition LLC
9
20
Sunbeam Television
3

Source: BIA Media Access Pro, February 21, 2008
Note: Companies ranked according to their 2006 revenues; *NBC/GE owns 10 NBC Television stations, one independent station and 16 Spanish-language stations through Telemundo.

Big Four Networks Dominate

When it comes to content, most U.S. television stations get programming from one of the Big Four networks — ABC, CBS, Fox and NBC.

These four companies make revenues not just from the local stations they own and operate (called “O&O”s), but also from the affiliates to whom they supply programming.

They do not, however, necessarily own a large number of stations. Among the Big Four, Fox (News Corp.) owns the most stations, 35. (Fox entered into a deal to sell 9 of these stations, and when the deal is complete, will have 26 stations.) The CBS group had 29 stations. NBC and ABC are next with 10 each.20 The big station owners are groups like Broadcasting Media (with 69 stations), Sinclair (58) and LIN TV (45).

According to the BIA financial network database, there were more than 800 local television station owners in 2007, and as stations get bought and sold, and private equity firms enter the market, the number of players who want to be part of the local TV business seems to see no signs of slowing down.

Footnotes

1. BIA Financial Network, “BIA Financial Network Reports $22.2 billion in 2007 TV Revenues; Predicts 11% growth in 2008 due to strong political year that will affect specific DMA markets,” BIA Press Release, January 10, 2008.

2. Mark Fratrik, “Five Reasons Why TV Stations Are a Good Buy,” BIA Perspectives (Newsletter), August 3, 2007.

3. Michael Malone, “Retransmission stalemate: no end in sight,” Broadcasting & Cable, December 10, 2007; Jon Hemingway, “Sinclair Retransmission-Consent Deals Boost Q3 Revenue,” Broadcasting & Cable, October 31, 2007

4.David Goetzl, “LIN TV: Builds Biz, Doesn’t Sell,” MediaPost, December 10, 2007.

5. Jon Hemingway, “Credit Crunch Slows Media Deals,” Broadcasting & Cable, August 8, 2007.

6. Andrew Edwards, “Lincoln Sells TV, Radio Stations for $683 million,” Wall Street Journal, November 12, 2007

7. Associated Press, “News Corp. says it plans to sell 9 Fox-affiliated TV stations,” International Herald Tribune, June 13, 2007; Michael Schneider, “Fox drops TV stations for Dow bid,” Variety, June 13, 2007

8. George Avalos, “KRON-TV puts itself up for sale,” San Jose Mercury News, January 10, 2008.

9. Chris Churchill, “Is TV Station on the Block?” Times Union ( Albany, N.Y.), February 5, 2008

10. Michael Malone, “Heavy Layoffs at Young Broadcasting,” Broadcasting & Cable, January 13, 2008.

11. Martin’s proposal would allow a newspaper to own either a television station or radio station, but not both, in the same market. It would permit a newspaper to buy a television station only if the deal would leave at least eight other independently owned newspapers or television stations in the city. And it prohibits a newspaper from buying one of the top-four rated television stations in a city. It also states that there must be at least eight other “media voices” in the market as well. Frank Ahrens, “FCC Chief Offers New Plan on Cross-Ownership,” Washington Post, November 14, 2007. Also, Corey Boles, “FCC Plan on Media Ownership May Ease Tribune Deal,” Wall Street Journal, November 13, 2007.

12. “The Newspaper/Broadcast Cross-Ownership Prohibition (1975),” Federal Communications Commission Consumer Facts: http://www.fcc.gov/cgb/consumerfacts/reviewrules.html.

13. Kevin J. Martin, “The Daily Show,” New York Times, November 13, 2007.

14. Stephen Labaton, “Few Friends for the Proposal on Media,” New York Times, November 13, 2007.

15. John Eggerton, “Dorgan, Obama, Other Sens. Move to Block FCC Media-Ownership Vote,” Broadcasting & Cable, November 8, 2007.

16. Amy Schatz and Corey Boles, “FCC Votes to End Media Ownership Rules,” Wall Street Journal, December 19, 2007; Frank Ahrens, “Divided FCC Enacts Rule of Media Ownership,” Washington Post, December 19, 2007.

17. If the rules are relaxed, the company could keep both newspaper and television holdings in its four top markets – Los Angeles, Chicago, New York and Miami – but would have to sell either its newspaper or television station in Hartford, Conn. See Jim Puzzanghera, “Bad reviews pile up for FCC chief’s plan,” Los Angeles Times, November 19, 2007.

18. Stephen Labaton, “Few Friends for the Proposal on Media,” New York Times, November 13, 2007.

19. Corey Boles, “FCC Grants 42 Waivers from Cross-Ownership Rule,” Free Press, December 17, 2007.

20. Station tally as of February 2008; See ABC, CBS, NBC and News Corp. Web sites for updated figures. Please note that stations numbers reflect the company’s holdings on the day we cull data, and may have changed by the date of publication of this report.