The market for local television stations was more active in 2009 than a year earlier. But most of this activity was due to bankruptcies and the availability of distressed properties at often below market value.
Industry analysts predict that financing will be easier to get in 2010 and could spur more mergers and acquisitions.1 Still, financing sales will be harder than in the early part of the decade when the industry had revenue growth and station values rose.
But it remains an open question, beyond bankruptcies and bargains, how much interest investors will have in local television stations.
After a very slow year for mergers and acquisitions in 2008, the number and dollar value of transactions grew in 2009. The totals, however, still remained below levels reached earlier in the decade.
- A total of 76 transactions were completed in 2009, compared with 46 in the same period in 2008.
- The total value of the transactions through October 2009 was up 33%, to $715 million, compared with $537 million during the same period in 2008. The increase though, came from bigger volume rather than greater value for the sales.
Total Value of TV Station Mergers and Acquisitions
|Design Your Own Chart|
Source: BIA/Kelsey Group
Three such companies accounted for almost three-quarters of all sales in 2009.
Young Broadcasting, owned 10 television stations when it filed for bankruptcy protection in February 2009.3 In July 2009, Young’s creditors took over all the stations, for a total price of $220 million.4 The creditors hired Gray Television, a company that owns 36 television stations, mostly in Southeastern states, to operate seven of their stations there.5
Pappas Telecasting, another television group that had filed for bankruptcy protection in 2008 (Click here to read more about Pappas) also sold its 10 remaining stations in 2009. In January 2009, Pappas, a privately held company, sold at bankruptcy auction its last stations to private-equity backed New World TV Group for $260 million.6 New World is backed by Fortress Credit Corp., Cerberus Capital Management and Angelo Gordon & Co., private equity companies.7
Equity Media, which had filed for Chapter 11 bankruptcy protection in December 2008, sold off all of its U.S. television properties in 2009. From June to August, it sold its 22 English-language and 19 Spanish-language stations for a total of $23.3 million.8
The stations were purchased by a number of buyers including Daystar Television Network, a Christian television network; Tyler Media Corporation, a small Oklahoma-based broadcasting company, and Silver Point Capital LP, a privately owned hedge fund sponsor.
Other companies faced debt-related financial problems. Most stemmed from debt that groups carried after borrowing money to acquire stations in recent years.
The largest among these companies, Sinclair Broadcasting, is a Baltimore-based company that operates 58 stations in 35 markets. In a regulatory filing in the summer of 2009, it warned investors that bankruptcy was possible if it could not negotiate a restructuring of its debt.9
Wall Street analysts expect that lenders will extend more credit for media companies in 2010.12 Mark Fratrik, vice president of the media and communication consulting firm BIA/Kelsey Group, told PEJ in November 2009 that as credit markets loosen limitations on borrowing, more local television mergers and acquisitions will occur.13
Diane Mermigas, a media columnist and a consultant to this report, is cautious about the prospect of a reinvigorated market for local TV stations in 2010. “Banks lend on the basis of revenue and earnings growth projections and track records — all of which are abysmal,” she said. She added, “Despite the uncommonly desperate times, that generally is something lenders do not overlook or easily dismiss.”
Despite uncertainty, four factors could push sales up in 2010:
- Political spending on midterm Congressional and other local races in 2010 is likely to energize the ad market, making stations more attractive to investors.14
- Stocks of companies were relatively cheap as of the fall of 2009, setting the stage for bargain buys.15
- The possibility of a change in the federal regulations restricting the common ownership of newspapers and television stations in a single market.
- Comcast’s purchase of a controlling interest in GE-owned NBC Universal.
The most significant driver of potential sales throughout the industry would be a change in the federal regulations restricting the common ownership of newspapers and television stations in a single market.
In late 2009, the Federal Communications Commission began its quadrennial review of ownership rules. The review is due to be completed in 2010.
It is not clear whether the FCC is leaning toward loosening ownership rules. The commission’s rules have been in limbo since 2003, when the Third U.S. Circuit Court of Appeals ruled to halt then-FCC Chairman Michael Powell’s plan to allow the common ownership of a newspaper and a television station in the same market.16
Under a “ failed station” clause in its rules, the commission has permitted the transfer of financially distressed stations even if that further consolidates media ownership in a market. But station owners argued that the dire financial results of 2009 meant that further deregulation was needed to save weak stations before they failed.
In a November 2009 hearing on the rules review, Hearst Television’s president, David Barrett, told the FCC that station owners needed to consolidate further to achieve economic efficiencies in order to preserve local television.17 Hearst and other broadcasters argue that the existing ownership rules prevent them from competing with cable, satellite and Internet companies that are not subject to the same restrictions.
Pro-regulation groups including Free Press and Media Access Project, and religious organizations including United Church of Christ counter that economic distress in the industry is a product of a cyclical economic downturn. These anticonsolidation groups argue the FCC should not deregulate as a way to support local television owners.18
If media ownership rules were loosened, the policy change could well mean a higher volume of station sales in 2010.
The December 2009 agreement for Comcast to buy a controlling interest in NBC Universal from General Electric could have a major impact of the ownership of stations among the top four networks.
Although a court decision in 2002 overturned FCC rules that prevented a company from owning a cable system and a local television station in the same market, the commission is required to review the transfer of broadcast licenses.19
Glenn Manishin, a former antitrust counsel and trial attorney at the Justice Department’s Antitrust Division, which also reviews media industry mergers and acquisitions, told the DailyFinance website in December that the commission’s regulatory scrutiny may pressure Comcast to sell off some or all of its local stations.20
The FCC and the Justice Department will review the deal.21 Once the review begins, the process could take as long as six months.22 And even after the deal clears regulatory hurdles, it could take the two companies months to integrate their businesses.23
The top four networks — ABC, CBS, Fox and NBC — still dominate local television ownership, even after selling off a majority of the stations they owned and operated to other companies earlier in the decade.
Ranking the ownership groups by 2008 revenues, the latest year for which data are available, Fox was first with $1.8 billion from its 28 stations, CBS second with $1.6 billion from 31 stations, NBC third with $1.5 billion from 33 stations and ABC fourth with $1.1 billion from just 10 stations.
Revenues of the top four represented 30% of total industry revenue for the year. According to PEJ analysis of BIA/Kelsey Financial data, the four companies took in $6.1 billion combined in 2008, out of $20.1 billion industrywide.
Based on industrywide revenue estimates, thetop four’s revenues in 2009 could be much lower.
Expanding the scope, the top 30 owners of television stations took in 80% of total industry revenue in 2008.
All but three of these, however, had lower revenues than in 2007.24
Among the biggest losses:
- Local TV LLC, owned by private equity firm Oak Hill Capital Partners, was down the most. Revenues declined 65.7% — or $316 million – to $165 million in 2008, from $481 million in 2007.
- Newport Television, which operates 56 stations in 24 markets after acquiring Clear Channel Television in 2008, was down 41% to $190 million in 2008, from $323 million in 2007.
- Miami-based Sunbeam Television Corp., the private owner of Fox affiliate WSVN in Miami, NBC affiliate WHDH in Boston and WLVI, a CW affiliate in the same market. was down 15% to $217 million in 2008, from $256 million in 2007.
These losses were the extreme. All other losses remained at or below 11%.
Three companies among the top 30 had revenue increases in 2008:
- McGraw-Hill increased its earnings from four ABC affiliates 6.3% to $130 million in 2008, from $122 million in 2007.
- Washington Post Company had an increase of 3.6% from its six local television stations to $420 million in 2008, from $406 million in 2007.
- Nexstar Broadcasting Group saw revenues increase 1.5% to $185 million in 2008, from $183 million in 2007.
Revenues at LIN TV remained basically unchanged from 2007 to 2008 at $401 million.
1. Mark Fratrik, e-mail communication with PEJ, November 16, 2009.
2. Strategic buyers are those who have an interest in a specific type of business and are likely to be competitors, customers or suppliers of some kind. By contrast, financial buyers are typically interested in acquiring companies regardless of the industry and often intend to enhance the company’s value only to resell it.
3. David Goetzl, “Bankers To Buy Young Broadcasting For $220 Million,” MediaPost News, July 15, 2009. The deal was completed through an equity-for-debt exchange, in which Young’s debt holders took the company’s assets in exchange for the cancellation of its sizable debt.
4. In 1999, Young bought San Francisco station KRON-TV from Chronicle Publishing Company for $823 million. At the time of the sale, industry analysts thought Young, which outbid NBC for the station and as a result lost its NBC affiliation, paid too much for the station, and revenues have declined since. According to BIA Financial, the stations brought in $190 million in 2008, led by KRON with $41.8 million.
5. “Gray Selected as Management Advisor for Seven Television Stations,” Gray Television press release, July 30, 2009.
6. “New World Gets Pappas TV for $260 M,” TVNewsCheck, January 16, 2009. New World is backed by private equity companies Fortress Credit, Cerberus Capital Management and Angelo Gordon & Co.
7. “New World Gets Pappas TV for $260 M,” TVNewsCheck, January 16, 2009.
8. Buyers included small media companies, private equity firms. Some creditors, including the Bank of Little Rock and Valley Bank, took possession of some properties.
9. Nat Worden, “Sinclair Warns of Bankruptcy If Debt Isn’t Restructured,” Wall Street Journal, July 14, 2009.
10. Nat Worden, “Sinclair Warns of Bankruptcy If Debt Isn’t Restructured,” Wall Street Journal, July 14, 2009.
11. Nat Worden, “Sinclair Warns of Bankruptcy If Debt Isn’t Restructured,” Wall Street Journal, July 14, 2009.
12. Claire Atkinson, “Media Trigger Fingers Get Itchy,” Broadcasting & Cable, September 14, 2009.
13. Mark Fratrik, e-mail communication with PEJ, November 16, 2009.
14. TNS/CMAG forecast, September 2009.
15. Claire Atkinson, “Media Trigger Fingers Get Itchy,” Broadcasting & Cable, September 14, 2009.
16. John Eggerton, “Cross-Ownership Changes: Wait Till Next Year,” Broadcasting & Cable, December 7, 2009.
17. John Eggerton, “Broadcasters to FCC: Digital Age Increasing Competition, Ownership Rules Harmful,” Broadcasting & Cable, November 4, 2009.
18. John Eggerton, “Public Interest Groups Argue Against Loosening of Ownership Rules,” Broadcasting & Cable, November 3, 2009.
19. Sam Gustin, “The Comcast-GE deal includes NBC local stations—triggering regulatory scrutiny,” Daily Finance, December 1, 2009.
20. Sam Gustin, “The Comcast-GE deal includes NBC local stations—triggering regulatory scrutiny,” Daily Finance, December 1, 2009.
21. Kelly Riddell and Justin Blum, “Justice Department to Study Comcast Takeover of NBC,” Bloomberg.com, January 6, 2010.
22. Sam Gustin, “The Comcast-GE deal includes NBC local stations—triggering regulatory scrutiny,” Daily Finance, December 1, 2009.
23. Wayne Friedman, “Comcast-NBC Integration To Come Long After Other Marketplace Changes,” MediaPost Publications, December 8, 2009.
24. Some revenue fluctuations from 2007 to 2008 are attributable to the number of local TV stations a group owns, which can vary based on the sale or purchase of stations.