|By the Project for Excellence in Journalism
The ownership picture for local TV news began to change in 2006, after years of holding fairly steady.
And if the FCC goes forward with plans to deregulate the industry — plans stalled in recent years —that landscape may change even more significantly.
A Season of Sales
There are more than 700 local television news stations across the country owned by more than one hundred different companies.
And in 2006, local television stations changed hands at a level of transaction activity that hasn’t been seen since the late 1990’s and early 2000’s.
According to a BIA Financial Network report released in July 2006, a total of 88 television stations had been sold in the first six months of 2006, generating a transaction value of $15.7 billion. In 2005, the same period saw the sale of just 21 stations at a value of $244 million (the total year saw transactions worth $2.86 billion.)
Most of the 2006 transactions took place from May through July in the smaller markets and among smaller companies. Companies like Pegasus Communications, Daystar Television Group, Equity Communications, among many others, sold and bought TV stations in smaller markets like McAllen, Tex., Portland, Maine, and Tulsa, Okla.1 And in April a larger player, Media General, bought four stations from NBC for $600 million.
One company that was in the news for its sale of news stations was Emmis Communications. The company went forward in 2006 with plans, discussed in last year’s report, to bow out of the TV business completely to concentrate on its radio holdings. It will sell the last of its TV stations (New Orleans) in 2007 . It sold its first nine in 2005 for $481 million over their book value. SJL communications, the LIN Television group and the Grey Television group snatched up the Emmis stations to become even larger groups.
Though official totals have not come in yet, the second half of 2006 was active as well, and saw some bigger media companies enter the sales fray. In August, for example, Raycom Media sold 12 of its stations in nine markets to the Barrington Broadcast group (this came after acquiring 15 stations from the Liberty Group in the summer of 2005).
As a part of a much larger ownership story in 2006, the Tribune Company was contemplating selling its broadcast holdings in its plan to overhaul itself (also see Newspaper Ownership). It owns 23 TV stations in the bigger markets, including three in the top three markets: KTLA in Los Angeles, WGN in Chicago and WPIX in New York. In November 2006, the Los Angeles Times reported that the company had begun offering those three stations to potential buyers.2 The plan to sell the Los Angeles and New York stations was probably spurred by the fact that the broadcast licenses were set to expire (in December for the Los Angeles station and June, 2007 for New York).3 If the stations were not sold by the expiration dates, Tribune would be in violation of the FCC’s cross-ownership rule. The rules, which Tribune has lobbied against, prohibit ownership of both a newspaper and a television station in the same market. It owns the Los Angeles Times and Newsday in New York (more below on the FCC regulations).
Also in late November 2006, Clear Channel Communications announced that it was being sold to an investment group led by the private equity funds Bain Capital and Thomas H. Lee Partners. Better known as the largest radio company is the U.S., Clear Channel also owns 51 local television stations. As its radio revenues and stock prices fell in recent years, analysts expected Clear Channel to sell all its television stations to reduce debts (also see Radio Chapter).4
In January 2007, the New York Times Company confirmed the sale of its Broadcast Media Group — all nine of its TV stations — to a private equity firm for $575 million.5 The deal, which is expected to close in the first half of the year after meeting regulatory approval, exceeded analysts’ projections.6 According to Barron’s Weekly, the private equity firm that bought the stations paid about $150 million more than was expected.7 When the company first announced its decision to sell the television unit, in September of 2006, analysts were upbeat about the sale, viewing it as a smart move that would allow the company to focus on its other assets. And they said it gave other TV groups a chance to create duopolies in those markets. The television unit accounted for just 4% of total revenues, and according to a spokesman for the Times Company, the sale would allow the company to focus more on its print newspaper and digital properties.
Why all the sale activity in 2006? And what does it suggest about the health of the industry?
The sales of stations left analysts feeling good about the local television market as a whole. Many see the sales as smart business decisions. Selling the stations was one way for companies to trim their low-performing assets and focus on the cost-effective ones. Companies like Tribune and Clear Channel are a case in point. For the buyers, on the other hand, adding the stations was seen as a means to improve revenue, cash flow (profits) and the overall value of the buying groups. Some of the acquisitions added digital capabilities (such as digital weather broadcasts). Having local TV stations with those capabilities could give companies an edge in the emerging media market.
The rising level of transactions was also considered an indicator of the overall health of the business. The sales, like those of the New York Times’ stations, showed that private equity firms are quite interested in TV stations. That, in turn, helped boost television station stocks on Wall Street. Indeed, media reports indicate that the stock market seems to have a lot of faith in broadcast television, especially in those stations operating in the mid-sized markets. Investors apparently believe such stations will prove to be more durable than newspapers, thanks in part to the popularity of local news broadcasts. Further, the markets they operate in aren’t that threatened by the Internet, which is more of a worry for stations in the biggest markets.8
The Local TV Landscape: Networks Dominate
More than 90% of the TV stations in the U.S. are affiliates of one of the four biggest television networks — ABC, CBS, Fox Television and NBC (collectively known as the Big Four).9 That is, they carry national news and programming produced by those networks.
According to the BIA database, NBC and Fox have the largest share of affiliates among the Big Four — neck-to-neck with about 30% each of all network affiliates. CBS comes in third with a 26% share and ABC is fourth with 9% .
Number of Network Affiliates with News Directors
Source: BIA Media Access Pro, July 2006
A total of 748 local news stations were affiliated with one of the four groups in 2005. That reflects a 10% growth in network affiliates in the seven years, up from the 680 stations in 1999.
NBC and Fox have seen the largest increase in affiliated stations, adding 31 and 16, respectively, between 1999 and 2005. CBS is not far behind at 14. ABC has the smallest presence in the local-market scene with just 65 affiliates, and as of 2005 had added only 7 stations since 1999.
Network Owned and Operated Stations
The networks themselves own only a handful of local television stations — known as their ‘owned and operated’ (O&O) stations, though usually they are the biggest stations in the biggest markets. That reach would likely have grown even more had the FCC succeeded in plans earlier in the decade to ease ownership caps. And in 2007, the FCC is looking again at doing so.
The owned and operated local stations produce a sizable share of the networks’ profit, and those stations’ revenues often exceed what the networks generate from their own programming.
Among the Big Four networks, CBS Television owns the most stations, 39. The Fox Television group now follows with 35. NBC is next with 14, and ABC owns and operates 10.10
The CBS Corporation has one or more stations in 9 of the top 10 markets in the country. The 35 stations owned and operated by Fox itself (News Corp.) also include a station or more in 9 of the top 10 markets (reaching approximately 45% of the country). NBC reaches 7 of the top 10 markets with its O&O’s, about 34% of the viewers in the country, including those who watch its Spanish-language Telemundo stations. ABC stations can be found in 6 of the top 10 markets.
Fox Network: Expanding locally
News Corp.’s presence in the local TV marketplace began two decades ago, in 1986. Originally, its national and international news content came from CNN. But Rupert Murdoch began to change things in 1992, when he decided to make Fox newscasts look different from the competition. Roger Ailes, who heads the cable channel as well as the local television group, announced in 2006 that they would no longer buy external news feeds. The decision worried a number of local-station news directors, given the limited nature of Fox News’s overseas coverage.11 They may not have to worry for long. In media interviews in October 2006, Murdoch and Ailes said they were working on building international coverage and on improving the synergy between their local and cable news operations.
Indeed, many of the local Fox newscasts are borrowing the stylistic elements that have made the Fox News cable channel a success — high-end graphics, sets and a ‘down to earth’ commentary style. The editorial content, though, according to Ailes, is under their own control. As he told the Financial Times, “we look at talent… and we look at graphics and marketing… but editorially these stations operate independently.”12
After a substantial amount of talk about it in 2005, Fox in 2006 still did not launch its own national evening newscast. Instead, it devoted its energies to creating an even stronger morning news presence.
In January 2007, it launched a live national morning show to compete with the other networks’ offerings. The hour-long “Morning Show with Mike and Juliet” runs a mix of news and entertainment from 9 a.m. to 10 a.m. The hosts are Mike Jerrick and Juliet Huddy.13 The two were anchoring the (cable) Fox News Channel’s popular daytime show “Day Side” till September 2006. The new show is meant for all the Fox owned and operated stations, though it wasn’t decided whether it would also air on the Fox affiliates. The show is expected to be more entertainment and lifestyle focused, rather than hard news, and targeted at a female audience.
The Top Local TV Companies by Revenue
The four commercial networks, ABC, CBS, Fox and NBC are not only among the biggest owners by number of stations and audience reach. They also dominate the industry based on revenue. That dominance continued in 2006.
The creation of the CBS Corporation in 2006, through a splitting up of the former parent company, Viacom, made it the second-biggest local-TV group in terms of revenue after Murdoch’s News Corp (see Network TV Ownership). It overtook NBC, which dropped to third place. ABC/Disney overtook Tribune to come in fourth.
Tribune’s drop to fifth place could be attributed to its relinquishing its share in the new CW network, which was created by CBS and Time Warner (Time Warner, incidentally, is ranked 50 in the BIA list of top parent companies).
The CW network is now all entertainment programming. It is expected that any news on those stations would initially come from existing partner news departments, such as those that were running news on the former UPN and WB stations that make up CW. Perhaps, if the network does well, it could build its own news departments or add stations that air news in the coming years.
Top Parent Companies by Revenue
Source: BIA Media Access Pro, September 2006
The FCC Regulations
One big concern facing all television stations is the longstanding question of what kind of federal regulations will be applied to media ownership. The Federal Communications Commission (FCC), the body in charge of laying down the rules, has had no success in arriving at a consensus on critical questions such as putting a cap on how many media properties a company can own or newspaper-television cross-ownership.14
The ownership rules were last revised in 2003 and then rejected by a federal court in 2004 (see previous reports). In June 2006, the FCC finally voted to revisit the controversial topic.
The first stage of that endeavor comprises six public hearings, beginning in California in October 2006. The second was held in Tennessee in December. As of December, no final schedule for the remaining four had been established, but the FCC expected the hearings — to be held throughout the country — to be over by March 2007. The questions that most critics raise are whether the public debates will have any impact and how effective new regulations will be in a changing media industry.
The latest proceedings also take place in a very different media environment from the last time the FCC was reviewing ownership rules.
In 2003, big groups like CBS, Clear Channel and News Corp. were clamoring for more properties and for relaxing the cap on the number of stations a company can own in one area. Others, like the Tribune Company, were concerned about FCC regulations on newspaper-television cross-ownership.
Heading into 2007, the situation is vastly different. For one thing, Congress passed a law in 2004 that forbids any network to own a group of stations that reaches more than 39% of the national television audience. That is lower than the 45% limit set in 2003, but more than the original cap of 35% set in 1996 under the Clinton administration — leading public interest groups to argue that the proposed limits lead to a stifling of local voices.
With the question of limits in national reach off the table, the biggest media companies like CBS and Disney have less at stake and in fact are sitting out the public debates. Indeed, the Walt Disney Company said in October 2006 that it was not seeking any relaxation of the broadcast ownership rules.
But some big questions still remain. One is the status of newspaper-television cross-ownership. Currently prohibited, it refers to the “common ownership of a full-service broadcast station and a daily newspaper when the broadcast station’s area of coverage (or ‘contour’ as it is known in the industry) encompasses the newspaper’s city of publication.”15 The other is the capping of local radio and television ownership. While the original rule prohibited it, currently a company can own at least one television and one radio station in a market. In larger markets, “a single entity may own additional radio stations depending on the number of other independently owned media outlets in the market.”16
Most broadcasters and newspaper publishers are lobbying to ease or end restrictions on cross-ownership; they say it has to be the future of the news business. It allows newsgathering costs to be spread across platforms, and delivers multiple revenue streams in turn. Their argument is also tied to a rapidly changing media consumption market, and to the diversity of opinions available to the consumer with the rise of the Internet and other digital platforms.
The Fox Television group, for one, argued that the FCC rules are “archaic and counterproductive” and that viewers have a “plethora of viewpoints available today.” The Tribune Company, which has benefited from its waiver of cross-ownership restrictions for its newspapers and TV stations in New York and Los Angeles, also wants the rules overturned. The company says the rules prevent the public from getting high-quality programming, and contend that the growth of alternative news weeklies, Web sites and blogs ensures a diversity of news sources. Some may also think that their stations would be worth more if local newspapers were potential buyers.
The arguments against relaxing media ownership regulations are put forth by some powerful consumer unions and other interest groups. They say that consolidation in any form inevitably leads to a lack of diversity of opinion. For them, cross-ownership limits the choices for the consumer, inhibits localism and gives too much media power to one entity.
Professional and workers guilds of the communication industry (the Screen Actors Guild and American Federation of TV and Radio Artists among others) would like the FCC to keep in mind the independent voice, and want a quarter of all prime-time programming to come from independent producers. The Children’s Media Policy Coalition suggested that the FCC limit local broadcasters to a single license per market, so that there is enough original programming for children. Other interest groups like the National Association of Black Owned Broadcasters are worried about what impact the rules might have on station ownership by minorities.
As a footnote to the localism debate, the Sinclair Broadcast group took two controversial steps in 2006. First, it eliminated all of its newscasts on its WB (now Fox Television’s My Network TV) stations.17 In addition, its main news operation in Baltimore, News Central, ceased producing live newscasts and began focusing on supplying taped news packages to the other Sinclair stations (acting like a network to its affiliates). Many of the remaining Sinclair stations will continue to ‘outsource’ their news. In Las Vegas, Pittsburgh and Raleigh, for example, stations are all sharing newscasts to lower costs and reap ad-sales benefits. Those stations are contracting their network affiliates to produce their news.18
According to Sinclair executives, the main reason for the changes was economic. By canceling the newscasts, and reformatting News Central, Sinclair will save millions of dollars.
Critics argue that using such a centralized news arrangement defeats the point of local TV news. As the TV-news consultant Valerie Hyman is quoted saying, “Too much of the news came from a place where none of the viewers live. It was like dumbing down a newspaper.”19
Whatever the timeline, the question of media ownership promises to remain contentious.