By the Project for Excellence in Journalism
The ownership landscape for local television in 2008 changed less than many expected.
The sale of television stations, as with station revenues, tends to spike in years with elections and Olympics. But 2008 defied the pattern.
The number of transactions was a fraction of previous years. And industry analysts reported a backlog of stations for sale.1
The average sale price of stations, however, was up. Private equity investors were again major players in the deals that were concluded.2 Meanwhile, the stock values of publicly traded firms that own stations plunged (along with the rest of the stock market) as local ad revenues and tight credit markets took their toll.
Over all, the lineup of companies that owned the media continued to be dominated by the four big networks’ parent companies—News Corporation (Fox), General Electric (NBC), CBS and Disney (ABC) — as well as some companies that also own newspapers, such as Tribune, Gannett and Hearst-Argyle.
The private investors that led many purchases of television stations in 2007, including Hoak Media, Bonten Media Group and Oak Hill Capital Partners, bought fewer stations in 2008, mostly because financing for deals was hard to come by.
2008 Sales Few, Private Equity Dominates
The number of stations trading hands in 2008 was the lowest since 2004 and was less than half the figure reported in 2007. The total value of the transactions through October 2008 was less than a quarter of the value of transactions in 2007.
According to market research firm BIA Financial Network, 96 stations were sold from January to December 2008, with a total value of $866 million. This compared with 270 in 2007 for $4.6 billion. In total dollars, 2006 still stands out with $18.1 billion spent, largely due to the $13.7 billion of Spanish-language broadcaster Univision and a large number of sales involving stations with digital broadcasting capabilities and those in mid-sized markets, which financial analysts had predicted to grow following the digital conversion. (See State of the News Media 2007)
In 2008, the sales that fell through and the inventory of stations left unsold were in some ways more notable than the deals that closed.
In general, station groups seemed less willing to take on additional debt by making new purchases in 2008 than they had in the previous two years.
Heavy debt loads from financing sales of stations that proved to be worth less than originally estimated have put a financial strain on some ownership groups, especially ones that own fewer stations relative to big players in the industry.
Young Broadcasting, which bought KRON-TV in San Francisco in 2000 from Chronicle Publishing Company for $823 million, sought to unload it in 2008. 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. The station, which began operating as a MyNetworkTV affiliate in 2001, has seen its fortunes diminish since the change in affiliation. KRON brought in $57.2 million in 2007, according to BIA Financial, down from $160 million in 2006.
In August, Young wrote down $139 million in debt, reducing the station’s value to $227 million, while analysts placed its sale value somewhere between $125 million and $150 million in September.3 Even at a reduced price, the station remained unsold as of December 2008.
And in February 2009, Young — the owner of 10 stations in all — filed for Chapter 11 bankruptcy protection.4
Like Young, other station groups like Media General, also sought unload stations in an attempt to reduce debt.
Total Value of TV Station Acquisitions
|Design Your Own Chart|
Source: BIA Financial Network
Debt, and the inability to refinance it, was one of a range of financial strains that dampened the station sales market in 2008. Over the last several years, owners borrowed money to finance sales or the conversion to digital broadcasting at their stations.
Though stations have upgraded their equipment for digital television broadcasts, many — especially stations in smaller markets — are still paying off these investments.
Adding to the debt pressures that limited sales of television stations in 2008, a severe downturn in credit markets prevented sales that were in progress.
The bankruptcy and sale of the Wall Street investment banking firm Lehman Brothers in September scuttled the biggest single station deal that was agreed to in 2008. In October, the sale of Landmark Communications’ WTVF in Nashville to the private equity firm Bonten Media Group fell through. The sale, worth $209 million, was to have been financed by Lehman Brothers, which went bankrupt and was sold in September 2008.
Bonten operates 17 stations in nine markets. The group is led by former Emmis Communications president Randy Bongarten. Emmis had previously sold all of its local television properties. Landmark, a privately held company, sought to sell off all its broadcast media properties in 2008 to focus on its publishing, database marketing and career education businesses.
Adding to the fiscal strains, a slump in revenues in the slowing economy also eroded station appeal as advertising from retailers, especially car manufacturers and dealers and home goods resellers — the bread and butter of station ad revenue — plunged in the second half of the year on weak consumer sales.
Even the promise of a new advertising revenue source from additional content streams in the coming digital era failed to drive station sales.
And the growth of emerging revenue streams that once proved enticing to buyers failed to keep pace with declines in traditional advertising. These emerging revenues, mostly from station websites and the fees local cable operators pay to stations to distribute their programming to subscribers, have been the fastest-growing source of revenue.
In previous years, the rapid growth of this revenue had fueled interest in, and sales of, local television stations.
Not so in 2008.
One reason is that station websites, despite continuing to add more users, showed signs of slowing revenue growth in 2008.
Another hopeful source of new revenue for broadcasters has been slow to develop. The switch to digital broadcasting, required by February 2009, gives stations the ability to broadcast additional channels on the digital spectrum. This provides new opportunities for programming and ad sales, but it requires additional investment that not all stations were able to afford.
Mike Devlin, the president and general manager of WFAA in Dallas-Fort Worth, told PEJ in January 2009: “In this economic situation, stations are reluctant to invest in programming, which mostly comes from third parties.”
Devlin said marketers have been offering Spanish-language programming, movie networks and classic television to station managers to put on their digital sub-channels. But, he suggested, in the midst of a major advertising downturn, stations feared they may not be able to sell enough ads on the sub-channels to turn a profit. Compounding the problem, the ad rates are likely to be lower on the sub-channels. As of January 2009, BIA Financial Network estimated that about 350 stations in the U.S. were using a second digital sub-channel.5
With slumping traditional revenue, and insufficient gains from emerging businesses, the stock prices of local television companies hit their lowest point in 2008 since the recession of 1991-92.6
The collapse of the sale of WTVF as a result of Lehman Brothers failure was one of two major cancellations during 2008.
In December, NBC Universal’s intended sale of WTVJ in Miami to the Washington Post Company was canceled. The deal, which was set to close by the end of 2008, was estimated to be worth $205 million.7 Industry analysts had previously pegged the station’s value at $350 million to $400 million.8
NBC and the Washington Post Company announced in December that the sale would not go through because of “the current economic environment and the delay in receiving the necessary regulatory approval.”9
If the sale had been completed, the Washington Post Company, which owns WPLG, the Miami ABC affiliate, would have owned two stations in the market, the 16th-largest in the U.S. The ownership of two major network affiliates by one company made the deal subject to the approval of the Federal Communications Commission.
Analysts suggested that the Post Company would have sought to cut costs at the stations by sharing some operations, thereby reducing overhead.10
NBC’s attempted sale was indicative of a trend among the network parent companies to sell stations they operate outside of the 10 largest markets in the U.S. NBC Universal put WTVJ up for sale along with its station in Hartford, Conn., WVIT, to concentrate on stations in the most profitable markets.11 (WVIT remained unsold as of December 2008.)
In 2008, CBS completed its divestiture of 50 medium- and small-market stations, which it began in 2006. The company sold four stations to Four Points Media Group, a television station holding company founded by the private equity firm Cerberus Capital, for $185 million.12 Four Points bought two CBS owned-and-operated affiliates (KEYE-TV in Austin, Texas, and KUTV in St. George, Utah) and two MyNetworkTV affiliates (WLWC-TV in Providence, R.I., and WTVX-TV in West Palm Beach, Fla.).
Other sales during the year involved companies in financial distress.
One such company was Pappas Telecasting, a privately held commercial television group that owned 27 stations at the start of 2008. It filed for bankruptcy in May and put 16 stations up for sale to pay down debt. Pappas sold eight stations in Nevada and California to Entravision, a Spanish-language media company for $4 million.13
Entravision is the largest affiliate group of both the Univision and TeleFutura networks. In December 2008, the New York Stock Exchange threatened to delist Entravision stock because it had fallen below $1 a share during the previous 30-day period. The company was given six months to raise its stock price to above $1 before being delisted.14
Another Pappas station was sold only after the FCC was convinced that the station was at risk of being shut down. The station, KWBA of Tucson, Ariz., was bought by the Journal Broadcast Group. Because Journal owned another station in the market, the deal required the FCC to waive its limit on multiple stations in the same market being owned by the same company. (Waivers can be granted if the station’s only other option is closing or operating at a competitive disadvantage.)
As a part of the deal, Journal agreed to broadcast a 30-minute daily newscast on KWBA, which had not had a newscast since 2005.
The remaining Pappas stations were put up for sale at bankruptcy auction in December 2008.
In January 2009, Pappas sold its remaining 10 stations to New World TV Group at bankruptcy auction for $260 million. The buyer group was made up primarily of the Pappas creditors. The stations include KMPH-TV (Fox) and KFRE-TV (CW), both Fresno-Visalia, Calif.; KTNC-TV (TuVisión), San Francisco-Oakland-San Jose, Calif.; KAZH-TV (TuVisión), Houston; KPTH-TV (Fox) and KMEG-TV (CBS), both Sioux City, Iowa; KPTM-TV (Fox) and KXVO-TV (CW), both Omaha, Neb.; KDBC-TV (CBS) El Paso, Texas; KCWK-TV (CW), Yakima-Pasco-Richland-Kennewick, Wash.15
Often, broadcasters sold stations to raise cash for debt payments.
Media General, a company with interests in newspapers, television stations and interactive media situated primarily in the Southeast, sought to sell five stations, hoping to raise $100 million that it said it wanted to use to pay lenders.
As of December 2008, the company had sold four of them, with the sale of WCWJ in Jacksonville, Fla., pending. Media General sold WTVQ in Lexington, Ky., in May to Morris Network; WNEG in Toccoa, Ga., to the University of Georgia Foundation in June; WMBB in Panama City, Fla., and KALB (a joint NBC/CBS station) in Alexandria, La., to the private equity group Hoak Media in July.16
Observers of the local television industry have described a confluence of factors as contributing to a drought of sales in 2008. These include problems in the wider economy, such as a tight credit market and less investment over all, and problems specific to the industry, such as declining revenue from advertising.
For the remainder of 2009, industry forecasts predict continued weak revenues from traditional advertising and a slowdown in new revenue streams.
Big Broadcaster Files for Bankruptcy Protection
Another major ownership development in local television was that Tribune Company, the owner of 23 local television stations, filed for bankruptcy protection in December 2008.
The company, which owns stations and newspapers in the top five media markets and many other big markets, will likely look to sell the 13 CW, 7 Fox, 2 MyNetworkTV and the single ABC station it owns in 2009. But if the sales market for stations continues its slump, as some observers have suggested, Tribune could have trouble selling even its most valuable stations.17
A number of analysts expect sections of Tribune to be auctioned off in pieces.18 In 2007, the Chicago billionaire real-estate investor Samuel Zell bought the Tribune Company and became its chairman and CEO. The Federal Communications Commission granted a waiver of rules limiting the cross-ownership of newspapers and television stations to allow Zell’s purchase of the company.
Beyond its actions on individual waivers, in 2007 the FCC relaxed rules that limit companies from owning properties across media in the same market.
Presenting what he called a compromise, Kevin Martin, the FCC chairman at the time, 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.
The FCC’s 2007 measure grew out of a more far-reaching deregulatory plan proposed by Michael Powell, another previous FCC chairman, in 2003 (see previous reports). After the Powell measure was overturned in federal court, the more limited one from Martin was intended to have a stronger legal basis and also to articulate the middle ground between opposing sides.
Instead, however, the latest cross-ownership decision has opened the floodgates to challenges of the policy from both sides. It has been opposed by pro-regulatory groups that say the FCC went too far in relaxing the rules as well as by industry groups that want the ban lifted for all markets.
Tribune challenged the FCC’s rule relaxation, hoping for the deregulation of ownership in all markets, not just the top 20. It is unclear how Tribune’s bankruptcy will impact the proceedings. Media General, which had four waivers for its properties in smaller markets, was given permanent waivers, much like Tribune.
Martin said in 2007 that the partial lifting of the ban was meant primarily to improve the flagging health of newspapers.
The two national groups representing the industries most directly affected by the proposed rule change, the Newspaper Association of America and the National Association of Broadcasters, support deregulation on cross-ownership and argue that FCC didn’t go far enough in 2007.
The only media industry group to join the pro-ban chorus in 2008 was the Computer and Communications Industry Association (whose members include Microsoft, Google, T-Mobile USA and Yahoo), which opposes further consolidation of communications channels.19
With broadcasters and activists both trying to get cases challenging the FCC’s rules moved to other courts, a ruling on the commission’s cross-ownership is not likely to be issued soon.
The uncertain future of the rules on ownership did not, by itself, stunt station sales in 2008. The FCC normally grants temporary cross-ownership waivers to allow sales that would be affected by the 1975 ban. If the 2007 decision is upheld in court, however, the rules could fuel a spate of sales, at least in the short term.
The composition of the FCC and the Justice Department in the Obama administration will no doubt affect the future of cross-ownership. Less clear is President Barack Obama’s position on the rule. There have been some indications that Obama will work to roll back the FCC’s loosening of the newspaper-broadcast cross-ownership rule.20
The top-earners in the local television industry continue to be familiar names, as least as of 2007, the last full year for which revenue figures 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 then comes CBS.
Top Local TV Parent Companies by Revenue, 2007
Source: BIAfn MediaAccess Pro
Big Four Networks Dominate
When it comes to content, most U.S. television stations get programming from one of the four large networks — ABC, CBS, Fox and NBC.
These four companies make money from supplying programming to their affiliates. They do not, however, necessarily own a large number of stations. Among them, NBC owns the most stations, 34. In 2008, CBS sold four stations, Fox sold nine stations and NBC sold four. ABC ownership has remained basically unchanged from 2007.
The CBS group has 31 stations and ABC is next with 10.21
The big station owners are groups like ION Media Networks (with 63 stations), Sinclair (55), LIN TV (50) and Raycom (41). Since 2007 Raycom acquired two stations and LIN acquired five, while Broadcasting Media Partners sold six and Sinclair sold eight.
1. Robert Marich, “Private Equity: Buying In To Cash Out,” Broadcasting & Cable, August 25, 2008
2. Robert Marich, “Private Equity: Buying In To Cash Out,” Broadcasting & Cable, August 25, 2008.
3. Michael Malone, “Life Goes On at KRON,” Broadcasting & Cable, September 15, 2008.
4. Michael Malone, “Young Broadcasting Files For Chapter 11,” Broadcasting & Cable, February 14, 2009.
5. Allison Romano, “Cutting Bait on Subchannels,” Broadcasting & Cable, January 18, 2009
6. Robert Marich, “Analyst Frets Worst Economy in Two Decades for Media,” Broadcasting & Cable, September 27, 2008
7. “NBCU Miami Station Fetches Just $205M,” Broadcasting & Cable, July 28, 2008
8. “NBCU Miami Station Fetches Just $205M,” Broadcasting & Cable, July 28, 2008
9. Katy Bachman, “WTVJ Sale Terminated,” MediaWeek, December 24, 2008
10. “NBCU Miami Station Fetches Just $205M,” Broadcasting & Cable, July 28, 2008
11. Michael Malone, “NBC Puts Two Stations on Block,” Broadcasting & Cable, March 19, 2008
12. John Eggerton, “CBS Sells Four Stations to Four Points Media Group,” Broadcasting & Cable, January 10, 2008.
13. John Eggerton, “13 Pappas Stations File Chapter 11,” Broadcasting & Cable, May 12, 2008
14. “Entravision gets notice from NYSE,” Los Angeles Business from bizjournals, December 17, 2008. Online at: http://www.bizjournals.com/losangeles/stories/2008/12/15/daily17.html
15. John Eggerton, “Judge Approves Sale of Pappas Stations,” Broadcasting & Cable, January 16, 2009
16. Michael Malone, “Hoak Closes Purchase of WMBB, KALB/NALB,” Broadcasting & Cable, July 16, 2008.
17. Michael Malone, P.J. Bednarski and John Eggerton, “Tribune Files For Chapter 11,” Broadcasting and Cable, December 8, 2008
18. Michael Malone, P.J. Bednarski and John Eggerton, “Tribune Files For Chapter 11,” Broadcasting and Cable, December 8, 2008
19. John Eggerton, “Computer Companies Praise FCC Smackdown,” Broadcasting & Cable, May 16, 2008
20. Editorial, “Open Hopes,” Broadcasting & Cable, December 1, 2008
21. Station tally as of December 2008; See ABC, CBS, NBC and News Corp. Web sites for updated figures. 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.