Media General-Young 'Perfect Marriage' Enhances Broadcasters' Clout

McDermott to oversee stations; at 14% of U.S. coverage, merged group on par with Belo, Nexstar

By Michael Malone -- Broadcasting & Cable, 6/6/2013 12:10:54 PM

RELATED: Media General, Young Broadcasting Plan Merge

UPDATED: Media General and Young Broadcasting shocked many in the broadcast world with word of their planned merger. The new entity will comprise 30 affiliated stations in 27 markets, reaching 14% of U.S. households, and will be known as Media General.

"This is a truly transformational event for Media General," said George Mahoney, president and CEO of Media General. "We look at it as a perfect marriage for two like-minded broadcasters."

Station groups are under considerable pressure to grow their footprint, resulting in an unparalleled degree of consolidation.

Investors on a conference call announcing the merger largely applauded the new Media General. "It's not quite the outcome we expected, but it really is quite brilliant," said Barry Lucas, senior analyst at Gabelli & Co.

The merger is expected to close late in the third quarter or early in the fourth.

Mahoney is president and CEO of the expanded group. Deb McDermott, president and CEO at Young, will report to Mahoney and will oversee the TV stations as senior vice president. Young VP of station operations Bob Peterson will likely be one of three vice presidents in the broadcast division, along with Media General veterans Jim Conschafter and John Cottingham. 

"This is really something our shareholders and our company had been looking for," McDermott told B&C, "to have a good partner and have more of a presence in the business -- to be larger and be stronger."

Time will tell what Media General does with KRON San Francisco, which Young famously paid $823 million for in 2000, which lost its NBC affiliation and which crippled the broadcaster's financial situation and in large part pushed Young into bankruptcy.

The Young stations, including WKRN Nashville and WTEN Albany, have stood on solid footing since emerging from Chapter 11 in 2010, which wiped away $800 million of debt.

Mahoney applauded the efforts at KRON. "Young has done a terrific job taking that station from something that was in a cash-flow deficit situation and turning it to a cash-flow positive," he said. "They run 55 ½ hours a week of local news, which is remarkable for any station. We're very impressed with what they've managed to accomplish. I think there are lessons there for Media General and maybe the industry. It's a really nice turnaround."

Media General's pro forma ownership split will be approximately 32.5% Media General shareholders and 67.5% Young shareholders. The companies have identified $25-$30 million of operating and financing synergies, and Mahoney said the new Media General will continue to seek out duopolies.

Young's duopoly markets include Lansing and Albany.

Media General unloaded its newspaper group last year, paving the way to faster growth as a pure play broadcaster. With 14% U.S. coverage, the expanded Media General will be on par with the likes of Belo (14.6%) and Nexstar (13.9%).

The planned merger comes at a time of rabid M&A in local television, as the pressure to maximize retrans payments from MVPDs and to exercise leverage in network agreements have compelled station groups to increase their might.

Sinclair and, to a lesser extent, Nexstar, have been extraordinarily active in growing their groups.

Nexstar president and CEO Perry Sook outlined his vision of the local broadcast landscape in 2020 to B&C early this year: 10-12 "major" station groups, comprised of the four network-owned outfits, and a half-dozen other players reaching 20% or more of the U.S., and booking around a billion in revenue.

"I would think within two to five years, you'll see the emergence of what I call three or four super-groups, and I think you'll see a couple emerge sooner rather than later," said Sook.

Smaller groups, he added, will have a very difficult time surviving.

Groups that have been absorbed in recent years include Freedom, New Vision, Communications Corp. of America and Barrington. Young Broadcasting, at least in name, will cease to exist as well after the merger is completed. McDermott says Young benefits from the rich legacy of Media General, which dates back to 1850.

"They are our company," she said. "We are blended into a company that has that kind of tradition. It's going to be a very good thing for our company."