The Deal That Turns Sinclair Into a Major-Market Gatekeeper

The company’s $3.9 billion Tribune buy will have an outsized effect on syndication

Why This Matters

By buying Tribune, Sinclair Broadcast Group becomes the country’s biggest station group, and arguably the most powerful.

Sinclair broadcast group’s $3.9 billion deal to buy Tribune Media — including its 42 TV stations and cable network  WGN America — has ramifications for the entire media industry. But the combination, expected to be easily approved by the Republican administration, will especially impact the already struggling syndication sector.

“In a business that’s been static for so long, this is a significant move,” a syndication executive said. “Sinclair will essentially be able to clear the country.”

What gets cleared in syndication has long been largely controlled by the five groups that own stations in the nation’s top markets of New York, Los Angeles and Chicago, specifically ABC, CBS, NBC, Fox and Tribune. When Sinclair closes on Tribune, it will become the fifth gatekeeper.

For many shows — particularly those produced and distributed by station groups’ sister studios — that change won’t matter. If NBCUniversal decides to produce and distribute a new talk show with Andy Cohen, for example, it’s pretty likely that show will end up on the NBC-owned TV stations (although NBCU’s Harry, starring Harry Connick Jr., ended up on the Fox-owned stations in an increasingly uncommon example of a station group buying a show not produced by its co-owned studio).

But independent studios such as Warner Bros., Debmar-Mercury, Entertainment Studios and, to some extent, Sony Pictures Television, remain in the marketplace. When they take out a show, they don’t have a station group to sell it to, so they go group by group to find it a home.

This dynamic particularly matters when sitcoms come up for sale. In the top markets, there are a few buyers of sitcoms: Tribune, Fox, CBS (on its duopoly stations WLNY New York and KCAL Los Angeles) and Weigel’s WCIU Chicago. The broadcast market arguably hasn’t seen an A-level sitcom come to market since Twentieth Television’s Modern Family in 2010, and that was a pre-emptive deal, with the show not airing in syndication until 2013.

TV has changed a great deal even since then, so when the next hot show comes to market — and CBS’ Big Bang Theory spinoff Young Sheldon looks like an interesting play — who’ll wind up paying the highest prices for it remains to be seen. Shows now move to on-demand platforms and streaming long before their broadcast windows open, making them less valuable to TV stations.

Power Down the Middle

But where Sinclair will really be able to exercise its power is in the middle of the country, where it has a stranglehold on many markets in which it owns more than one station.

“The middle markets are going to be important,” S&P Global Intelligence research director Deana Myers said. “If you have a syndicated show, you can just go to Sinclair with it, but Sinclair will have a lot of power over pricing.”

That means Sinclair has huge leverage to force down prices for shows it wants. If a distributor wants to clear a show in the top markets, it might be able to get around Sinclair by going to one of the other gatekeepers. But if it wants to clear the show through the middle of the country, it’s almost impossible to avoid Sinclair. And that gives Sinclair a lot of power to dictate terms of sale, putting even more pressure on program license fees.

That’s also one reason why most expect other groups to merge — or at least formalize partnerships — in reaction to Sinclair’s acquisition of Tribune. Already, there are rumors that Nexstar Media Group is circling groups such as Ion Television and Tegna, and others have speculated that Fox will partner up with groups such as Hearst Television to give both groups more power in the middle of the country. Another rumor is that Sinclair will spin off some stations to Fox, allowing that group to increase its leverage as well.

An important final piece is the notion that what station group chiefs such as Sinclair executive chairman David Smith or Nexstar chairman and CEO Perry Sook are really building are nationwide data networks on the backs of the new ATSC 3.0 broadcast standard. That means that what’s important to them is not so much the stations — and what’s programmed on them — but the spectrum.

Said Justin Nielson, senior research analyst, S&P Global Intelligence: “The ATSC 3.0 rollout is still three to four years away at the earliest, but that’s the biggest thing that’s driving this merger, outside of retransmission consent.”