News Articles

No Sale, Part II

Yet again, court and FCC uncertainty leads to a stagnant TV market 4/17/2005 08:00:00 PM Eastern

Blame the hazy state of the government’s broadcast ownership rules for the miasma hanging over the market for TV-station deals.

The clouds won’t be lifted for the foreseeable future either.

Top 25 Station Groups
The Top 25 TV Station Groups are ranked according to the percentage of the 109.6 million U.S. TV homes they reach as calculated by the FCC, which discounts the reach of UHF stations (channels 14-83) by half. The second figure below calculates the total coverage without the discount. If a group owns or manages other stations in a market, those stations are not counted in its total, nor are low-power and satellite stations and translators.



Source: B&C, BIA Financial Network, Nielsen Media Research
1 Viacom 38.90 43.35
2 Fox TV Stations 38.27 44.97
3 NBC Universal 33.99 39.08
4 Paxson 31.59 63.18
5 Tribune 30.24 40.58
6 ABC 23.55 23.79
7 Univision 22.88 43.90
8 Gannett 17.89 18.06
9 Trinity Broadcasting 17.10 34.20
10 Hearst-Argyle 16.35 17.67
11 E.W. Scripps 14.14 22.09
12 Belo Corp. 13.26 13.98
13 Sinclair 12.82 22.58
14 Cox 10.13 10.26
15 Clear Channel 8.68 12.58
16 Pappas Telecasting 7.78 12.56
17 Raycom 7.75 10.32
18 Meredith 7.58 9.07
19 Post-Newsweek 7.39 7.39
20 Media General 7.17 8.06
21 Entravision 6.44 12.78
22 Emmis 6.12 7.00
23 LIN TV 6.07 7.21
24 Young 5.87 5.92
25 Gray Television 5.14 5.46

Media conglomerates looking to grow national and local footprints, small group owners hoping to cash out, and investment bankers eager for commissions all predicted a wild market for station transactions following the FCC’s 2003 deregulation of broadcast- ownership rules.

But the expected rush of transactions was smothered at birth by legal challenges that ultimately resulted in federal appeals judges’ throwing out deregulation that would have permitted the biggest station groups to get bigger and would have opened the door to many more ownership combinations of local TV, radio and newspaper groups.

Not surprisingly, changes in B&C’s annual list of the Top 25 TV Station Groups have more to do with methodology than with merger mania. The same was true with the 2004 list.

The biggest shift on this year’s ranking occurred as a result of E.W. Scripps’ $235 million acquisition of Summit Media, which actually was announced early in 2004 but was completed right after the B&C Top 25 list for that year was published.

That deal more than doubled Scripps’ coverage to 14.14% by FCC definition (22.09% overall) and pushed the group up the ranking from No. 15 in 2004 to No. 11 this year. Summit’s disappearance allowed newcomer Gray Television to move onto the list.

Since the court ruling last summer, the FCC has been under orders to rewrite its rules. But new FCC Chairman Kevin Martin is blocked from diving into the new effort. First, he must wait to see if the Supreme Court agrees to hear appeals brought by three of the four big broadcast networks, the NAB, and station groups Tribune and Sinclair.

Until final word from the Supreme Court, Martin won’t know whether he must rewrite the old rules at all, and, if so, how extensive the redo must be. Consequently, no new final ownership rule is expected for a year or more.

Market “Like A volcano”

“It’s tough to make deals when the legal space is so uncertain,” says Paul Gallant, media-policy analyst for Stanford Research Group. “The Top 25 list would look a lot different if the FCC’s deregulation had been upheld.”

Bear Stearns analyst Victor Miller agrees. He predicts an explosion of deals if the FCC does finally relax its rules, especially among groups like Tribune and Sinclair that have more interest in building media powerhouses in individual markets. Tribune, for instance, wants to expand TV/newspaper combinations across the country. Sinclair is determined to grow its business model of owning two-station duopolies in midsize and small markets.

“We see the market as dormant, like a volcano,” Miller says. “It will become very active when the right ingredients come together.”

Under current FCC rules, local TV/newspaper combos generally are banned—except for those grandfathered when the cross-media prohibition was imposed in the 1970s. TV duopolies are limited to markets where eight separately owned stations would remain. For the most part, that means the top 20 markets.

The NAB has been pushing to eliminate the newspaper-crossownership ban and to greatly relax the duopoly restriction so that weak stations in small markets would be permitted to pair up with larger ones.

The FCC, seeing little chance that the Supreme Court will uphold its 2003 deregulation, chose not to appeal the lower-court remand. If the high court upholds the remand order, Miller predicts that a Martin-led FCC at least will find a way to deregulate in the two areas most important to broadcasters.

He believes a convincing case can be made that relaxing limits on newspaper crossownership and duopolies will greatly strengthen the finances of broadcasters and give them much-needed economic muscle to compete against cable and against broadband competitors that are popping up. “There are too many midsize players,” he says. “Thirty-one companies have less than double-digit household reach in the U.S.” Martin favors eliminating the newspaper- crossownership ban.


As a result of the legal battles and protests by anti-consolidation media activists, Miller doubts that the FCC has the stomach to revive one of the most aggressive elements of its 2003 deregulation by permitting three-station TV “triopolies” in huge markets like New York City and Los Angeles.

Others predict the FCC won’t change the current cap on nationwide TV holdings, an issue that caused an industry rift between networks and affiliates. In 2003, the FCC voted to raise the cap on one company’s nationwide reach from 35% of TV households to 45%. After a fierce intra-industry battle that led ABC, the last major-network member of NAB, to drop its membership in the group, Congress voted to cap national reach at 39%. That allowed the two biggest networks, Viacom-owned CBS and News Corp.-owned Fox, to maintain their current size but grow no further.

NAB President Eddie Fritts hopes that a cap set by statute will cause the bickering to stop and pave the way for all the big networks to return to the group. “As far as I’m concerned, the national cap is settled,” he says. “There’s no use opening that again.”

Gallant recognizes that TV-station owners are hungry for deals, but he cautions that the very financial pressures pushing them to consolidate could also scare away Wall Street capital necessary to make those mergers possible.

New technologies like ad-zapping TiVo, the cost of building digital facilities, and competition from cable and Internet video are leading broadcasters to bulk up and get more efficient. But those same pressures also throw in doubt whether broadcasting offers sufficient growth potential to get the financing to fuel a new merger wave. Says Gallant, “The question is whether valuations are attractive in this rapidly changing market.”