As Their Station Clients Get Bigger, Syndicators Adjust

New era of broadcaster consolidation simplifies negotiations in some ways—with fewer, more powerful buyers—but it also could threaten sellers’ leverage | @PaigeA

The leverage that the emerging local broadcasting “super groups” are gaining from
the recent spate of M&A deals has syndicators recalibrating some of their approaches to their station buyers.

Why This Matters
Station consolidation means the business of syndication is once again undergoing dramatic change, with negotiations getting even tougher.

With greater size, station groups are better
able to set their own terms, whether working
with syndicators, vendors or talent. So
while Wall Street may be bullish on Gannett
buying Belo, Tribune buying Local TV and
Sinclair buying several groups, some syndicators
are more bearish on the activity.

“Syndicators have to be looking at [consolidation]
and saying ‘Oh no, this is not a good thing.’
How do you drive shows’ value if a local market is basically
owned by two large groups? Whichever TV station
is not interested in a show in that market will just
make that known, which means that the syndicator will
have absolutely no leverage there,” says Bill Carroll,
VP, director of programming, Katz Television Group.

Tougher to Drive Market-By-Market Value

For years, distribution of syndicated shows has been
dictated by who can get their shows cleared
in the country’s top three markets: New
York, Los Angeles and Chicago. And the
key stations in those markets were owned
by five groups: ABC, CBS, NBC, Fox and
Tribune. The three traditional affiliates’
time slots were usually filled by long-running
programming—such as CBS Television
Distribution’s Wheel of Fortune, Jeopardy!
and Entertainment Tonight, and Disney/ABC Television’s
Live!—leaving Tribune and Fox with slots to
spare and a lot of sway over what shows got cleared.

Once syndicators got past the top markets, there was
far more jostling. Sinclair—with no TV stations in the
top 10 markets—long has served as syndicators’ second
sales stop.

Sinclair now owns 140 TV stations, including multiple
TV outlets in single markets, nearly 60 more than
it owned just two years ago. Sinclair’s added size means
it not only can acquire shows at more efficient prices,
but it also can effectively prevent its competitors from
getting those shows, even if the competitor wants to
pay more money for it.

For example, five stations buy syndicated programming
in the country’s 34th-ranked market, Milwaukee:
Sinclair, Local TV, Weigel, Hearst and Journal Broadcast
Group. If Sinclair acquired a talk show in a group
deal that included Milwaukee, it could effectively remove
the other stations in Milwaukee from contention,
even if the stations in that market were willing to bid
up the price.

That’s why syndicators would much rather sell their
shows on a market-by-market basis, with competing stations
bidding up price tags. With station groups this big,
however, that is less likely to happen. To combat this,
syndicators head to the biggest markets first to try to
get the most money they can for shows, and then design
their group deals later. If syndicators can get more
money for their shows in the bigger markets, they can let
smaller markets go in group deals even if it means they
are leaving money on the table in those markets.

“It’s a bit of 3D chess,” says Ira Bernstein, copresident
of Debmar-Mercury. “You have to play it out on
different levels.”

Another syndicator says negotiations have played out
between syndicators and stations like this for years, but
now some of the station groups have far more leverage.

Bigger Groups Have More Options

That will be true for the new Tribune-Local TV group
as well, but Tribune also is expected to begin developing
much more of its own programming. In March,
concurrent with the arrival of Peter Liguori as Tribune
CEO, former Liguori lieutenant Matt Cherniss came
on board to run cable network WGN and reboot Los
Angeles-based Tribune Studios.

Meanwhile, “the pros are that stations get healthier
and have more money to spend,” says one syndicator
who declined to be named. If a syndicator sells a show
to Fox and Sinclair, it’s effectively done with distribution.

Moreover, syndication business models are changing.
It’s less true that shows have to be cleared in the
top three markets in order to launch. Syndicators are
much more willing to run tests—such as Warner Bros.’
test of Bethenny last summer, and Twentieth’s of Kris
and Warner Bros.’ The Real this summer—than
they once were. In fact, Twentieth just moved its first-run
production and development under the Fox Television
Stations, indicating that all of its development will first
be tested before heading out for any sort of national sale.

“What this provides is more opportunity for more
shows to go on the air with different types of business
models,” says the syndicator.

Says Carroll: “It just means that syndicators are
going to have to do an even better job of producing
programming. There’s always a way, but it’s not easy. It
means you have to be more adaptable and willing to
put together deals that work.”