’14 Reasons to Be Bullish On the Local Broadcast Biz

If you look beyond the existential crisis, the new year is pretty rosy for local television
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The story of 2013 was mergers and acquisitions, highlighted by Belo-to- Gannett, local-TV-to-Tribune and almost everyone else to Sinclair, and 2014 may follow a similar, if slightly subdued, story line. Scale matters more than ever when carving up retrans cash with the networks and MSOs. As a result, longtime broadcasters are increasingly asking some tough existential questions. Chief among them: Should I stay or should I go?

“The environment continues to be right for M&A,” says Larry Patrick, managing partner at brokerage firm Patrick Communications. “Everybody wants to get bigger, and it gets increasingly tough for the small groups.”

Addressing investors in New York last month, Perry Sook, Nexstar president and CEO, said M&A was in the “sixth or seventh inning,” with $1.5 billion of stations potentially in play this year and next. Expect to see more groups absorbed by the big boys (or prepping for the spectrum auction), and Sinclair and Nexstar making like the Yankees and pricing the less committed auction participants out of the free agent market.

The strategy has worked well of late. “It seems like every one of the groups that’s bought some thing has gotten rewarded by its stock going up,” says a CEO at a good-sized station group.

Paradoxically, as the larger groups get larger, it opens up opportunities for the really small guys. Figures such as former Gray Television president Bob Prather, now running Heartland Media, can scoop up the stray singles that the Sinclairs and Nexstars may acquire, but are not able to own due to regulatory rules. These days, that’s a bankable business model.

All Eyes on Sinclair

As if anybody needed confirmation, Sinclair continues to dominate the M&A discussion. Awaiting the closing of its $985 million Allbritton purchase, Sinclair is the force that president/CEO David Smith long envisioned being, and among other perks, is in prime position to create programming that can air systemwide—and beyond. One vehicle for widespread carriage is Allbritton’s cable network, News- Channel 8, which Smith has said can scale beyond its Washington base.

But first Sinclair needs FCC approval, and Washington is taking a closer look at station acquisitions, and the virtual duopolies that have fattened the margins for strategic groups. While no one expects the FCC to undo existing “sidecar” arrangements, there is mounting pressure for the Commission to push back a bit on the expanding supergroups. If nothing else, it will likely take longer, and cost more in legal and lobbying fees, to pull off blockbuster deals.

Ringing in a Banner Year

Lest we forget, 2014 is an even numbered year. That means midterm election spending, along with the usual raft of issues money. Local broadcasters offer a tip on forecasting political spending in the post- Citizens United world—come up with a reasonable figure, then double it. “I think it’s going to be huge,” says one group chief. “The line on the bar chart just keeps going up.”

The Winter Olympics on NBC affiliates will be a ratings, and revenue, boon as well next month.

More Core

Even without those even-year windfalls, local revenue looks solid in ’14, building on a ’13 whose core business generally did a whole lot better than most expected. Driving that is automotive: an estimated 16.2 million- plus automobiles are expected to sell this year, up from 15.6 million in 2013, says Steve Lanzano, TVB president and CEO. Available credit, a glut of expiring leases and pent-up demand will fuel the growth.

Lanzano predicts an overall 2%-3% boost in core revenue, with healthcare spending building on its Rookie of the Year performance in 2013, as providers entice new customers, and pharmaceutical outfits following up once said customers have landed coverage.

A Mix of Sun and Clouds

So, as they say around the holidays, all is calm and all is bright. Right? Maybe, maybe not. Many believe the economy remains on fairly thin ice, vulnerable to government stalemates, natural disasters, terrorism or whatever else lurks in the shadows of 2014. “Any event could change things overnight,” says Lanzano.

Through it all, stations will continue to work on their primary mission—making sure their content stays relevant amidst an increasingly noisy media landscape. For those who truly stand out, they may consider following Scripps’ lead—creating a bold new revenue stream like the premium content paywall over at WCPO.com.

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