Broadcast TV Hangs Tough

Cox station group shines in difficult times

In their many fights with local broadcasters over rights to retransmit stations, cable operators have hoped they could get a little break from Cox Television. After all, the TV-station group shares a corporate bloodline with MSO Cox Communications, a significant leader and ally among the collegial cable industry.

Again and again, the operators have been disappointed. "Cox Television isn't quite as bad as Disney," says the president of one top-10 cable operator. "But they're definitely more difficult to deal with than the average bear."

Cox Television President Andy Fisher has a simple explanation. Parent company Cox Enterprises Inc. likes decentralization, pushing each division to make decisions that are best for itself. Cox Enterprises "is not a cable company," Fisher says. "It is a company with different media. These companies each operate in the way it believes is best for it and best for its constituencies."

But he chuckles about his arguments with Cox Communications chief Jim Robbins over cable/broadcast disputes and other cable operators' occasional pleas to Robbins for help. "There's no question that it's entertaining," Fisher says.

Fisher doesn't mind the tough-guy image. He isn't inclined to give anything away. Fact is, he is in a tough business. It's a struggle these days to squeeze significant growth out of TV stations, even network-affiliated ones in good markets.

Fisher is making the best of it. Running a private company, he doesn't have to show his numbers. But Cox is widely seen as a top performer. "They're considered to be one of the best broadcasters, with a strong commitment to news," says Bear Stearns analyst Victor Miller.

Rivals agree. They group Cox Television with other well regarded broadcasters, such as Hearst-Argyle and Belo, which are also owned by companies with interests in newspaper publishing. "They hire good people. They're detail-oriented, think things through," says Ron Longinotti, general manager of CBS's KPIX-TV, one of Cox's San Francisco competitors.

The general manager of another Cox rival (who asked not to be named, saying, "Why do I want to be seen talking up my competition?") agrees. "They're one of the finer broadcasting companies that exist in the country today. They're bright, astute, passionate broadcasters."

The latest numbers available from BIA peg its 2002 revenues at $633 million. Its portfolio comprises mostly affiliates of the Big Four networks, with a smattering of independents.

The company dominates Dayton, Ohio, where its CBS affiliate WHIO-TV has 22% share of prime time. Another major market is Cox's hometown, Atlanta, where ABC affiliate WSB-TV generates a 15 share.

Cox's biggest sales, however, are in the San Francisco Bay Area, where it operates a duopoly. San Francisco Fox affiliate KTVU-TV and San Jose indie KICU-TV combined to generate $167.9 million, or 27% of the company's revenues in 2002.

Like other broadcasters, Cox has been hammered by the recession. Industry executives believe that Cox performed on par with its peer station groups—such as Hearst-Argyle, Belo or Scripps—with minimal, single-digit percentage sales decline in 2003 (even after adjusting for political spending in 2002, a midterm election year) but lower profit margins than most.

"The recession certainly had its impact," Fisher says, describing the 2001 downturn as "legendary." Cox saw a pickup in 2002 and another dip last year. "But we thought we did a little better than average, a little better in our competitive environment." Translation: badly but not quite as badly as direct rivals in its markets.

Cox's affiliation lineup is diversified: three each with NBC, Fox and ABC; two CBS; and three independents. But a close look at the numbers shows that Cox is heavily dependent on ABC and Fox, the affilations of stations in the largest Cox markets. That's not good because ABC and Fox have had ratings problems lately, whereas Cox's affiliates of the stronger networks, NBC and CBS, are in smaller markets.

Cox depends on its ABC affiliates for about 40% of revenues, on the rocky Fox for another 26%. "Cox exposure to the most frustrating network is high," said one industry executive, referring to ABC.

The uncertainty of network programming is a big reason Cox is willing to invest in news, expanding hours in some market and trying to maintain staffing through a tough ad cycle. "All this time ABC has been going down, WSB-TV remained the leading television station in Atlanta," Fisher says. "If we focus ourselves well, more of the revenue and the profit will come from dayparts we control as opposed to dayparts the network controls."

One thing Cox has avoided is massive layoffs. Cox has trimmed jobs but shrank largely through attrition. Fisher says it's the luxury of working for a private, family-owned shop. "You make intelligent cuts, keep a close eye on the technology and trends. We don't pull reflex triggers to make a particular month, a particular quarter look good."

Still, it's clear that broadcast TV is not the most-favored child of Cox Enterprises. In the past decade, CEI has pushed the cable side to make several multibillion-dollar acquisitions and greenlighted billions more for capital upgrades.

It's a much different story in the TV group. Fisher has picked up small duopoly stations in San Francisco and Orlando. But expansion into new markets has been limited to places like Steubenville, Ohio, and Johnstown, Pa. Cox has been pretty much absent from the table when big-market opportunities have popped up.

It's the cold reality of the broadcasting business. Overall, broadcast viewership is declining. Cable systems are on a far stronger growth track, particularly as they add new products like high-speed data and telephone service. Systems soak up lots of capital but offer greater returns on that capital.

"What would you do?" asks one Cox executive in neither the cable nor the TV-stations division. "Would you spend $2 billion to $3 billion in TV stations today? It's a good cash-flow business, but where's the future? In a big company, you have to fight for dollars for acquisitions."

Fisher acknowledges that his group's expansion has been throttled. "The television group has not expanded dramatically, in large part because the returns we could have provided was simply not consistent with the best economic performance of the company as whole."

It's not that CEI executives aren't willing to spend money on stations, but sellers' asking prices seem rooted in 1999 valuation multiples. "They wanted you to price it as if everything was hunky-dory," Fisher says. "Well, everything isn't hunky-dory."

Lately, Fisher has become known for his high-profile role in the media-ownership debate, fiercely opposing loosening of restrictions on the number of stations one company may own. "The issue," he says, "is how many decision-makers are you going to have across this country able to contribute toward what news ought to be, what syndication ought to be, and frankly what network programming ought to be." It's worth noting, of course, that Cox TV is part of a $10 billion multimedia empire, which, in addition to TV stations and cable, also owns radio stations and newspapers.

The looser rules essentially favor only Disney, Fox, Viacom and NBC, which have also integrated vertically, producing prime time series to feed their networks and syndicated programming to feed their stations. "Shows get the button pushed with far fewer decision-makers," Fisher says. Instead of being forced to shop a new show to a number of station groups, tweaking it along the way, a network can shove a new show down on its O&Os. "The kind of dialogue that used to occur doesn't occur. You may have noticed that it has not been a good record for success in the past five years."

Industry executives note that Cox has other reasons to limit how many stations the big media companies may own. If the biggest players can't buy more stations, they can't bid up prices for stations Cox may want. What's more, if a network can't buy into a Cox market, it's not going to strip the affiliation of the Cox station—a move that would have dire financial consequences for Cox. At the very least, looser rules might mean Cox would face more well-heeled network-owned stations in its markets.

Fisher acknowledges that Cox gets some economic benefits from keeping the existing rules. But he denies that he's looking to shelter himself from the big boys. "To the contrary, we enjoy competing against the network O&Os. We compete against three in San Francisco and are delighted to do so."