Going Up

Station sales are increasing, but smaller markets still need relief

During the past six months, several large television groups have become even larger. With LIN Television, Grey Television, and SJL Communications acquiring most of the Emmis television stations, Raycom TV Broadcasting acquiring the Liberty stations, and Media General recently acquiring some of the mid-market NBC stations, transaction activity has risen to a level not seen since the late 1990s and early 2000s.

These acquisitions are prime examples of groups' responding to competitive challenges by logically merging assets to improve revenue and cash-flow performance. It's also a show of their commitment to the television business. However, without further relaxation of FCC ownership rules, there will be fewer opportunities for these groups to continue such rapid growth.

The top groups' strategic acquisitions are intended to improve revenue and cash flow and to increase the overall value of the group. For example, WBPG Terre Haute, Ind., fits neatly with LIN Television's other Indiana stations. Media General's acquisition of the NBC stations included several in the Southeast U.S., an area of the country where it has multiple properties and has been successful in this regional concentration.

Similarly, most of the stations acquired by Raycom are situated in the Midwest near other markets in which Raycom already competes.

But while these strong groups have made major commitments in the television industry with such strategic acquisitions, many more groups are being prevented from moving ahead.

Specifically, groups with properties in midsize and smaller markets recognize tremendous opportunities in acquiring other stations in their markets, but they cannot move forward because of continuing regulatory rules. Nearly three years after the FCC proposed ownership regulatory relief for TV stations in these markets, no final action has been taken, and the outlook for quick action remains bleak.

What would the environment look like without such strict ownership rules? The potential for in-market acquisitions would come at a time when station operations would highly benefit from real opportunities for growth.

Confronted with increased competition from many different sources, such as cable and Internet downloads, local TV broadcasters are severely challenged in finding opportunities. One possibility has been for stations to extend their brand name into other distribution channels, such as providing content to cellular phones and other portable devices. At the same time, local broadcasters could continue to extend their brand in their markets by airing news programming on additional, commonly owned stations. Other synergies, such as cross-promoting or cross-selling multiple local stations, could also result from the ownership of duopolies, leading to stronger growth.

Many larger groups have experience in making duopolies successful. The same groups, however, are in many markets where they have not doubled up.

In fact, no top-10 television group in terms of revenue has a majority of its stations in local ownership duopolies. It is clear that groups committed to being in the television-station business could provide more service, as well as become more profitable, if such opportunities would be allowed.

The increased dollar volume of television-station transactions after several very lean years is an encouraging sign. Established groups are making substantial financial commitments to this industry by buying stations that fit their strategic objectives.

At the same time, however, all television stations still face increased levels of competition. Without further relaxation of the local-ownership rules, future opportunities could likely disappear, the dollar volume of station transactions will once again fall, and the overall industry will be weaker.