Murdoch’s Station Break

Fox Station Group may sell small-market outlets

News Corp. is considering the sale of all its smaller stations—representing a quarter of its station portfolio—for as much as $800 million, according to people familiar with the situation. Such a deal would relieve News Corp. of assets that aren’t crucial to its high-margin, big-reach strategy, cut down on overhead, and simplify its operations.

The targets are all Fox O&Os outside the top 25 markets. But “small” by News Corp.’s standards doesn’t mean they’re all small towns. Included in the potential sale: Kansas City, Mo. (the 31st-largest TV market), Milwaukee (No. 32) and Salt Lake City (36). One is minor: Gainesville, Fla., the 162nd-largest.

A News Corp. spokesman would not comment on any plans for the stations.

Based on revenue estimates from broadcast-station research firm BIA Financial, the stations might sell for as much as $800 million. If News Corp. Chairman Rupert Murdoch moves forward, he’d be adding a little more fuel to a warming market for TV stations. Emmis Communications recently cut a deal to sell nine of its 16 stations for $600 million, or a fat 14 times annual operating cash flow. Station owner Raycom cut a deal to sell to Liberty Corp. for $877 million, or around 12 times operating cash flow.

That’s lower than the 16-18 times multiples seen during the go-go days of the late 1990s but still higher than the 7-8 times cash flow that the stocks of publicly traded station groups are fetching on Wall Street.

A sale would shrink Fox’s station count from 35 to 27. Based on available estimates from BIA Financial, the stations believed to be on the block generate around $215 million, less than 10% of Fox Stations’ total revenue, and about $85 million of operating cash flow, around 8% of the group’s total.

The idea of shrinking the broadcast group predates Roger Ailes’ ascent as chairman of both Fox Television Stations and Fox News Channel. He took charge of the station group—which generates more than $2 billion in annual revenues—after Murdoch’s son, Lachlan, quit in a funk in August. One Ailes goal is to create new national programming for the stations, including a morning news show, a late-night talk show and a crime-oriented show for other dayparts.

Executives at other station groups say News Corp. has considered selling smaller properties for a couple of years and still hasn’t assigned investment bankers to actually stage an auction. Nevertheless, Murdoch is clearly edgy: He recently pitched the stations to Liberty Media Chairman John Malone, according to two media executives familiar with the discussions.

Murdoch had tried to use the stations to defuse Malone’s moves on the company. Although Malone and Murdoch have long been partners, the Liberty chairman has accumulated 18% of the shareholder voting power in News Corp., alarming Murdoch, who sees Malone’s big stake as a threat to his own control. News Corp. recently strengthened its defenses against a hostile takeover.

Murdoch has attempted to neutralize the threat by swapping assets for some of Liberty’s shares. The executives say that, over the summer, Murdoch asked Malone if he wanted the small-market stations as part of the mix. Malone rejected the offer, noting that a group of small-market broadcast stations isn’t exactly a high-growth operation, one executive says.

A sale seems counterintuitive because size has clear benefits in the station business. Most important, it gives smaller stations more leverage in securing syndicated programming, riding the coattails of siblings in the big markets. Those dayparts can account for more than 20% of a station’s ad revenues. There are additional economies in producing local news and selling national advertising.


But Murdoch recently told one industry executive that he wants to streamline the TV unit’s operations, hoping it will run more efficiently. Fox doesn’t really need the extra reach; the company is the second-largest owner of TV stations in the country, owning properties that reach more than 45 million homes. Selling these smaller stations would shrink that reach by only 5 million and drop Fox back to No. 3. “If these were growth markets,” the executive says, “it might be different.”

Also, these cities don’t get as much lift from Fox’s most expensive programming, football. Fox has rights to the National Football League’s National Conference, so owning stations in cities with NFC teams—such as Detroit or Tampa, Fla.—is more important than owning one in Kansas City. (Small-market Milwaukee, however, is arguably a secondary hometown for the NFC’s Green Bay Packers.)

Getting smaller would also give News Corp. a little room under federal ownership limits. By purchasing Chris-Craft’s stations in 2001, News Corp. blew through the ownership cap to 37% of U.S. homes. Pesky laws aren’t a big deal to Rupert Murdoch, and Congress went into its customary bowing and scraping act, raising the ownership cap from 35% to 39%, a break that primarily benefits Murdoch and Viacom Chairman Sumner Redstone. Shrinking to 34% would give Fox’s stations group space to do a big-market deal later.

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