As 2001 wound down, NBC paid out big bucks to continue a relationship with a proven commodity capable of strong contributions to near-nine-figure returns. But enough about Katie Couric.
In the bid for a station to anchor its presence in the San Francisco Bay Area market, the network passed on longtime NBC veteran KRON-TV San Francisco and purchased San Jose's KNTV(TV) instead.
With the purchase of KNTV, in the San Francisco-Oakland-San Jose DMA, NBC is no longer the only Big Three network without an owned station in each of the top five markets. NBC immediately named WCAU-TV Philadelphia News Director Steve Schwaid to lead the transition to O&O status.
Following years of negotiation, including recent weeks of intense talks involving NBC and both stations, the $230 million deal (more if you include the cancellation of a sizable reverse-compensation agreement) between NBC and station owner Granite Broadcasting settles some issues but clearly raises a lot of questions.
Although NBC paid considerably less than Young Broadcasting's asking price for KRON-TV, will the affiliation transfer just before midnight New Year's Eve from San Francisco powerhouse KRON-TV to improved but still unproven KNTV cost it in the long run in terms of viewers and revenue?
Or will Tom
Brokaw, ER, Friends
and NBC's rapidly approaching Olympic schedule help viewers locate the South Bay station and buy its advertisers' products—even north of San Francisco, where KNTV's signal strength has had problems?
Some local broadcasters—including incoming local NBC—give Granite high marks for improving its signal and cable coverage, noting that the Bay Area's uneven terrain gives some signal trouble to other stations.
Will KRON-TV—which, since NBC announced it was pulling its affiliation, has been preparing for "Independence Day" but still entertained NBC entreaties almost to the last minute—be able to maintain its considerable market status with added news, local shows and syndicated programming? It hopes that likely losses in ad rates due to viewership declines will be made up in added local inventory. But the market has lots of available inventory.
"We're going to be working a lot harder," KRON-TV told viewers as the NBC-Granite deal was announced. "The peacock is taking a hike."
Some analysts and broadcast executives said NBC had to act or risk losing its strength in a major market. The network could have either beefed up KNTV in a way few station groups—particularly financially troubled ones—could or, better still, some analysts said, could have gone with the proven market powerhouse by buying KRON-TV. NBC, advised on the deal by Merrill Lynch, chose to pursue both options and, when it couldn't get the price it wanted for KRON-TV, bought KNTV.
NBC, which will also own Telemundo station KSTS(TV) in the market, did not purchase Granite's WB station KBWB(TV). Granite chief Don Cornwell had no comment on Tribune's reported interest in buying KBWB and WDWB(TV) Detroit. Faced with mounting debt and cash-flow problems, Granite put WDWB on the block in the fall.
Cornwell says that, "at some point down the road, we will make some determinations about what would be the best home—whether it's in Granite or somewhere else—for our two WBs."
Although many analysts believe that Young, which outbid NBC for KRON-TV in 1999, paid too much even for an NBC affiliate when times were good, sources say the company continued to seek a price near what it paid, as much as $750 million.
Estimated revenues for 2002 of $85 million—off the 2000 pace but still substantial—would have given NBC the station at well under 10 times cash flow, which Young apparently thought more than fair.
On the same day as the NBC deal with Granite was announced, Young said it had hired Credit Suisse First Boston as a financial adviser, a move usually signaling to would-be buyers that one or more of its stations—in this case, 12—are for sale. Young said the move was intended to "assist us in evaluating inquiries that have come to our company as well as other possible transactions."
Young unquestionably has two extremely valuable properties in KRON-TV and KCAL(TV) Los Angeles, but broadcasters question its estimates of their value, particularly in light of its failure to make a deal with NBC. Few negotiations better illustrate brokers' current lament that a lot of deals could be made but for the huge divide between bid and asked. Young says it does not have to sell.
Broadcasters on all sides note that, while the price for KNTV doesn't approach the $750 million Young is said to have sought for KRON-TV, it's considerably higher than the $230 million reported, because the network also surrenders Granite's obligation to pay the sizable $362 million over 10 years in reverse compensation agreed to in the deal that made KNTV an NBC affiliate. But analysts believe that, particularly with advertising declines, NBC worried that it might not get those affiliation payments and could further lose with KNTV's presumably weaker distribution in the market.
Granite says the NBC deal enables it to pay down debt. It was advised by Goldman Sachs, which was involved in securing Granite a large line of credit earlier this year.
Near-daily reports of changes in negotiations excited an already volatile market. "We had some pretty nervous managers here," said KNTV General Manager Bob Franklin.
And ownership changes seldom settle station executives' nerves. NBC's deep pockets and access to talent could mean significant changes in station management. All contracts will be honored, says a station exec, so "it's either stay or a lot of golf."