LIN Media owns 27 stations, including local powerhouses WAVY Norfolk (Va.) and WOOD Grand Rapids (Mich.). The group has one of the more bullish duopoly strategies and an ambitious digital game plan that kicked almost $22 million (including retransmission consent cash) to its coffers in the second quarter.
Michael Malone, B&C deputy editor, spoke with Vincent Sadusky, LIN president and CEO, about the group he oversees.
What words come to mind when you describe a LIN station?
I think of LIN as providing news and information and entertainment programming 24 hours a day, seven days a week, on television and on all digital platforms.
LIN recently named its first chief technology officer [Brett Jenkins, Aug. 16]. What does that say about the group's strategy?
When we revised our strategic focus about four years ago, we said we have the good fortune of owning highly viewed channels in the markets. We produce as much or more local content as anyone. Quite simply, we have to follow the new and evolving behavior of our consumers, which is to not exclusively get their video from television. We have to deliver it to the Web, to PDAs, to tablet devices. That effort has been a big part of the focus of our strategic plan the last four or five years. So the hiring of Brett Jenkins is a continuation of that -- bringing more really talented, intelligent people that have real expertise in the digital arena to LIN.
How is LIN poised for 2012's political spending?
We've got a pretty good mix of stations geographically. It just so happens that our stations are located in markets that have a good amount of presidential and non-presidential campaign dollars associated with them. The key is having those strong outlets. We have the good fortune of having top-rated television stations. So we're positioned well.
Regardless of the continued digital transition and the myriad media outlets available, the majority of political advertising dollars find their way to television. A good amount of those want to be centered around strong local television stations. That formula has not changed very much over time.
Any particular interest in stations or groups that are on the block?
I can't comment specifically, but I said on our last [earnings] call, I think having station groups come to market is a good thing. There have been no significant transactions for many, many years. I think it's a real positive that these station groups feel confident in their ability to get themselves sold. The public market multiples for station groups seem low, at least based on history. Part of the problem is that there haven't been private transactions from which to gauge an appropriate multiple publicly. It'll be good to see one or hopefully several of these station groups' sales getting consummated.
What about putting the LIN stations up for sale?
We really haven't thought about that. The focus has been on the continued development of our digital business and maximizing the return on existing assets. We take a look at the amount of digital revenue we've had relative to total revenue and relative to our peers; we've been an industry leader. The second quarter was up 50%. That's just a remarkable growth number. We're making great strides there. That's really been our focus. If we continue to differentiate ourselves in a significant manner from our competitors, we think it will enable us to have lots of options going forward.
With networks taking a big piece of retrans revenue, can that still be a significant revenue stream for station groups?
I believe so. I view the revenue stream of retrans as very similar to cable networks. They receive retransmission fees and have this dual revenue stream that stations have not historically had, and now have. They have the cost of programming, acquiring off-net programming and producing their own programming. That's what our cost is when network affiliation deals expire and require payment to the network. I view that revenue stream as akin to what cable channels have had for a long time: Sub fee revenue and programming costs.
Will LIN be a keeper of its spectrum?
I think so. We are big believers in the potential for both mobile TV and multicast channels. We've been very actively involved in both, as well as in technologies that are currently being utilized for other digital services. We think it's a real opportunity for the industry and for LIN in particular. It's something we're not willing to take a one-time financial benefit on and lose that opportunity.
How does the stock market's ups and downs affect you as the leader of a broadcast company?
I honestly don't look at the stock value on a day-to-day basis. It would just drive you crazy and would be a waste of time. Our focus, as a public company, is long-term value creation opportunities. Even on a quarterly basis, looking at auto and retail, it's a barometer, but we're focused on longer-term growth prospects in the U.S. and the health of our medium and structural changes in the industry. That's more of what my job is about on a week-to-week basis.
The negative of the stock market wasn't so much the incredible financial turmoil it created. From my perspective it was a reflection in part of the concern that the economy has slowed and many of the economic measurements that have come out, the growth prospects in the U.S.-that part of it is discouraging.
The good news for us is, we're so fresh off the Great Recession of 2008 and 2009 that even a revised downward estimate of economic growth still has economic growth. We hoped it would be better, but I think we're in a much different place than where we were just two years ago, which was truly a frightening time.
You acquired the online ad firm Red McCombs Media a few years ago. How has that worked out for LIN's digital business?
RMM is a big part of that 50% increase in digital revenue in the second quarter. What it does is allow us to offer to our advertisers something a lot of them are already doing, and we're able to do it with the kind of service level and localism and credibility we've offered for years with our truly local teams. It also gives us the ability to go beyond selling local television websites. We're no longer restricted to our geography, where our stations are.
How would you gauge your concern level with the FCC regarding spectrum?
The plans put forward so far are voluntary plans. As long as the process remains voluntary, we are supportive as a group to the government's efforts to free up spectrum. If others want to tender spectrum at a certain price, that's their prerogative. We don't want to get in the way of that. We simply want to protect our interest and make sure voluntary remains voluntary.
Do you feel the network and affiliate station typically bring equal value to the viewer?
That's a constant conversation between the networks and the stations, what is the relative value? You can measure it through ratings delivery; there are a lot of different ways to measure it. Ultimately I believe there's real value to the combination of network programming, syndicated programming and local programming. You tie a bow around the package and call it a local television channel. People in our markets certainly identify with that combination of programming on our channels and find it very valuable.
Clearly there's high value associated with that, as our channels are consistently top-rated channels, even in a universe where the average person has more than 200 channels available. It's very difficult to identify precisely [how much] the contribution is in terms of what viewership comes from network programming versus local programming, but we believe clearly that the model works and we think it's a good model going forward, as both sides provide value.
Any affiliation agreements coming up for LIN?
We're in pretty good shape. I think we disclosed in our [10K report] that we have ABC coming up this year, but we have only two ABC affiliations among our stations. I think we have several years yet before our next network is up for renewal.
LIN has six Fox affiliates. Fox's demands for affiliates in terms of retrans--is that fair game?
Ultimately the networks have the right to charge whatever they'd like to charge for programming. Clearly it's a market-based system, with negotiations between networks and stations. However, what's been proposed--we've seen some press on it--sounds like something that's less of a partnership and more of a demand for a certain rate, providing stations the risk of what the net profitability would be. Clearly it's less of a partnership model and more of a programming payment model.
That's certainly their prerogative. It's something each station group is going to have to individually negotiate. It's maybe challenging for certain groups that don't have the ability to deploy a lot of leverage in their negotiations with pay-TV providers, because ultimately Fox is relatively inflexible about the rates they charge. The only other option is to turn around and receive favorable rates to have a net profitably from retransmission fees. It's purely dependent on each group's relative leverage with pay-TV providers.
It's a challenge.
How daunting would it be to go independent these days?
I actually don't know. We don't have any independents. Our model is really a network-affiliate model. I imagine it could be difficult because clearly there's going to be a ratings reduction in primetime. But that's really not our business.
Does the talk of an NBC proxy deal for retrans sound favorable in theory to you?
I do like the idea that NBC reached out and explored the concept with the affiliates and is interested in potentially putting together a group to negotiate that as a whole. I think it's a terrific willingness on behalf of one network to work closely with the stations. In theory you should be able to have more leverage in these negotiations with a larger group. It really all comes down to how much leverage is given up with our NBC stations, relative to our other stations, because we have a good mix of affiliates. We have to get into it a lot more to make a determination as to how favorable it is for us, since we've been fairly successful in our [retrans] negotiations.
But conceptually, I think it's a wonderful display of a network working with station groups.
Editor's Note: The retransmission fight between LIN and cable provider Mediacom, which saw LIN stations in Grand Rapids and Green Bay, among others, go dark for Mediacom subscribers, broke out after B&C's interview with Sadusky. Asked for an update on the matter, LIN issued the following statement:
"We are still in negotiations with Mediacom for a new retransmission consent agreement. With the exception of two stations in Norfolk, our stations were removed from Mediacom's cable systems on August 31st, when an extension between the parties expired. We granted another one-week extension for the stations in the Norfolk DMA, due to the after-effects of Hurricane Irene, and those stations were
removed from Mediacom systems when that extension expired on September 7th.
Our last offer to Mediacom was on the table for ten days before Mediacom responded. Although the pace of negotiations has been slow, we hope we can reach agreement so that carriage can resume."
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