Station Sales Poised to Begin

After years of stagnancy, new conditions will restart marketplace
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If there’s one thing to be gleaned from this year’s listing of the top 25 station groups, it’s that the present is prologue. This year’s list looks remarkably like it has for the past several. Only one group—Liberman Broadcasting—countered the stagnant growth, making a drastic leap forward (from slot 21 to slot 8), due to deals in big markets to own and manage stations. For the most part, station groups remained in stasis.

All of that is set to change within the next 18 months, says Steve Ridge, president of the media strategy group for Frank N. Magid Associates.

“At this point, we think there’s a perfect storm gathering that will ignite some activity in the marketplace,” Ridge says. “There is clearly an appetite from a strategic- alliance standpoint, and there’s a lot of private money and pent-up demand sitting on the sidelines. Advertising has picked up. And finally, private equity has ownership stakes in a lot of groups where they have a horizon coming up. Originally, these private equity groups might have planned to turn these station groups around in five to seven years, but they held off on liquidating them because they weren’t going to do well. Now the clock is ticking.

“We are in active due diligence mode on a lot of potential acquisitions, so we know that there’s activity that’s going to pop in the next 18 to 20 months,” Ridge adds.

Once they start up again, station acquisitions will be more strategic than they have been in the past, taking several factors into account.

“We think station acquisitions will be very regional, market- and ownership-specific in terms of where there are good investments and where there are not,” Ridge says. “Would-be buyers will look at things like the nature of the station’s affiliation agreements, what retransmissionconsent agreements have been negotiated, and whether or not the market has the potential for a duopoly or any kind of joint operating agreement or management agreement.

“Today, you almost never look at it as just a nice TV station,” Ridge adds. “There has to be some higher degree of synergy in order to justify the purchase.”

Justin Nielson, senior analyst with SNL Kagan, says, “The big buzz term right now is hyper-local. Station groups are trying to be consumers’ number-one source in terms of local news and entertainment. They are going after newspapers in the local market, and they are combining all of their broadcast and digital assets to do it.”

CBS and NBC, for example, are “really focused on local media markets and using all their resources in those markets to push their products,” Nielson says.

Stations are emerging from several difficult years. The station sales and acquisition business slowed to a halt around the same time the economy crashed in 2008. Many broadcasters, who were leveraged to the hilt, suddenly found themselves unable to service that debt when the advertising market dried up. That financial mess is still being cleaned up, but the situation has improved.

“A lot of broadcasters are better off now than they were two years ago, but do they still have a lot of debt to service? Yes. Are leverage ratios higher than they should be? Yes,” Nielson says. “But 2010 was a great year for TV stations in terms of cash " ows. Margins were around 40% for many stations.”

Without an election, stations don’t have that kind of performance to look forward to in 2011, but with the presidential campaign already heating up, stations could start reaping political dollars soon. “I think political could be even better in 2012 than it was in 2010,” Nielson says.

Overall, the prospect of a busy station sales market looks more bullish than it has in years.

“We still believe that as long as you are willing to invest in innovation and reinvention, TV is still a great mass advertising medium,” Ridge says, “despite all of the talk about multiple platforms and the funneling of monies from agencies to other platforms.”

Click here to see the top 25 station groups

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