The current pile-up of broadcast TV stations on the auction block may come crashing down. But, for now, these are fat times for broadcasters.
Stations are selling for blockbuster prices; private-equity firms with seemingly bottomless resources are clamoring to swing deals; and broadcasters with no intentions to sell are suddenly persuaded to, in PR-speak, “explore strategic options.”
The decline of local TV was a familiar refrain only months ago, as viewers turned their attention to the ever-expanding
cable landscape and the Internet. But these days, the sun seems to be shining on the broadcasting business. “People perceive a brighter future for television than six to nine months ago, when TV was thought to be under a dark cloud,” says Randy Bongarten, the former Emmis Television president who now heads Bonten Media Group (part of Diamond Castle Holdings).
Still, some believe the station business faces significant challenges, including Nielsen's new commercial ratings and fragmenting viewership.
Although generally bullish on the state of local television, Bill Hague, senior VP at media-research firm Frank N. Magid Associates, urges caution: “If not black clouds, there are at least some gray clouds on the horizon [for stations] that could impact their revenue.”
A JAMMED SALES RACK
When News Corp. put nine stations in play earlier this month, the Fox outlets joined an increasingly jammed sales rack. The newcomers include stations from LIN, Nexstar, Pappas and Lincoln Financial; recent station sales include those by BlueStone ($230 million), New York Times Co. ($575 million) and Clear Channel ($1.2 billion).
“I haven't done the math, but the number of stations [for sale] certainly seems unusually high,” says Chris Rohrs, president of Television Bureau of Advertising (TVB).
According to management consultancy Bain & Co., private-equity activity in the U.S. media industry has reached $30 billion so far this year—up from $2.5 billion in 2000 and almost $15 billion in 2005. “It's conceivable that we will see as much as $50 billion of activity this year across all categories of the industry,” says David Sanderson, head of Bain's Global Media and Entertainment practice.
Enticed by broadcast TV's substantial cash flow and low interest rates, private-equity firms such as Cerberus, Providence Equity Partners and Oak Hill have emerged as major players. Most recently, London-based BC Partners topped all bidders for the satellite company Intelsat, to the tune of more than $5 billion. Says one station group insider, “Bidders 1, 2 and 3 [for News Corp.'s stations] will be private equity.”
According to Bongarten, whose Bonten Media Group closed on BlueStone's stations a few weeks back, private-equity firms recognize that television has “proven to be an extremely valuable medium, and there may be further upside in online and retransmission consent.”
Indeed, the potential windfall for permission to air their signals on cable is boosting broadcasters' value. Sinclair Broadcast Group CEO David Smith, for one, estimates the broadcast company's retrans largesse to be some $59 million for the year, a 132% increase over 2006.
IS TV “FLAVOR OF THE MONTH”?
Yet others wonder if the heady station sales will be a flash in the pan, with broadcast representing, as one station general manager puts it, private equity's latest “flavor of the month.” Nearly all agree that local television isn't the cash cow it was in the not so distant past. TVB reported overall broadcast revenue to be down 5.3% in first quarter 2007, compared with a year ago, with local television down 3%. TNS Media Intelligence, meanwhile, downgraded its initial ad-revenue forecast for the year, as marketers increasingly shift their budgets to Internet and cable.
Concerns over Nielsen ratings measuring commercial viewership, as well as the steadily increasing penetration of digital video recorders, have broadcasters concerned about the impact on advertising. And some wonder how much stations' online woes are a drag on their value, as local television continues to lose out to newspapers, CraigsList and Google in the Web wars. “We can count on one hand the stations who are winning the game online,” says Hague.
And with dozens of stations in play, the potential for a broadcast bubble looms. Says one Wall Street analyst who was not given permission to speak on the record, “There probably isn't enough private-equity interest for all these sellers. And who wants to buy at 52nd-week highs? All these guys put out press releases saying, 'Hey, we're up for sale!' If private equity doesn't step in, that's a problem.”
It's an open question if ample inventory dilutes stations' value. In the meantime, the equity firms continue to explore deals. “We're looking to grow,” says Bongarten. “We'll take a look at what's out there.”