Tribune: After the Fall; Company's Troubles May Cost Studios - Broadcasting & Cable

Tribune: After the Fall; Company's Troubles May Cost Studios

Could seek to reset deals with syndicators
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Warner Bros., Twentieth Television, Disney-ABC and NBC Universal face multimillion-dollar ramifications after Tribune's announcement last week that it was declaring Chapter 11 bankruptcy protection to restructure its massive debt.

Tribune's 23 TV stations are among the biggest buyers of syndicated shows, including Warner Bros.' Two and a Half Men and Friends, Twentieth's Family Guy, Disney-ABC's Legend of the Seeker and NBC Universal's Maury, Jerry Springer and Steve Wilkos.

Moreover, a deal to launch CBS Television Distribution's T.D. Jakes next fall is pending. The future of that show, which had been cleared on Tribune stations, is now uncertain, according to many sources. A spokeswoman said CTD had no comment. (Related: Watch CTD president John Nogawski discuss T.D. Jakes' "Obama-esque" qualities.)

According to Tribune's bankruptcy filing before a federal court in Delaware last week, Tribune owes Warner Bros. $23.7 million, Twentieth $8.1 million, Disney-ABC $6.2 million and NBCU $4.9 million. Tribune has a few options it can exercise to deal with its outstanding studio debts. It could just proceed with business as usual, paying its bills on time. It could also negotiate longer payout terms with the studios.

Another possibility is that studios will be forced to take writedowns for portions of payments they expected to receive and accounted for, but now will not be paid. Regardless of any revenue hits, studios will likely want to work with Tribune to find ways to preserve future business.

None of the studios or Tribune would comment for this story. But players in the industry say the manner in which the studios resolve this issue could set a precedent should other TV broadcast groups be forced to declare bankruptcy in the rocky months to come, a scenario that wouldn't surprise many industry executives.

“Whatever the studios do for Tribune, they will have to do for everyone else,” says Bill Carroll, VP of programming for Katz Television Group Programming. “If the studios are smart, they will figure out a way that doesn't hurt them that much. They'll all be better off if they have a healthy Tribune to deal with at some time in the near future.”

Tribune's unsecured bills to the studios are relatively small compared to the amount of money it owes its major secured financial-sector creditors: JP Morgan Chase, Tribune's main lender; Merrill Lynch Capital Corp.; Deutsche Bank; Goldman Sachs Group; investment management firm Angelo Gordon & Co.; and hedge fund Highland Capital Management. Tribune's next debt payment of $593 million was due to come up in June but is now stayed because of the bankruptcy. Overall, the company is $12.9 billion in debt while it holds $7.6 billion in assets.

When billionaire investor Sam Zell bought the company in April 2007, Tribune's financials looked stronger, justifying a deal that in hindsight looks incredibly shaky. As Zell said on CNBC last week, “We looked at Tribune before we made our offer. It had basically eroded at about a 3% level in the previous five years. We underwrote [the deal assuming] 6%, and we ended up with 20. And in an operating leverage business like this, a 20% reduction in gross revenue is a disaster on a cash-flow line.”

That said, Tribune's TV stations remain profitable. In its filings, Tribune says it doesn't expect to operate its TV stations any differently than it ever has. And while Tribune may not be shopping as aggressively for new syndicated product in the near-term as it has in the past, no one expects to count the group out as a buyer.

“The positive out of all of this,” says Chuck Larsen, president of October Moon Television, a television distribution consulting company, “is that hopefully Tribune will come out the other side a healthier company that's better able to support its stations.”

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