TV station sales wait for de-reg push

Currently stagnant market looks for help from new powers in Washington—in the form of unlimited duopolies

There is one thing on which media brokers agree: If the current stagnant state of TV-station sales is to improve, deregulation will be a major pick-me-up. But even that may not be enough to make the current climate attractive.

Media Venture Partners Elliott Evers worries that further deregulation will be just "a balm on the industry's wounds. I don't think it will heal them completely." His advice for would-be station sellers? "This is not the year to go to market."

Brokers say they're pinning their hopes on a more conservative FCC to make that happen. New FCC Chairman Michael Powell already has indicated that he would consider allowing TV duopolies in smaller markets and giving newspapers the right to own TV stations in their own markets (and vice versa [B & C, Feb. 5]). Powell also backs the idea of lifting the 35% household-coverage cap. But it may actually be Congress that is the ultimate arbiter on those issues.

"We went from one of the worst broadcast-friendly commissions to one of the most broadcast-friendly almost overnight," says MVP's Brian Cobb. If the new FCC addresses those three issues and if interest rates continue to go down, "the picture is going to brighten."

With the FCC's August 1999 action allowing TV duopolies in certain major markets "a complete and total bust," as Evers puts it, "we really need it to go down [in market size]. We need unlimited duopolies."

The decision to allow TV duopolies in certain markets was expected to open the floodgates, with broadcasters rushing to buy second TV stations. But once opened, the floodgates released nothing but a trickle. In fact, it's "really a stagnant market in TV," media broker Richard A. Foreman says. "The TV business needs a shot in the arm right now, and I think that shot in the arm could come from Washington."

Allowing duopolies anywhere is "the single biggest thing that will spur the market," says W. Lawrence (Larry) Patrick, president of Patrick Communications. "You have television duopolies right now, but they help the wrong people." The aid is needed in smaller markets, "where stations are being squeezed to death" by network compensation requirements and the costs of converting to digital.

TV's troubles went beyond a dearth of duopoly deals last year. The business also faced rising interest rates, declining national ad spending, reluctant lenders, stock-market hits, uncertainty over the transition to digital and network compensation quandaries. "All the bad things that could happen were happening," Cobb says.

Difficult conditions, at least on the ad front, are expected to be exacerbated this year by the absence of national political campaigns and the Olympics. Cobb sees "a very tough first quarter" but hopes for improvements by the end of the year.

In general, would-be buyers and sellers have been at an impasse over station prices, Foreman says. While many would like to sell their stations, "very few buyers [are willing to consider] the prices the owners are looking for. ... I don't know who's right" about the values, but "the end effect has been a paucity of deals."

Starting early last year, sellers started seeking prices at 14 to 15 times cash flow, broker H.B. "Ben" LaRue says. Meanwhile, buyers wanted to pay just 10 to 12 times. "That's a big difference and a lot of money," he notes.

"You need the aggressive buyers to bridge that gap," says Fred Kalil, vice president of Kalil & Co. "The logical public players are not there."

While an advertising crunch could change things, "there were very few stations in a situation where they had to sell" last year, Cobb says. Despite its troubles, TV is "still a very good business to be in."

Patrick says he already is "starting to see some deals come back..People have faith that Bush and particularly [Federal Reserve Chairman Alan] Greenspan are going to have a soft landing" for the economy.

As for groups actively seeking deals right now, Patrick names Cox Broadcasting, Larry P. Roberts' Fisher Broadcasting, and ABRY Broadcast Partners' Nexstar Broadcasting Group. He adds that Liberty Corp., which is shedding its life-insurance arm and concentrating on TV ownership via Cosmos Broadcasting, should be poised to start buying soon.