TV Tallies Costs of Katrina

Rebuilding and lost revenue to broadcast and cable systems could exceed $250 million
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Like everyone else in New Orleans in the aftermath of Katrina, media companies were scrambling to get their operations back online. From the extent of the damage described by various executives, B&C estimates that rebuild costs and lost revenue for Gulf Coast media companies could easily run as high as $250 million.

The first priority for cities hit by Katrina is the safety and welfare of the people affected. The media chiefs I talked with minimized the financial pain compared with that of their employees, viewers and customers. Cox is especially anxious: By late Friday, only 60% of its 1,000 local employees had checked in.

Jeff Smulyan, CEO of Emmis Communications, whose New Orleans Fox affiliate WVUE was knocked off the air, doesn't particularly care about the losses. “The most important thing right now is our people,” he says. Executives from Emmis' Indianapolis headquarters have flown to the region with supplies and “all the cash our banks could give us” to distribute to employees.

NEWSGATHERING COSTS

But the costs are nevertheless substantial. “We have a [financial] contingency plan, but we never have a contingency for something of this size,” says Belo Corp. TV division President Jack Sander, whose portfolio includes ABC affiliate WWL New Orleans. He adds that all stations face huge newsgathering costs. “They are sending helicopters, sending people in.” And, while stations from other markets dispatch squads to New Orleans, they still need staff to do the work back home.

While TV and radio stations in the Gulf States were crunched by Hurricane Katrina, cable operators with chewed-up systems are incurring the greatest financial damage. And because cable systems tend not to insure much of their operations, their owners may be on the hook for much of the reconstruction.

The biggest hit will probably be taken by Cox Communications, whose 270,000-subscriber New Orleans system went dark shortly after the hurricane hit. Half of the cable system is under water.

Cable engineers outside the company suspect the system might have to be extensively rebuilt. Worst-case scenario: a $300 million price tag. But after initial tours and flyovers, Cox executives are more optimistic, hopeful that it might be far less. Once neighborhoods get electricity, “we will have a system to operate in fairly short order in some significant portions of the affected area,” says Claus Kroeger, Cox senior VP of operations for the Eastern Division.

When the system is dark, operators aren't collecting cash, although business-interruption insurance covers much of that. “I had $68 million in annual revenue from the Gulf Coast [last year] and not a penny today,” says Tom Might, president of Washington Post Co.'s CableOne. Each month that Cox New Orleans system is down costs the company approximately $24 million.

The major financial issues for stations is lost ad revenue and physical damage to studios and transmission towers. For cable operators, lost advertising is smaller, damage to wires much more expensive. A big question for both is how the companies fare as their markets recover.

The immediate hit from lost TV advertising isn't huge. Broadcast research group BIA counts around $263 million in annual local TV ad revenue in the hurricane region. In three markets—Mobile Ala.-Pensacola, Fla.; Biloxi-Gulfport, Miss., and Jackson, Miss.—combined revenues average $3 million a week. Obviously, ad sales dropped dramatically and will be slow for several weeks.

New Orleans is a different story. Seven of the eight stations in the market were knocked off the air, the exception being Belo Corp.'s WWL. According to BIA, ad sales normally run $110 million annually or $2 million weekly. But “normal” is suddenly a very alien word in the city. Clearly, business isn't going to come close to “as usual” for many months.

The extent of the physical damage to stations isn't clear because most companies could not reach their facilities. At WVUE, for example, executives by Thursday had managed only a flyby of their New Orleans tower. The condition of the station itself is a mystery.

Harris Nesbitt broadcasting analyst Lee Westerfield estimates that, worst case, a station with a news department would spend $20 million to rebuild from scratch; a news-free outlet would run $12 million-$15 million. But no station seems to have sustained damage nearly that severe.

Because cable consists of a copper strand hung on poles on every street, repairs will be far more intricate and expensive. Both in the Gulf States and Florida, Katrina blew down trunks and “drops” to the homes of tens of thousands of subscribers. In South Florida, where Comcast and Adelphia dominate, crews expected to have systems almost completely restored by next week.

In Alabama, Mississippi and Georgia, costal towns served by Charter Communications, CableOne and Mediacom Communications suffered more-severe damage. CableOne's Might says Katrina ripped apart his Biloxi system and sent 4 feet of water into his Pascagoula headend, the critical home to a system's transmission gear.

But in areas farther from the hurricane's eye, 40%-70% of the outages are due to loss of electricity to either homes or cable equipment. The remaining outages can often be resolved by replacing fallen drops from utility poles to homes. Cost: $75-$100 per home, but that tab runs up fast with thousands involved.

Replacing a fiber trunk running along poles might cost $20,000 per mile in a rural or suburban area, but fallen fiber can frequently be rehung. Digging trenches for underground plant costs anywhere from $30,000 to $100,000 per mile.

Cable operators virtually always insure their central facilities, such as headends, call centers and microwave. They also buy business-interruption coverage, which typically replaces revenue lost from outages longer than 72 hours.

But says Tim Brun, specialist in cable and communications companies for broker Brown & Brown Insurance, the cost of coverage for overhead and underground wires is so expensive that few systems buy it. “The only place that you can get it done is Lloyd's of London. You're praying to God that there isn't a catastrophic loss.”

RUNNING ON AUTOPILOT

Cox says it insures its entire plant, including the wires. New Orleans executives obeyed orders to evacuate and headed to Baton Rouge, La., where the company owns another system.

None of the headends or central offices were flooded. In the dry part of the system, much of the coax and fiber lay on the ground in a tangle, snapped by winds or broken trees. But system Government Affairs VP Steve Sawyer was he was surprised by how much was still on poles.

The cable phone system was still operating, although phone customers could phone only other Cox customers.

Kroeger acknowledges that the company has an immense amount of work. But he firmly declares that Cox will completely restore the property. “You may hear some folks worrying about the future of New Orleans,” he says. “Without hesitation, I can say they will have as fine or a better telecommunications system as Cox provided in the past.”

E-mail comments to jhiggins@reedbusiness.com

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