Viacom Inc. plans to buy KOVR Sacramento, Calif., from Sinclair Broadcast Group Inc. for $285 million in cash, the two companies announced Thursday.
The deal allows Viacom to bring one more affiliate of its CBS broadcast network into its stable of O&Os.
If approved by the FCC and the Justice Department, the deal also would create the company’s ninth duopoly. Viacom already owns UPN affiliate KMAX Sacramento, a UHF station.
Viacom officials say there should be no problem winning regulators’ approval, but an industry analyst said gaining government OK is no sure thing.
Because Viacom is already brushing up against the FCC’s national ownership limit, the company might be forced to sell a station in some other market. Because of the risk, Sinclair required that Viacom take whatever step is necessary to make sure that the cap’s restrictions to not cause regulators to reject the purchase.
A station group’s total reach changes over time as the markets where they operate alter in size, and national penetration must be calculated each time a company acquires a station. Whether the deal actually pushes Viacom over the limit is up to how the FCC recalibrates Viacom’s current penetration level.
Under current law, one owner’s stations are not permitted to reach more than 39% of U.S. TV households.
In most cases, the second station would not add to a company’s household reach because the new station doesn’t increase the number of TV homes covered. In this case, however, a quirk in the way the FCC measures household reach will cause a bit of a jump in Viacom’s audience reach. The potential audience reached by KMAX, like all UHF stations, is counted at only 50%. UHF stations count at half value towards the national cap because they typically have poorer signals and lower ratings. VHF stations like KOVR are counted at full household reach.
Sacramento is the country’s 19th-largest market. Hearst-Argyle already owns a duopoly there with NBC affiliate KCRA and The WB affiliate KQCA.
Viacom’s other duopoly markets are Los Angeles, Philadelphia, Boston, San Francisco, Dallas, Detroit, Miami and Pittsburgh.
“Acquiring KOVR is a terrific addition to our group,” says Fred Reynolds, president and CEO, Viacom Television Stations Group. “Sacramento is one of the fastest-growing areas in the country. We’ve already established a wonderful station in the market with KMAX, which continues to be a strong competitor in the local-news race, and the addition of KOVR will make us even stronger.”
KMAX provides five hours of local news every weekday and four hours on weekends. Its weekday morning-news broadcast is No. 2 in the market.
Officials at both companies predict the deal will close during the first half of next year.
Sinclair President and CEO David Smith says the deal fits into a plan to shed stations in markets where either duopolies aren’t available for his company or its stations are at a competitive disadvantage. “Since we launched our asset-rationalization program three years ago, we have sold $443.5 million of assets,” he says. “In the case of KOVR, one of our most successful stations, Viacom’s recognition of the station’s value to their television group is an endorsement of the long-term value of broadcast television.”
Viacom’s willingness to buy KOVR at a strong price demonstrates that it shares Sinclair’s belief that a market franchise is essential to competing effectively with cable and satellite TV.
This transaction, Smith says, “also highlights the continued under-valuation of television station assets by public equity holders.”