Adonis Hoffman
Source: broadcastingcable.com, May 2019
Robust deal market shows the TV market is as vital as ever
If we listen to the media cognoscenti, television is moribund. It soon will succumb to video streamed via the internet to our IP-outfitted 8K television sets, in addition to our increasingly capable handheld smartphones. The prognosticators of peril will tell us that television has no lasting value for advertisers, investors or consumers and the really “smart” money is anywhere but in old media.
Perhaps the future will bear out that dystopian view. But for now, these nattering nabobs of negativity have missed the mark. The current media landscape shows virtuous signs of vitality. If we look at the number and level of deals in the marketplace — 2018 witnessed the highest level of broadcast mergers and acquisitions in five years, according to Kagan — it is hard to conclude old media is dead. These included: Cordillera Communications-E.W. Scripps; Gray Television-Raycom; and the pending $4.1 billion Nexstar Media Group-Tribune Media merger.
Some of the biggest deals in media history were struck in the last two years. AT&T’s purchase of Time Warner for $79 billion was a harbinger of things to come. Big players with deep pockets are looking for content and a direct-to-consumer path to go along with the means of distribution. When The Walt Disney Co. bought 21st Century Fox’s assets for $71 billion and Comcast bought Sky for $39 billion, the media financial world took notice. While the EBITDA on each may have been a bit out of whack for steely-eyed investors, the opportunity to acquire performing, consumer-facing assets was too good to bypass.
We should expect more, not fewer, megadeals, especially now that leading private-equity firms have targeted media as a sector worth owning. While television may be viewed as an endangered species by some, investors seem to like its steady cash flow and the double-digit rates of return. Indeed, some of the most interesting deals in the sector have been struck by private-equity firms, whose focus on cost, efficiency and performance are not necessarily bad things for broadcasters competing with just about everybody else.
Today, private-equity firms own hundreds of TV stations, including top groups Ion Media and Univision. Pilot Group, Boston Ventures, Oak Hill Capital Partners and Providence Equity Partners, among others, have been in the TV acquisition game for a while. Blackstone, Bain and Apollo have also thrown their weight around. Somewhat under the radar has been the systematic acquisition of broadcast spectrum by Hc2 Broadcasting, led by Phil Falcone. With 14 full-power, 52 Class-A and 98 low-power stations, along with 400 silent licenses and construction permits, the fund is in 130 markets covering nearly 60% of the U.S. population. These interests are financial, not feel-good or familial.
While Sinclair Broadcast Group’s $3.76 billion bid for Tribune fell through in 2018, Sinclair has rebounded with its successful bid to buy Fox’s 21 regional sports networks for $10.6 billion.
Money will continue to flow to the sector, if not necessarily from legacy sources. To be sure, ad revenues are expected to decline or remain flat, year-to-year, as money migrates online. That said, the 2020 campaigns should be a boon to their bottom lines.
But there are other reasons for broadcasters to look toward a brighter future. First-quarter 2019 financial results are key indicators of the strength of TV station earnings. Fox, Sinclair and Nexstar all posted double-digit gains, with their stocks trading at all-time highs.
Today, that optimism resides in ATSC 3.0, the new standard that will launch on stations in the top 40 markets by the end of 2020. It also rests on the hope the retransmission ecosystem will not be undermined by those who chafe at its success. There is also a favorable, though not fawning, group of regulators at the FCC and solid stock performance by the leading local station ownership groups.
There is much to like about television these days. Whether you are an owner, investor or viewer, the future is brighter than the doom and gloom which colors most commentary.
Perhaps the last frontier for television as we know it is eradicating the regulatory boundaries that hinder broadcasters from competing in a new, more-challenging market.
Adonis Hoffman is chairman of Business in the Public Interest and a former senior FCC official.
