An increasing number of TV stations are being offered for sale. Since Emmis Communications led the charge in 2005 with the announcement it would sell its 16 stations, the New York Times, Liberty Communications and Clear Channel have divested their considerable groups.
Other companies, including NBC and CBS have sold some of their stations. And the list of sellers continues to grow with Nexstar Broadcasting, LIN Television and Lincoln Financial looking at “strategic alternatives,” possibly selling all of their stations. Additionally, Fox is accepting bids on nine of its O&Os in smaller markets.
Why the increased interest in selling? Why do some broadcasters want to acquire additional properties and what is drawing new companies and investors to the business for the first time? The answers to these and related questions are complicated, but five revealing trends are emerging.
First, the recognition of television stations retaining a strong position in the regional advertising marketplace, even in the face of sharper competition, has increased the interest of both private and public investors.
In just the last few months, the stock prices of many publicly traded television groups have shown increases that are double or triple the overall market growth. Strong growth in political advertising revenues in 2006, over and above what was projected growth, reminded many that in even-numbered years, television stations have a commanding position with this advertising base. And, the outlook for this source of revenues in 2008 is enormous.
Second, television groups have completed successful retransmission consent negotiations with local cable systems that are resulting in additional revenue.
This revenue source often falls directly to the bottom line and provides a steady stream to shoulder the downturns in overall revenue growth in odd-numbered, non-political years. Factor in the likelihood that these revenues will only increase along with the intensity of competition among multichannel video providers (cable, satellite and telephone companies), the long-term prospects of the television industry becomes even more promising.
Third, television stations are increasing their usage of the digital spectrum. Many stations are airing a second network (e.g., CW or My Network TV) or other programming (e.g., NBC Weather Plus) on one of their digital multicast signals.
Through their retransmission consent negotiations, these stations are obtaining local cable carriage. Multicasting allows television operators to benefit from having more than one TV station in mid-size and smaller television markets without running afoul of the local television ownership regulations. Like the retrans take, the multicasting revenues help compensate for the decrease, or complete elimination of, network compensation revenues.
Fourth, television stations are really beginning to experience success with their Web sites. Many stations, especially those with strong news departments, are generating substantial revenues from their Internet properties and are selling classified ads for employment, real estate and automobiles. They are now using more video to attract viewers to their sites.
They are also exploring new technologies that allow them to engage their audience even more directly via private-label desktop and mobile applications, both of which also have the potential to provide additional sources of advertising profits. By repurposing their unique local content, stations in markets of all sizes are experiencing substantial increases in their bottom line.
Fifth, many large TV groups are continuing to deploy centralcasting technology and other operational efficiencies. Investing in these production and distribution advances can lead to substantial savings and increases in the bottom line.
So, given these developments, the prices of recent station sales have been healthy with decent multiples of revenues and cash flows.
The strong revenue prospects for 2008 and subsequent even-numbered, political years have bolstered the confidence of buyers and their financial backers. And prospects should continue to be bright for stations that are able to generate retransmission consent rights payments or multicasting revenue.
Stations that fail to take advantage of these opportunities will not be as strong, and we may see a greater divergence in the values of stations.
