The latest wave of publishing spinoffs by some major broadcasting groups could touch off another consolidation wave in the broadcast sector, and that could be bad news for cable operators in the form of retransmission-consent costs.
The past month has seen three large media companies opt to separate their lucrative broadcast stations from poorer- performing publishing operations.
Gannett Co., publisher of USA Today and owner of 46 TV stations, last week became the latest company to split up operations. The others were E.W. Scripps and Tribune Co.
Similar spinoffs occurred earlier at Media General (2012), Freedom Communications (2011) and Belo Corp. (2008). Belo later sold out to Gannett in 2013, and Freedom Communications sold its stations to Sinclair Broadcast Group in 2012.
Media General sold its newspapers to Berkshire Hathaway in 2012, snapped up Young Broadcasting’s 12 stations in 2013 and agreed in March to merge with LIN Media, creating the second largest pure-play television broadcasting company in the country, with about 74 stations. That transaction is expected to close in early 2015.
Also, Scripps’s 21 broadcast stations are merging with Journal Communications’ 14 TV stations under the Scripps umbrella. Both companies’ newspapers would be spun off into a new entity called Journal Media Group. That deal is expected to close in 2015.
Tribune has completed the separation of its 42 TV stations and eight newspapers into Tribune Media and Tribune Publishing, respectively.
Gannett CEO Gracia Martore, who will run the broadcasting and digital unit after the split, said one motivation behind the decision to split up was government cross-ownership restrictions that bar companies from owning a newspaper and a TV station in the same market. “It was difficult for us to, in some cases, to look at certain acquisition opportunities that we found attractive because of cross-ownership restrictions,” she said.
Independent media analyst Craig Huber, of Craig Huber Research Partners, doesn’t see those cross-ownership regulations as that big of a factor. Instead, he said he thinks pressure came from investors and he expects consolidation in the broadcasting industry to continue.
“I think there will be more consolidation, just not at the fever pitch you’ve seen in the last two and a half years,” Huber said. Swaps to better align stations regionally also could be in the cards. Several small independent station groups across the country could become possible targets. “There are certainly more [acquisitions] to do,” he said.
Broadcast-station consolidation peaked in 2012 and 2013, led by major station groups like Sinclair Broadcast Group and Nexstar Broadcasting. In the span of two years, Sinclair spent about $3 billion acquiring about 100 stations.
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That frenzy cooled down, especially when companies like Sinclair started approaching the federally mandated ownership cap of reaching 40% of TV homes.
Now it appears to be time for second-tier station owners to wheel and deal.
Combining those remaining stations could translate into more retransmission-consent dollars for station groups and a better leverage for them as they hammer out reverse-compensation deals with networks. SNL Kagan has estimated that retransmission-consent fees will double to more than $7 billion by 2018.
“The more stations you own, the more leverage you have, for retrans and for network compensation as well,” Huber said. “Retrans and network comp leverage are two of the biggest reasons you have seen all these TV stations merge over the last two and a half years.”
