Tribune Media’s decision to wave the “For Sale” flag as it unveiled fourth-quarter and full-year 2015 earnings on Monday reflects the choppy waters that TV companies are navigating these days.
Tribune disclosed that it has hired two investment banks, Moelis & Co. and Guggenheim Securities, to help sort through sale or partnership options for its various TV, digital and data assets. It also took a $385 million write-down on the value of assets for the quarter — $381 million of which involved cabler WGN America. That raised speculation that the company would put the brakes on its ramp up of original programming for the cabler, even as WGNA at present is enjoying its most successful original series to date with “Outsiders.”
Although Tribune insiders said WGNA was sticking to its strategic plan, it’s clear that the headwinds facing the industry at large and the extraordinary competition for viewers in the peak-TV era has taken a toll.
The move to hire Moelis and Guggenheim came under pressure from Tribune’s private equity major shareholders, led by Oaktree Capital, who are impatient about seeing a significant return on their investment. Tribune’s stock price has sunk more than 30% since last August.
WGNA has been transformed during the past two years from a Superstation format — an antiquity of the 1970s and ‘80s — to a general entertainment channel that commands carriage fees and is seeing double-digit gains in advertising revenue and CPMs thanks to its originals. In the face of cord cutting and channel trimming by MVPDs, WGNA managed to grow its subscriber base last year by more than 10% to nearly 80 million households.
But the write-down in the overall value of WGNA is a quantifiable example of the changing fortunes for cable channels. After Tribune emerged from bankruptcy in late 2012, a value was put in WGNA assuming that it would be gussied up and grow into a bigger business with original programming. The cabler is on its way, but originals are expensive, mass audiences are elusive and Wall Street is far more bearish in 2016 on the value of cable channels (particularly independent outlets) that it was in 2012. Hence the write-down, which included a $74 million charge to account for the underwhelming performance of two WGNA syndicated acquistions, the CBS dramas “Person of Interest” and “Elementary.”
Tribune Media CEO Peter Liguori emphasized in a conference call with analysts on Monday that the goal of the strategic review is to “unlock” the value of Tribune’s assets. The company is considering everything from a sale en mass to selling off certain assets, including WGNA, to partnerships that could boost the value of its 42 TV stations.
“Exploring strategic alternatives” is usually code for “going on the auction block.” That prompted some questions in the creative community about WGNA’s short-term prospects as a place to develop projects.
However, given that Tribune’s largest shareholders are private equity firms Oaktree, Angelo, Gordon & Co. and JP Morgan, one observer noted that the company has essentially been up for grabs since it emerged from bankruptcy. Monday’s news was akin to posting a “situations wanted” ad that sent Tribune’s stock price soaring, closing Monday with a gain of 9%, or $2.95, to $35.90.
For now, sources said, it remains business as usual at the channel headed by WGNA president Matt Cherniss. The company has a second original series launching March 9, the slave-era drama “Underground.” The show whose producers include musician John Legend generated buzz earlier this month with a screening at the White House for President Obama.
“Outsiders,” from Sony Pictures TV, meanwhile ranks as the most-watched original in WGNA’s history with an average of 2.4 million viewers across multiple airings and platforms since its Jan. 26 premiere. The show revolves around a renegade family living in rural Kentucky. It’s had a halo effect on other WGNA shows and boosted its primetime average by double-digits.
In addition to “Outsiders” and “Underground,” WGNA has season three of fantasy drama “Salem” set to return at some point this year. Liguori said WGNA remains focused on its goal of building up to four original series a year. Drama “Manhattan” was canceled after two seasons earlier this month. Liguori called that a “tough” call given the solid critical response to the show but “the kind of decision that networks like WGNA have to make” in the face of financial realities.
As for Tribune’s station group, the strategic review may help hurry along the company’s progress in setting a new affiliation pact with the CW for its 13 major-market stations that are the backbone of the network. Tribune is unlikely to want to shop itself to potential buyers or partners without a clear primetime programming plan for its stations in New York, Los Angeles, Chicago and 10 other key markets.
The current affiliation pact, a 10-year deal inked at the founding of the CW in 2006, is believed to expire in September.