Creeping congloms

Likely FCC ruling may unleash station swaps, sales

As the Federal Communications Commission votes June 2 to wave the checkered flag and lift media ownership rules, the shake-up may start with little more than a mild ripple.

The first sure sign of a realignment of the biz is likely to be TV station swaps.

Companies like E.W. Scripps and Hearst, which own cable nets as well as TV stations and newspapers, could start swapping with peers like Tribune to solidify and rationalize their holdings.

Would-be station-traders are playing down the likelihood of a wholesale reshuffling of the TV station and newspaper deck, though, even as Wall Street wheeler-dealers are heralding the next TV gold rush.

Despite the late-breaking wave of consumer and production industry protest, the big look likely to get bigger — if not in immediate scale, in concentrated power.

The question is which companies will be getting bigger and at whose expense?

With a loosening of cross-media ownership rules, clustering is now the name of the game.

This applies both to ambitious newspaper groups like Gannett, Tribune and even the New York Times, which may now look to build regional multimedia mini empires, and to hungry congloms like Viacom and Disney, eager to solidify duopolies in top markets.

Noncash station swaps and choice buyouts by a mix of ambitious regional players and major network congloms are expected as part of a slow but inexorable realignment of properties.

“It won’t be a complete tidal wave,” predicted David Kaut, a media analyst for Legg Mason. “There will be a significant amount of dealmaking, but not as much as people fear.”

Despite a rising chorus of naysayers — even former studio chieftain Barry Diller has warned of the evils of further consolidation and of the silencing of independent production voices — hungry station owners regard the loosening of rules as simple economic prudence.

Duopolies, say both the Big Four nets and indie station owners, are the only sure way to ensure growth as viewing fragments.

Alan Bell, prexy and CEO of Irvine, Ca.-based station owner Freedom Communications, is dubious about any gravity-defying changes emanating from the rule changes.

Instead, Bell is bracing for a protracted legal battle from both sides of the deregulatory debate.

An advocate for “batching” TV stations together in the same market, Bell nevertheless expects to see numerous station swaps that help cluster stations together in a cost-effective manner. But he’s skeptical about newspaper and TV stations co-habiting in the name of cost efficiency and advertising clout.

“I think clustering with duopolies or triopolies makes sense because it can eliminate duplications. That’s a lot more difficult to achieve across different mediums,” Bell says.

Freedom owns some 56 daily and weekly newspapers and eight TV stations. It recently hired Morgan Stanley to value its assets, but Bell says it’s exploring various possibilities, not necessarily a sale.

With cash short and M&A appetites curbed, the most likely near-term scenario will be a realignment of existing players.

Rhode Island-based LIN TV says it will be looking to buy out stations where it currently has local marketing agreements in order to add to its fully owned duopolies.

“Our goal is to grow our company and be No. 1 in our markets,” says LIN treasurer and head of corporate development Deb Jacobson. She says LIN, which owns 23 stations in 14 markets, will be looking to buy, sell, trade or swap its way to add duopolies that serve different demos.

But even while newspaper owners like Tribune line up at the starting gate anxious to trade wares, stations — particular those that can be part of a duopoly — won’t come cheap.

Trading multiples have already been rising in anticipation of deregulation.

Paxson, for instance, saw its shares rise 50% at one point as the market widely expects the Florida-based station owner and programmer to sell off its 63 full-powered stations for up to $3 billion.

The expected lifting of the TV station ownership cap from 35% of U.S. households to 45% immediately clears the regulatory air for Fox and Viacom, and also gives these congloms the ability to widen their footprint.

News Corp., which has said publicly that it doesn’t expect to be a big buyer of stations, is indeed hamstrung financially by its upcoming acquisition of satcaster DirecTV.

Entertainment arm Fox can’t stretch itself for any large-scale acquisition if it hopes to maintain its investment-grade credit rating; it may have to limit itself to small, single station buys in choice top-25 markets in order to shore up its duopoly strategies.

Few, however, believe Fox will stay away from the trading table for long. Fox currently owns duopolies in nine markets, which has helped it shave $100 million off its operating expenses.

Viacom is the most likely big buyer, with low debt levels and plenty of cash on hand for a big deal. Merrill Lynch speculates the company could look to buy into the Spanish-language market, possibly by going after Univision.

Merrill Lynch analysts believe publishing groups like Gannett, with TV stations in medium-sized markets and newspapers in numerous smaller markets, have the appetite and balance sheet to buy other newspaper companies. Gannett specifically may have its eye on privately owned Freedom Communications.

While it’s still unclear who will be buying and who will be selling, here’s a watch list of key players that Wall Street is keeping close tabs on.

Hearst-Argyle: This group may be able to buy stations in markets where its 80%-owned private publishing parent Hearst Corp. owns newspapers. Company has strong stand-alone stations but few duopolies.

Emmis: Highly leveraged radio and TV station owner has toyed with the idea of spinning off its TV station group, but may need to tidy up and possibly expand its portfolio through some station swaps, possibly with Fox.

Tribune: Aggressive publisher-station owner still has a healthy appetite for stations and possibly more newspapers as part of its stated national roll-up strategy. This major WB station owner (it owns 25% of the netlet as well as 26 stations, 19 of which are WB affils) could eventually sell its TV biz to AOL Time Warner.

Paxson: Florida-based station owner’s 66 stations and 88% national reach make it a prime takeover target. Its programming lineup has struggled, and topper Bud Paxson may make an exit.

Scripps: With six ABC affils, company’s stations could be takeover bait for Disney.

Meredith: Publisher of women’s mags like Better Homes & Garden and midmarket TV stations could opt to exit the broadcast biz if it deems itself too small to compete.

NBC: Hovering just under the 35% cap, third-ranked station owner may look to beef up its reach in the top 15 markets and could benefit from a relaxation of duopoly rules.

Sinclair: An aggressive station buyer in the late 1990s, this debt-heavy company is considered just as likely to be a buyer as it is a seller.

(Susan Crabtree in Washington and Pam McClintock in New York contributed to this report.)