Of the many challenges Fox News Channel is facing amid a turbulent year, there’s one threat Rupert Murdoch can cross off the list: Sinclair Broadcast Group has no plans to launch a rival conservative-friendly TV network. Chris Ripley, CEO of the Hunt Valley, Md.-based TV-station giant, is ready to end months of speculation that his company was preparing to mount a competitive threat in the wake of its $3.9 billion deal to acquire Tribune Media in May.
“After we acquired Allbritton [Communications] in 2014, we looked hard at launching a national cable news channel, but we decided the world didn’t need another cable news platform,” says Ripley, who makes clear that the rise of Donald Trump and the upheaval at Fox News haven’t changed his calculus. “Our strength is local news,” he maintains. “The market for national cable news is very well served.”
It’s hardly surprising that Sinclair would face speculation over its plans for the future. The company is already the nation’s largest owner of TV stations, and it will grow to unprecedented size if the FCC approves the Tribune acquisition. And Sinclair has drawn more and more fire from critics — notably HBO’s John Oliver — for the increasingly conservative tilt to its local newscasts through “must-run” commentary segments and coverage decisions mandated at the corporate level.
|Travis Coburn for Variety|
But in an exclusive interview with Variety, Ripley defends those segments, returns fire on Oliver’s recent piece lambasting Sinclair and denies that the company is intent on furthering a political agenda — despite the hiring in April of Trump loyalist Boris Epshteyn as the group’s chief political analyst.
If there’s an agenda near and dear to the hearts of Sinclair management, it’s more technological than political. The company is aggressively pushing fellow TV station owners to adopt a bold new tech standard known as ATSC 3.0 (or Next Gen TV) that Ripley says is aimed at “moving the broadcasting industry into the current century.”
ATSC 3.0 is the brainchild of the same man alleged to be driving Sinclair’s political agenda: its executive chairman, David Smith, who declined to comment for this story through a Sinclair representative. Smith’s ambition is immense, and media biz observers say it will be greatly aided by the company’s coziness with the Trump administration.
“There is legitimate concern over what the lack of objectivity at Sinclair portends for the future,” says Michael Copps, former FCC commissioner and now a special adviser to Common Cause’s Media and Democracy Reform Initiative. Copps has been a longtime critic of Sinclair and its efforts to expand its footprint and market share.
No one could have foreseen that Sinclair would become one of the most influential forces in TV back in 1971 when the company’s first TV station, WBFF-TV Baltimore, signed on the air. Smith’s father, the late Julian Sinclair Smith, built the original control panels for the station by hand, according to company lore, after he recognized the potential of the then-emerging UHF technology to change broadcasting.
Sinclair has operated as a public company since 1995, but in many respects it still operates like a mom-and-pop firm — albeit a family business with empire-building ambition, industry sources say. Since 2012, Sinclair has spent about $4 billion on dozens of station acquisitions, not counting Tribune. The company’s balance sheet has rebounded after a close call with bankruptcy in 2009, when the advertising market collapsed during the recession and Sinclair was carrying a heavy debt load from a previous acquisition spree.
|“To me, it looks like the [sales] bazaar is really getting into high gear under the new FCC.”|
|Michael Copps, former FCC commissioner|
Smith, 66, and his three brothers — Frederick, Duncan and Robert — maintain iron-clad control through the preferential voting shares that are favored by media moguls such as Murdoch and Sumner Redstone. David Smith controls the largest percentage of the company’s voting shares, at 23%.
Outside of TV, Smith is a prominent figure in the Baltimore business community. He owns a few local restaurants through his Bagby Restaurant Group venture, supplied in large part by locally grown food from his 200-acre Cunningham Farms operation in Cockeysville, Md. But the passion that fuels his professional life, sources say, is growing Sinclair’s station empire and its bottom line.
Long before Trump began raising a ruckus about “fake news,” Smith was determined to use his TV station group, anchored in Baltimore, to combat what he viewed as raging liberal media bias, according to sources familiar with the company topper. About 15 years ago, Sinclair established a Washington bureau to feed news and commentary segments mandated to run on all Sinclair stations, which air about 2,200 hours of news a week, per the company.
“He genuinely believed that the media was so messed up and got it wrong all the time that it was bad for the country,” says a former Sinclair editorial staffer of Smith. “He felt like it was a civic duty.”
Sinclair’s harshest critics cite a litany of examples of the company serving as a soapbox for far-right commentary and frequently promoting a pro-GOP agenda on its airwaves. The accusations date back to 2004, when Sinclair decided that its eight ABC affiliate stations would not carry the episode of “Nightline” featuring anchor Ted Koppel reading the names of 721 military personnel killed in the war in Iraq. Sinclair branded the “Nightline” episode a stunt “to influence public opinion against the military action in Iraq.” “That was all David,” the Sinclair alum says.
The same year, Sinclair took aim at Democratic presidential candidate John Kerry, a decorated Navy war veteran, airing a program about the documentary “Stolen Honor” that savaged Kerry’s military service during Vietnam and his antiwar actions after he left the Navy.
More recently, Sinclair has generated controversy by mandating all of its stations run Epshteyn’s nine-times-weekly “Bottom Line With Boris” commentary segments. The former Trump strategist has unfailingly supported his ex-boss in virtually all of his two-minute segments to date: praising Trump’s “America First” trade policy, saluting his efforts to reform the Veterans Administration, crediting Trump for fueling job growth and chiding state leaders for balking at the administration’s request for voter registration data as part of its voter fraud investigation. On June 23, Epshteyn flatly declared, “This president has instilled further confidence in the American people that he and his government will be able to protect us from terror, and that’s the bottom line.”
Epshteyn told Variety that the criticism of his presence in Sinclair’s newscasts stems from bias against the company from mainstream media. He points to TV news personalities — such as ABC’s George Stephanopoulos and CNN contributor David Axelrod — who have made similar career shifts from politics to on-air roles.
|Source: SNL Kagan|
“My segments are all very clearly marked as analysis and commentary,” Epshteyn says. “These are my insights into what’s really going on in Washington based on my background and my experience with the last three presidential campaigns, the inauguration and in the White House.”
Sinclair is also home to longtime conservative commentator Mark Hyman — a former executive at the company — who asked in a recent segment: “Does the public really like Obama, or are they afraid pollsters would consider them racists if they gave him poor marks?”
Sinclair critics “mischaracterize what we do by just focusing on a small subset of our newscasts,” says Ripley, 40, whom Smith tapped as CEO in January. “We put those players [Epshteyn and Hyman] on because we are optimizing for ratings. They represent a diversity of views that you can’t find on other channels.”
Viewers who tune in to Fox News or MSNBC likely expect to get a partisan slant on the headlines at least in some programs. But local TV news has typically had a down-the-middle approach, especially on national issues. Were Epshteyn to appear as a commentator on a cable news channel, his partisan affiliation would be identified. That’s not the case on air at Sinclair; Epshteyn’s previous work for Trump is disclosed only in the online postings of his commentaries on Sinclair station websites.
“They’re really trying to warp the worldview and the narrative that their audience is receiving from their newscasts, and it’s being warped by a source that [the audience] would otherwise trust,” says Angelo Carusone, president of Media Matters for America, a liberal-leaning watchdog organization that has been a vocal critic of Sinclair for years. “I think it’s exploiting and weaponizing the fact that people don’t expect their local news to be partisan.”
Though they don’t speak out on their political beliefs, Smith and his brothers have made significant donations to Republican causes and candidates. And Sinclair wasn’t helped by a report last December that Jared Kushner, President Trump’s son-in-law and influential adviser, told business leaders at a private luncheon that the Trump campaign cut a deal with Sinclair for favorable coverage toward the end of the grueling 2016 presidential race. Ripley and Sinclair news chief Scott Livingston strongly deny Kushner’s suggestion of a quid pro quo and say offers for in-depth interviews and news segments were extended to Trump’s Democratic rival, Hillary Clinton, as well.
Sinclair is clearly on the defensive now. Livingston issued an internal memo last week to all of the company’s news directors defending Sinclair’s programming. The pressure has been mounting since Oliver’s “Last Week Tonight” ran its July 2 takedown of the company. The alarm Oliver raised over the consolidation of Sinclair and Tribune without making mention of HBO parent Time Warner’s pending $85.4 billion merger with AT&T is a prime example of the hypocrisy woven into most mainstream media coverage of Sinclair, according to Ripley.
“The selective cherry-picking of some stories that end up on our newscast paints us in a light that is very unjust,” he says. “If you were to listen to the John Oliver skit, you would think that our news was 24/7 commentary, which is certainly not the case. It is a small fraction of what we do.”
|“For years, this company has done everything it can to evade the FCC’s rules.”|
|Craig Aaron, Free Press president, CEO|
Sinclair opponents say the expected FCC approval of the Tribune takeover is in part payback for friendly news coverage Sinclair offered Trump during the bitter presidential campaign. Smith is widely reported to have discussed changes to the FCC’s media ownership rules in a meeting with Trump during the pre-inaugural period.
Craig Aaron, president and CEO of the D.C.-based watchdog group Free Press, which has long been a critic of Sinclair, says the sequence of events that led to the restoration of the FCC’s UHF discount — which eases ownership limits on many of the stations Sinclair owns by counting them as only half a station — is nothing less than a scandal. He notes that a legal effort to challenge the decision is pending in federal court, and that numerous public interest groups are prepared to do battle at the FCC as the deadlines for public comment on the deal approach in August.
“For years, this company has done everything it can to evade the FCC’s rules” on station ownership, Aaron says. “Now they have someone on their side willing to rewrite the rules to benefit one company. This kind of corporate welfare is unprecedented.”
Sinclair’s conservative credentials are seen as the reason newly appointed FCC chairman Ajit Pai moved quickly in April to pave the way for the Sinclair-Tribune deal by reinstating the discount, created in a bygone era in which analog TV sets received signals for UHF and VHF stations differently. Restoring the discount has enabled a merger that would bring together more than 200 stations that reach some 72% of U.S. TV households in 81 markets, including 39 of the nation’s 50 largest markets. The combined entity would become a broadcast colossus the likes of which the industry has never seen.
With a platform as big as the combined Sinclair-Tribune footprint, it’s guaranteed that Sinclair will angle to become a bigger player in the national programming scene, even if an all-news network isn’t in the cards. There have been preliminary conversations about the company recruiting former Sony Pictures Television chairman Steve Mosko to head a content-focused division based in Los Angeles. (Mosko began his career working for Sinclair’s WBFF.)
Sinclair has gradually been expanding its original programming portfolio in recent years through acquisitions (cable’s Tennis Channel), digital multicast channels (sci-fi themed Comet, viral video-centric TBD and action-oriented Charge!) and digital content (the millennial-focused news site Circa). Circa, which Sinclair acquired in late 2015, has come under scrutiny as a source of news stories distributed to Sinclair stations with what some see as a thinly veiled pro-Trump and anti-liberal agenda, based on the importance given to particular stories Circa provides — another point Livingston defended in his memo. Rumors persist that former Fox News star Bill O’Reilly could head to Sinclair.
|Sources: Sinclair Broadcast Group, Tribune Media 2016 annual reports
*Tribune took a $385 million impairment charge in February 2016, largely to reflect the loss in value at its WGN America cabler.
Sinclair is poised to inherit Tribune’s general entertainment cabler WGN America, which is already bailing out of the scripted TV business, a format Sinclair deems too expensive. Ripley says Sinclair’s focus is on the unscripted programming — talk shows, game shows, court shows — that are the bread and butter of its stations.
“We don’t have a desire to get into the scripted genre,” says Ripley, a UBS Investment Bank alum who joined Sinclair as chief financial officer in 2014. “We feel like that’s very competitive and very well supplied.”
Sinclair also has no intention of dumping any of its network affiliates or trying to rival the five major English-language broadcast networks. “We’re not looking to compete directly with the ABCs and NBCs of the world,” Ripley says. “Those businesses are incredibly robust. We’ll continue to affiliate with them and that will be a core part of our business.”
But the enlarged company will have even greater clout in negotiating the terms of affiliate agreements — including the level of reverse compensation Sinclair pays to its network partners. The Tribune deal, if approved, would make Sinclair the largest operator of Fox affiliate stations, as well as ABC and CW affils.
Industry executives who have dealt with Sinclair say the company is known for relentlessly grinding down partners on contract terms. “They are not easy to deal with,” says a network executive with experience in negotiating affiliation deals with Sinclair.
Sinclair also will gain more sway with local and national advertisers, given that the company owns or operates more than one station in most of the markets it serves. And it will have more muscle to flex in retransmission consent negotiations — a huge driver of revenue that Sinclair was among the first broadcast groups to demand from MVPDs as a condition of distributors being allowed to carry their stations.
But Sinclair’s pursuit of Tribune is not just about getting bigger. Smith and Ripley want to use that expanded footprint to drive a radical reinvention of broadcast TV.
Sinclair for the past few years has been the industry’s most vocal champion of a new technical standard for broadcast TV — ATSC 3.0 — which would give stations much more bandwidth to use to distribute content and data, making them more competitive on a regional basis with digital behemoths. Industry veterans point to this as a sign that Sinclair has taken the lead in driving industry-wide technical and business innovations that were once dominated by the Big Four networks’ owned-and-operated stations.
ATSC 3.0 would shift the transmission of signals stations send to TV sets from the public airwaves to an Internet Protocol standard, enabling targeted communications to subsets of consumers delineated by zip codes, IP addresses or established user preferences. The technology would allow a station to offer “hyperlocal” advertising and programming, such as a newscast or sports coverage. “It will modernize our industry to the age of the internet,” Ripley says. “It will allow us to use subscription-fee models and have an offering like a Netflix that exists over the air. It increases the capacity that we have in any given stick or signal by four to five times what we can do today.”
Ripley says the imperative to adopt ATSC 3.0 is driven by the fact that younger consumers are increasingly abandoning traditional viewing on a TV set for mobile devices.
Smith gave up his CEO role in January in part to spend more time promoting the benefits of the ATSC 3.0 standard to the TV biz at large. He made the pitch to a conference of public TV station owners in February, suggesting that additional revenue from next-gen services could help fund their core mission of delivering educational programming.
“I can’t tell you what the market’s going to demand six months or two years from now,” Smith said in February in an address at the Public Media Summit in Washington, D.C. “The only thing I know is that I’ll be able to play in the game because I have a pipe that is completely mobile.”
|Source: SNL Kagan/S&P Global Market Intelligence
*Figures For 2017 refer to the first half of the year
The FCC voted unanimously in February to begin the process of adopting the new standard for stations on a voluntary basis. The one-way traffic that IP-based broadcasting offers has the benefit of being low cost to consumers, relative to broadband service, because it uses the station’s existing pathways, just in a more efficient way.
Sinclair has invested $30 million in R&D on the new technical standard. In 2014, the company created a subsidiary, One Media, devoted to fine-tuning the technology and equipment needed to make ATSC 3.0 a reality.
“We are relentless in our desire … to pursue any and all things that make broadcast better and allow us to serve two masters: the broadcast industry shareholders and the public interest,” Smith told the Public Media Summit.
Sinclair has assembled a consortium of broadcast groups — including Nexstar and Univision — that are working together on scouting out large-scale applications for ATSC 3.0 functionality such as the prospect of leasing bandwidth to manufacturers of driverless cars that will need a continuous stream of updates of maps and road conditions.
Barry Lucas, who monitors Sinclair as senior VP of research for Gabelli & Co., believes the company should be credited for leading the charge in a media sector that had been seen as a dinosaur but has become attractive again to investors, in part because of the potential yet to be unlocked by ATSC 3.0.
“They have as broad a vision as anyone for the potential of the new standard,” he says. “They are a well-managed company that is toward the top of the pack on [profit] margins.”
Efforts by Sinclair to ease or remove entirely the FCC’s station ownership limits need to be viewed in context of the broader media landscape.
“The real competitors these days are not the local newspaper and not iHeartRadio or Entercom — they’re Google and Facebook,” Lucas says. “They have 100% penetration and are taking 100% plus of all advertising revenue growth. From that standpoint, being a larger entity as a TV station owner is not just a desirable strategy; it may be the only strategy.”
The size and scope of Sinclair after absorbing Tribune has accelerated the M&A fever that was already brewing among TV station owners large and small. Everyone with a stick in the air predicts the local TV landscape will be transformed by a wave of consolidation in the next two to three years. Tegna, Hearst, Scripps and Raycom are among the station groups expected to see movement as buyers or sellers in the coming months. Sinclair and Nexstar may still be in the hunt if the FCC further relaxes media ownership rules.
Nexstar was a contender against Sinclair for Tribune in the bidding that went through several rounds from January through early May.
The emergence of giant station groups with the scale of Sinclair and Nexstar, which at present owns 170 stations, is putting pressure on the parent companies of the Big Four networks to respond, one way or another. Already there’s chatter about CBS kicking the tires on a few companies, or capitalizing on the demand by selling off some of its smaller-market O&Os. There’s also talk of a possible combination of ABC’s eight O&Os with Hearst’s 34 stations, most of which are ABC and NBC affiliates. Disney and Hearst are already partners in ESPN and A+E Networks.
This is all greatly concerning to observers like Copps, who thinks TV station ownership is too tightly concentrated in the hands of too few.
“This consolidation over the past 20 years has dealt almost a death blow to investigative journalism, to localism and to diversity of viewpoints,” Copps says. “To me, it looks like the [sales] bazaar is really getting into high gear under the new FCC.”
To broadcasters, the impetus to bulk up comes as their traditional profit centers are being squeezed from all sides. The largest cable operators have been through a round of consolidation — probably while digital giants are siphoning off local ad dollars.
“The continuing consolidation in the distribution universe will drive the continued consolidation of local station groups,” says Perry Sook, CEO of Nexstar Media Group. “It is a business of scale. You get what you negotiate. The larger your scale, the better terms you can negotiate.”
Steve Lanzano, president-CEO of the Television Bureau of Advertising trade org, says the focus for stand-alone broadcasters on scale is also driven by swings in the source of advertising dollars for local TV. A decade ago, 65% to 70% of advertising dollars for TV stations came from national advertisers making regionally specific buys compared to abut 30% from endemic local blurb buyers. Today, those ratios have flip-flopped because spending has migrated to low-cost national cable networks and digital outlets.
The technical upgrades offered by the ATSC 3.0 will make it easier for large station groups to run spots uniformly across their entire footprints. And it will make it possible for stations to offer marketers audience-targeted spots with sophisticated data to back it up. “It can’t come fast enough,” Lanzano says of ATSC 3.0.
To those who worry about the threat to diversity of ownership and viewpoints on the air with Sinclair having sway over such a wide swath of the public airwaves, Ripley points to the exponentially larger footprints enjoyed by his competitors.
“We are of the view that in order for the industry to survive, it had to be more consolidated,” he says. “We’re playing in the land of the giants.”