Bidding on two prime collections of local TV assets — Fox’s 22 regional sports networks and Tribune Media’s 42 TV stations and WGN America — will heat up this week in separate auctions that are expected to be concluded by year’s end. The nature of the players lining up for these properties, which include Amazon and private equity heavyweights, speaks volumes about the transformation of media economics, particularly for outlets that have historically operated with a narrow regional focus.

The advent of digital streaming and entry of tech giants with deep pockets is starting to upend the broadcast TV business’s traditional local-national partnership structure. Network television became ubiquitous through the alliance of locally oriented affiliate stations owned by outside companies that pacted with national networks to supply high-wattage entertainment, sports and news programming. The affiliate station in turn provided the local news and information that would make the channels relevant to viewers in a geographically distinct TV market.

For the first 50 years or so of TV, CBS, ABC and NBC paid most of their local affiliates to carry their programming. That formula was turned inside out starting in the 1990s. Now most affiliate stations collectively shell out hundreds of millions of dollars each year in what’s known as reverse compensation to their networks. The strongest network-affiliated TV stations around the country have seen a windfall in the past decade in the form of retransmission consent fees paid by regional MVPDs. The networks demand their cut of that money under the rationale that it is high-priced network programs that make local stations a must-have for pay-TV distributors.

The latest round of asset-swapping and empire-building that will rev up before year’s end promises to change the economic underpinnings of local TV even more. Doug Creutz, senior media and entertainment analyst for Cowen & Co., sees the notion of regional sports changing as the streaming giants move into the arena.

“They’re regional channels, but what does that even mean if you’re planning to offer them online?” Creutz said. “You can easily contemplate a scenario where at one price you get your local network and people who are massive sports fans can pay more for a bigger package of sports options.”

Amazon has emerged as a bidder for Fox’s 22 RSNs. The sports channels scattered across the country — Fox Sports West, Fox Sports Oklahoma, Fox Sports Midwest, et al. — have been hastily put on the block by Disney as a condition of securing federal approval of its larger takeover of 21st Century Fox. The group has been valued at $20 billion to $22 billion, which means a sale would effectively trim some of the $71.3 billion price tag that Disney is paying for the rest of the 21st Century Fox assets.

There have been rumblings that Amazon also has an interest in Fox’s 28 owned-and-operated TV stations, which reach 37% of U.S. TV households. Those TV stations will remain with the new iteration of Fox that will emerge after the Disney transaction is completed early next year. Surprisingly, sources say Fox is open to discussing a deal for the stations because the company can still extract significant value from them, on top of a big one-time sale premium, if Amazon agrees to a long-term reverse-compensation Fox affiliation agreement.

Among the less surprising suitors for the Fox RSNs are local station giants Sinclair Broadcast Group and Tegna. Private equity firms like Apollo Global Management, KKR and Blackstone are also in the mix, per CNBC. The Fox RSN holdings include 80% of the Yes Network, New York’s local home for Yankees games. The team is preparing to exercise its right of first refusal to buy back the stake from Disney, although it could still be outbid by a more aggressive rival. Amazon’s bid is said to incorporate the Yes Network, which is believed to be the most highly valued channel of the group.

Amazon’s interest in local sports and possibly local TV stations provides an intriguing glimpse into the company’s focus on the future. With an expanding brick-and-mortar presence through the Whole Foods supermarket chain and other investments, perhaps the e-commerce behemoth sees local marketing and promotions as a future growth engine. Having a sizable local TV presence particularly with fan-favorite sports teams would only enhance such efforts.

Moreover, Amazon has already embraced both live sports and the channel-bundling business as retail opportunities. Major programmers increasingly report that marketing via Amazon’s portal for sales of stand-alone streaming apps and linear-channel packages is steadily growing. Amazon’s retail muscle is so enormous that it is now serving as a sales agent for cable packages from rival Comcast, among other MVPDs. Amazon declined to comment for this report.

Regional sports networks and a local TV station in Seattle are among those at auction.
Stephen Brashear/AP/Shutterstock

Two years ago, Amazon easily outbid numerous formidable competitors to acquire streaming rights to the NFL’s “Thursday Night Football” games. On the retail giant’s site, streaming access to the games is pitched to consumers in promo spots as a perk of the $119 annual fee for being an Amazon Prime member. The hope is that football and free shipping is too compelling an offer for many users to pass up.

All told, Amazon’s prospective entry into local media promises to bring further earthquakes to a TV marketplace already in disruption. Unlike every other broadcaster, Amazon sees TV, in all its permutations, as a kind of barker channel for its larger retail business. With a market cap of around $750 billion, Amazon can afford to shell out heavily for sports and other programming rights and call that investment a loss leader.

Another big question surrounding Fox’s RSNs — and other similar channels — is whether they are a melting ice cube when it comes to asset value. For the most part, the RSNs essentially rent programming from the key teams in their areas. (The Yes Network is an outlier as a successful channel launched by a team.)

As the market for sports programming shifts, those rights are likely to either get much more expensive — due to the deep pockets of Amazon and its ilk — or be off the market entirely as subscription streaming options proliferate. Disney is in the hunt for innovative rights pacts as it beefs up its ESPN Plus streaming platform. (Disney’s sports clout with ESPN in general was the reason the Justice Department balked at allowing the company to absorb Fox’s RSNs.)

Meanwhile, Tribune Media’s second try at an auction of its 42 TV stations and WGN America — following the implosion earlier this year of its $3.9 billion merger with Sinclair — has so far attracted the eye of private equity players, including Apollo and others in the Fox RSN race, as well as broadcasters such as Texas-based Nexstar Media and Tegna (formerly Gannett Broadcasting). Tribune is not the only station group on the block — Atlanta-based Cox Media Group is also said to be shopping its 14 stations — but it is the biggest prize up for grabs.

The timing of the renewed sale process is good for Tribune. The stations have generally been performing well and are seen as being significantly more valuable than they were in May 2017, when the Sinclair pact was first inked. Tribune’s selling points include having stations in political hotbed states like Ohio, Pennsylvania and Florida at a time when spending on political advertising is hitting new records with every election cycle.

Tribune CEO Peter Kern tantalized investors earlier this month by noting that the political ad gusher is not turning off as sharply in off-cycle years as it once did. “We may be seeing the start of an ‘always on’ political cycle,” Kern said during Tribune’s recent Q3 earnings conference call.

Tribune also has the good fortune of having Fox-affiliated stations in NFL markets such as Seattle, Denver, Miami and Cleveland. In May, Fox TV Stations had worked out a deal with Sinclair to buy seven of Tribune’s Fox affiliates for $910 million, contingent on Sinclair closing the mega-merger that ran afoul of the FCC. Sources say Fox still aims to conclude a similar transaction with the entity that winds up with Tribune.

Given the importance of sports to live TV viewership, the outcome of the Fox RSNs and Tribune Media auctions will help shape the dynamics of the marketplace for TV sports rights. Amazon, of course, has one of the biggest checkbooks in the world.

“If people keep coming into the marketplace over the next 10 years and bidding up sports to ever more irrational prices,” Creutz said, “it’s going to be hard for [RSN owners] to maintain their value.”