Sinclair Broadcast Group Inc. plans to create a new cable television news channel with a blend of local and national programming and bring it to cities across the United States over the next couple of years, CEO David Smith said Tuesday.
Smith expanded on his vision for a hybrid local/national network a day after the Hunt Valley broadcaster announced its largest acquisition to date: the purchase of eight television stations for nearly $1 billion, including NewsChannel 8, a 24-hour cable/satellite all-news network that covers the Washington metro area.
"We are confident we can use Channel 8 to launch a national cable channel in all of our markets," Smith said. "Over time, we're going to build a local/national channel that will compete with every national news channel, and we're going to get paid for it."
Buying the stations from Arlington, Va.-based Allbritton Communications would make Sinclair the largest broadcaster in the country and extend its reach to well over a third of all TV-viewing households. Sinclair also would become the largest broadcaster of ABC, CBS, Fox and MyTV programming.
The deal, which requires Federal Communications Commission approval, would give Sinclair seven ABC affiliates that reach nearly 5 percent of U.S. households, most notably ABC's Washington affiliate, WJLA, which shares news operations with NewsChannel 8 and would allow Sinclair to air national political stories on its stations.
Smith devoted much of Tuesday's conference call with analysts to plans for the cable network. NewsChannel 8 would serve as the launching pad to bring a new cable channel to all of Sinclair's TV markets and could generate $300 million in additional revenue, Smith said. He based that estimate on the affiliate fee CNN charges cable carriers of 57 cents per subscriber per month, according to research firm SNL Kagan.
Asked about competing with CNN, a brand that is established but has struggled in audience ratings, Smith said the company believes the market will pay for value over brand.
"In other words, if a brand is not delivering an audience, why should it get paid?" he said.
Smith said the plan was to combine the NewsChannel 8 infrastructure with Sinclair's existing news facilities to create a hybrid channel that would offer a "customized local presence in our markets and in markets of other broadcasters" that would become Sinclair partners. Sinclair still needs to work out the logistics of integrating the local news programming into a daily schedule, he said.
The cable channel is expected to bring "significant" value to Sinclair, wrote Marci Ryvicker, a Wells Fargo Securities analyst, in a research note. By infusing local news into a national news format, the channel would become the first of its kind, she said.
"The acquired cable network presents a nice opportunity," Ryvicker said Tuesday in a follow-up note.
Sinclair's stock slid more than 5 percent Tuesday, falling $1.53 a share to close at $28.57 each.
The Allbritton deal, expected to close in the fourth quarter, would expand Sinclair's reach to a total of 147 owned or operated stations in 76 markets. The deal will allow Sinclair to extend its footprint into the nation's capital, which Smith called a "once-in-a-lifetime opportunity."
"WJLA is a full-blown news operation with infrastructure in place connecting them to breaking news events at all branches of federal government," he said. "It will allow us to transmit live events to all our stations. We can be the first on the air, giving us competitive advantage and unlimited access to important news content."
Owning a station close to Sinclair's Baltimore flagship station, WBFF Fox 45, will benefit viewers and offer more cost-effective buying for advertisers, he said.
The Allbritton deal, the fifth Sinclair has announced this year, puts the company on track for a total of $1.9 billion worth of acquisitions that would add 54 stations to its roster. It's unlikely to be the last announcement of its kind, executives said.
Smith said he expects broadcasting consolidation to continue for another couple of years, led by Sinclair and several other active buyers. Other media companies that have been buying TV stations include Gannett and Tribune Co., the Chicago-based parent company of eight newspapers, including The Baltimore Sun, as well as TV and radio stations.
Sinclair's planned acquisitions would extend its reach to more than 38 percent of the nation's households. But the FCC counts UHF stations as half of non-UHF stations, which would decrease Sinclair's calculated reach under the FCC rule to just 22 percent, well below the federal ownership cap of 39 percent.
"We have plenty of cushion within our ownership cap," said Lucy Rutishauser, Sinclair's vice president and treasurer.Copyright © 2015, The Baltimore Sun