By Lorraine Mirabella, The Baltimore Sun
April 20, 2013
When Sinclair Broadcast Group Inc. completes three deals announced in the past two months, it will own more television stations across the country than any other company.
The Hunt Valley company will operate 134 stations in 69 markets, reaching more than a third of all U.S. homes with televisions. It will have more than doubled in size in about two years, and that's presuming it doesn't broker any more acquisitions.
It still won't own stations in megamarkets such as New York or Los Angeles, but that's part of its strategy. Sinclair's buying spree is aimed at stations in midsize to small markets.
"They're clearly becoming — if they haven't already been — a major industry leader in the local television business," said Dennis Wharton, a spokesman for the National Association of Broadcasters.
While big media companies and broadcasters with stations in large markets reach more people, Sinclair would top companies such as Nexstar Broadcasting Group, CBS Corp. and NBCUniversal Media LLC in the total number of stations owned.
Its stations also would provide a broad spectrum of programming. The plans would boost the number of Sinclair-owned affiliates to 29 Fox, 24 CBS, 19 ABC and 14 NBC stations, as well as smaller numbers of CW, myTV and others.
"We were proud of our diversity," said David B. Amy, Sinclair's chief financial officer, in an interview last week. "But now we are so much more [diverse] than ever. Our efforts have been focused on NBC, ABC and CBS, the big three, and taking the news operations and developing those into a better, competitive element."
The timing is right, Amy said. Owners of stations in small and midsize markets are selling. And Sinclair benefits from a strong balance sheet that enables it to borrow to make the purchases, taking advantage of current low interest rates.
The company earned $145 million on revenue of $1.06 billion in 2012.
Analysts have applauded the recent announcements, and its stock has doubled since the beginning of the year, closing Friday at $25.75 a share.
Sinclair is buying assets that will add to earnings immediately, said Marci Ryvicker, a senior analyst who follows media and cable TV for Wells Fargo.
"From a financial standpoint, it's good for investors and for the company," Ryvicker said. "I don't feel they're buying every single station just to buy a station. They have a playbook, and they're integrating stations very well. You have a larger voice in the marketplace. That's becoming more and more important, and Sinclair is leading that."
What that means, she said, is that larger scale brings benefits that can help cut costs and increase income.
It helps in negotiating costs of non-network programming and of "reverse compensation" fees that networks charge affiliates. And it also can mean greater negotiating power in setting the "retransmission" fees that broadcasters charge cable TV companies to carry their signals. Those cable fees have provided a strong source of income for Sinclair in addition to advertising revenue.
"You're able to sit at the table with other large businesses, cable or satellite or Hollywood syndicates," Sinclair's Amy said. "It puts us on more equal footing. You can sit down and negotiate."
Sinclair has come a long way since being founded in 1986 by the four sons of Julian Sinclair Smith, who put WBFF-TV on the air in Baltimore in 1971 as the city's first ultra high frequency (UHF) station and one of the first in the country. Sinclair, which acquired its first station in 1991, still owns WBFF Fox45.
The broadcaster, which reported $921 million in revenue last year, began aggressively buying stations after the Great Recession ended. At the time, the private equity owners that had been active buyers were looking to sell rather than invest more and many of the small owners that had struggled with debt during the recession also were looking to sell.
Two years ago, Sinclair owned 58 TV stations in 35 markets and reached about 22 percent of TV households. It has since bought 30 more stations and, in the past two months, announced more than $840 million in deals to buy another 42.
In late February, Sinclair agreed to buy four television stations from Atlanta-based Cox Media Group for $99 million and launched a new operating unit, Chesapeake TV, to run the Cox stations and other small-market stations the company acquires. Just days later, Sinclair said it reached a deal to buy 18 TV stations owned by Illinois-based Barrington Broadcasting Group for $370 million. And this month, Sinclair struck a $373.3 million deal to acquire Seattle-based Fisher Communications Inc. and gain 20 additional stations in eight markets.
In the past year and a half, the company has hired 125 people at its stations, mostly in news operations, Amy said. It has added morning news programs at some stations. It has invested in signal and other station upgrades, he said. He said the investment is paying off in higher ratings, with an across-the-board increase in news markets in February.
And the station-buying binge likely will continue. When Sinclair announced the Fisher acquisition this month, CEO David Smith responded to an analyst's question about whether acquisitions soon would be limited by a Federal Communications Commission rule that limits the reach of a single owner's stations to no more than 39 percent of U.S. households.
"We can do a lot more," said Smith, explaining that Sinclair's percentage of household coverage would fall well below the FCC threshold.
While its stations would reach about 34 percent of U.S. households, the FCC counts UHF stations as half of non-UHF stations, which would decrease Sinclair's calculated reach under the FCC rule, Smith said.
To some, however, Sinclair's appetite is proving worrisome.
Craig Aaron, president of Free Press, a group that advocates for diverse media ownership and criticizes consolidation, said he views several aspects of Sinclair's growth strategy as problematic.
"One is this merged newsrooms in all but name," he said. "The Sinclair model, in addition to the mass acquisitions, has been to set up shared-services agreements at the local level, where Sinclair is doing news for multiple stations, even though a number of them are owned by somebody else. It makes their reach even bigger. I think it's violating the spirit of what local TV is supposed to be."
Amy said Sinclair has more than 20 news-share arrangements but added that some of those involve other owners producing news that is carried on Sinclair-owned stations.
Wharton, of the National Association of Broadcasters, sees Sinclair's growth as a positive sign for the broadcast industry at a time when it faces what the group views as unfair competition from cable and other pay TV outlets.
"There are a number of broadcasters who are helping struggling stations produce more local news programming, and we think that's a good thing, rather than allowing a TV station that competes with cable to go out of business," Wharton said. "The fact that there are companies like Sinclair and others who are investing in the broadcast business is a positive for the future of free and local broadcasting."
Because of relatively new competition from cable and satellite TV companies, the association thinks the FCC needs to relax the ownership rules, which Wharton called " 'Leave it to Beaver' rules in a 'Modern Family' era."
As for Sinclair's growth, Wharton said, "If the goal is to have a healthy local television business providing programming free to the community, isn't that a positive for communities all over the country?"
Largest TV station owners
A list of the nation's top five TV station owners compared to Sinclair Broadcast Group once it completes its pending deals.
Name, headquarters, stations, 2012 revenue
Sinclair Broadcast Group, Hunt Valley, 134 stations, $1.06 billion
ION Media Networks, West Palm Beach, Fla., 60 stations, n.a.
Nexstar Broadcasting Group, Irving, Texas, 60 stations, $378.6 million
Entravision Communications, Santa Monica, Calif., 53 stations, $223 million
Raycom Media, Montgomery, Ala., 53 stations, n.a.
Source: company websites
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