Sinclair expects fall in revenue; Gloomier numbers stir broadcaster to invest more in its TV stations; 'Bite the bullet now'; Instead of rising 5%, broadcast cash flow is to decline 1%


Sinclair Broadcast Group Inc. said yesterday that it is embarking on an aggressive round of investments in its television stations nationwide, and warned Wall Street analysts that this spending will temporarily drag down the Cockeysville company's financial numbers.

Sinclair cast its announcement as a reaction to changes in the television industry. Independent television station owners like Sinclair face ever-increasing competition from cable and satellite television, movies and the Internet. They also have been struggling with a flat national advertising market.

The company said that other broadcasters would have to make similar investments in the future, and that it would benefit by getting such spending out of the way early.

"We're playing the game to win, and in order to do so, we're going to bite the bullet now," said Barry Drake, the chief executive officer of Sinclair's television and radio divisions.

The company had expected its revenue to grow 4 percent in its current third quarter; this estimate has been cut to 3 percent. Broadcast cash flow, a key industry benchmark, had been expected to grow 5 percent, and is now projected to decline 1 percent.

The dampened projections extend into the fourth quarter, when Sinclair had been expected to post broadcast cash flow of 7 percent or 8 percent; that figure has been revised to a 9 percent decline.

Sinclair officials have yet to determine how much money would be invested in the upgrade program. They also did not say how much of the projected shortfall was due to the new spending and how much to soft national advertising revenue.

"I was disappointed with the numbers," said William Meyers, an analyst with BancBoston Robertson Stephens in New York. "I did think there would be a little more juice in the second half [of the year]."

However, Meyers thought Sinclair's action was wise. "They certainly recognize the need to invest in the future. They're focusing on building for the long haul."

Drake, who took over the company's television operations in June after heading its now-diminished radio group, said one reason for the new investment program is the large number of Sinclair television stations that are new to the company.

Because of Sinclair's aggressive acquisition spree, about half of the company's stations have come into the fold only in the past 18 months.

When all pending transactions are complete, Sinclair will own or program 59 television stations in 38 markets. Locally, Sinclair programs the WB Network's WNUV-54 and owns Fox station WBFF-45.

After visiting Sinclair stations in 13 cities, Drake came to the conclusion that they needed larger infusions of money. The company will focus its spending on promotion and program purchasing, as well as beefing up local management and sales forces.

Sinclair officials said its stations pull about half their revenue from national advertising and the other half from local ads. The company's goal is to raise the amount of revenue from local ads to 75 percent, allowing the stations to rely on fickle national advertising for only a quarter of their revenue.

Meyers said this is a worthy goal, since local advertising "is a much more predictable form of revenue. If there's an economic pullback, local advertisers don't pull back as quickly." A broadcaster can often fetch higher prices for local ads than for national ones, he added.

The company stands to be one of the foremost beneficiaries of Federal Communications Commission rule changes, announced Aug. 5, that will allow a single broadcaster to own two television stations in certain markets.

Previously, a broadcaster could only own one television station in a market, an obstacle that Sinclair skirted by pioneering the tactic of owning one station and programming another in the same market.

Sinclair recently bailed out of radio to concentrate on television. On Aug. 19, the company announced that it had agreed to sell 46 stations, the bulk of its radio holdings, to Entercom Communications Corp. for $824.5 million.

Radio was a relatively small share of Sinclair's overall business, accounting for about 16 percent of the company's revenue. Sinclair now has only six radio stations, all of which are in St. Louis. Those stations will likely be sold soon.

Sinclair put out its announcement after the close of markets yesterday. Patrick J. Talamantes, the company's chief financial officer, said the company was willing to incur the temporary displeasure of the investment community to strengthen its stations.

"Making Wall Street's numbers hasn't done anything in terms of getting this company to grow in the long term," Talamantes said. "It's become increasingly evident to us that we have to take more dramatic steps to boost performance in our television group."

Sinclair's A shares closed at $14.6875 yesterday, down 31.25 cents.

Pub Date: 9/22/99

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