Media General Looking for Swaps, SSAs

Having sold nearly all of its newspapers to Berkshire Hathaway, what inquiring analyst minds want to know is what lies ahead for Media General, now a pure-play TV company that reported double-digit gains in operating performance for 2Q. Noting reports today about the sale of the Newport Television group, analyst Barry Lucas of Gabelli & Company wanted to know whether Media General is likely to be a TV buyer or a seller over the coming three to five years.

“I don’t see us as a seller right now. Maybe as an exchanger,” replied Marshall Morton, president-CEO, if such a swap deal would allow Media General to step up in markets “or tighten up our focus in some way that’s particularly progressive to us.”

Morton noted that the company is currently in a JSA/SSA situation in only one market. That’s Augusta, Ga., where Media General’s only ABC affiliate, WJBF (which also has ME-TV as a D2), provides news, sales and other services to the Schurz station, WAGT, which is the NBC affiliate and has The CW as its D2.

“We are managing a station for another company in one market and like that a lot,” Morton said of the arrangement. “It’s a good way to extend our reach in the marketplace, particularly with respect to news and sales power, without added capital. I also see us pushing hard on the digital front, where it doesn’t take bricks and mortar to gain new market share.” He also indicated an interest in exploring other areas where Media General can be a third-party vendor, noting, for example, that the TV group has a centralized operation to create high-quality graphics for all of its stations.

Following the $142 million sale of all of its newspapers except the Tampa Tribune, Media General has been focused on debt reduction. It has a $45 million bond tender pending and any remaining cash not picked up by bondholders will be used to further reduce loans by Berkshire Hathaway, which have already been reduced by $72 million. Total debt dropped from $658 million at the end of 1Q to $652 million at the end of 2Q and was down to $580 million as of Wednesday’s conference call.

The company is still in talks to sell the Tampa Tribune, but executives refused to discuss anything about its financial position, except to reiterate that a sale is probable.

“On buying stations, that’s probably not going to happen in the very near term without something special accompanying it, just because we’d rather get our debt profile back in shape as fast as we can,” Morton told the analysts.

Rapid growth of TV revenues and cash flow should keep that debt number dropping. Media General raised its political revenue projection for 2012 to $50 million from the previous $40 million and Morton told analysts that 50 is a “solid” number. He also expects the company’s eight NBC affiliates to top the $12.5 million in revenues that they booked for the previous Summer Olympics, despite having to cover about $1.5 million in 2008 Olympics revenues tied to network deals on the four stations Media General acquired from NBC Universal in 2006.

Auto remains strong and other key categories driving growth include entertainment, financial, media, professional services, grocery and travel. But even weaker categories aren’t into the red. “We’re pacing ahead of prior year in all categories,” said Jim Woodward, VP of finance and CFO. Media General announced that 3Q pacings are ahead about 30%, including political, and 20% for core advertising, excluding political.