As stations look to make channel-sharing deals, unfortunately, there is no one right price, no equivalent to the cash flow multiple that many stations buyers/sellers look towards. The final negotiated price will depend upon a number of local factors all leading to the relative negotiating positions of the parties. Here’s a outline.
As the checks come from the FCC to the successful reverse auction television stations start coming, the clock starts ticking for many of these stations to conclude their channel sharing negotiations. Many of the potential hosts are searching for the “right price” to charge these stations. Unfortunately, there is no one right price, no equivalent to the cash flow multiple that many stations buyers/sellers look towards.
The immediate advice we give to our people involved in this process who are potential hosts is to not consider the large amount that the host-seeking station received. The only important fact about that amount is simply whatever check they receive will probably not bounce. Now that the reverse auction is over, the final negotiated price will depend upon a number of local factors all leading to the relative negotiating positions of the parties.
Working with these parties in this area, we have looked at several factors including the number of local stations looking for hosts, the number of local potential hosts; the relative strengths of these potential hosts (e.g., the over-the-air population reach now and after the repacking is completed); the willingness and unwillingness of certain broadcast companies to relinquish some of their own spectrum; and other relevant local factors.
Along with that analysis of other potential host broadcast companies’ willingness to relinquish some of their spectrum is the station evaluating being a host’s own willingness to relinquish some of its own spectrum. How many multicast programming streams is it delivering? How much money do those streams generate? Will the over-the-air quality of those streams decrease too much if they are compressed more, now and in the future with ATSC 3.0?
Another area of consideration is to determine how valuable is it to the station looking for a new home. Using the various valuation approaches allows us to determine the range of values that these host-seeking stations may be willing to pay.
Finally, what is the proposed payment schedule? The net present value of that proposed payment schedule must be evaluated so as to completely understand the true worth to the potential host station.
Still, even with all of this information it will come down to the negotiating table. The lack of some publicly available metric, such as a cash flow multiple makes it more difficult. But, understanding the bargaining position of the other side is essential in coming out ahead.
Mark R. Fratrik is SVP and chief economist of BIA/Kelsey