Company executives say it’s got a full plate with the Tribune merger, moving to implement ATSC 3.0, signing deals with vMVPDs and a new audience measurement regimen. Also, CEO Christopher Ripley says the company has no interest in hiring Bill O’Reilly.
The business of television broadcasting is moving along as expected in this non-political year, according to Sinclair executives meeting with securities analysts on the release of its third-quarter 2017 results. While concentrating on current business, the company is also focused on running a bigger group, on a new technical platform with lighter FCC regulation, and with a different ratings measurement regimen.
A modest increase in core advertising and continued gains in retrans income mitigated but did not overcome the loss of political and Olympic advertising.
Media revenues were down 1.7% during the quarter. The absence of political revenue was the major factor, and adding to it, according to SVP-CFO/Treasurer Lucy Rutishauser, was the absence of $10 million in 3Q 2016 Olympic revenue and a $2 million hit inflicted by Hurricanes Harvey and Irma. She added that adjusted 3Q EBITDA of $183 million EBITDA was $2 million above guidance.
Steven Marks, the company’s EVP-COO, said that a 3Q gain of over 2% pro forma in core advertising was on the low end of guidance. He stated his belief that of late, core advertising has been a low-single-digit business.
Getting into specifics, he noted that automotive has been stable, and said that for both 3Q and 4Q, services, entertainment, fast food, media, drugs and religion are doing well. Furniture is up slightly. Retail is down, largely on department store softness, and the company’s once thriving school category has disappeared.
Marks pegged Sinclair’s 4Q revenue outlook at between $682 million and $684 million, down about 6%. This shortfall can be laid at the political doormat, which will drop from $113 million to an anticipated $10 million. He added that year-over-year, core advertising will be flat to up by low single digits.
According to Rutishauser, Sinclair’s leverage point sits at about 3.5x, is expected to balloon to the high 4x range when the company’s anticipated 1Q 2018 Tribune closing occurs, and is further expected to drop to the low 4x range by the end of 2018.
Retransmission consent remains an area of growth for television broadcasters and Sinclair is no exception. And there remains room to grow, since its level of compensation still lags behind the sheer number of viewers it brings to MVPDs that require local content. The growth pace of retrans income has managed to stay ahead of the growth in reverse retrans outlays going to the networks.
President-CEO Christopher Ripley noted that the company has only recently begun signing agreements with virtual MVPDs, adding that any financial benefit from these agreements will begin to accrue in the near future.
The company’s strategy to make the most of the upcoming mid-term election year, according to Marks, is the production of more than 2,300 hours of local news each week. He added that the 2018 political season is expected to be robust, and located Sinclair senatorial and gubernatorial “sweet spots” in the states of Florida, Ohio, Pennsylvania and Nevada.
Ripley was highly appreciative of the FCC’s move toward deregulation and readiness to get the ball rolling on ATSC 3.0. “This is a landmark development for our industry as a whole, and we applaud the FCC for recognizing competitive iniquities levied of TV broadcasters for several decades while emerging technologies, media distributors and content providers have been allowed to consolidate and freely deploy technical platforms. Reforming the ownership rules and allowing for technological innovation are both necessary for the future of over the air broadcasting. We’re glad to have an FCC that recognizes that need.”
Executive Chairman David Smith also had high praise for the FCC, while calling for the Justice Department to get aboard the dereg train. “The Federal Communications Commission, for at least for the first time that I can recollect, has come out and essentially said the local broadcaster is now competing against essentially everybody. So the Federal Communications Commission now subscribes to that view which is obvious in terms of the reality of it. Sooner or later the justice department is going to have to get aligned with the reality of the marketplace. Currently, in or view they are not aligned with the realities of the marketplace.”
Ripley said that the addition of Tribune will greatly enhance the company’s national footprint, and in time, this will have a major positive impact on its news production capabilities. Additionally, Tribune doesn’t have a digital agency business, and bringing it under the wing of Sinclair’s “best-in-class” digital program carries with it nothing but upside.
As for the divestiture process needed to make the Tribune acquisition possible, Ripley noted that swaps are very much a consideration. He said the company has received a first round of bids on potential spin-off stations, and that many of them include swaps as part of the proposal.
As for ownership deregulation, while loaded with positive long-term implications, Ripley said it was not figured into the Tribune acquisition, and indeed, Sinclair is under no illusion that the process will be finished in time to impact the need for divestitures.
When it comes to audience measurement, Nielsen does not appear to be part of Sinclair’s planning.
Said Ripley: “Nielsen’s trying to improve what is a very antiquated product, in our opinion not nearly fast enough, and the reality is there’s so many other sources of measurement that either exist or are coming.”
He noted that some measurement platforms can already deliver second-by-second data, and added, “When you think about ATSC 3.0 sending back data on what people are watching, it makes Nielsen’s product look very old-fashioned, and at the end of the day, we’re moving on in terms of where technology is headed.”
Smith added that ATSC 3.0 is the advertiser’s Holy Grail, given its expected ability to pinpoint who is watching and where they are.
Regarding ATSC 3.0, Smith noted that broadcasters have come together to make it work, and Ripley added that it is happening on a market-by-market basis.
Complaints from MVPDs on the possible impact on retrans were labeled a “smokescreen” by Ripley, who said there should be no impact on negotiations at all. The key, which the FCC recognizes, is the need for flexibility as the process of deployment moves forward.
A possible Bill O’Reilly-Sinclair agreement was in the news recently, and according to Ripley, it can be discounted out of hand. He said O’Reilly approached Sinclair, not the other way around, and added that the company had no interest in acquiring his services.