In his first nine months as CEO, the former CFO seems to be successfully carrying out the strategy of controlling costs through duopolies and hubbing, while seeking new revenue through retrans and aggressive local and Web sales. And it doesn’t hurt that the stock price is up 171%.
When Gary Chapman announced his retirement as CEO of the LIN TV Corp. last June, the board of the publicly traded company looked around for a successor. But it didn’t look far or long.
Within a month, it promoted CFO Vincent Sadusky into the top job.
Sadusky had joined LIN just two years earlier, but he had another 10 years of top-level TV experience as CFO of Telemundo. While at the Spanish-language network, he managed its IPO in 1994 and oversaw its acquisition by NBC in 2001.
LIN is a pure-play TV station company, whose 31 stations in 18 markets cover 9.25 percent of the nation’s 111.4 million TV homes.
In this interview with TVNewsCheck Editor Harry A. Jessell, Sadusky outlines LIN’s strategy of controlling costs through duopolies and hubbing, while seeking new revenue through retransmission consent and more aggressive local and Web sales.
Having lost $5 million in an early digital broadcasting venture with the now-defunct USDTV, Sadusky is now keeping his bits dry. When it comes to DTV, he concedes, “we don’t have a plan.”
And unlike many of his peers, he is not a believer in local HD news—at least not yet.
An edited transcript follows:
What accounts for LIN’s soaring stock price? Since you took over as CEO, the stock has risen 171 percent—from $6.76 to $14.68.
It’s a couple of things. One, stocks always have a tendency to overreact, right? They always overreact to the high or overreact to the low. I think that people really believed for a while that the future of local broadcast television was not good. You had analysts hearing about all these new things getting launched on the Internet and lumping TV in with old media, with newspapers, which we all know is bad.
Then, I think quarter after quarter people began realizing that there is growth in the core business. Wow. The political is super strong and, hey, they’ve got a pretty good opportunity with retrans and they’ve got a pretty good opportunity with the Internet.
And, then I think they started saying, well maybe this isn’t all doom and gloom, maybe people like local television, especially the better stations that actually provide a real community service and aren’t just a pass-through for the network signal.
The second thing is investors are really starting to understand that the changes for LIN are for real, that there’s an honest, bona fide effort to bring in good people to refocus resources on the Internet, on retrans, on other digital businesses. It’s like, okay, here’s a broadcaster that’s actually reinvesting some of its profits in future growth opportunities. That message is starting to get across.
During your last conference call with security analysts, you said that you were in a strong position with regard to retrans because all your deals are ahead of you. What makes you think you can turn those renewals into cash payments?
It’s all about leveraging what you have. If you have a stand alone TV station that is the fifth or sixth rated in a market, it’s very hard to make an argument that you’re a must-have programming service. You don’t have a lot of leverage in your negotiating with the pay TV providers, cable in particular.
But if you’ve got CBS, NBC, ABC and top local news—I think 90% of our stations have the number-one or number-two local news in their markets—you definitely have a must-have service.
In the past, even with that leverage, it was challenging to get a deal done because there really wasn’t any competition. But now, who would have thought in a decade that satellite television would have 20% of the country? And you’ve got the telcos getting in as well. People have choices.
And, if push comes to shove, you’re willing to force cable operators to drop your signals?
Now that’s certainly not our goal. We’ll lose viewers temporarily, we’ll lose ad dollars temporarily and the cable operators will lose subscribers. It’s like going to war. Then, when you’re all done, a whole bunch of people are dead and you wonder whether it was all necessary.
So we’re thinking in terms of working with the cable operators to help them achieve their goals of increasing their subscriber count and helping them with local services and VOD. We think we have a lot of resources that would be helpful to them. But we are absolutely convinced that our service is valuable and cash is our goal.
Was there cash in the Cox deal you just announced? Just wink if the answer is yes.
We can’t say. I wish we could. The [non-disclosure] provisions on these things are just over the top, as you can imagine.
Do what [CBS CEO Les] Moonves does. He says he can’t comment the first time somebody asks and then the second time he spills his guts.
Right. Obviously, he’s a smarter man than I am and he sure has a bigger broadcast company than I have. We did create a digital revenue line in our P and L now that includes the retrans revenue. You can follow that. If it’s growing at a pretty good clip then you know something is getting done.
Unfortunately, you’ve lumped retrans revenue in with Web revenue on the digital revenueÃ‚Â line. Why did you do that?
At this juncture, we said let’s just call it all digital revenue because we’ve got a lot of other services to account for and we’re just thinking how granular do we want to be on this stuff. But we will think about it. Some of the analysts have asked if we can break that out as well. We may end up creating another line and separating retrans from the Internet.
The other good news is political. You had the big year, $58 million dollars in 2006.
Yeah. Political was just terrific. And the whole political advertising thing has morphed into more than just the candidates. It’s really encompassing the issue money as well. It seems like every state has more and more issues that people are very interested in and that various organizations are willing to spend money on.
TV is really the best way to get people educated about the issues. It’s not the editorials in the newspaper, it’s not the write-ups that we have on issues on our station Web sites and it’s not always even the local news. People are getting their information from these commercials. Having really good strong news stations has always been the best way to attract political dollars.
Let’s look at the core ad business. In 2007, you say that local may be up to two to four percent and that national may be down three to five. In other words, flat. It’s really national that’s a drag on everything. What are you going to do about that?
We feel like we’ve got good national teams and a good national rep firm. We’re going to continue to make our arguments for a disproportionately high share of the national ad dollars because we’re also tying in Web sites and, in many of our markets, we also have a second station so we can give you a different demographic.
Having said that, if banks are consolidating, if retail stores have consolidated down to basically Macy’s and the domestic automobile guys are going to have a challenging year and dramatically cut back their budgets, then it’s going to be tough to overcome. To a certain extent, it’s out of our control.
We think that the telcos, with the launch of their video services, could be exciting, that there could be some other bright spots from several of the other categories. But we are being realistic and planning for national being down.
We’re very focused on the local piece of the business. We’ve had very good local growth in many of our markets. We feel like that’s more within our control. In most of our markets, two thirds of the businesses currently do not advertise on TV
But even two to four percent growth is not terribly exciting.
Those are the growth numbers that we’ve estimated. Our opportunity is to go out and get as much share of that as possible through business development efforts.
What’s the plan for all those digital channels and bits?
We don’t have a plan. We’re in the process of developing a plan. I think anybody who tells you they’ve got a plan is being insincere. We’ve seen very good ideas for everything from automobile channels to music video channels. A lot of these ideas were rejected cable ideas that may find an opportunity to get launched on digital channels of the broadcasters.
I was talking to Steve Lindsley the other day. He finally shut down USDTV. LIN was a backer of the service and wrote off several million dollars as a result. Were you a believer in that?
My personal belief is that USDTV could have been successful if it had a broad launch with a lot of broadcasters behind it as an industry-wide initiative. That’s really what Steve was trying to do.
I know that Gary Chapman was pushing that too.
Gary was really pushing it. I think what happened was you had Jeff Smulyan of Emmis come out with a similar idea. Then, you had two competing companies and Jeff was kind of bashing Steve’s technology and it went back and forth. It confused a lot of broadcasters who said, Well, wait a minute. I don’t know who’s right here. Let’s see what happens. It effectively killed it.
Now the buzz is mobile broadcasting. You may have seen the remarks by David Smith who is saying that he’s going to reinvent the business with mobile. What do you think of that?
Well, again, I’m just not smart enough to know. I think mobile’s another interesting potential for digital bits. The only thing I do know is we will have excess capacity. In more than half of our markets, we’ve got two stations in a market so we’ve got the opportunity to try several things whether it’s a mobile venture and a cable channel or a multicast channel or two.
But the reality is not a lot of people are getting their television through mobile devices right now. In fact the devices aren’t even out there.
You created a nice duopoly for yourself in Albuquerque with the purchase of the Fox station [KASA] from Raycom to go along with your CBS affiliate [KRQE]. What have you done there to integrate those two stations and what kind of efficiencies do you get out of that?
Quite simply, they had a stand-alone television station and we shut it down. We use this hubbing technology in the master control area that allows us to run two television stations out of one physical location. So we were able to reduce our costs—of real estate, of repair and maintenance, of having separate satellite dishes and of all those people associated with the back-office operation, including finance, engineering, technical, master control, traffic.
And then on top of that we produce much better content for people in the community as evidenced by our ratings every time we do a duopoly station.
If you’re a stand-alone Fox or CW, you’re kind of struggling with your economics, right? In most cases, you can’t afford to do local news because you’re just not going to be able to compete with the big CBS, ABC or NBC stations. They’ve just got a lot of resources available to them and they produce news all day long.
Because of the duopoly, we’ve been able to go out and produce a newscast for KASA that airs an hour earlier than our CBS newscast. It’s very highly rated.
I notice that you have two master control hubs, one in the Indianapolis and one in Springfield. How are they working for you?
That’s worked out really well. I think LIN was one of the early ones to go to this hubbing technology and as you can imagine at first everybody complained about it. Every time there was an error in running a commercial or airing a program, they said, Aha, you see this hub thing, it’s not everything it’s cracked up to be.
I went through this with NBC as we built out several hubs. It’s a big undertaking to basically remove a bunch of people that did these traffic jobs, finance jobs, master control jobs at individual stations and make the technology work at a central location.
We’ve learned a lot as we’ve implemented it over the years. We’re at the point now where we would say we are very high on the efficiency scale. As we bring in new television stations, we can essentially plug those stations in very quickly. We’ve got the science down pretty well now.
Not all your stations are involved in one of these, correct?
Right, we’ve got, I think, 12 stations out of Indianapolis and nine or so out of Springfield. The rest stand on their own.
The thing holding us back at the other stations is the cost of the fiber between the stations and the hubs. That gets priced by the carriers based upon distance. So where the stations are just not in a close proximity to the hub, the returns aren’t there to do it. Someday, there will be as more fiber gets deployed and the cost comes down.
The word is that you have been laying off a lot of people. Then I see that you took a $4.7 million restructuring charge in the last quarter and said much of it is severance. How many people have you laid off over the last several months?
I think the number is 70 or 80 people, something like that. We had probably just as many positions budgeted, unfilled positions that we did not fill.
Are they mostly technical folks?
We were really very surgical about it. I can’t say it was all from here or all from there. Probably the biggest area where the people came from was in accounting. We had hubbed a lot of the stations as we just discussed, but we hadn’t hubbed the finance group. We still had separate finance departments in each one of the stations.
From there, it was just doing best practices, looking at benchmarks across the group. There’s a person from sales here and somebody from engineering there. We’re just trying to be as smart about it as possible.
The goal is to free up some resources on the digital side. We definitely believe that building up the digital side of the business is critical so we need folks centered on cable, centered on local programming, centered on the Internet.
Where are you on local HD news production?
We’re looking at it. Our chief engineer is looking at all those stations that are producing high definition newscasts and we’re evaluating it. At the moment, we haven’t seen ratings go up for stations that are doing an HD newscast and we do see stations struggling with the format.
If I watch a show on Discovery that’s shot in HD, I love it. It looks terrific, it’s exciting. But if I watch something like SportsCenter [on ESPN], which is a lot like local news, I see them going back and forth between clips and the studio. The clips are in analog and so they look blurry and then you go back to the studio and it’s all clear and crisp. So we’re not convinced. We’ve actually seen some stations that have gone to an early HD newscast that haven’t thought through all these issues and have had their ratings decline.
Given the high prices of stations today, can you see yourself buying a station that wasn’t a duopoly?
In rare cases. Synergistically, it would really have to work out for us.
How about selling? I noticed you have the CW affiliate hanging out in Columbus, Ohio.
We like markets like Providence, like Norfolk, like Indianapolis where we have duopoly stations anchored with a Big Three network affiliate. But some of those markets like Columbus or Toledo where we have a stand-alone Fox are clearly not key to our strategy.
We don’t have any of those properties up for sale. But if we were to think about selling for 15 times [cash flow], stations like that would be the ones that you would say don’t exactly fit the LIN profile.
What is your priority in Washington?
One of the more important things that we’d like to see get done is the digital multicast. We think that for too long the large cable operators have controlled the launch of new channels and so they’ve effectively been the gatekeepers.
We think it would be terrific to get digital must carry because, as local broadcasters, everything that we would do would have at least some local component to it, which we think is valuable to people, more valuable than just simply national entertainment services.
Would you be willing to agree to some additional public interest obligations as part of a must-carry deal with the Democrats?
Absolutely, sure. It’s fine because the reality is we’re already set up to do it. We’ve got a set in most of our newsrooms where we do community forums and interviews. This kind of thing is in our DNA.