With all the talk of TV station M&A fueling groups to get ever larger, it’s easy to forget that there are still operators that feel they can do important work in their smaller local communities. Two of these owners — Lockwood Broadcast Group and Marquee Broadcasting — want to get bigger too, but not because they believe they need scale, but because they believe broadcasting on a local scale is still a good business that’s fun and lets them provide a vital community service.
When Cox announced last July that it was selling its 14 TV stations or looking to merge them with another group, it explained that it thought it was too small.
“Our analysis shows that scale is critical to be successful. We firmly believe that our great stations — and talented people — will need to be part of a larger entity to thrive in the future,” Cox Media Group President Kim Guthrie said in a memo to employees.
That you have to be big to succeed seems to have risen to the level of an indisputable truth. It has driven the strategies of the major station consolidators like Sinclair, Nexstar and Gray; it has undergirded the push for raising the FCC ownership caps; and it has been reinforced by the disappearance of many small and mid-size groups at an accelerating pace.
But is it an indisputable truth?
I don’t think so, especially when talking about small groups that operate in mostly small markets.
They are subject the same threatening forces as the big groups — increasing competition for advertising dollars and viewers from other TV and digital media; cable and satellite operators always working to undermine retransmission consent; and the networks’ insatiable demands for reverse comp.
But they are free of the intense pressure, felt particularly by the publicly traded companies, to show significant growth, maintain fat margins and pay down high levels of debt. And they are not so dependent on national spot, which is inexorably declining.
I became convinced that there is still room for the little guy after talking to the heads of two small, but growing, station groups — Dave Hanna of Lockwood Broadcast Group and Patricia Lane of Marquee Broadcasting.
Both came to my attention last month when they stepped up as buyers of some of the stations that Gray and Raycom are spinning off from their merger.
They want to get bigger, not because they believe they need scale, but because they believe broadcasting on a small scale is still a good business with some psychic rewards like having “fun” and becoming integral, if not vital, parts of communities around the country.
“We have been a firm believer all along that this is a good margin business,” says Hanna. “And we think there is an opportunity for groups like ourselves in this world of consolidation, that we can still make a pretty decent business out of this.
“And, you know, I used to tell people all the time, we are not digging ditches for a living here. This is fun work.”
Hanna, 60, has been at Lockwood for more than 30 years, but the group is principally owned by Virginia businessman Jim Lockwood, whom Hanna describes as a “really bright guy … with very patient money.”
Hanna and Lockwood were big winners in the FCC incentive auction. It got $105.7 million for CW affiliate WCWG Greensboro, N.C., a station it had purchased it in 2013 for just $2.7 million. It also got $6.8 million for moving WHDF Huntsville, Ala., from UHF to VHF and another $2.25 million when it later sold it to Nexstar.
The group currently owns Big Three affiliates in Wichita-Hutchinson, Kan. (DMA 67), and Sherman-Ada, Ohio (DMA 160), and independents in Knoxville, Tenn. (DMA 61), and Norfolk-Portsmouth, Va. (DMA 47).
When it closes on its Gray-Sinclair deal, Lockwood will double the size of its station portfolio. It is paying $67 million for Fox affiliates in Knoxville (where it will then have a duopoly); Augusta, Ga. (DMA 112); WPGX Panama City, Fla. (DMA 151); and WDFX Dothan, Ala. (DMA 173).
Much of Hanna’s optimism stems from his firm belief that TV broadcasting will remain a strong local advertising media, come what may.
Like the big groups, Hanna enjoys the revenue from retransmission consent, at least that shrinking part of it that the networks allow him to keep. But unlike big groups, he doesn’t seem so dependent on it.
“Clearly those [net retrans] revenues are going to hit a limit soon, but, at the end of the day, we believe fully that we can still sell spots,” he says.
“We are a sales-oriented company. I came up through sales and have a sales background. We believe in rate integrity, but we are aggressive. We want to grow the top line of our business.”
With the remainder of the incentive auction windfall and some modest borrowing, Hanna says his small company would like to get bigger, but not too big — 14 stations max.
At that level, he and his small team of executives can still properly manage the group. “We will be able to pay attention to all the details we need to pay attention to. For a company like ours, detail is king.”
All things must end, but right now there is no thought of cashing out like other small operators such as Schurz, Calkins and West Virginia Media have in recent years, he says.
“We will always have an opportunity to exit if we choose to, but, for us, we are really pretty confident that our group is going to move forward. We don’t believe we are done.”
Patricia Lane owns Marquee along with her husband, Brian, a lawyer specializing in securities. Patricia, too, is a lawyer, having worked as a litigator at the Federal Aviation Administration and later the Humane Society.
The Lanes got their start in 2013 when they bought ABC affiliate WMDT Salisbury, Md. (DMA 143), for $9 million, and they have added five other full-power stations since, including CBS affiliate WSWG Albany, Ga., a Gray-Raycom spin off. It will operate WSWG in tandem with independent WSST, which it bought earlier this year.
Marquee’s other full-powers are WNKY, a CBS/NBC affiliate in Bowling Green, Ky.; WGTA, a MeTV affiliate on the fringe of the Atlanta market; and KREG, an independent serving Glenwood Springs, Colo. The last is “a vanity play,” she admits, a concession to her salad days on Colorado’s Western Slope.
Marquee also has low-powers that carry various diginets. They are in Salisbury; Parkersburg, W.Va.; Toledo, Ohio; and Wilmington, Del.
Lane says she and her husband are motivated chiefly by their belief that TV stations are one of the best ways to serve communities.
“We can do that by being involved, by being hyperlocal, by getting to know the schools and the police,” she says. “We actually trademarked the phrase, ‘Because local matters.’ ”
But make no mistake, she adds, “we are not a charitable organization; we are running a business.”
The Lanes have put a lot of their own money into building the group. Other than WMDT, the big buy was WNKY. They paid $5.6 million for it last year.
They have also borrowed, Lane says. “I happen to be debt adverse. I can throw out numbers that 10 years ago would make me gag. But that’s part of doing business.”
Marquee doesn’t have much scale, but Lane says that she takes full advantage of what she has. Every month, senior staff at all the stations meet on a call to swap ideas about programming and advertising. “We share what works and what doesn’t work.”
Lane says she tries hard to encourage her station managers to be creative and to try new things. “If it works, that’s great. If it doesn’t, we’ve learned a lesson and moved on.”
Lane values the revenue she gets from retrans, setting aside some of it for specials projects and capital improvements. But, like Hanna, she is not counting on it long term.
“I have a personal fear that retrans will dry up in five years and the networks will bleed us to the point where we are not dead, but to where we have lost 90% of our blood. That’s why our goal is to make these stations profitable without retrans.”
Looking ahead, Lane says she would like to do more to connect her two non-news-producing stations — WGTA and WREG — to their communities by having them produce local programs and reach out to local civic and charitable organizations.
And she and Brian might also buy more stations. “We will continue to expand if it makes sense, keeping in mind we don’t want to lose the family quality that we have created.
“Right now, we know everybody by their first names. We never want to give that up by being so large that somebody becomes just a number, an employee.”
Lockwood and Marquee are not alone. There are also Heartland, Graham Capitol, Citadel, Cowles, News-Press & Gazette, Griffin, Weigel, Quincy, Dispatch, Morgan Murphy, Northwest, Heritage and others.
Many of them will be in Nashville next week for the NAB Small Market Exchange and, judging from Hanna and Lane, I’m betting they will be looking for ways to enhance or improve their business, not to get out of it.
Maybe scale isn’t as critical as Cox thinks.