JESSELL AT LARGE

Jessell | Nexstar-Tribune Ripe For Quick DC Approval

Nexstar CEO Perry Sook sacrificed 19 stations to bring his proposed $4.1 billion merger in line with FCC and DOJ ownership limits. There is now no reason why regulators should stand in the way of  the deal, including the transfer of Tribune's top four duopoly in Indianapolis. Also, here's a quick review of the winners and losers in Nexstar's spinoff auction.

Harry Jessell

Last week, Nexstar Media finally unveiled the spinoffs it has to make to grease its $4.1 billion acquisition of Tribune Broadcasting in Washington. Ten stations are going to Tegna for $740 million and eight to Scripps for $540 million.

Some of the divestitures were made to comply with the FCC national ownership rules and some to comply with the FCC’s and the Justice Department’s somewhat uncertain local ownership limits.

Taken together, they should be enough to get Nexstar’s Perry Sook to the closing table by the end of September as he hopes.

With the announcement of the secondary deals, we now know what the true reach of Nexstar-Tribune will be — 62.9% of TV homes.

That percentage reflects careful calculation. When the coverage of all of Nexstar’s and Tribune’s UHF stations are discounted by half as the rules now allow, Nexstar’s untrue reach plummets to 38.6%, four-tenths of a point below the FCC’s 39% limit.

BRAND CONNECTIONS

By historical standards, 62.9% seems huge for a station group — and I suppose it is — but Nexstar had to sacrifice three large-market CW affiliates to slip in below the 39% cap — its own KASW Phoenix and Tribune’s WPIX New York and WSFL Miami. Had Nexstar been able to hang on to those three stations, its true reach would have been 72.5%.

Nexstar is, by no means, stuck at 62.9%.

The FCC is considering liberalizing its national ownership rules. However, it doesn’t seem to be in any hurry to do so, even though broadcasters are now united in asking for a 78% cap. (They had been squabbling among themselves, with some wanting to eliminate the cap entirely and others wanting to set it as low as 50%.)

Nexstar has a contingency in case the FCC does raise the cap in the next 21 months. Its deal with Scripps includes an option that will allow it to buy back WPIX. The option is good until the end of 2021. With WPIX, Nexstar’s reach would jump to 69.3%.

So, although Nexstar may be cool with the national rules, its deal still faces at least one sticky regulatory hurdle with regard to the local limits.

As things now stand, neither the FCC nor the Justice Department is ready to allow ownership of two top-four-rated stations in a market. Although the FCC says it will consider them on a case-by-case basis, it has yet to approve any.

Given that reality, Nexstar is spinning off stations in 10 markets where the merger would have created new top-four duopolies. However, it has told the FCC it wants to hang on to Tribune’s existing top-four duopoly in Indianapolis, WXIN-WTTV (Fox-CBS).

It will prove an interesting test of the FCC’s and Justice’s willingness to allow transfers of top-four duopolies. There aren’t many fully owned top-four duopolies like WXIN-WTTV, but there are plenty of the virtual variety, in which one of the stations is not owned, but operated via joint sales and shared services agreements.

Justice has been hostile to top-four duopolies in any form, but it could change. Last week, Justice antitrust chief Makan Delrahim announced dates for a long-promised workshop at which Justice lawyers will reconsider its tough scrutiny of broadcast mergers in light of the mounting competition stations are facing from digital media. He said the dates for the two-day conference would be May 2-3, but I later heard the dates may have slipped a week. Still checking on that.

The government regulators will not be pondering the Indianapolis question in a vacuum. NCTA, cable’s chief lobby, has asked the FCC to condition its approval of the entire merger on Nexstar’s promise to break up the Indianapolis combo.

“[N]exstar’s ownership of two top-four stations in Indianapolis will give it demonstrably greater market power in the negotiation of retransmission consent agreements, resulting in higher costs that will be passed on to consumers,” NCTA argues.

Preserving the Indianapolis top-four duopoly doesn’t seem like too much to ask for, in light of the fact that Nexstar is walking away from owning a station in New York and new top-four duopolies in 10 markets to show its respect for current rules.

To appease the regulators, Nexstar has also said it will sell its two lower rated Indianapolis stations — CW affiliate WISH and MNT affiliate WNDY. Nexstar hasn’t identified a buyer for them yet. I’m assuming it’s in no hurry to sell as it will want to keep the CW if the government says it can’t have both top fours in the market and has to give one up.

Nexstar is also giving up the three Dreamcatcher Broadcasting stations — WTKR-WGNT (CBS-CW) Norfolk-Portsmouth, Va.; and WNEP (ABC) Wilkes-Barre/Scranton, Pa. The former stations are included in the stations being sold to Scripps; the latter, in those going to Tegna.

Dreamcatcher is owned by longtime media exec Ed Wilson, but it’s basically a front for Tribune. Tribune set up Dreamcatcher to circumvent the broadcast-newspaper crossownership ban six years ago when the ban was still in effect and Tribune still had newspapers.

About The Buyers

By stepping up for the Nexstar-Tribune spinoffs, Scripps and Tegna declared their intention to be long-term players in the broadcasting business — buyers, not sellers.

Scripps has refocused strongly on broadcasting since investor Mario Gabelli tried to seize control of the board last year because he thought CEO Adam Sympson was dallying with dicey digital ventures.

Scripps bought two ABC affiliates out of the Gray-Raycom merger for $55 million last August and then followed that move up by winning the auction for the Cordillera group (15 stations in 10 markets) last October with a bid of $521 million.

The Nexstar deal makes a trifecta.

In their phoner with analysts to discuss the Nexstar deal, Scripps execs boasted that the deal would make the Scripps the fourth-largest “independent” station group and would increase its footprint in states that tend to draw a lot of political dollars like Florida, Michigan and Virginia.

But there were some odd notes on the call.

The execs said that WPIX was the fifth-ranked news station in New York like that was a good thing and that, when everything is said and done, 40% of its TV stations will be ranked No. 1 or No. 2 in their markets like that was a good thing.

And from the discussion, I was unpersuaded that they have any idea what to do with WPIX or that they would derive significant synergy from owning a station in a market (Miami) adjacent to its existing duopoly in West Palm Beach as they claimed they would.

I suppose that because of the Nexstar buy-back option, Scripps reported WPIX as a separate buy. Its $75 million price tag exposed the station for the underperformer that it is.

Given current multiples, the price suggests the station is throwing off $7 million a year or less. Once source told me that the station is choking on its rights deal with the New York Yankees and Mets. On the call, Sympson called the station “modestly profitable.”

About The Non-Buyers

That Scripps and Tegna came up with the winning bids for the Nexstar spinoffs came as no great surprise. Like Scripps, Tegna has been active in the trading market, grabbing a couple of small-market network affiliates out of the Gray-Raycom merger.

But they were not the expected winners. The expected winner was Terrier Media, the station group that an Apollo private equity fund began building with the acquisitions of Cox and Northwest Broadcasting in February.

Also left on the sideline is Soo Kim. After selling Media General to Nexstar in 2017, he has been looking to make another run in the business.

There was also speculation that Fox would swoop in to siphon off some of Tribune’s big-market Fox affiliates like KDVR Denver and KCPQ Seattle. It didn’t do so.

But Fox could still make that move in the context of its negotiations to renew Nexstar’s Fox affiliations. Nexstar’s Sook might be able to buy down his reverse comp by selling some stations to Fox. The current agreement is up at the end of this year.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or here.


Comments (6)

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HopeUMakeit says:

March 25, 2019 at 9:29 am

a bunch of old white men overpaid for some small market stations from some other old white men based on valuations that are skewed by retrains payments from local cable subscribers. ? Why would the justice department not look at this a missed opportunity to boost minority ownership in the space. ? and white people of a different gender are still white. That’s how BET and Radio One were conceived. So we are to assume the viewers in these markets are going to benefit from homogenized graphics and consolidated back offices ? What will the investment be in the markets where these stations were acquired.? The local viewers have paid a ton of money in retrains fees. Mine are listed on my comcast cable bill under “broadcast TV fee”. How much of those fees will stay in the market, upgrading plant, equipment, newsrooms and the like ? The cable subscribers paid the money, what are they getting in return? Maybe someone in the justice department can answer these questions.

    RIDGELINE-TV says:

    March 25, 2019 at 4:47 pm

    Spot on.

    Viewers pay a lot of retrans to get a local service, consolidation cuts back on local, and local viewers are still paying a lot of retrans to get a local service (and will continue to pay more and more the upcoming cycles).

      [email protected] says:

      March 25, 2019 at 11:20 pm

      I haven’t seen any cutbacks where I live Wood TV hasn’t had a lot of cuts they still have the same anchors from Lin TV to Media General & Nexstar. So your wrong about the cuts that everyone makes to be against the merger which is good for business which you seem not to get.

    [email protected] says:

    March 25, 2019 at 11:15 pm

    Wrong like always Nexstar has sold TV stations to minorities in Media General merger a few years back but that doesn’t fit your narrative thou. Scripps & TEGNA didn’t overpay to get TV stations doesn’t matter the color of said TV owners race has nothing to do with it but you don’t get it why you played the race card.

HopeUMakeit says:

March 25, 2019 at 9:32 am

its own KASW Phoenix and Tribune’s WPIX New York and WSFL Miami…

this one statement lets you know that this merger had nothing to do with business. those 3 markets bill what 2-3 billion dollars in spot revenue ?

[email protected] says:

March 25, 2019 at 11:27 pm

I agree Harry you nailed it wouldn’t be surprised if there was a paper on how to get a merger done and how to do it right and what not to do and why a merger failed with Sinclair & Nexstar. Sinclair did everything wrong in there failed merger with Tribune if they sold everything they would have gotten Tribune and Nexstar did everything right with selling off all the TV stations they needed in the overlapped markets just need to sell Indy. But I feel WXIN/WTTV should be grandfathered in if not then sell Fox or CBS to Wish TV and give The CW to WTTV or WXIN then that would be clean combos if the DOJ doesn’t want to TV stations owning 2 Top 4 TV stations.


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