Jessell | Nexstar-Tribune Ripe For Quick DC Approval
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.
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.