TVN EXECUTIVE SESSION WITH STEVE PRUETT

TVN Executive Session | CMG’s Pruett: Station Groups Need Alliances

In Cox Media Group’s first major interview since being taken over by Apollo Global Management, Executive Chairman Steve Pruett explains the selection of Dan York as its new CEO, the need for more FCC deregulation and the industry’s critical failure to come together on key issues like automated buying.

As it took majority control of Cox Media Group (CMG) last year, Apollo Global Management brought in broadcast veteran Steve Pruett to oversee and grow its considerable investment in TV and radio as executive chairman of the CMG board.

And in that role, Pruett last week made his biggest move to date, hiring former AT&T exec Dan York as the new CEO, shoring up the top management ranks that had been depleted by the departures of CEO Kim Guthrie and TV head Jane Williams.

Over his long career, Pruett helped to found several broadcast groups as investor, financier, managing partner or board member and served in top station management roles. He joined CMG last year from Sinclair Broadcast Group, where he had worked since Sinclair bought out Communications Corp. of America in 2013. Pruett was CEO of that station group at the time of the sale.

In gobbling up the broadcast stations of Cox Enterprises and Brian Brady’s Northwest Broadcasting last year, Apollo establish a new CMG in which both the sellers hold substantial minority stakes. It also made a run at merging with Tegna.

Although a private company, CMG has a board and must make annual and quarterly reports to the holders of the $1 billion in notes the company sold to finance its broadcasting binge. The noteholders are required to keep the earning reports quiet.

In this interview with TVNewsCheck’s Editor-at-Large Harry A. Jessell, Pruett talks about the state of the business, why Apollo is enthralled by broadcasting, his “five pillars” of growth, the outlook for M&A and the need for further FCC deregulation and the industry’s ongoing failure to work together toward common goals like automated buying.

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An edited transcript.

Why Dan York?

He brings strength in an area where we did not have it. He was doing the retrans deals at AT&T, and that is an important half of our TV business these days. He also brings a strategy for leveraging our current platforms and entering new businesses. The future of our business is going to be building subscription models and building our MVPD relationships.

Do you expect other Cox veterans to follow Guthrie and Williams out the door?

No. Paul Curran will continue to head TV, Bill Hendrich will continue to head radio and Marian Pittman will continue to handle content. They’re our primary operators.

The GMs are incredibly solid. There was some turnover in the GM group before, but I would be shocked if anybody from TV left. Same with radio. When I talk to the radio people, they are serious about their jobs and their careers and they are serious about the profession. The people here are professional, highly motivated and competitive. It couldn’t be any better. They aren’t inclined to leave.

The consensus among the publicly traded companies — and I sat in on all those calls — was that the second quarter would be down around 40%. Is that what you are seeing?

Yes. I would say that is consistent with us. From everything I have seen, from what people have published and from what others have told me in private, everybody is pretty much the same. You might have a little fluctuation between large and small markets.

Any visibility on the third quarter?

I do see green shoots. Will it be back to 100% in the third quarter? I doubt it. But we are seeing positive momentum in growth toward a norm. We are optimistic that political is going to be as good as we thought.

Are you anticipating any salary cuts or furloughing as a result of the pandemic?

Not at this time.

So you are holding the line?

If there are no major setbacks, relapses, mass closures, we are going to move back to normal.

Do you think the pandemic will lead to lasting changes in the way TV stations operate?

I do. There is a lot of learning that comes out of this. It is going to affect the way people think about sales, prospecting, talking to clients. And it is going to affect the potential of how we use technology to lower costs and expand coverage.

There are things that you always thought you had to do that you now know you don’t have to do anymore. You can launch your teams directly. They don’t have to come into the station and then go back out. That will be an advantage, especially in big, congested markets.

You will be able to be a lot more efficient in terms of the way we look at marketing and the way we look at our clients.

Rob Babin, a radio sales leader, started this thought: Every business in every market we deal with is going to reset their marketing strategy. This is an opportunity. We call it the great reset. Let’s go out and speak to our clients about their marketing and how they are going to change their message, their business. What do we need to do to help them do that and how do we create an advantage for ourselves in doing so?

Car dealers have been adapting since this started by doing touchless delivery. All car dealers now can sell online and deliver through their service department in completely sanitized conditions. They still want people in the showroom, but they are able to deliver it in ways that they had not pushed before.

Apollo made a big bet on broadcasting with its purchase of the Cox stations. What does it like about the business?

I don’t characterize them as a typical PE. They are very strategic; they have thought this through very carefully. The look for businesses that generate free cash flow and where there are synergies available through scale. Broadcasting fits that model.

If regulation comes around in certain ways there will be the ability to scale in-market. That is critical. They strategically feel that regulation is likely to change. They don’t have any crystal ball about that, but that is a strong feeling.

I would also venture to say our connected TV platform is the largest and most successful in the industry when you look at a million connected TVs and a million connected apps out there with our newest products on them.

We monetize it. It is profitable. We are going to invest in it. We are going to grow it. We obviously saw big gains in the pandemic of viewership and use of those OTT platforms. The viewership of OTT is younger than our core demo. It gives us a competitive advantage in the market. The more robust that OTT use is in a given market the better our news is doing.

That’s nice, but the broadcast TV business is really about retrans, isn’t it? That’s the growth driver. That’s why you hired York.

No, it is not all about retransmission. Retransmission is critical and there is growth in it, but there is more to it.

I look at five things. You can call them pillars. One is auto. How are you doing in auto and what can you do? It is your largest segment. What can you do to get more money out of auto and be more cogent in the way you engage with dealers?

The next thing is what are your platforms? We just talked about OTT. Are there other platforms that you can expand into? Is it out-of-home of some kind or is it some kind of SVOD or AVOD product? What are the other possible platforms you can have? Can you have multiple stations in a market?

And then sales transformation. Everybody in our industry is leaning into sales transformation where you really become more like an agency with a television and radio property attached to it. You are not just slinging spots.

Another is what rights can you get to increase your monetization. Can you get on-screen rights for programs that you didn’t have before? Can you find other aspects of rights in terms of the AVOD and SVOD programming? How can you maximize your syndication?

And the last thing is something I call the value-output model, which is every time something appears on the TV screen we are creating downstream value for somebody. How can we capture that? We also have an e-commerce play that has been very robust for us so far.

E-commerce? What do you mean?

It’s called Local Steals and Deals, an e-commerce play. I don’t want to say too much about it, but suffice it to say it will be a good growth engine for us this year and at a not-insignificant amount of revenue and cash flow.

One thing I will tell you about is we and others subscribe to something called Burst, which allows us to capitalize on user-generated content. And that is something that we do specifically in our e-commerce play. It is the same kind of idea. They are stimulated to buy products and we capture the customer data, which is important.

Do you have any other out-of-the-box ideas?

If broadcasters could ally with one another, we could create sort of an unwired network that we would all own together and then we compete. If our advertising bucket is roughly about $20 billion, the network bucket is roughly $50 billion.

If we could create a national unwired network of local news that operated like a true network, we could get true network dollars. We don’t get true network dollars now. We get unwired dollars. We could do a lot of things if we would start talking about how we can work together.

The record of cooperation among the groups is not very strong.

You are absolutely right; it hasn’t been a strong record.

Are you concerned about the cord cutting, that it could seriously undermine your retrans revenue?

Yes. I mean, who isn’t? The interesting thing is, this pandemic is going to test all of the assumptions around that. The trend is that people are cutting the cord at a certain rate. We are going to have a really good view of it coming out of this. We will see how that looks and we will have to adapt to it.

We want all the retransmission we deserve. We would like to see things be stable and not have to worry about cord cutting. But the fact is we still have OTA viewing and those households are still worth money. And if a viewer cuts the cord, he is still going to view broadcast television and he will still have value. So, it is not a complete loss and, actually, on a per-household basis, we gain a fairly significant amount of money back in ad dollars.

Tegna disclosed that it had multiple feelers from you about merging before the pandemic shut everything down. Are you going to continue to pursue Tegna?

Well, what is public on that is public and I can’t comment — as much as I hate that term — on Tegna per se, but we are going to continue to look to buy TV and it is not a long list of what is out there. Could something have happened in this pandemic that causes some companies that weren’t thinking about exiting to start thinking about exiting? I don’t know. We haven’t really gotten that far yet. We are keeping our eyes and ears open and listening to the marketplace and looking to build a company that will be bigger in TV for sure.

Can you get a deal done in this environment? Can you get the financing?

That is the beauty of having Apollo as a backer. Yes, we could absolutely.

Because you can put a great deal of cash in the deal.

Exactly.

Well, you took on some debt. You have some big notes you have to pay off, right?

We are not that highly levered when it gets right down to the assets that we have and where we are in 2020 with political coming in. Even with what has happened, we are still going to be in great shape coming out of this. We’ll be back next year and, obviously, ’22 will be the next time we can really notch some big wins. We are really very solid.

You mentioned regulatory change. What exactly would you like to see?

I would like to see us be regulated in a way that allows us to compete fully. The idea that we have control of the TV marketplace just doesn’t hold up anymore with all the cable channels, cable news and internet streams out there.

We should be allowed to own multiple stations — multiple Big 4s — in a market. We should be allowed to own as many stations as we want. I am very much a pro-deregulation thinker. That is where a lot of our opportunity is yet to be realized. We have been overregulated and out-lobbied by the cable guys, the telephone guys, the wireless guys. The broadcast industry, when it comes to getting ourselves deregulated, has to be categorized as the gang that can’t shoot straight.

What about radio? Is that part of this company going forward?

Yes. The radio industry is an interesting business. We have an outstanding radio group. In all of our markets we are the top tier cluster, which is critical in radio. We have fantastic market leaders.

I am privileged to be on calls weekly with the radio managers and [sales directors], and they are incredibly creative and excited about getting back out and helping their clients. The radio business is very solid. The business has obviously fully consolidated. We are just going to be opportunistic how we optimize the value that we have.

Does that all mean you could go deeper into radio? I came into this interview thinking that strategically it doesn’t fit with the television side and that if you got the right deal, you would sell it off as just every other TV group has.

Well, in five of our TV markets, we also have radio. I would challenge you to find TV stations that do as well as those stations in terms of revenue and cash flow in the five markets. They fit together extremely well.

I would love to own TV stations where we already have great radio stations. That would be an opportunity. I think that there could be clusters that we could do better if some of these radio companies that are going to be cash strapped during this crisis would want to take advantage of our balance sheet and combine up. There could be situations like that.

I guess maybe my feelings about radio is colored by troubles of the big public groups.

Well they are all over-levered. So, when you are out there and you are over-levered and now you are being stressed by a pandemic and you have to turn to the public markets for cash that is a terrible story, really.

What’s the outlook of Cox Reps?

Ed Wilson has been brought in to create a new vision of Cox Reps shortly before we took over. There was some disruption in the business model.

Well you lost one of your biggest clients, Tegna. That was certainly a disruption.

We are still the largest rep firm.

Who are your big clients other than Cox Media?

We have the old Tribune group [now part of Nexstar], Meredith, Graham and some Hearst stations. We have a very solid group. Ed is working a strategy. He will be happy to tell you that broadcasters need to work together, to ally to create opportunities for brands both across a platform and in the markets to activate all in the way local TV can. Local news is exciting to the national ad platform.

I see and hear things that suggest that at least during the next year to 18 months a lot of network money may switch to TV spot on a regional basis. People want to be able to go back to advertising, but they are going to have to do it regionally. A rep firm can bring a good service to the table in terms of helping that happen very quickly.

We also need to have automated buying. It’s unfortunate that Videa didn’t make the trip. It was close to having the right gateway, but the industry couldn’t rally around it. I think that now automated buying is probably five to seven years in the future. [Editor’s note: Videa was a CMG company that was shut down in March.]

That long? Broadcasters have been talking about this for 15 years.

I am incredibly disappointed. I would like it to be now, but there is no vendor in sight. WideOrbit hasn’t built an automated gateway. They have the capability to, but they are two to three years away from having a real product. And, most important, they don’t have the industry coalescing around them. If they are to be the gateway, let’s just all get together and make them the gateway.

There you go again: We need alliances.

What part of that is hard to understand?


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