It’s all good, says the head of the 10-station group. National spot has stabilized, new local money is coming in, politicians are back on the TV campaign trail and KRON is a network affiliate again.
The troubles of Young Broadcasting CEO Vincent Young began in 2001 when NBC yanked its affiliation from KRON San Francisco, for which Young had just paid a whopping $840 million in cash and stock. NBC shifted the affiliation to KNTV and then bought that station to give itself an O&O in the nation’s sixth largest TV market.
The loss of the network affiliation sent the value of the station plunging. KRON has been a drag on the station group and its stock ever since, despite heroic efforts by the independent KRON to justify its purchase price with an aggressive schedule of news and top-quality syndicated programming.
To make matters worse, the San Francisco market has been in a long funk from which it is only now beginning to recover—every station there has suffered.
Without KRON, Young is a solid collection of nine network affiliates in markets ranging from No. 30 Nashville (WKRN) to No. 124 Lafayette, La. (KLFY). The four smallest are ranked tops in their market and none is lower than third.
With KRON, Young is a struggling company with too much debt and red ink and a paltry stock price.
The good news is that it’s no longer 2005. Then, Young told analysts last month, the company had to weather the “perfect storm of negativity”—declining national spot revenue and network compensation, the lack of political campaign spending and that weak San Francisco market. The group reported a net loss of $91.3 million on revenue of $197.5 million for the year.
This year will be better, much better, Young tells TVNewsCheck in this edited interview.
National spot has stabilized, the political money will be back, the San Francisco market is showing signs of life and the group’s aggressive Third Leg program for finding new local spot revenue is delivering results, Young says.
Plus, KRON will no longer be independent. It just signed on as an affiliate of Fox’s My Network Television and, according to Young, it’s begun booking primetime advertising at primetime network rates for the first time.
So, what makes you think ’06 will be so much better than ’05?
None of our stations are carping about their revenue goals for the second quarter. Everybody seems to be booking tons of revenue and the political really hasn’t started yet.
This is a relatively fixed cost business. If you throw $20-$30 million-plus more dollars into your year than what you had last year, you get a very different looking result don’t you? It’s dramatic. It’s extremely dramatic. It does tend to fall to the bottom line after you pay your sales commissions.
Political. You said you were down $27 million last year. Bear Stearns analyst Victor Miller estimates that you’ll do $24 million this year. Is that the way you figure it?
We look at political pretty soberly each cycle and we have been way off every time, way off low every time, because the politicians have managed to spend more than we anticipated. But we are looking at a number that’s a bit lower than what Victor is talking about. But you just don’t know. It’s a crap shoot as to what’s going to happen. We have been continually surprised on the upside.
What about national? Is that General Motors money coming in?
We don’t see any negative on the national side in the first quarter. The GM money has been coming in late, but it has been coming in.
Today, you say that local is 60 percent of your revenue. What do you think the percentage with be in five years?
I think it will go to 75.
And that’s because local is growing and national is flat or declining?
National is more vulnerable to attack by some of these other poachers on your pond—cable, syndication, the Internet and God knows what. We have seen national accounts not growing the way that they use to. But this is a really an old trend going back to the seventies.
Tell us about this Third Leg program and what it’s doing for local revenue.
This is not unique to us. Media General does a very effective job at this and there are some others. Starting in about 2004, we’ve been perfecting a way to dramatically increase the kind of revenue that we used to call new business. The other legs of the stool are national and existing local.
When I explain this, I usually use a visual of a little boat on a pond. We’re sitting in the boat, catching a lot of fish and life is good. I tell people that this is what it used to be like. And then I draw a lot of other boats in the same pond and say, “All these other people are now coming after the same fish.” And then I say, “Now, we’ve realized that we are really on a huge lake,” and I draw a much bigger body of water where there are tons more fish. The point is that in markets like Green Bay, Wisconsin, when they spend $30 million to $50 million in TV and radio advertising, there is $500 million being spent on advertising in general. So how do we get a greater piece of the $500 million, not just a piece of that now allocated to TV?
In the Third Leg program, we first do a lot of data mining We find out who all the advertisers in the market are and where they are spending their money—whether it’s yellow pages or newspaper or what have you. We’ve had classic cases where we have had people say: “We don’t have an advertising budget. We don’t spend money on advertising. Oh, but of course, we are spending $600,000 a year with the newspaper.”
Once we identify who these advertisers are, we invite them to a presentation at the station or, more typically, at a hotel and we get speakers to talk about the value of television. Now these are people who haven’t used television before. They either think it is very expensive or the production is expensive or it’s complicated or it’s just easier to do the yellow pages and the newspaper. So we do the presentation. We offer people a chance to get in on a 52-week program and then we close them. They each give us $30,000, $40,000, $60,000 a year per and we will close $1 million at this kind of a program. We don’t close all of them. Of the people we contact through the data mining, there are about 20 or 30 percent who show up at a meeting. We close about 20 percent of those, and the ones that we don’t close, we try to get them with another program later.
The point is, if you take an average middle-market station with a local sales budget of $10 million a year and you close one of these programs that does a million dollar, you’ve added 10% growth right there. If the program exactly as it should, we will see a 30% increase in local. In the last couple of years, we’ve seen double-digit increases on local.
You’ve been doing this for two years and there is no sign of diminishing returns yet?
You can’t say there are a limitless number of local accounts out there, but I must say we have been doing this for a couple of years—and each station does about a half dozen programs a years. Now they are not all $1 million budgets. Some are $200,000 or $500,000, but they can add up to a $3 million or $4 million Third Leg budget. That’s approaching what we do for national in our typical size market.
We have the Society of the Stool—an organization within our organization. We have picked out the cleverest of our general managers and sales managers—the people who really get it, who’ve embraced the concept and they are developing other ways to do this. They are coming up with their own programs. I actually call these guys whalers because they are out to sea for years, going to all the stations in the group explaining how it works and how to get it done.
And then we have rangers who are very adept at calling for appointments and closing at one of these campaigns. So they are kind of scattered around the group. And so if you are lucky and you are the sales manager of KRON in San Francisco or Nashville and you are trying to do a big program, you have some extra rangers come to town. You can double-team the market. These people are just very good in getting up in front of people or sitting next to accounts and closing them.
Part of your problem has been the San Francisco economy. The market has been bad news for everybody. What’s the latest?
We are seeing signs of a recovery starting with the end of the first quarter and going forward. I almost want to bite my tongue because I don’t want jinx it. We haven’t seen a lot of good news there in a long time. But we are now.
We got into a downward spiral in that market, which is typical of what happens when the people meters roll into town and your audience levels are all of the sudden much smaller and station start to cut rates. It takes awhile for people to get the nerve to raise rates once again. I think we have had our third rate increase going for the second quarter in the last two weeks. It’s been awhile since we’ve been looking at rate increases.
KRON is dropping its independent status to become an affiliate of Fox’s My Network TV. What’s that going to do for you?
It’s going to do a lot. We’ve got very competitive numbers in primetime now. Last Thursday night we were No. 3 from 8 to 11 and we beat NBC and Fox.
What’s your primetime lineup look like right now?
We run Dr. Phil from 8 to 9, then we have a 9 o’clock news and then we run Sex and the City from 10 to 11. So it’s very nice programming. Yet a lot of the buyers still give us a hard time, saying that’s really not prime so we are not going to give you a prime cost per point. This is very frustrating because we not getting this programming for free. We’re paying a lot for Dr. Phil and Sex and the City. One of the things the network does for us is allow us to sell primetime at a primetime rate.
Has Fox managed to make the perception stick that My Network TV is network and not syndication.
I think they will win that battle, and we are already selling it as prime. We don’t have a lot of business for the fourth quarter, but what business we do have is paying much higher rates than what they were paying for the current shows.
Isn’t My Network a risky proposition? What if America isn’t ready for English-language telenovelas?
Well, that’s a good point. Our feeling short term is it’s a bit of a risk because we have something in primetime. Many other affiliates are former UPN stations who really didn’t have any other place to go. We do have something to lose. We have prime programming that works quite well and we are very competitive. But long term, as somebody who is operating a major-market independent stations, finding the right kind of programming without paying through the nose is getting harder and harder. There are fewer programmers out there to supply you.
What are your plans for Dr. Phil and Sex and the City now?
We are still talking about it. There is a chance we will continue with Dr. Phil at 8, run the new Fox network from 9 to 11 and run Sex and the City in late fringe where it has been so successful.
The other point I was going to make is, the people at Fox have got a lot at stake. They are just not making programming up to sell programming. They’ve got some major-market stations where they need successful programming. They’ve got a big bet in this game, so we are going to bet along with them.
It may not work out of the box. It may take the second or third iteration, but they are going to keep going after it until it works.
I’ve seen other station groups trying to upgrade their market profiles by buying stations in growing markets and selling stations in shrinking ones. Do you have any intention of doing that?
We have done that. We sold La Crosse [Wis.] a while ago. We sold off Rockford [Ill.] because it was just too small and it wasn’t going anywhere. What we have left is going just fine. We are seeing very nice growth in all the markets, even Albany, New York, which you would think would not be much of a growth market. It is growing very nicely indeed.
As you are aware, TV stations are selling at surprisingly high multiples. Any chance of you spinning off some stations?
I don’t think so. We have people calling all the time saying they would like to buy KRON. For one reason or another we haven’t gotten to a satisfactory deal. We’ve not being too coy about the fact that if we were to sell KRON to somebody else who could make a duopoly out of it, it could be worth more to them than it would be to us until that market gets a lot healthier and KRON can throw off enough cash flow. I think that could happen in the next couple of years.
If the FCC eased the duopoly rules to permit common ownership of two stations in the same market, some of your small market stations would be more valuable, right?
All the stations would be worth a lot more money. It’s would be quite interesting to see what would happen. The current multiples, as enticing as they are, would pale should these rules change. I think the norm would be 20 times cash flow or more.
KRON has been getting some bad press due to its product integration in the news, where you are allowing advertising to buy into the news. Aren’t you selling the soul of the news and aren’t you risking the credibility of your station?
A) no and B) no. I saw the article in the [San Francisco] Chronicle. That’s was an ugly piece ofÃƒÆ’Ã‚Â¢ÃƒÂ¢Ã¢â‚¬Å¡Ã‚Â¬Ãƒâ€šÃ‚Â¦I hate to call it journalism. That was a real hit piece. It was handled a lot better a few weeks earlier in one of the trades [Hollywood Reporter] where they interviewed several stations pursuing similar types of endeavors. It’s rarely used. And when it is, the viewers are made aware of it. It’s nothing that would denigrate the credibility of the station. The general manager of KRON, Mark Antonitis, is a journalist. He was news director at the NBC O&O in Chicago. He worked for Magid—the big news consultant. But we are expanding into more news and some of those hours are not the hard news of the 6o’clock and 11 o’clock newscasts. Early morning news can be more of a vehicle for people to come on and talk about their products. This is more of our feature stuff and filler.
Given the criticism, are you reconsidering how this is done?
Not at all. This is a trend that is going in the opposite direction. I think you will see more stations doing this around the country. We have advertiser pressure all over this industry for product placement—something other than the 30-second spot. As long as we are allowing our viewers to know that so-and-so is a sponsor then I don’t think we have any problem with the credibility of the newscast.
Disney is taking the lead in what I would call affiliate bypassing. First, it says it is going to make some of the most popular ABC shows available for download over iTunes. Now, it says it’s going to stream some of those same shows over the Internet with commercials. How come the affiliates are not howling in protest?
Because Disney came to the affiliates first. They met with the affiliate board and told them what they were planning to do. This has been an ongoing conversation since before they did the iTunes deal.
They have to explore ways to get their product into as many hands as they can. We understand that. What we are talking to them about is the ability to get that message out, to help promote what they are doing. We would therefore share in whatever the revenue stream is. We would be running spots on our own nickel to drive viewers not only to see it on channel 2, but to go to Disney online to catch the show tomorrow morning or whatever. Plus, we have limitations on how many hours of primetime they can repurpose.
So that could be another revenue stream for you?
Yes, I don’t think it’s going to be huge for them or for us, but it’s certainly worth having a conversation about.
I was surprised that you didn’t mention your Web sites in your last teleconference with the analysts. I can only deduce that you don’t think online is a big deal.
It’s a big deal in terms of percentage increases, but the dollars are still relatively small. We have a couple of stations that are doing maybe $500,000 to $1 million with their Web sites. I didn’t stress it because there are only so many things that I can stress. But it is something that we are spending a lot of time on. It’s obviously the wave of the future that we plan to be a part of.
So, have you ever forgiven Bob Wright for yanking your affiliation in San Francisco?
[Laughs] I don’t think anybody, including us, ever saw things going down that way. There was nobody who didn’t believe we couldn’t sit down with NBC and work something out. I think Bob’s background is not in broadcast television.
We are still doing business with NBC. We have a very strong affiliate in the Quad Cities in Iowa. It’s a dominant, No.1 station. We have a renewal on the contract there. I am very friendly with a lot of people at NBC, so life goes on. But we own KRON and they don’t. And their numbers are down 30% in the market.