The longtime broadcaster is now advising TV station group investors who pumped a lot of money into rapidly expanding broadcast groups a few years ago and are now trying to salvage what they can. He sees an opportunity for stations to streamline operations by sharing expenses with other stations in a market in every area, except sales, and bring their margins back. Not to the 40% or 50% margins of the past, but to around 20%.
Veteran broadcaster Tony Cassara wants to reenter the TV station business and may soon do so — albeit by a back door.
After three decades as a TV station sales and management executive, Cassara is now advising some of the lenders who pumped a lot of money into rapidly expanding broadcast groups a few years ago and are now trying to salvage what they can.
If the lenders — or other investors who buy their notes on the cheap — end up with controlling interest in a station group, Cassara may be called in to run it.
After stints in broadcast sales, Cassara joined KTLA Los Angeles as sales manager and was later upped to GM. In 1982, he fronted the KKR-backed leveraged buyout of the station from Gene Autry for $245 million and he was still there when KKR sold the station to Tribune just two years later for a then single-station record of $530 million.
From 1993 to 2000, he ran the Paramount Pictures Television Stations Group. Starting in 2000, he worked closely with Jerry Perenchio in expanding the Univision network and station group until they were sold to a private equity consortium in March 2007.
In this interview with TVNewsCheck Editor Harry A. Jessell, Cassara says he believes the business can rebound from its current difficulties, but only if it can find new revenue, drastically cut costs and get along with operating margins half of what they were just a few years ago.
An edited transcript:
We’ve had a number of bankruptcies over the past several months: Pappas, Tribune, Ion, Young. Should we expect to see more of those this year?
I would definitely think so. The business has not improved to the point where marginal broadcasters are getting the help they probably need if they’re overleveraged. With the euphoria of the last five or six years of easy money, a lot of people did a lot of borrowing money and no one foresaw this cliff that we were all going over.
But I’m told that most groups should be able to work things out with their creditors and wait for better times.
And in some cases, that will definitely happen. But some of the creditors are under tremendous pressure, too, and sometimes they sell the debt at a huge discount — say, 35 cents on the dollar — to a hedge fund that is interested basically in putting the company into bankruptcy.
Do you want to mention any names?
No, I don’t.
Is broadcasting’s business model broken or is everything going to be back where it was in a year or two?
I don’t think that it’s either of the two. There are two things going on at the same time. One of them is a tremendous increase in competition for viewers and therefore for advertising dollars. That’s coming from everything from cable to the Internet — even cell phones at this point. Then, we have the economy, which really has hurt advertising, automotive especially, which is a huge category for broadcasters.
Will it come back to what it was? It will to some degree. As the economy improves advertising will come back, but broadcasters do need a new business model. I don’t think they can go back to the old one. They’re going to need new sources of revenue in addition to the 30-second traditional advertiser.
What other sources or revenue look the most promising?
There are a number of things. No. 1 is stations becoming much more involved with local advertisers. With the demise of the newspaper business, there’s an opportunity for stations to go after some of the advertising that newspapers used to have. They can do that in a number of ways, including producing low-cost commercials for local businesses and so on. It’s the new business department that many stations already have.
I also think there’s the possibility of doing something with the fact that they have a signal that covers the entire DMA. In most cases, cable companies don’t have that. Satellite companies don’t have that. Also, in digital, broadcasters are able to broadcast more than one signal and offer more channels than they could before. I can’t point to a lot of success stories in that area yet, but that is an upside for broadcasters.
Broadcasters may also end up selling a piece of their digital spectrum. When I say selling it, I mean it almost becomes a real estate play, where another company buys or leases a portion of the channel. They can program it or do whatever they want with it as long as it’s consistent with the station’s license obligations.
Do you share the excitement for the new mobile DTV standard?
I don’t know. It’s hard for me to say. I don’t want to watch a movie on my phone. My guess is that it will take hold as a short-form application. Some people are producing programming specifically for mobile devices. It’s much shorter — webisodes that might be 30-seconds or two-minutes long.
If you can’t replace all the lost viewers and all the lost revenue in broadcasting, can you squeeze more out of the cost side to get the margins back up?
Absolutely. You can use technology to streamline operations. You also have to look for other efficiencies. You’ve seen the announcements in Washington and Chicago and other markets where stations are doing news cooperatives rather than duplicating each other’s overhead. You’re going to see a lot more of that.
There are a lot of other areas where stations can cooperate with each other. The economics are forcing them to explore those areas, something they didn’t need to do when they had 40 and 50 percent margins and every year the market went up.
Is there any other way that TV stations can share costs?
Sure, sure. The engineering, the master control. The one thing I would keep separate is sales, but, other than that, I don’t think it would be a problem to do virtual LMAs on just about all of the overhead. You might want to exclude programming, too, but even there, when you have LMA’d stations and co-owned stations in a market, you see programming being used on both stations. That’s been going on for a while. So I would say other than sales, you can combined just about everything else.
So you can sort of envision broadcasters operating like newspapers under joint operating agreements where two or more independently owned stations share the same technical facilities?
Absolutely. I can even envision technical facilities servicing stations not even in the market. I can tell you that is something that I think broadcasters are going to look at and are going to do.
If somebody would have said to you a year ago, before all this happened, can you imagine NBC, ABC and CBS affiliates giving up their autonomous news departments in a market like Chicago and doing the news on a cooperative basis, you would have would have said, no, they’re not going to do that because they’re competing with news. News is content. Master control is much easier to consolidate. At least you’re not competing with the other guy when it comes down to that. That’s just engineering. It’s getting the signal out.
Can anybody sell their way out of their problems or is the deal market just totally dead now. Are there any buyers out there?
No. I’m in pretty constant contact with some of the biggest brokers in the business and their advice to people right now is, if you don’t absolutely have to sell, don’t even try. There are no buyers and any buyers that you’ll find are looking to just steal it.
In 1984, you sold KTLA to Tribune for $530 million, which, I think, is the second highest price ever for a standalone station. Do you think we’ll ever see a price tag like that on a TV station again?
Boy, that’s a good question. In major markets for the Big Four network affiliates, that’s certainly possible once the business settles down and becomes predictable again. Part of the reason that stations were valued at the multiples that they were valued at was (A) the margins were high and (B) the predictability of the cash flow. But right now, there is no predictability. There’s no visibility. Nobody can tell you when this is all going to shake itself out. That’s one of the reasons why you don’t have a lot of buyers.
Even though there’s a lot of money that’s sitting out there, people are afraid of the broadcast business because they can’t really see when this is all going to settle itself and when this is going to become a predictable business again. It’s not going to be at 40 or 50 percent margins — I don’t believe that’s going to happen — but it could be a 20 percent margin if broadcasters are lucky. There’s nothing wrong with that, by the way. There are not a lot of businesses in America that have 20 percent margins.
It’s just not 40.
That’s right, which is why we need the new model.
And you think long-term it’s a 20-margin business now?
That’s a guess. I’m throwing a dart at the wall. It will still be a better margin business than many businesses, certainly better than retail businesses and things like that.
If Congress eliminated the newspaper-broadcast crossownership ban tomorrow, would anybody care?
You know something, other than Rupert, I wouldn’t think so. I don’t see a lot of broadcasters running out to buy newspapers frankly.
Or vice versa.
That’s for sure, yeah.
What about the small-market duopoly ban? Would that matter?
Absolutely. They should reconsider how many stations have to be left unduopolized in order for a duopoly to be allowed in a market. You’re going to get the consolidation one way or another. If it’s not by ownership, it’s certainly going to be by contract because that’s the only way these guys are going to be able to survive.
If you had $500 million to invest in media today, where would you invest it?
Well, having been a broadcaster my whole career — television — I would look to buy television stations from people that had to sell or from companies that had loaned money to these guys and ended up unhappily as owners. The values will bounce back, not to what they were necessarily, not to the 15 multiples of cash flow, but right now it’s a market that’s tremendously undervalued just because the visibility isn’t there.
So you’d try to pick up some bargains.
Absolutely. I feel that the business has been beaten down beyond where it should be beaten down and part of that is just that nobody foresaw what was going to happen and a lot of people got caught in situations where they had overhead and debt that just could not be supported by what happened to them on the revenue side.