The Max Media CEO says the FCC has to recognize that many of the rules — especially ownership restrictions — it put in place a long time ago are irrelevant today and need to be eliminated. He says the need to get rid of burdensome and restrictive rules has increased over the past six years as the financial support has gotten much, much worse.
Eight years ago, Gene Loving along with his longtime partner John Trinder lined up some private equity funds and launched a new radio and TV station group. Max Media LLC would acquire TV and radio stations, improve their financial performance and then sell them for a profit.
It’s a plan that worked twice before. Loving and Trinder started the TVX Broadcast Group in 1979 and, after building it up and taking it public, sold out to Paramount Communications for $500 million in 1991. They promptly assembled another group, Max Media Properties LLC, and sold it to Sinclair for $270 million in 1998.
But things haven’t gone so smoothly this time around. Buying wasn’t a problem. They found the immature and troubled radio and TV stations they were looking for and now operate a small collection of TV stations topped by the ABC affiliate in Missoula, Mont., KTMF, and a larger collection of radio stations, including four FMs and an AM in the Norfolk-Virginia Beach-Newport News market.
This time around, Loving and company ran into the same unforgiving economy and relentless competition for audience and advertising dollars that all his broadcasting peers have. And like many of their peers, they have had to reset their finances and their expectations.
In this interview with TVNewsCheck Editor Harry A. Jessell, Loving argues that the FCC must finally embrace the new financial realities of broadcasting and immediately lighten the regulatory load that is making a tough business unnecessarily tougher and is also degrading, rather than improving, service to the public.
An edited transcript:
In a Feb. 10 letter to then-FCC Chairman Michael Copps, you said you had five stations where your costs were exceeding revenue. Is Max Media going to be able to weather this storm?
We’ve been able to get our lead lender to do a restructuring to give us about a two-year breathing window. So, yes, Max Media will be able to, but it took us seven months to put that together. We started on this last November.
We have some additional problems. The lender can more easily step into the role of ownership. To get people to cooperate and do these refinancings, you’re giving them warrants, you’re making other promises that were not in the original loan agreements. I’m not complaining about it. I’m thankful that they were willing to restructure. Some lenders have not been able or willing to do anything for their broadcast borrowers.
How bad is it in terms of revenue?
Well, last year we were down 8 percent and without the political money and Olympic money that we had last year, we’re figuring 25 percent down this year. So, the industry, compared to two years ago, is down 30-35 percent, somewhere in that range.
On an operational level, what are you doing to offset some of the losses in revenue?
We’re doing exactly what you read about almost every week — in fact, two or three times a week. We have reduced the number of employees in some of our departments. We’ve asked every employee in the company to take a 10 percent wage cut. We’ve put every employee on a five-day furlough sometime during the year. We have put a hold on every capital expense that we can defer and we certainly are not launching any new initiatives in any markets.
Do you think the industry has hit bottom in terms of revenue loss?
We aren’t seeing any additional percentage losses as we were through the last half of 2008 and the first quarter-and-a-half of 2009. Things have steadied and we have seen a small upturn in the last 60 days. I’ve been reading the trades and I seem to read something similar from industry gurus as well as individual broadcasters. So I hope and pray that the worst really is over.
We do not anticipate, however, that for the rest of this year that we’re going to see any substantial recovery. Instead of being 25 percent down against last year, we might be 23 percent down.
Is any of the car money coming back?
We are seeing a little bit of money out of General Motors. While they were still uncertain about which dealers were going to close, there was a reluctance on the part of the dealer groups to solicit any new ad dollars. I think they also now know what product they need to push and understand that the bankruptcy process is over. People have to be looking to the future. So you’re seeing these folks start to inch back into advertising.
What regulatory changes would you like to see from the new FCC?
The FCC has to recognize that the rules they put in place a long time ago are really irrelevant today. They ought to eliminate all the ownership restrictions.
In 2001, when Michael Powell came in [as FCC chairman], a process was started that was mandated by Congress to revisit these rules. They did that. They spent a lot of time on it. They held hearings and, if you recall, they recommended several changes and it was passed by the full commission. They put new ownership rules in place that recognized the realities as they were. Then you had one or two attorneys representing so-called citizen groups who immediately ran to court, which sent the rules back to the FCC for another look. And, basically, this industry has been gridlocked ever since. Nothing has happened.
Broadcasting cannot wait for another rulemaking process. The banking industry did not wait. The auto industry did not wait. Business in general did not wait. Before approving the stimulus, the experts in Washington said doing nothing would have been worse than thinking through every possible variation.
If anything, the need to get rid of burdensome and restrictive rules has increased over the past six years as the financial support has gotten much, much worse. Chairman [Julius] Genachowski, with the support of the majority of the commission, could order the staff to stop enforcing a list of rules and ownership restrictions now. At the same time, he could announce that in better times the FCC will consider what new rules it may want to enact, having had the benefit of the real world experience, instead of supposition.
We all want to do more than we are doing, but paying for things unseen and unimportant to the audience prevents expansion of local service, the very thing Congress talks about as important. Jobs, local news, equipment in the field to cover events, all depend on the financial health of the station and the industry.
Without financing there is no industry. The banks are out of the broadcast lending business right now. Look at broadcast stocks, reflecting the equity necessary to raise debt. Whatever you see in the public numbers, you can apply it to the private companies too, especially the smaller markets. One banker at a well-known bank told me the entire media department is being converted to medical-related loans.
I know you would like to see the FCC relax the rules so that small-market broadcasters could at least own two stations in a market. But why is that so important? A lot of broadcasters operate two stations in small markets through joint sales agreements or local marketing agreements. Why isn’t that enough?
Certainly you could do those kinds of things, but it doesn’t allow you to consolidate the ownership and the financing. You’re always in some option position and down the road you have to renegotiate the contract. There are lots of things that make those deals less than desirable. It’s just a temporary fix.
At one point, we had a company called TVX Broadcast Group. I was fortunate enough to be the founder of that group and we built more brand new television stations than anybody ever in the history of the business and then we bought the Taft independent group. So we operated stations in Dallas, Philadelphia, Miami and Washington, Dallas and Houston. So I have an idea of what it’s like in the large markets compared to Billings, Mont. And I know the unfairness of allowing the large broadcasters to marry each other or to consolidate or to do things that you can’t do in the smaller markets where you need the most help.
It should be the reverse. There’s less money in the smaller markets. It’s tougher to operate there. Yet, that’s where the most restrictions are. I just don’t get it. I really don’t understand with cable and the Internet and satellite and everything else, why these restrictions are still on the books. It’s strangling our industry.
What about the broadcast-newspaper crossownership ban? Would you like to see that go too?
Yes. It’s very important. If you remember, under the Powell commission, they were going to allow radio and newspapers to start merging or working with each other. There were serious needs. Newspapers were starting to decline in circulation and I think the newspaper industry made its case. As I said earlier, the rule was studied to death and, in fact, the rule was changed. So this is not something that we’re crying about overnight.
Even if they got rid of the rule, I can’t imagine a broadcast station buying a newspaper or merging with a newspaper. Papers are generally in worst shape that TV stations.
I can’t speak for who’s in the position to be the buyer and who’s the seller. It’s different in every market. We’re in business with the newspaper in Cape Girardeau, Mo. They own 20 percent of our radio company there. They anticipated, when they made that investment, that the rule was going to be changed and they would be able to buy those radio stations. They are right across the street and have lots of reasons for owning the stations. They have plenty of room at the paper and they would have eliminated all these rents and other costs that make no difference to the listener. But here we are. We’re still sitting.
The administration is interested in creating jobs, but it seems to me that consolidation of any kind is going to accelerate job losses. How would you respond to an FCC commissioner who argues that if we relax the ownership rules we’re just going to lose more jobs?
I wouldn’t try to make the case to the FCC that by doing consolidation you’re going to save jobs. The argument is we need to save the industry because right now the only alternative is a subscription service.
Fifteen percent of the public does not subscribe to cable or satellite. That’s something like 45 million people. They can’t afford it. That’s really the main reason that they don’t have it. They count on free, over-the-air television not only for local news and other things we talk about as public services and certainly, but also for entertainment. When people get home from a hard day and they’re in that 15 percent, about the only thing available to them is free over-the-air television. I’m not exaggerating. The industry as we have known it is not going to be able to continue with the kinds of services that the FCC expects.
Isn’t past consolidation responsible for the hot water that many station groups find themselves in today? Broadcasters took on a lot of debt to buy stations and got caught short by the economy. Nobody said you had to go out and borrow the money to buy stations. You created a couple other groups. Your timing was good, you sold them and you made money. Here you were just caught short, right?
I don’t agree with the concept that broadcasters are in trouble today because they paid too much for properties or paid what may have seemed to be a high multiple to form duopolies where they could. The industry developed over past decades as any business, with some pioneers taking a lot of risk, cashing in at some point and any buyer of any business does it because the numbers work on paper, and he can raise equity and debt.
The experienced broadcasters, the professional investors and the banks all ran their own numbers when stations were purchased, it wasn’t the price they paid but the steady decline of advertising, starting with the gas price increases two years ago. No one saw that coming.
Brian Brady of Northwest Broadcasting invested to create what became the first NBC service in that part of Kentucky. Northwest took a risk and deserved to be paid for business opportunity and service they created in that market. We bought the station [WNKY], investing additionally in the signal, building new broadcast facilities and offices, adding to the staff, starting a new weather program, which is very important to that region. Under normal economic conditions, our investors would earn a profit at the exit for creating additional TV service which can be received for free by several hundred thousand people in that part of Kentucky.
In the markets in which you operate, are you able to get retrans fees to offset the loss of network compensation?
Yes, and we’re thankful that cable is now paying for our programming, which is still the most watched on cable. It’s been a long time coming, but it certainly has not been a replacement for network comp so far. Over time it may equate to that. The amount of money that we lost in Montana when all network comp stopped is a lot more than we’re getting in retransmission fees.
You’re one of the increasingly rare broadcasters with radio and TV station holdings. Which of the two media is more under stress right now?
Radio is definitely having a tougher time right now and I just don’t see why it’s been beat up to the degree that it has. Audience levels for radio are about 3 percent different than they were 10 years ago and yet advertisers right now see radio as old media. Advertisers feel they have got to spend a great deal of what used to be the radio budget on the Internet, mostly on search engines.
And some of these folks are now moaning that their business is declining. It doesn’t occurred to them that it may be because they’re not advertising to a mass audience. In Norfolk, Va., where we have stations, we are going to make an effort with the other broadcasters in the market — Entercom, Clear Channel and Saga — to put together a presentation for advertisers and their agencies on the merits of radio as a way to reach customers.