EARNINGS CALL

Sinclair’s Smith Not Worried About Auctions

CEO David Smith says: “There’s a fundamental disagreement between the Democrats and Republicans” over spectrum auction legislation and he sees no action likely in three-to-five years. He and other execs at the company say this year is shaping up to be a record on-year for political revenues at Sinclair and they have great expectations for the role super PACs will play.

The smoke signals wafting from Washington, D.C., suggest it’s unlikely Democrats and Republicans will agree on legislation enabling a broadcast television spectrum auction this year, David Smith, president/CEO of Sinclair Broadcast Group, said during the company’s financial results call this morning.

“We’ve been … getting out there and looking at whole spectrum issue, not just the auction itself and I think … based on what I’ve seen on the Hill, there may not be an auction,” Smith told analysts. “There’s a fundamental disagreement between the Democrats and Republicans on what the bill would say.

“But the $64 question is will anyone want to come and sell their business. We’ve seen a tremendous number of broadcasters come out and say we have nothing for sale. We certainly have nothing for sale.”

The FCC, under Chairman Julius Genachowski, has proposed a voluntary incentive auction of spectrum in the nation’s larger markets. The initial plan called for broadcasters in those markets to voluntarily turn over unused or underused spectrum that would then be auctioned off to wireless broadband providers such as AT&T and Verizon.

Contending there’s a shortage of wireless spectrum, brought on primarily by the growth of new wireless services including video, the FCC has proposed recapturing 120 mhz of broadcast spectrum.

Broadcasters have been wary of the plan since it was announced. Their concern centers on whether it would truly be a voluntary auction and, more broadly, their contention that there is no shortage and the auction is, in effect, a bandwidth power play by wireless broadband providers.

BRAND CONNECTIONS

One key FCC selling point: Such an auction would generate about $6 billion for the government as well as the revenues broadcasters would derive.

Smith dismissed both notions. “It’s sad to think the government would want to disrupt an industry as big as broadcast over a few billion dollars,” he said. “The fact is, there isn’t a spectrum shortage, it’s about a few nickels and dimes.”

For several months now, Smith has been pitching an alternative to broadcasters, lawmakers and Wall Street: A change of the digital broadcast standard that would enable broadcasters to send wireless video and ultimately generate far more revenue for government coffers.

The proposal and supporting data are laid out in a whitepaper — The Economic Value of Broadcast Innovation — Sinclair commissioned last year. Bottom line: By providing bandwidth-intensive wireless video from a single broadcast point to many users, a projected wireless spectrum shortage would be circumvented while payments in perpetuity to the government would be conservatively 10 times as much — about $60 billion — as an incentive auction would yield.

“If it passed tomorrow, it would still be two to five years before an auction,” Smith said. “It’s not something we even worry about right now.”

On the financial results front, Sinclair’s performance was roughly in line with analysts’ and company expectations. One mild variance was national spot excluding political — down 7.4% — which was slightly softer than expected and held the company to 3.5% growth in core advertising for the quarter. Rebounding auto advertising helped push core up 2.9% for the year.

Steve Marks, head of the television group, noted that although 2011 was a non-election year, it was a record off-year for Sinclair with political advertising coming in at $8.3 million.

This year is shaping up to be a record on-year for political revenues and Sinclair executives appeared to raise expectations in discussing the role super PACs will play.

“The PAC money we’ve gotten so far [in the first quarter] is more than interesting, it’s an eye opener,” Marks said. “It’s clearly different from what we’ve experienced before. We’re not dealing with a lot of volume yet, but January was clearly different and a big eye opener.”

The real impact of super PAC ad buys won’t become fully apparent until Republicans select a candidate, Smith said.

“That’s when the blood will start flowing,” Smith said. “It’s going to be fascinating to watch because we’ve never seen anything like this before.”


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