With the backing of Bob Pittman’s equity firm, the Barrington CEO is building a new-and-improved TV group on the idea that broadcasters have been leaving far too many ad dollars on the table in markets like Peoria.
After the financially beleaguered Benedek Broadcasting merged into Gray Television and out of existence in 2002, Jim Yager and three other top Benedek executives—Chris Cornelius, Keith Bland and Mary Flodin—decided to start over. They created a new broadcast company to amass small-market TV stations and began a search for backers who shared their belief in TV broadcasting. After several months, that search eventually led to the door of the New York-based Pilot Group, a media-savvy equity firm led by former radio broadcaster and MTV-AOL-Time Warner executive Bob Pittman.
With the Pilot money, Barrington Broadcasting has done what it set out to do in just three years. It now counts 16 full-power and five low-power TV stations in 15 markets, ranging from Flint-Saginaw-Bay City, Mich. (DMA 65) to Kirksville, Mo.-Ottumwa, Iowa (DMA 199). The stations are affiliates of all the major networks and CW. Combined, they reach 3.4% of all TV homes.
Barrington’s big leap forward came last August when it completed the purchase 12 stations in nine markets from Raycom Media.
In this edited interview with TVNewsCheck Editor Harry A. Jessell, CEO Yager discusses his ambitions for Barrington—more stations, more local news and a bigger share of the local advertising dollars in Peoria and elsewhere.
Equity firms get into broadcasting to buy stations, grow their value and get out. What’s the exit strategy?
Unlike a lot of venture capital firms that are looking at three years and out, we don’t have a definite year. That is not [the Pilot Group’s] philosophy. That’s not to say that if the company did extremely well and the time was appropriate that they would not sell. Their focus is building a company, that will bring worth, and then say, “Okay, how do we monetize that worth over and above what we paid for it.” I don’t want to even to talk about an IPO because that’s probably not in the cards, but it could be a refinance. There are all kinds of different things that we could do to keep the company without just saying we’re going sell it like Bluestone did.
On your Web site, your mission statement says that you believe smaller markets offer superior opportunities. That seems counter-intuitive to me. I would think, bigger markets, bigger opportunities.
Let me tell you why we think small markets are where the action really is. Number one: in small markets, we don’t have tremendous fractionalization of our audiences from independents. In most of the small markets, there are just three or four stations. Very few of the small markets have five or six stations on the air. That means we have less competition for the advertising dollar in our size markets, we’ve got less competition when we buy a syndicated program, we’ve got less competition for talent and we’ve got less competition for the basic audience. Maybe we have to divide it three or four ways in our markets, but it’s not seven or eight or nine ways.
The second thing in our size markets is people are very dependant on their local stations. They really look to their local stations as a source of information and news and in many of these markets television defines the market.
And what does that mean exactly?
It means we define the trading area and we define where the advertising dollars flow from. It’s one reason that newspapers, for instance, in our size markets, have been suffering just as they have in the major markets. We serve the whole market and they serve a portion of it.
In other words, there may be three or four newspapers within the market.
Absolutely, and there are. Take Peoria. You’ve got three daily newspapers, the one in Peoria, the one in Bloomington and the one in Beacon. Those are the kinds of things we look for and we say television defines this market. Obviously, it’s our job to be the leading news provider and the leading information provider in the market. Fortunately, the Pilot Group thinks that’s the right strategy for us to follow and has been supporting us financially to do that.
OK, that explains why you’re in those smaller markets, but you still have to grow the cash flow of these stations. How do you do that in today’s environment?
This is going to sound simple, but it’s not. It’s very difficult to implement. Local dollars in our size markets are what really has been driving the train. They have been the engine, but we have barely tapped the potential of the local markets. We are still approaching advertisers and still trying to sell them cost per thousands, still trying to sell television as if the advertiser understood how to use it.
The real potential we have in our size markets is developing new nonusers of television advertising. The people who suddenly are going to discover that newspaper is not what it once was for them in terms of their retail, that discover that the yellow pages are rapidly using usage. I’m old and I don’t use the yellow pages anymore. I Google everything.
Me, too. I have’t looked at the yellow pages in years.
Yet, if you look at the Peoria yellow pages, you’d be blown away. You’d say why would all these people be advertising and paying monthly for a yellow page ad? There is so much potential. Peoria is around a $33 million television market. But we estimate that the total advertising in the DMA is in excess of $150 million. I’m including newspaper, I’m including a number of yellow page books, I’m including cable, I’m including outdoor, I’m including the Internet, I’m including specialty, I’m including everything. If we’re only doing $33 million of a $150 million market and we have the most effective way to reach that market, haven’t we vastly undersold or underestimated our product? We’ve got to get away from the selling television as a kind of a commodity to selling television as a way to advertise your product or service because it works.
What can you do on the programming side to drive that?
News. We have expanded news in almost every station we’ve acquired, going back to the old Benedek days. The new primetime of news, we think, is the early morning. That’s a gigantic time period, an area to expand. We love Fox stations now, particularly if we can do duopolies. One of the things that has got to come is duopolies in smaller markets because you do have a lot of third and fourth stations that are suffering, that can’t do the news job, can’t compete. But when we can marry a [Big Three] network affiliate with a Fox affiliate or even a CW affiliate and put a 10 o’clock news on in an eastern time zone, we’re reaching a new audience, one that is now sometimes going to cable to get news, but most of the time is just turning the set off.
Are duopolies critical to your strategy?
I wouldn’t say they’re critical. If we didn’t have duopolies or JSAs, we would not change the basic fundamentals of our business. But with them, we think we can be more successful faster.
I think it’s more critical to the industry because you’re going to have a lot of stations that are going to flounder. The very weak third and fourth stations have got to go where the money is and that is not necessarily doing anything to enhance local advertising in the market.
Are you still in the station marketplace? Are you still looking to grow?
Yes. I’m not looking quite as anxiously to grow today as I was six months ago. That was before we bought the nine stations from Raycom. It takes some digestion to do that, but the answer is we still have some power to expend.
Which stations are you looking at? You have those Clear Channel stations, you have the New York Times stations.
I don’t really want to comment about what we might be looking at because that kind of tips our hand.
Generally speaking, how would you characterize the station market today?
I would say it remains fairly good. I think we’re going to see a New York Times announcement any day now. We did not ask for the information on New York Times stations not because we weren’t interested, but we were taking over the Raycom stations when they came on the market and it was just too much to ask our staff and our investors to absorb. I think we’re going to see more spin-offs. There are a number of venture capital firms that have acquired stations and are looking to monetize those investments. So, yeah, I think the market will remain good.
And those trading multiples are still up around 12.
When I began in this business, we bought a station in Toledo, Ohio, for 11 1/2 times. That was in 1964 and I’ve seen those multiples go up from 11 1/2 now to 12 1/2, which is the norm. I think the multiple is going to stay between 12 and 13 and, if you look at the deals that have been done in the past year, that’s where you’re going to see them. Look at the Emmis deals.
The nine markets you got in the Raycom deal don’t seem very exciting. We’re talking the likes of Toledo, Syracuse, Traverse City.
We think that there is tremendous potential in Syracuse. I went to Colgate University, 30 miles away from Syracuse. I’ve known Syracuse for 50 years and I love the market, love the city. We have a good competitor there in the Clear Channel station. In terms of Traverse City, it’s really, for all intents and purposes a two-station market. CBS is in Cadillac and we’re up in Traverse City, but we have another station that serves the upper peninsula, WTOM—top of Michigan is what it stands for—we think that’s it’s probably the least depressed economic market in the whole state of Michigan. And we’re very excited about Harlingen, Texas. I think there are tremendous opportunities there. There’s a hidden market there of 1.5 million people living on the Mexican side of the border that get their television from Harlingen-Weslaco-McAllen-Brownsville.
We’ve been talking 25 minutes and you haven’t talked about the new media—multicasting or the Web. Are these things central to what you’re trying to do?
The Internet is absolutely critical to what we’re doing. We have a director of the Internet here who has been a consultant and who is working both on the technology and content sides. We think the driver of what we do is content—local news, local weather, local information—that you can get in text, which is more important than streaming. It’s not that we don’t stream, we do. But text is the more important driver. Each one of our stations has an Internet editor. We monitor our Internet sites through a central location here in Chicago.
We’re doing some multicasting. The [former] Raycom stations have had The Tube as a multicast. All of the NBC stations we acquired are doing the WeatherPlus as a multicast. It’s a tremendous idea. I don’t think it has been marketed extremely well yet, but we’re working on that.
What are you doing within the stations to improve efficiencies? Are you spending money inside the stations to save money?
Actually, we’ve automated nine of the stations that we’ve bought and created, I think, tremendous cost efficiencies that way. But quite honestly, Pilot has urged us to take those cost efficiencies and put them in some of the new media areas such as the Internet.
You indicated that you would like the FCC to permit small-market duopolies. What do you think the chances of that are?
We’re a part of the small-market coalition along with Raycom, Cordillera, Liz Burns’s group [Morgan Murphy Stations), Fisher and Schurz. We met with all the commissioners last week and they do get it. You can own three stations in New York, but you can only own one in Traverse City. That doesn’t make a hell of a lot of sense. We are in one market where one of the network affiliated stations doesn’t even do news.
So your argument is why not let that station merge with one of the others.
That’s right. This is not 1960 where you’ve got three networks and that is all the public has to choose from. Wouldn’t one of the three stations that are doing news in that market be a more effective owner for that station that doesn’t? We think the answer to that is yes.
I think we have their attention. Do I think this is a fast process? I don’t think so. I don’t think it would’ve been fast if the Republicans had stayed in power and it’s probably slowed down with the Democratic takeover, although if you really look at the past six to 10 years the Republican side of the aisle in the House and Senate has not been terribly friendly to over-the-air broadcasting.
Others have made that point, too. They’ve said that at least they will be able to deal with Dingell and Markey. [Editor’s note: John Dingell and Edward Markey are the incoming chairmen of the House Commerce Committee and Telecommunications Subcommitttee, respectively, and will be chiefly responsible for communications policy on the Hill in the next Congress.]
They get it. You know, I testified three times in 2005 on the digital transition for a really well-designed subsidy program and Dingell came back and said, “Gosh what are we going get for a billion and a half? Isn’t it going to take that much just to administer the program?” So, I’m kind of looking forward to the Democrats being at the helm. I think Dingell and Markey get over-the-air broadcasting, but I do think it’s a long educational process to separate the smaller markets from the major markets in terms of where we should be on our duopoly.
Are you disappointed with what your getting from the Hollywood syndicators theses days?
Yes, I’m disappointed that the syndicators who are the developers of national product really haven’t done much in the way of new product. I mean we’re looking at the same kind of things and all you hear about is another game show coming out.
There has been some talk about bringing back dramas in early fringe. Does that make any sense?
Yes. In my early days in the business, we always used to run movies in early. Remember the big movie in the early fringe? If the syndicators with today’s computerization knows every audience that looks at every film, why aren’t they coming out with packages that would be aimed at the potential audiences in the 3-5 Central or the 4-6 Eastern time period?.
Well, those movies are just beat to death on cable, aren’t they?
Yes, but I’m not talking about just movies. I’m talking about what kind of programming would draw an audience at that time period. What should they be developing that would give them a national platform that we could develop at a local level? I can tell you I’m surprised that we’re not back with some kind of quasi news syndicated product a la PM Magazine.
You now have 21 stations in 15 markets. What will those numbers look like in two or three years?
I’m pretty sure they will be larger. We don’t have a magic kind of number that we want to get to. We want to make sure that what we do we do well and I think we have some very, very fine young executives in our company who get it. They know what television can do. They have a feel for where it can go and how it can be developed, particularly on the local level.