The news that Tribune has hired firms to study “strategic and financial alternatives” doesn’t necessarily mean the storied broadcaster will sell off all its stations.That would be tough to do. Besides, Tribune has plenty of other assets it could sell to placate its large shareholders and boost its share value.
Along with its fourth quarter and 2015 earnings, Tribune Media announced on Monday that it had hired a couple of big investment firms — Moelis and Guggenheim — to conduct “a review of strategic and financial alternatives.”
For most reporters, including me, that is corporate-speak for hanging out a “For Sale” sign. In fact, that was the headline on Deadline.com’s story of the announcement.
On the conference call with analysts after the announcement, CEO Peter Liguori offered some more carefully measured words. The company will explore “every avenue” — strategic partnerships, programming alliances, return-of-capital initiatives and “the sale or separation of select lines of business or assets.”
He deflected a couple of the analysts’ feeble attempt get behind the words. Wait and see, Liguori said, inviting speculation from people like me.
So, is this the end of Tribune Broadcasting and its storied history that began in 1924 when it took over WGN-AM Chicago?
I spoke with several smart broadcasters and industry watchers this week and the consensus seems to be that the large shareholders — former creditors and current board members — simply want to get back the money they put into the business, pay down debt to bring it in line with industry peers and then go forward with “house money” and see if they can find some upside.
In other words, the company is not going to sell all of its assets, just some of them, and at the end of the day there will still be a Tribune Broadcasting.
What’s behind the move is clear. Those large shareholders led by Oaktree Capital Management are undoubtedly antsy. Last Friday, the shares were trading at less than half their 52-week high. Since Monday’s announcement, the stock has rebounded 20%, hovering around $39 this afternoon.
Those creditors-turned-shareholders have had a tough time of it.
Here and elsewhere, you have read in periodic installments the long, sad saga of Tribune Co. It hummed along for many decades, first as a powerful newspaper publisher and, starting with WGN, as a powerful broadcaster, too.
Soon after it doubled-down on newspapers with the purchase of Times Mirror (Los Angeles Times was the big prize) in 2000, it ran into strong digital headwinds. Things really began to unravel in 2007 when Chicago wheeler-dealer Sam Zell showed up with a plan to acquire the company while taking it private.
It might have worked except he loaded up the company with massive debt just as the country was heading into the depths of the Great Recession. The frat-boy antics of CEO Randy Michaels didn’t help. Within a year, the company was in bankruptcy.
It took three-and-a-half years for it to emerge after major creditors like Oaktree (23%) agreed to take equity positions. Then, the strategy called for bulking up in broadcasting and spinning off the newspapers into a separate company. It bought Local TV LLC in July 2013 for $2.7 billion and completed the spin-off of the newspapers a few month later.
In December 2014, Tribune Media went public again.
In addition to its impressive portfolio of TV stations (now 42 in 33 markets), its chief assets are WGN America, a basic cable network in the process of reinventing itself and Gracenote, a B2B company that maintains databases of recorded music.
Tribune Media is a solid company, throwing off a lot of cash, thanks mostly to all those TV stations. Wells Fargo analyst Marci Ryvicker values the stations at around $6 billion.
One of the reason folks do not believe that Tribune will exit the broadcasting business is because they don’t believe it can — not entirely.
Tribune is actually two TV groups in one. One comprises the major Tribune stations — seven Top 10 stations with full-blown news operations, conflict shows like Jerry Springer during the day and mostly CW at night (except in Philadelphia where WPHL airs MNT in prime).
They are lucrative enough, but that they don’t have the same growth prospects that Big Four affiliates do because, as CW affiliates, they don’t command fat retrans fees as the Big Four stations do.
Compounding the problem is that Tribune pays CW reverse comp and the CW is trying to increase those fees as we speak in a messy semi-public negotiation. Tribune’s original 10-year affiliation agreement expires in August.
The CW affils may get political, but they also don’t get those periodic revenue hits from the Olympics, the Super Bowl and other big events like the Oscars.
So, you have a lot of pricey major market stations with minimal net retrans potential and no football. Tough sell.
I can think of only one group that might be gutsy enough to go after the stations to achieve a near-national footprint. That would be Sinclair, but it’s blocked by the FCC’s national ownership cap.
Needless to say, the chances that outside money would come in to scarf up the major market stations are remote. Private equity’s interest in broadcasting has almost completely waned.
If Tribune somehow did manage to sell the old-line stations, it would be closing off all hope of building a business in broadcast syndication. But maybe that’s not such a bad thing. Its recent forays have not been particularly fruitful. Just ask Arsenio Hall or Craig Ferguson.
Now, there’s the other, more conventional Tribune broadcast group. It comprises Big Four affiliates stretching from Seattle to Davenport, Iowa.
For the most part, they are stations that Tribune acquired from Local TV LLC and earlier from the New York Times Co. They are generally attractive properties, although the Fox affiliates acquired in the Local TV deal are impaired because, I am told, they will have to start paying reverse comp to Fox for the first time starting in 2018.
Nonetheless, other broadcasters would line up for these stations, assuming that Tribune would be willing to sell them piecemeal. They would grab them to boost consolidated cash flow, make a duopoly, complete a regional cluster or to follow through on some other strategy.
Take Fox, for instance.
At one point, it coveted Tribune’s Fox affiliate in Seattle, KCPQ, desiring to own stations in all the NFL markets for which it had TV rights (the NFC teams). In exchange for it, Fox offered Tribune WPWR, an MNT affiliate in Tribune’s hometown of Chicago.
When Tribune balked at the swap, Fox cut a deal to buy a weak home shopping U in the market for $10 million. In the end, Fox backed off and extended Tribune’s affiliation agreement — with higher reverse comp payments, of course.
On a conference call last year, Gray Television talked about wanting to buy stations in markets 30 through 60, while lamenting that pickings were slim. Well, here you go, Mr. Howell. I count 13 Tribune markets in that range, including three state capitals — Hartford, Conn.; Harrisburg, Pa.; and Richmond, Va.
But it’s more likely that Gray would go after stations in smaller markets, particularly some of the old New York Times stations like those in Huntsville, Moline and Fort Smith. WHO in Des Moines, the capital of politically charged Iowa, would be a prize.
Tribune has other assets it could sell to placate the financial players, notably WGN America. In converting it from a superstation to a basic cable network, Tribune has poured millions into original programming, hoping for a signature hit and the downstream revenue that follows. Manhattan flopped, but Outsiders and Underground are promising.
But as Ryvicker asks, in assigning the network a value of between $200 and $300 million, “Who wants another general entertainment cable net?” These days, with the glut of such networks and the advent of OTT, it’s a less exciting business than local broadcasting.
Tribune Media has some other valuable assets: In addition to Gracenote, it has non-core interests in the Food Network (31%) and CareerBuilder (31%) and some nice real estate. The company is also planning to participate in the FCC’s incentive auction this spring. It has several stations that it might make sense to sell.
The point here is that Tribune could raise a few billion dollars without even touching any of its broadcasting properties. Rather than exiting broadcasting, Tribune could become a true pure play.
We’ll have to wait and see.