Jessell | After Proxy Loss, Pondering Kim’s Next Move
Congratulations to Tegna CEO David Lougee. As I’m sure you read last Thursday, he and the incumbent board successfully warded off hedge fund investor Soo Kim in a nasty little proxy fight. Kim, who holds an 11.8% stake in the company and is unhappy with how Lougee has been running things, was seeking to install himself and three others on the board.
If you read my column last week, you know I was rooting for Lougee, having been reassured of the company’s financial and operational soundness and believing that it is best for the company and its employees for Lougee and his team to have ample insulation from the demands of an unhappy and impatient shareholder.
After the vote, Kim issued a concession statement that fell short of concilatory. He said, in essence, he will be keeping a close eye on the company. (How could he not? That stake of his is worth nearly $300 million.)
Although he lost the vote, he said he feels he has succeeded in putting management on notice that it has to improve its performance and become more transparent and responsive.
He also did something that he should have done more of during the proxy campaigning — showed some empathy for Tegna’s employees.
He says he appreciates the reporters, producers and AEs that make it all happen. “The work Tegna’s people do on the front lines to provide reliable news to Tegna’s communities has never been more important,” he said.
Kim also took a shot at Tegna for furloughing staff in the face of pandemic-related advertising losses. “We have heard the anecdotes of trusted anchors off the air during May sweeps and a chief meteorologist missing on-air amidst tornado season,” he said.
I’m curious to see Kim’s next move.
In addition to the Tegna stake, Kim has an odd assortment of other radio and TV holdings. During the proxy fight, Tegna charged that they represented a conflict of interest.
Kim is backing Deb McDermott (one of his proposed alternate Tegna board members) as she builds a station group from the ground up. So far, she has bought two TV stations from Phil Lombardo’s Citadel Communications and, pending FCC approval, nine TV stations and 15 radio stations from Waypoint Media and Vision Communications.
And he has also set up a venture with Jeff Smulyan’s Emmis Communications to accumulate unspecified media properties. Emmis seeded Medico Holdings with two of its New York FMs, WBLS and WQHT. In exchange, Emmis got from Standard Media $91.5 million in cash, a $5 million note and 24% stake in the new company.
If there is strategy behind all that, I don’t see it.
Report Card Time
Starting with Sinclair this Tuesday, the publicly-traded station groups begin releasing their 1Q earnings and teleconferencing with analysts who cover them. This will be our first opportunity to assess the actual damage to advertising revenue from the pandemic not only in the first quarter, but also in the second.
Everybody is expecting the worst. In an interview we posted earlier this morning, Magid’s Bill Day said he believes that advertising may have fallen as much as 60% in March and April.
But there sometime else to look for in the reports and the analyst calls — the impact that cable and satellite cord-cutting is having on the group’s retransmission consent revenue. The retrans payments are based on the number of subs. Every lost sub is money out of the pocket for the broadcasters.
According to a survey by The Wall Street Journal in February, the larger cable and satellite companies lost about 5.5 million subs last year, an 8% decline in total subscribership and 70% more losses than the 3.2 million of 2018.
In in the 4Q calls earlier this year, I noticed that the station groups were talking more about cord cutting than they have before and were quantifying the losses resulting from it. Brian Lawlor at Scripps and Dave Lougee at Tegna pegged their losses at low to mid-single digits.
Those losses could get worse.
In an April 24 call that analysts Craig Moffett and Michael Nathanson hosted for their clients to discuss the impact the pandemic was having on big media and advertising holding companies, Moffett said cord cutting may not register big in 1Q, but it will in 2Q. He predicted a “sharp acceleration” due to the lack of sports and the “huge financial pressure” that many households will be under because of the pandemic.
The cord cutting is unlikely to become so bad as to flatten or significantly slow retrans revenue growth because the per-sub fees are still going up. But it should still be a cause for concern, especially if we fall into a long recession and ad revenue doesn’t bounce back.
Stock Market Check-In
I don’t anticipate stocks of the public stations group will suffer much more than they have following release of the 1Q earnings. Investors have already beaten down the broadcasting shares. All are way off their 52-week highs. As of the Friday closes, Sinclair is off 75.7%; Scripps, 67.2%; Gray, 52.2%; Nexstar, 50%; and Tegna, 42.4%.
Here are the footnotes to those percentages: 1) Gray and Nexstar were in fine shape until the markets caught up to the seriousness of COVID-19 and starting tanking in the third week of February; 2) Sinclair’s poor performance probably has less to do with broadcasting than with the string of regional sports networks it bought last year (is there a worse TV business to be in right now?); and 3) Tegna’s stock has been most resistant to the downturn, but that may be due to its having approached in early March by suitors who thought the company was worth around $20 million, a $2 premium on its 52-week high.
Nexstar’s AE Solution
The station employees that are getting hurt the worst in this econo-demic may the AEs — at least financially. Most work on straight commission. That means they are experiencing the same sharp drop in income as the stations are in their advertising revenue.
Station groups are looking for ways to get the AEs through the next few months as the pandemic continues to take a toll on business.
Here’s Nexstar’s voluntary plan: The company calculates each AE’s average monthly earnings over the past 12 months. For the three months (April, May, June), it pays the AE that monthly average. If over the three months, the AE’s actual commissions come up short of the monthly average (as they most certainly will), he or she will have to pay back the shortfall to the company at 0% interest over the next year.
It’s not a perfect solution. The AEs who accept the deal will be able to get through the worst of the pandemic without losing any income. On the other hand, they will likely be burdened with a fat debt after the three months — one I suspect they soon will resent having to pay off.
Access For All
Since the early days of radio, broadcasters have fought for access to press conferences, official proceedings and other newsworthy events — for the right to bring microphones and later cameras everywhere a reporter with his pen and pad may go. It’s been a long struggle. Cable networks like C-SPAN and CNN entered the fray 40 years ago, often leading the charge.
Today, the electronic media will achieve another milestone. For the first time in history, they will be able to air live audio of a Supreme Court argument. Up to now, they have been restricted to recorded audio that is not immediately available and video remains verboten.
The milestone is actually incidental to another extraordinary event. Because of the pandemic, the high court is hearing arguments via audio-only teleconference this month. The justices will all be in their homes as will the opposing attorneys.
C-SPAN made its first request to allow cameras in the court in 1988, but the court steadfastly refused, even as it began allowing use of recorded audio starting with the highly charged arguments in Bush v. Gore in 2000.
Writing in The Washington Post last week, C-SPAN General Counsel Bruce Collins said he believes there will be no going back on the live audio.
“Having been given live access to the court in the spring, the public and the news media would certainly expect to have it in the fall when a new term begins. The court’s move toward greater transparency should continue after the pandemic abates — and once the justices have become comfortable with live access, adding video coverage is the next logical step,” Collins said.
The first case gets underway today at 10 a.m. ET with C-SPAN 1 and C-SPAN Radio, if no one else, promising live coverage. The case pits the Patent and Trademark Office against Booking.com over a trademark dispute. The Washington Post had a nice piece on how the attorney for Booking.com is prepping for the occasion.
It’s not the kind of case likely to draw much interest. But on May 12, the court is set to hear arguments on President Trump’s efforts to block congressional committees and a New York district attorney from subpoenaing his banking and financial records, which could answer a lot of questions. Just how much is he worth, where did his money come from and who is backing all his loans?
You can bet it won’t just be C-SPAN covering that one live.