Byron Allen Targets $10B To Spend On Big 4 Affiliates In ’21

2021 will be a momentous year in TV station group mergers and acquisitions if Allen Media Group Chairman and CEO Byron Allen has his way.

“We are looking to deploy more than $10 billion on Big Four affiliates this year,” Allen says. “We are definitely in the hunt on Quincy, Meredith and others.”

What Allen really wants is to acquire a TV station group from one of the Big Four broadcast networks (ABC, CBS, Fox, NBC). “Don’t be surprised if you wake up and find an [owned-and-operated] group being sold,” he says.

Whether those O&O groups are up for sale is unclear, although media companies would certainly be willing to consider offers if the price is right. Even though the local broadcast business is much tougher than it once was, Big Four affiliates in top markets still tend to operate with large margins, especially in political years, and that makes them prized assets.

“If you are making 35 to 40 cents on every dollar, it’s hard to imagine if you cashed out where you could put $1 billion and get that kind of return,” says Larry Patrick, founder of Patrick Communications. “That’s why so many of the TV people, big or small, don’t necessarily want to sell.”

According to TVNewsCheck’s most recent ranking of the top-30 TV station groups in the country, the Big Four broadcasters are all in the top 10 in terms of total revenue, with Fox the highest-ranked and largest station group of the four in fourth place with revenue of nearly $2.4 billion. That is followed closely by CBS at No. 5 with $2.17 billion in total revenue. NBCUniversal comes in seventh with just over $2 billion in revenue, followed by the Disney-owned ABC stations in eighth at $1.4 billion.

Television stations attract a huge amount of political money in election years, and as elections have grown more contentious (and as relaxed campaign finance rules have allowed for more corporate-backed fund-raising and spending), that money has skyrocketed. In 2020, that money came at a critical time for broadcasters as the bottom fell out of local advertising in the second quarter as businesses closed and retreated due to pandemic shutdowns.

Still, campaigns for federal office spent $8.5 billion in 2020 on advertising across television, digital and radio, according to advertising analytics firm AdImpact, with 9.3 million TV ads running across 4,300 federal, state and local races. That number does not include the $300 million that was spent on advertising in Georgia alone for the two Senate runoffs that took place between Nov. 4, 2020, and Jan. 5 in which Democrats ultimately prevailed.

“The position of local television stations is still relatively strong,” says Mark Fratrik, chief economist at BIA Advisory Services. “The same thing happened in 2012 and 2014 with strong political advertising. To have only owned Georgia television station in the last two months! That bodes well for local TV stations and thus for groups that are innovative and thinking about the future.”

It’s all that money that keeps politicians on both sides of the aisle interested in keeping the broadcast industry regulated.

“This is one of the very few things politicians on both sides of the aisle agree on,” says Craig Huber of Huber Research Partners. “They don’t want too much concentration of local media ownership on either side.”

Large-market TV stations also command retransmission consent fees from cable and satellite services, with those fees expected to total more than $12 billion in 2020, according to S&P Global Market Intelligence. Affiliate networks then claim approximately 50% or more of those retrans revenues — and they are pushing for as much as 70%, according to several sources, which is creating hardship for smaller broadcast groups — in network licensing fees known as reverse compensation. That money is meant to help the networks defray the costs of programming and live sports, particularly the NFL.

“That’s why I’m buying TV stations, they’re a great business,” Allen says. “You want to be in both national and local business. It’s good, smart diversification.”

But he also admits that it’s hard to convince owners to part with their stations: “It’s not easy to get people to sell because it’s a phenomenal business,” he says. “Political money is the new Super Bowl.”

Last March, Allen was part of an investor group that tried to buy Tegna Inc., competing against Apollo Global Media, Standard General and Gray Television, although Tegna successfully rebuffed those efforts. While analysts such as Huber wouldn’t be surprised to see buyers come after Tegna again, he says he thinks Tegna would be better off on the buy side.

“Tegna runs its TV station operations extremely well,” Huber says. “In my mind, a buyer isn’t going to be able to run Tegna’s TV stations better than they already run them themselves. Tegna should just keep buying one of the major consolidators in the industry, rather than selling.”

Beyond Tegna, Quincy Media is up for sale, with second-round bids coming in this week. Meredith also has four stations on the market, and those second-round bids also are expected this week.

A major factor driving Allen’s urgency around acquiring Big Four affiliates is the uncertain regulatory environment. The Supreme Court heard oral arguments on Tuesday on a raft of media ownership rules after the Third Circuit Court of Appeals in late 2019 ruled against the FCC’s 2017 decision to relax them.

Among the rules included in the case is one that disallows one company from owning two stations in any market in which there remain less than eight independently-owned stations, and another that disallows one company from owning two of the top-four stations in a market. The court is expected to issue an opinion on that case early this summer, with options being it will either uphold the Third Circuit’s opinion and remand the case to the FCC to reinstate the rules or it will uphold the FCC’s 2017 decision to significantly relax the rules.

Another big question as the Democratically-led Biden administration takes power on Wednesday, Jan. 20, is what a new and Democratic-leaning FCC will do with the so-called UHF discount, which counts UHF TV stations at half-power and thus as covering only half a market. In reality, the UHF discount no longer applies because digital broadcasting renders UHF and VHF signals equally powerful.

During the Obama administration, FCC Chairman Tom Wheeler and his commission voted to eliminate the UHF discount. That meant large groups such as Nexstar, Sinclair and Fox were either at or far above the FCC’s 39% national ownership cap, preventing them from acquiring any more stations without divesting others.

The Trump administration, under FCC Chairman Ajit Pai, reinstated the UHF discount. Should a Democratic FCC decide to remove it again, companies over the national ownership cap would likely be able to grandfather in their stations so as not to require huge sell-offs; however, it would slow the market by keeping those companies from purchasing new stations.

Allen said he needs to deploy his $10 billion before those regulatory changes come because should the UHF discount remain in place and should the conservative-leaning Supreme Court agree that media ownership restrictions be relaxed, Allen will face even more competition for those plum stations.