AFTER ROCKY PAST, GRANITE SEES SOLID FUTURE

You are no longer public. You have stabilized the balance sheet. What’s the strategy now?

After we completed the restructuring, we sat down with Silver Point and we came up with a five-point plan that we thought made some sense.

We decided we needed to review expenses and fill some management holes and we reached an agreement with them about growing the company, which basically means through acquisition, as appropriate.

We also began focusing on ways we could grow our top line, both in the traditional spot television and in new non-traditional sources of revenue like retransmission content fees and our online businesses. We also want to see what we can do with our digital spectrum.

What have you done on the expenses front?

We cut some expenses both at the station and the corporate levels. We took our corporate expenses down by 32 percent. Some of that is a function of no longer having very, very high legal bills as a result of restructuring. Some of that is a result of no longer being a public company.

We also went back and looked very hard at station expense. This is a program, to be candid with you, that we have been working on since about 2004. The Silver Point people recommended some consulting to help us take a fresh look at our operations.

When people talk about cutting expenses they usually mean cutting jobs. Are the job cuts behind you now?

Yes. We don’t have any wholesale job cutting efforts going on. What we attempt to do is find ways to put more into content and less into things that are less relevant to our customers. To the degree that we can take cost out and use technology, we do it. Often that allows us to also reinvest in the content side of the business.

We have some markets where it’s more difficult because we have labor relations that we have to work our way through so we can get the flexibility to do some of the things that we want to do.

What are the management issues?

We needed to fill a general manager slot in San Francisco. As you know, we had spent a lot of time talking about selling San Francisco and Detroit, but we decided, instead, to keep them. Our former general manager in San Francisco decided that he wanted to move on so we recruited a really terrific young person from Comcast, Craig Coane. He’s now running the station for us.

We’ve looked at filling other management holes, but have not acted on them yet. For instance, we’ve thought about hiring our own in-house counsel because historically we have spent a lot of money using outside law firms. Thus far, we haven’t pulled the trigger on that.

Let me just give you one more example. We are actively searching for someone to guide us through the retransmission relationships and negotiations with everyone from cable companies to satellite companies to the new entrants into the business. This is not a world we know very much about quite frankly. It will cost money to hire that person and that’s an investment that we probably never would have made in the past.

You sound like you are serious about station acquisitions.

I hope so. We have some good partners in the folks at Silver Point. They’re not throwing money at stuff. They are value buyers. They have a lot of discipline, which is not a bad thing. There have been some deals—I won’t say which ones—that we might not have been able to persuade them to do just because they took a little bit of a leap of faith. But having financial discipline is not a bad thing, especially in the marketplace where credit is a challenge even for Blackstone and Carlyle and Providence Equity.

With those firms pulling back, it creates opportunity for more established broadcasters like you, doesn’t it?

I think that’s right. We’re trying to be smart about it. We’re looking hard at situations. Obviously, I can’t talk about anything until it’s OK for it to be public, but we do want to grow.

Are you looking for more stations inside your markets or in new markets?

Both. We like what we’ve been able to do in Duluth and Fort Wayne. We have had a partnership in Peoria with a small My Network TV station there. We don’t own it, but we manage it for someone.

In Fort Wayne, we are working with Malara broadcasting. We operate the ABC affiliate and own the NBC affiliate.

Aa a result of that consolidation we were able to invest a substantial amount of money into new weather technology giving us what we think is by far the best weather technology in a market that is directly in what people refer to as tornado alley.

We coupled that with an investment in a ton of small, relatively inexpensive cameras that we’ve been able to deploy throughout our market area so that we’re literally able to see the weather as it’s coming our way. You hope that you don’t have any tornados at all, but if you have one, people kind of like to know about it sooner rather than later.

At the same time, we’re also open to looking at new markets where there may be opportunities. Obviously, if you buy the first station in market, you are looking down the road to see whether there’s an opportunity to have a larger platform in that market if regulations and circumstances permitted.

One of your goals is to grow traditional spot revenue. But from talking to some of your peers that is a pretty hard thing to do right now, especially at the national level.

It is a very tough time right now.

How tough is it?

I would just say that it depends on the market, but we’re working very hard and having some modicum of success with the local side of our business. We have the ability to have an impact on that more since we have our own sales people on the ground. We can do things that entice advertisers to make an investment in their marketing efforts.

On the other hand, for markets the size of ours, what we’re finding is that the national side of our business is really pretty weak.

Is it mostly auto?

It’s auto. It’s telecommunications. There are really few categories that we could point to on the national side that would be up. There could be one or two, but, unfortunately, they tend not to be any of the major drivers so it has been very, very tough.

It means that local is everything. We, of course, will try to get as many national dollars as we can, but we have to be very focused on local.

San Francisco is a big market, but your station, KBWB, is an independent. What are your plans for growing revenue and cash flow there?

It’s a neat little station and we are rebuilding it. The station had developed a certain inertia. You could say that we inflicted this on ourselves in some ways. It was clear that we were looking to sell it. So, we suffered a lot as a result of that overhang,

Then, when the WB went away, it really kind of blew up a lot of things around the station. One of the charges of the new general manager is to reenergize the station. That has started with a new and reinvigorated sales operation. We’re also trying to reengage the Bay Area community and to sort of redefine the station.

A lot of people remember nostalgically the prior owner, a guy named Jim Gabbert, and some of the quirky things that he used to do. So we are experimenting with a few things Gabbert was famous for, like using dogs as an ID on the station. We are also branding the station as Your TV 20 and doing things to personalize the station.

We just launched a campaign—and we’re unabashedly stealing this idea from WNET here in New York—where viewers are going to be able to vote for their choice of the movie that we run on weekends.

We’ve developed a partnership with the Disney station in town—KGO, ch. 7—to produce a 9 p.m. newscast for us. It’s quite successful. On most nights we get a larger audience at 9 than KRON at 11 p.m. with its regular late newscast. Occasionally, we will beat our old station KNTV, which is, as you know, now the NBC affiliate and even occasionally beat KPIX.

What’s the deal with KGO?

Basically, we sell the advertising time and the first dollars are used to allow each party to recover their cost. Then, we have a split after that that I recall is 50-50. So it’s a low-risk deal for them and a low-risk deal for us.

In Detroit, you are wedded to My Network Television. Do you have any special programming plans for that station?

We’ve had sports programming over the years that comes and goes. We’ve had the Pistons, we’ve had the Tigers, but, again, in a perfect world, we would replicate the local news that we are doing in San Francisco. We would like to do as much local programming as best we can.

So you’re looking for a shared news service with another station in town?

We’d love to have one.

What about My Network Television? They want to change the deal on you. The inventory split was originally 9/5. Now it’s asking for 7/7, and 5/9 on wresting and other major programming.

John Deushane, our chief operating officer, is working with Paul Franklin and the folks at Twentieth on that. He will be cutting a deal that makes the most sense for us and at the same time will help our partners.

Let me say from a CEO’s perspective I have just tremendous admiration for the people at Fox who got blindsided by the UPN-WB merger. They cobbled together a program service that has allowed their stations and ours to continue to navigate our way to the future.

Silver Point also controls another station group, the Communications Corp. of America, which is now being run by Steve Pruett. Is there any chance of a merger or close cooperation?

That’s a question I really don’t know the answer to. That would be something that the Silver Point people would decide, but we have separate boards of directors and we operate pretty autonomously. We exchange some information on vendors where it’s appropriate so that we can both get the best deal. So, there’s cooperation.

How does being private change the dynamics of your business?

That’s a very good question. It really does allow—in some ways forces us—to focus on what really matters. So, instead of worrying about, oh, my god, I told them that I was going to do a penny a share and I’m only doing a half a penny, we’re paying a lot more attention to how do we go about getting a newscast in Detroit and things like that.

We’re not spending our time worrying about whether if we spend this money this quarter it’s going to affect the results and how we’re going to have to explain it. Instead, we’re looking down the road and trying to create value. I very much like that, to be candid.

But, just like Wall Street, private equity firms like Silver Point can be tough taskmasters, too. Isn’t it looking for a definite return?

There’s absolutely no question about it, but we’re kind of working on the same page in the sense that we want to create value. So there’s no disconnect in terms of where we want to come out.

And you know, there is concern in Washington that private equity firms are in broadcasting simply to buy, sell and make a fast buck. What is Silver Point’s plan?

There’s no question but that private equity firms will ultimately make an economic decision to realize value for an investors. There has to be some event where they go public or sell it. That’s not a bad thing. That’s a good thing.

Unless there’s a clock on it and it starts driving your decision making. Is there a clock on it?

I suppose. A better question is, do we all have a sense of urgency. The answer is yes, but, again, I would argue that that’s not bad. The fact is, we now have investors who are fully engaged in the business and trying to help us put the pieces in place to make the company better.

But isn’t there a clock, a date by which your investors want to cash out and move on?

I don’t think that there is a rule of thumb that one can use. Again, I go back to the basic premise that, of course, these enterprises expect to make a return and they expect that return to be within some period of time, probably less than ten years just as a rule of thumb, but we don’t get that from them every day. There’s no clock sitting on our computer screens that counts the days down.

So, the bottom line at Granite is that it is likely to get bigger before it disappears entirely?

I think so. I don’t think we’ll disappear entirely. Our TV station group may ultimately be sold to someone else or we may be an acquirer and become a lot larger. You never know what will happen, but the facts are that these are pretty resilient and strong assets.

I was reminded the other day that our little bitty TV station in Peoria has been the No. 1 news station in its market for over 30 years straight and it ain’t changing. So, I feel pretty comfortable going forward, regardless of what the ownership is. These are good businesses.