Gray Sees The FCC As A Net Positive

“Considering all the good that can come from the spectrum auction and the FCC’s potential authorization of ATSC 3.0, this is the first time in a long while that the broadcasting industry can point to the FCC as a potential driver of growth,” Gray EVP Kevin Latek told analysts during the company’s second quarter financial results teleconference today.

Latek also cited the FCC’s decision not to regulate retransmission consent negotiations, which could have curtailed anticipated increase in retrans payments.

He did not elaborate on ATSC 3.0, the new broadcast standard that promises to enable station to provide targeting advertising, mobile reception, higher resolution TV and data services.

Latek also did not say why the incentive auction is a positive. However, it is expected to put billions of dollars into the pockets of broadcasters who could use to reinvest in the business.

And he pointed that out the auction and the elections are having a dampening effect on deal making. “The proverbial telephone could ring at any time with a fantastic attractively-priced strategic opportunity.

However, we simply do not expect to be engaged in any significant M&A activity until we get past the election and/or the spectrum auction.

“We continue to wish that the auction will end promptly so we can place uncertainty behind us and any resulting opportunities can be pursued in earnest,” he added.

Nevertheless, Gray’s acquisitive streak was in evidence during the quarter, with the $26.5 million acquisition of CBS and Fox stations in Clarksburg W.Va., from Withers. According to Latek, it adds approximately $4 million in two-year average broadcast cash flow.

Gray’s bigger deal was for Media General spin-offs in Green Bay, Wis., and Davenport, Iowa, for $270 million, which Latek said would mesh with the company’s properties in Iowa, Illinois, Wisconsin and Michigan.

Gray is expecting between 25% and 33% of its political revenue to come from the presidential election, said Latek, and the fact that both the Senate and the ability to appoint future Supreme Court justices are up for grabs should fuel spending.

Typically, he said, 50% of Gray’s political take comes in the fourth quarter.

Latek noted the dynamic nature of political spending, which makes accurate prediction impossible. By way of example, he noted an unexpectedly competitive Senate race in Indiana, and on the flip side, an apparent runaway Senate race in Colorado which had been expected to be more closely fought.

All but 3% of the company’s 11.6 million cable households will be up for new retransmission consent contracts by the end of 2017, including 36% of them this year.

Latek said Gray does not have a handle on where rates are going, but expects the negotiations will likely provide some upside on guidance the company has based on previously-negotiated rates.

Gray is well-represented when it comes to NBC affiliates, and has already booked $7.3 million in Olympics business. That revenue, according to EVP-CFO Jim Ryan, will be part of an anticipated 3%-4% increase in local revenue for the quarter.

Ryan was happy about the state of automotive, noting that Chevy was its strongest spender followed by Toyota and Nissan, while Ford was soft. “Auto is still pacing up low single digits and we’re very pleased with that.”

Ryan noted that the group’s decision to go without a national rep company has been well-received by the advertising community and will save millions of dollars in commission expense. Weakness in national results was laid at the doorstep of particularly weak spending from the insurance sector, not the lack of a rep.

Asked about digital dollars returning to broadcasting, Latek said Gray was gratified to see stories chronicling a trend of which it was already aware. “People are catching up to what we’ve been seeing for a couple of years locally.”

President-CEO Hilton Howell Jr. made a pitch for buying a piece of Gray. “I want to address the market’s current valuation of Gray stock,” he said. “It’s a bargain.”

Noting that all Gray execs are heavily invested in the company, he said, “We absolutely share your frustration with the volatility and price of Gray stock, especially over the past several months….

“We’re all personally, professionally and highly motivated to take all appropriate actions that benefit Gray shareholders over the long term.”