New Media General Set For New Media World

Three years ago, Media General was an old-school company whose debt and declining newspaper publishing operations had pushed it to the cusp of collapse.

Today, it is poised to join the ranks of the largest and more influential multimedia firms with broadcast and digital operations considered among the top in the industry.

In mid-2012, as investors clamored for the company to go pure-play broadcaster and Media General faced loan covenant defaults, Warren Buffett bought the publishing arm (excluding the Tampa group) for $142 million.

He also loaned Media General $400 million to pay down bank debt and provided a $45 million credit line. In exchange, he received warrants for 19.9% of Media General shares.

Buffett may have kept the wolves at bay, but much of the credit for Media General’s turnaround goes to hedge-fund investor Soohyung Kim. Kim’s family of Standard General funds owns 30% of Media General.  He engineered the company’s acquisition of Young Broadcasting in 2013 and LIN Media in 2014.

Kim sees challenge and opportunity ahead for the company.

“We don’t have a crystal ball, but we believe that change is coming to an industry that hasn’t changed in a long time,” he said in an exclusive interview with TVNewsCheck.  “The next generation is not consuming video content in same way that their parents did.”

Content, sales and distribution are the three pillars of the broadcast business, Kim says, and his goal is to ensure that Media General develops each of those pillars “to its logical conclusion.”

“We believe in embracing change, and positioning the company to meet change from the balls of our feet, not from the heels.  We believe that broadcast television can be a better business than it has been in the past. But we also realize that if we fail to adapt, we could go the way of the proverbial dodo bird.”

The acquisition of LIN, with its digital assets and station group, is consistent with Media General’s goal of building those pillars, and, by doing so, positioning the company to tackle change, he says.

More acquisitions ahead? Bet on it.

“I think it’s safe to say that Media General will continue to participate in the consolidation of local broadcasting,” Kim says.

Here’s what Media General looks like at the dawn of 2015: 71 stations in 48 markets reaching 23% of U.S. television households, digital businesses reaching 43% of the U.S. internet audience.

It ranks No. 8 on the TVNewsCheck/BIA/Kelsey Top 30, with combined 2013 revenue of $972 million.

The industry will get a look at 2014 revenue when the company releases its fourth quarter and annual earnings tomorrow.

With the LIN acquisition, Media General not only boosted its station portfolio, but also brought on board a digital division considered an industry leader at a time when digital looms ever larger in the media world.

According to Kim, development and adoption of a robust next-generation broadcast standard are essential if the sector is to thrive. He notes that with only 15% of the U.S. population viewing TV over the air, there’s great potential for broadcasters. 

And while Kim is philosophically supportive of the FCC incentive, he has little interest in it. “We are not likely participants in the auction,” he says.  “We have wonderful, wonderful spectrum. We need to use that spectrum to distribute our content better, to serve our constituency better.”

Broadcasters, through their legacy as a public trustee, play a critical role in the democratic process, and Kim wonders why government would want a few mega-telcos to be gatekeepers for our media. It reminds him of the fairy tale where the troll decides who crosses the bridge and what the tolls will be.

Media General has solid regional clusters, but after divestitures to facilitate the LIN merger there are no duopolies that would be obvious auction candidates.

It does own one high-profile auction candidate: KRON San Francisco (DMA 6). The FCC’s Greenhill report indicates the independent could be worth as much as $140 million.

Vincent Sadusky, the LIN CEO who know holds the same title at Media General, was an auction proponent at LIN. Now, the potential for revenues enabled by a new standard begs further analysis, he says.

“If you participate in the auction, you give up the opportunity cost for any future businesses that could be part of that standard,” he says. “Right now, the uncertainty is very high.”

If Kim gets credit for the turnaround and for putting together the key pieces of the new Media General, the operational responsibility for how the company navigates a course through the future now rests squarely on Sadusky’s shoulders.

His management team blends former Young and Media General veterans with key LIN leaders. The team includes Young Broadcasting alumna Deborah McDermott as chief operating officer, LIN’s Brett Jenkins as chief technology officer, LIN’s Robb Richter as chief digital officer and Media General’s James Woodward as CFO.

“We made some difficult decisions, but this is the team we’re taking the field with,” Sadusky says. “You could see us augment the team — we’re constantly looking for high-quality people in the areas of digital, operations and sales, but I wouldn’t expect to see changes in those [key] positions.”

Sadusky’s realistic about the challenges: declining viewership of primetime live television, lack of technology for measuring video consumption across all different screens, a sizeable gap between broadcast viewership numbers and retrans fees, regulatory hobbles.

“Taking a step back on in-market combinations was unfortunate,” he says. “But having said that, I think that over time, our industry has a great opportunity to educate lawmakers around services we provide in local markets.”

On the plus side are the retransmission consent fees that derive in large part from quality of network programming. “I think there’s a lot of headroom on retrans, a long way to go before we hit the top of the hill,” he says.

And the network-affiliate model, while evidencing some strain, is likely to continue, he says, because “the superior distribution of local broadcast still matters.”

Like other large station groups, Media General is interested in producing more of the programming that goes around the network programming and local news. And it hopes that some of it is good enough to syndicate nationally.

Among the LIN assets acquire by Media General are BiteSizeTV, a producer of reality and other unscripted TV and short-form digital content, and Federated Media, a digital content and marketing firm.

“We want to be the industry leading multimedia company,” Sadusky says. “We want to have unrivaled solutions for every screen.”

Bishop Cheen, independent analyst and SNL/Kagan consultant, says the new Media General looks good coming out of the gate, but notes that execution is key.

“It’s all about integration and making things run on time in a volatile era,” he says. “They have all the pieces. But there are some big headwinds. The scale alone is daunting, but if they figure that out, the new Media General could be an incredibly powerful economic platform.”