Scripps Sees Good Fit For Its New Stations

When McGraw-Hill put its TV station group on the block in June, it touched off a lot of speculation about who might buy the collection of nine stations — four full-power ABC affiliates in Denver, San Diego, Indianapolis and Bakersfield, Calif., and five low-power Azteca America affiliates in Denver, San Diego and Bakersfield.

That speculation ended abruptly last Monday evening when E.W. Scripps announced that it would pay $212 million for the group. The deal opened up four new markets for Scripps, extending its reach from 10% to 13% of all U.S. TV homes. It also makes Scripps the largest owner of ABC affiliates with 10.

As SVP of the Scripps’ TV division, Brian Lawlor will bear much of the responsibility getting a good return on the investment. Here, in this interview with TVNewsCheck Editor Harry A. Jessell, Lawlor talks about why he believes that will be possible.

An edited transcript:

I’m going to start by giving you a minute to tell me what you like about this deal.

The thing that was most attractive to us was the culture and the fit of those television stations relative to whom we are. We know exactly the kind of company we are and the kind of stations we’re good at running. We like network affiliates. We like to run news organizations that are committed to making a difference in their communities. We kind of have a sweet spot in terms of market size. Anywhere from [DMA] 10 to [DMA] 60 feels really comfortable to us.

So that’s why these stations match up well. It’s four good markets, three of which are right in our sweet spot. Denver is market 17, Indy is 27, San Diego is 28. These are good legacy television stations with respected news brands and a culture of  providing good community service and great investigative reporting. Culturally, geographically, size-wise — it just was a really comfortable fit.

I thought [CEO Rich Boehne] was a little defensive on the conference call with security analysts after you announced the deal. He said at one point, “I am going to step back now and tell you why we’re investing in TV stations.” Why does he have to explain why a TV company is investing in TV stations?

It’s a big change for our company. It’s been 20 years since we have done a big deal related to buying multiple television assets. It’s been 10 years since we picked up KMCI [Kansas City, Mo.], the independent. For a long time, this company was recognized as a newspaper company that also owned television stations. Then for a while we were probably a network cable company that also owned newspapers and televisions. I think that this probably sends the statement that for the first time television will be a big part of the future of this company. So he probably needed to define that for Wall Street.

Are you disappointed that the stock got no bounce from the deal?

No. We didn’t expect a bounce.

Why not?

The acquirer never gets a bounce initially. Quite frankly, if you can stay flat, that’s a win and that’s exactly where we are.

Have you visited all the stations?

No I haven’t, but by this time next week [this Friday] I will have.

So what’s the message for the 460 McGraw-Hill employees?

We can’t wait to meet them. We can’t wait to take advantage of their market knowledge and their passion for those communities. We look forward to integrating our culture with theirs. We think they’re really similar. We’re coming there to play. We are coming there to serve those communities, to do great story telling and to absolutely be competitive in those markets.

On the call, you said the fastest way to drive revenues was to improve ratings. The newscasts at the ABC affiliates are also-rans. Going from No. 3 to No. 1 is easier said than done. How do you go about doing that?

Yep. It is easier said than done and there are some really good television stations in those markets, but I think it comes with consistency. What we have been able to do with our stations has been to get more feet on the street and get deeper into our communities, to not only serve people over the air, but also through digital, through social, through mobile products. We realize that the game is changing and you have to engage an audience on those other platforms. They may not be rushing home to watch the 6 o’clock news every day, but a lot of the research tells us that by building a brand affinity on those other platforms, you’re bringing them back to television at certain points. That’s part of our commitment.

Then I think we have been very focused on quality journalism, making sure that our story telling and our story selection is representative of the community — not the easy stuff, just chasing fires and crime — but really trying to find those issues that are core, that are really going to get some discourse and that are going to be meaningful. So I think they can expect that we’re going to be really serious about good quality journalism that’s going to make a difference in their communities.

We believe that quality journalism is a good business model and that through that we engage an audience on a regular basis. If they’re watching us day in and day out because they know that they’re going to get good, honest, balanced news from us that’s representative of the community, then we think that that should drive ratings and with ratings will come revenue and so the cycle begins.

Is it fair to say we will be seeing new management at the stations at the GM and news director levels?

No, that’s not fair to say. Part of our interest in this group was the quality of their people and so we will go in and get to know them better. At first blush, many of the folks there are really talented broadcasters.

You also picked up a bunch of low-power Spanish-language stations, which we’ve reported are minimal contributors to the cash flow. What do you see as their potential?

From a cash flow perspective, you’re right. They are minimal contributors. That said, there’s a huge opportunity. This is Mexican-focused programming [Azteca America] in big Mexican-skewing markets. We have got the right product for the right audience. As we get serious about the communities, [we understand] that there’s a portion of the population that we normally don’t serve, who wouldn’t watch us in our Anglo presentation. We’re going to be serving the entire community. We will be looking at local newscasts and other things that give us an opportunity to do that.

So you’re talking about creating newscasts for those stations.

That’s certainly something that we will take a look at down the road. We won’t launch that day one, but we see a great opportunity in the Spanish-language markets and we will take that pretty seriously.

Other broadcasters are deeply interested in the multiple you paid since it sets the price for the market. From what I heard on that conference call, you are paying eight times 2012 cash flow based on the $190 million — $212 million minus your tax credit. Is that correct?

It’s accurate.

So the real multiple then is more like nine times if you go off the actual purchase price.

OK.

Were there other bidders that pushed up the price a little bit?

We believe there were other bidders. I don’t know how many and to what degree they pushed it. We weren’t reacting to other bidders. We knew what value we saw in these stations. We bid based on that value. Quite frankly, we’re thrilled with the price we got it at.

Somebody on the call said that that the effective multiple is actually “several turns” lower. How is that?

As we look at the modeling for the next couple of years and what we expect to be able to accomplish with these television stations we think when it’s all said and done, we will do significantly better than eight times.

What can you do on the cost side? Is there technology you can bring to these stations?

A little bit. We will look at it. They have done a fair amount. They have been fairly proactive in that space. You know, there are some things that we have done, they haven’t. There is stuff they have done, we haven’t. So, there may be some leverage of scale that can happen there. There are some improvements on the programming side, which is an area that we have been serious about — trying to develop our own programming versus making massive investments in syndication. We still need some syndication, but perhaps not as much. Some of those things that we have been doing across the Scripps group now has a larger profile to be able to leverage against. So there’s good economies of scale on that.

You also said that you believe that you have certain expertise that will help boost the political advertising take for the McGraw-Hill stations once you take control. What kind of expertise?

We have a Washington political office that is there day in, day out. It’s staffed by political experts who work for us, who represent our television stations. We don’t run our political business through a rep firm. We handle it ourselves. We have made that a priority. We know political. We know the agencies at a pretty intimate level and we think that serves us very well.

You borrowed the money to make this deal because you wanted to preserve your cash reserve of $153 million. What are you going to do with that money.

With all the volatility in the market, having money in your pocket is not a bad thing. It gives you some flexibility. Of course, if things were to get worse, companies may get themselves in trouble with debt and so forth and that may put some assets into play. And there are neat new digital products and services that are popping up that we see as potential opportunities.

Well, your previous announcement was that you brought all your digital media under one guy, right?

Yep. We’re creating an isolated innovations center as it relates to digital within our company and so newspaper, television, all of our digital mobile social assets are going to roll up into one place. They are far more scalable that way.

How do the stations relate to this entity? Will they be creating local content and then reporting to somebody other than the GM of the station?

No, they’re not. All of the content and the revenue related to our digital assets still are the responsibility of the general managers. Basically, what this digital operation is doing is focusing on the bigger products, helping to create a vision for what our digital strategy is going to be, what our digital assets should look like, what products we should be integrating to expand, especially things like mobile, social, tablets. It will create the visioning and product expertise. The revenue and the content that will support those products will be the responsibility of the stations.

Are you done buying stations?

Don’t know yet.

Would you be more inclined to buy stations if the FCC allowed you to double up in markets with some Big Four network affiliates?

That would certainly allow us to take a look at things that we don’t even consider right now.

I guess there’s no use considering things that you can’t do.

Yes, exactly. Like I said though, related to the Spanish language, when you come in and you make a massive investment in a local market, the ability to better serve that community with more scale creates a good business model.