Sinclair Looks To Congress For Cap Relief

Top executives at Sinclair Broadcast Group want relief from regulations that limit the number of stations the group may own, locally and nationally, but they have given up getting it from the FCC.

“We’re not optimistic about a change from the FCC,” said COO David B. Amy during Sinclair’s 2Q earnings teleconference with industry analysts earlier today.

“We have been … focused on … Congress,” he said. “We were successful last year in getting JSA relief, and that’s where we’re spending a lot of our time, surgically going after relief. Specifically, our next target is the [national ownership] cap.”

CEO David Smith weighed in, saying: “We’ve spent a lot of time with key members of the House and … the Senate, both parties, right at the top of the echelon, and I can say with some degree of comfort that each time we meet with them their typical response is we need to fix this, this is obviously a mistake, tell us what you want us to do and how can we help you.

“There is a broad sense that the broadcasting industry is grossly over-regulated, and the rules need to be thrown aside. So I think once the election’s over, regardless of who’s in office, we’re going to go back at it, and I think there’s a chance next year you may see something happen.”

Sinclair’s 2Q 20.5% gain in revenue to $606.3 million represented a beat of its prior guidance for the quarter, which was calling for a 19% gain to about $600 million.

During 2Q, said Amy, Sinclair was able to come to agreement with Comcast/NBCU on both retransmission compensation and reverse compensation for a number of its NBC stations

As reported yesterday by TVNewsCheck, Sinclair renewed Fox affiliations in eight markets.

Crediting the company’s investment in local news, Amy said Sinclair brought in $17 million in political during the quarter, a 12% pro forma gain over 2Q 2012 political results. He said core was in line with guidance at plus 1% and added that digital enjoyed a 26% pro forma gain.

Political is not seen by the company as a major impediment to core advertising sales.

VP/co-COO Steven M. Marks explained that only about nine of its markets have a serious problem with core displacement during election season. “In most of these markets we enjoy more than one property, so as some advertisers get squeezed out of our primary channels because of political they can go to one of our secondary channels to keep their advertising in place.”

“From an inventory standpoint,” Marks added, “realistically it affects maybe 10% of our resume in totality.” He singled out Ohio and Florida as states which consistently experience the phenomenon.

Marks noted that 3Q pacing in the automotive category is the best so far this year. It’s a “plus in second quarter, a plus in third quarter. It’s been pretty stable and the numbers have been pretty consistent.

Added VP/co-COO Stephen J. Pruett, “The competition within the dealer groups to get local market share stays fairly intense … I think where we are is a very healthy sort of oscillation around a strong SAARs number overall.”

The company is not worried about losing auto to digital, and further is using its own digital assets to keep auto in the Sinclair fold. “We did see on a market by market basis some people who tested going without mass media come back to mass media,” Pruett said.

Pruett added, “We see mass media and digital marketing working hand in hand to create an integrated sale. We’ve evolved over time. We’ve educated our teams over time, and I would say that we’re materially changing the level of conversation that we have with auto dealers.”

Guidance for Q3 calls for a 33% gain in revenue to between $645 million-$663 million, with an $800 million infusion of income coming from the Olympics. Amy said that core is expected be up low single digits versus 3Q 2015, and will likely come in 3% better than 3Q 2012 on a pro forma basis.

Amy is expecting to beat the $255 million total in political earned in 2012, with results skewing more to 4Q than normal due to the late start in fund-raising by Donald Trump.

SVP/Corporate Finance/Treasurer Lucy A. Rutishauser is calling for retrans growth in the high teens for 2016, low teens for 2017 and single digits in 2018.

“The trend there is not related two anything other than just timing of when the MVPD contracts come up versus the affiliation agreements,” she said.

CFO Christopher S. Ripley said that Circa, Sinclair’s recently-launched news and entertainment website, was competitive with established digital brands right out of the gate, but is not expected to start making a profit for some time.

On the cable side, Sinclair has cut deals with Comcast and Charter that will boost subscriber totals for The Tennis Channel.

Amy said that while the company would be interested in further cable programming, he noted that there aren’t many opportunities out there that the company is aware of, nor is it specifically seeking such an opportunity.