Sinclair’s Smith Gunning For CNN, Fox News

David Smith, broadcaster, meet David Smith, cable news channel owner and operator.

Smith, CEO of Sinclair Broadcast Group, has been among the most active broadcast industry consolidators. Yesterday’s acquisition of Allbritton Communications with its flagship WJLA Washington and six other ABC affiliates makes rapidly growing Sinclair the biggest of U.S. broadcaster with 149 stations in 76 markets,  a 38% reach and estimated 2012 pro forma revenue of nearly $1.9 billion.

But the $985 million buy is not just about accumulating more TV stations.

In a conference call with securities analysts and a follow-up interview with TVNewsCheck, Smith made it clear that the deal was more about acquiring NewsChannel 8, Allbritton’s 22-year-old regional cable news network.

“I’ve been patiently waiting for Allbritton to come up for sale,” Smith told TVNewsCheck.

“The story is not that we’re buying Allbritton,” he said. “We’re looking at NewsChannel 8 as an opportunity for the broadcast industry to create something that’s never been created at the local level.”

As Smith envisions it, the new cable news network would combine the resources of NewsChannel 8 with those of Sinclair 101 news-producing stations in 71 markets and perhaps those of other broadcasters in non-Sinclair markets.

By bringing all those pieces together, he said, Sinclair can “create a unique hybrid model that focuses not only on national and international news, which traditionally has lower rating than local newses, but also provides a unique, customized local presence in our markets and the markets of other broadcasters with which we may partner in the future.”

Sinclair has stations in all the major cities of Iowa, Smith said. “When it comes time, and our mechanical structure is in place, we are going to be able to go sit down with any senator from the state of Iowa and say, ‘We are doing live town halls in every city in the state … and  we would like you to participate so you can talk to your constituents and let them know … what your views of the world are.’

“We think the idea that we can offer those kinds of tools and capabilities to politicians is just a huge value creator for us … and a huge service to the community.”

Smith said he believes the national network could be “well up and running” within two years.

WJLA and NewsChannel 8 already have news gathering links throughout official Washington, Smith said.

“This structure will allow us to transmit live events, committee hearings and other breaking news stories live to all of our stations, which means that we can be first on the air, giving us a competitive advantage.”

Smith said he has yet to talk to any other broadcasters about joining the venture.

What will make the service unique and competitive is the mix of local and national, Smith said. “Who does that today? CNN doesn’t do it. To the extent Fox does do it, when they cut away for something, it’s not to a national story, it’s to a local story.”

Smith noted that even when broadcasting paid programming in early-morning time slots, February Nielsen numbers show his local stations have substantially bigger audiences than national cable news channels such as CNN and Fox News Channel deliver in primetime.

In one market, Smith said, Sinclair’s 5:30-6 a.m. paid programming delivers nine times the audience numbers that CNN does in primetime.

Smith said he is not deterred by the idea of going up against well-established cable news brands.

“We think the market should pay for value, not for brand,” he said. “If a brand is not delivering audience, why should it get paid for it? … We’re very confident over time that we’re going to build a local slash national news audience that competes with national cable news channels and we’re going to get paid for it.”

Smith said that he is confident that cable and satellite operators will pay for the Sinclair new service just as they do for other cable news networks.  And if it can command the same fee as CNN does (57 cents per sub per month, according to SNL Kagan), he said, it will generate $300 million on fees alone within the Sinclair markets.

But having a cable network and obtaining carriage for it are far from the same thing.

Montclair State University’s Merrill Brown, who was founding editor-in-chief of MSNBC.com, says Sinclair is considering a “a very challenging proposition.”

 “There is a long record of failure trying to launch local cable TV news channels,” Brown says. “No one is watching” cable news during the day, he says.

 “Just from a pure business standpoint it’s fair to be skeptical,” he says. “Then you throw in Sinclair and its political agenda, which manifests in interesting and odd times” and audiences could be turned off for other reasons, he says.

One way that Sinclair could succeed, however, is by focusing its investment in building local digital properties while putting just “low overhead and investment” in the cable television portion of the network, according to Brown

“Local digital markets are very much in flux and that would be a much more better audience and opportunity,” he says. “That may be of interest.”

Any additional revenue that Sinclair may get from the national roll out of NewsChannel 8 isn’t factored into  the 8.7-times multiple Sinclair is paying for Allbritton. That multiple is on the high end of what Sinclair has paid during its recent acquisition push.

During the conference call, Sinclair Treasurer Lucy Rutishauser noted that Sinclair should achieve about $21.5 million in synergies in the first year and add $35 million to $50 million in free cash flow.

In addition to the usual benefits from increased scale, Sinclair anticipates synergies from operating stations in the adjacent markets of Baltimore and Washington.

Having WJLA to go along with Fox affiliate WBFF Baltimore creates ” a more efficient buy opportunity for advertisers who wish to reach consumers in the adjoining Maryland suburbs of Washington and Baltimore, which will lead to greater revenue opportunities for us, including an increase of political advertising in those overlapping counties. “

Regarding the bidding for Allbritton, Smith said the process was fairly typical, unfolding over several months and including three rounds of bidding.

Many industry observers had anticipated that ABC might bid aggressively for WJLA.

Smith said that because the bidding process is blind — the various bidders do not know who’s involved — he had no knowledge of who his competition was. But, Smith noted, “If they’d been bidder, I would have thought they would have won.”

But he said he has had no discussions so far with Disney/ABC regarding its willingness to transfer WJLA’s affiliation from Allbritton to Sinclair. Those talks will certainly occur during the next several months as the deal wends its way toward closure sometime around early November.

Meanwhile, figure on Sinclair being a bidder as additional station groups come up for sale.

“There’s clearly a lot more to do out there,” Smith said. “I can come up with at least $2 billion without thinking, let alone multiple hundreds of millions of deals. There’s at least two years of work to do.

“We don’t time the market in which things become available. But if we think there’s something strategic, we will be compelled to become involved.”

Diana Marszalek contributed to this story.