For some group owners, especially those with multiple stations in major markets, the FCC’s upcoming incentive auction is starting to look like an opportunity to reap a cash windfall. Both LIN and Meredith say they’re considering participating. And for others like Ion and Univision, the financial rewards are very tempting.
NEWS ANALYSIS BY PRICE COLMAN
To Some, Selling Spectum Could Makes Sense
On Oct. 3, at an investors’ conference in Texas, LIN Media CEO Vince Sadusky and CTO Brett Jenkins acknowledged that the station group might sell some of its TV spectrum in the FCC’s planned incentive auction.
It would be a way of turning Class A low-power stations and full-power duopoly stations into cash, Sadusky said. “[W]e think that there could be a value creation capability option.”
Then last week, during a quarterly earnings call, Meredith CEO Stephen Lacey was asked whether his company’s station group would hang on to all its spectrum when the auction rolls around.
Maybe not, he said. Meredith has several markets — including Atlanta, Portland, Ore., and Kansas City — with multiple stations. And while he doesn’t figure on being a “major player” in the auction, he said, he might be a “smaller player.”
The comments mark the first times what I would call mainstream broadcasters have registered publicly their interest in participating in the controversial auction, which the FCC hopes will reallocate up to 120 MHz of spectrum from TV to wireless broadband.
And LIN and Meredith are probably not the only ones doing some arithmetic.
BRAND CONNECTIONS
Spectrum market watchers say that Ion Media and Univision are also considering taking spectrum to market with far greater implications. Unlike LIN and Meredith, they are loaded with spectrum in the top 25 markets, the kind most in demand and most valuable.
For Ion and Univision, the auction must be tempting.
With 29 stations in the top 25 markets, including four duopolies and a triple play, Ion covers nearly 157 million people in those markets with 6 MHz of spectrum.
Univision, with its 36 top-25 market stations, including 10 duopolies and four triple plays, reaches just under 120 million.
In the 2008 spectrum sale known as Auction 73, spectrum in the 700 MHz band in top 25 markets sold for around $4 per MHz per pop.
That would translate into Ion’s big market spectrum being worth roughly $3.8 billion and Univision’s being worth about $2.9 billion. Those are impressive numbers, and they don’t include the value of the broadcasters’ considerable, but somewhat less valuable spectrum holdings outside the top 25.
For Ion, the auction could be an exit plan for investors.
According to Moody’s, the EBITDA of Ion’s broadcasting business is currently about $140 million a year. At a slightly aggressive nine-times-EBITDA multiple, Ion would be valued at roughly $1.3 billion.
Let’s see, $1.3 billion (broadcasting) versus $3.8 billion (top 25 market spectrum sale). What would you do if you were an Ion investor?
After a bankruptcy, Ion is finally prospering under CEO Brandon Burgess, but its business model is limiting.
According to Moody’s reports, Ion derives about 54% of its revenue from old-school infomercial-direct response advertising. It is transitioning to an audience-driven CPM advertising model, but it gets no retrans money and, given its reliance on off-net programming, it’s unlikely to ever be any more than an also-ran.
Not that there’s anything wrong with that. Still, that’s some mighty attractive spectrum.
Different story for Univision. With EBITDA of around $1 billion, it’s worth perhaps $9 billion as a broadcasting concern. That far exceeds the value of its Top 25 market spectrum ($2.9 billion).
Univision is also on a promising growth trajectory. It has recently forced the Big Four network designation to become Big Five, thanks in part to winning six first-place weekly ratings over the past year in the key 18-49 demographic.
Credit the growth of the Latino population in the U.S., a trend that looks like it’s only going to continue.
Univision also keeps launching new networks, including Fusion, a partnership with Disney-ABC that premiered Monday and targets an ethnically diverse, younger demo — 16-30 year-olds.
The company also is reportedly is considering an initial public offering of stock.
As one analyst put it, “Univision is hitting on all cylinders.”
However, it is also highly leveraged with $9.4 billion in debt. Its investors would undoubtedly like to whittle that number down. The spectrum auction is one way of doing that.
Univision has multiple stations in 14 markets covering nearly 39 million pops. At the $4 per MHz per pop value, selling the spectrum of the extra stations could fetch about $1 billion. In one fell swoop, Univision could cut its debt more than 10%.
Selling the duopolies would have minimal impact on Univision’s business. Programming now on the stations, mostly Univision’s flanker UniMas network, could easily be moved to digital subchannels on the main stations in each market carrying Univision.
This have-your-cake-and-eat-it-too strategy is also open to Ion. But with multiple stations in only five markets, the numbers are less compelling. Those stations encompass nearly 16 million pops. Using the same math as before, the spectrum would fetch roughly $380 million.
In one shot, Ion could erase its $250 million in debt, deliver a nice little bonus to investors and top management, and plug ahead with its current business model. Not exactly a bad option.
(At its investors’ conference, LIN said it was looking at the have-your-cake option, too, using its duopoly in New Haven, Conn., as an example. According to LIN’s Jenkins, LIN could auction off WCTX and put its MNT-anchored programming on a subchannel of ABC affiliate WTNH. Figuring the WCTX spectrum is worth $4 per MHz per pop because of the market’s proximity to New York, Jenkins said auctioning off the spectrum could yield “something around $115 million….That’s a very, very high valuation versus potentially looking at just the value of the station in terms of [broadcast] cash flow.”)
So what are Ion and Univision thinking?
“That’s the $64,000 question,” says one market watcher. “I’ve been in meetings after meetings where companies like that say they’re not interested. Maybe if they get dangled enough money they do.”
Univision declined to comment on its plans. Ion did not respond to multiple queries seeking comment.
Meanwhile, a lot of questions swirl around the spectrum auction plan itself.
The FCC intends to harvest up to 120 MHz of TV spectrum in what’s called a reverse auction and sell it to bandwidth hungry wireless broadband providers in what’s called a forward auction.
The broadcast auction is called a reverse auction because participants will attempt to underbid each other in an effort to sell their spectrum. The wireless broadband auction is a conventional forward auction because potential buyers will attempt to outbid each other.
The auction was originally scheduled for next year. But the rules are still being written and the smart money says that it will not take place until 2015.
It’s also hard to say whether the $4 rate will hold or go up or down, says Mark Fratrik, VP-chief economist at BIA/Kelsey.
“The 2008 auction … provides a benchmark for possible values in the upcoming auction,” Fratrik says. “While this will be an increase in supply of spectrum, at the same time the demand for wireless spectrum has increased.”
Another big question mark is whether the FCC will offer attractive enough prices in the reverse auction to entice broadcasters like Ion and Univision to sell.
“The FCC needs to offer prices high enough to attract around 400 stations to give up their spectrum,” says Preston Padden, the former Fox and ABC executive who now represents the Expanding Opportunities for Broadcasters Coalition, a group of potential spectrum sellers, mostly speculators.
That 400-station critical-mass number comes from an NAB study.
There’s another option that broadcasters including Ion and Univision may be considering: Leasing spectrum instead of selling it.
With Sinclair taking the lead, some broadcasters support the idea of waiting for a new broadcast standard — ATSC 3.0 — to be implemented in the next few years. The new standard would have far more capacity than the current digital standard.
As a result, broadcaster could stick with their traditional businesses, but have ample spectrum for other uses, including leasing to wireless broadband providers.
But nobody knows if the FCC would permit leasing.
“The FCC seems hell-bent on doing this one way,” says a source with an interest in the spectrum auction. “ATSC 3.0 is a long process. One of the worst problems is the broadband people don’t want to wait, they want to go right now. The broadband lobby in Washington won’t put up with the lease model.”
Price Colman is a TVNewsCheck contributing editor. You can reach him at [email protected].
Comments (23)
Gregg Palermo says:
October 30, 2013 at 9:06 am
The spectrum is mostly wasted anyway. 92 percent of homes are wired.
Blair Faulstich says:
October 30, 2013 at 12:28 pm
The reality is that OTA viewing is increasing daily and will continue to do so. The “92 percent” thrown out also doesn’t take into account OTA viewing by second and third sets that aren’t connected to cable and DBS. As streaming increases (Netflix, Roku, etc.) so will OTA viewing. In fact the revolution will be lead by those that are in their twenties and not tied to the cable and DBS teat.
Wagner Pereira says:
October 30, 2013 at 7:27 pm
There is no evidence to show OTA increasing DAILY. Perhaps you can put up or shut up. Even when one looks at the 2nd and third set not connected to cable and DBS, the number is only roughly 20%, despite other posters who claim different and quote studies that does not support their claims.
Bobbi Proctor says:
October 30, 2013 at 10:32 am
I feared this could happen and we non PayTV viewers will pay the price. Under the scenario in the article we could lose a couple of stations including the local ION station which we watch regularly. And that’s not just one program, but five. The other is the only independent that can do things the network affiliates can’t. So, if this happens we effectively will lose seven “channels.” To hook up all of our HDTV sets to cable would cost about $100 a month–that’s $1200 a year! No way. The cord is cut and won’t be reattached. This repacking thing is going to be a disaster for antenna viewers and the FCC doesn’t care and Rustbelt isn’t likely to provide funds for us to have payTV. I fear the day when stations disappear. Where will we get weather warnings when the power goes out? Our battery powered TV is our friend during severe weather.
Wagner Pereira says:
October 30, 2013 at 7:28 pm
Don’t worry. Your internet costs will go up to pay for the Spectrum the wireless companies are paying as well.
Teri Green says:
October 30, 2013 at 10:49 am
Why pay them anything. Simply refuse to renew their license. The airways don’t belong to those companies currently broadcasting on them. They are simply USING them for a public service. A PUBLIC service, not TV service. The FCC should simply not renew the TV licenses of those channels above 37. Then any stations above there will go out of business, networks affiliated with stations can find other stations.
Patrick Schooley says:
October 30, 2013 at 11:48 am
Run them out of business, that’s the answer… You know because it’s the stations fault they already have the frequency that someone else wants. I really hope you just forgot to use your /sarcasm font.
Ellen Samrock says:
October 30, 2013 at 11:51 am
Let’s dispel this notion right now. Broadcasters paid for their spectrum (or channel assignment) at auction the same as the telcos are going to do. No one gave it to them. They have built up businesses that generate billions of dollars a year and employ thousands of people. To yank away their spectrum is neither right nor fair. Broadcasters should be compensated. Besides, once this spectrum gets into the hands of the telcos, whatever imagined ‘say’ you think the public has on that spectrum will be over. Do you really think a major corporation like ATT will listen to you as to how it should use the spectrum it paid billions for at auction? Do you think Cingular will have a public inspection file for you to march into their corporate offices and demand to see? Dream on.
mike tomasino says:
October 30, 2013 at 12:39 pm
Eric Post is an internet troll. He is simply disgruntled about the digital transition and his inability of being able to take advantage of DTV signals in his downtown apartment. His comments shouldn’t be taken seriously.
Wagner Pereira says:
October 30, 2013 at 12:42 pm
The most comical part of EricPost’s thinking is that he, like others, seems to believe that by yanking spectrum and moving it to cellular, is that he somehow forgets that wireless will charge him MONTHLY to use the “PUBLIC SERVICE” spectrum. And if they have to spend billions to buy spectrum, that can only mean they will jack up the price to pay for it.
Jill Hatzioannou says:
November 1, 2013 at 9:35 am
When did the auction for channel assignment take place? How much was paid, in the aggregate, for this spectrum space? I don’t recall this happening.
Ellen Samrock says:
November 1, 2013 at 1:04 pm
Answering this question would take researching back through several decades of auctions. I suggest you start at the FCC’s auction page and dig through the history.
Ellen Samrock says:
October 30, 2013 at 11:12 am
I can see a lot of Class As going up for auction. This would be an easy windfall for most of them. But the FCC has made no secret that they’re looking for fire sale prices. Station owners who have visions of billions in compensation may be disappointed if the FCC has only millions in mind. Which is why I highly doubt the FCC would ever consider compensation based on megahertz only and not take into consideration a station’s class and DMA. It would be too costly. It’s estimated that anywhere from 15-20 billion will be made from the forward auction. That may seem like a lot but it can get eaten up pretty quickly paying out compensation. Leasing spectrum would be in the best long term interests of broadcasters but I doubt the government would allow it unless it turns out that there is not enough participation in the reverse auction. But they’re really putting the cart before the horse here. There are so many problems yet to be worked out regarding coverage and interference protections and the border treaties. Dividing up imagined money (a government pastime) should not be a major preoccupation at this point.
Blair Faulstich says:
October 30, 2013 at 11:50 am
D BP
You are a wise man, my thoughts exactly.
As to the comments by Eric Post: Anything paid to broadcasters isn’t to purchase a license, it is compensation for loss of business. To say that there should be no compensation is inane and doesn’t take into account that companies have invested millions in upgrades, etc., as mandated by our esteemed guvmint. To not compensate puts us into a place that no one wants to go.
mike tomasino says:
October 30, 2013 at 1:14 pm
I figure that I will lose some channels in this mess. But, even if they all go away, I will never pay for multichannel service ever again. If it isn’t free, or available at low or no cost on the internet I won’t watch it. If the Superbowl isn’t free, I’ll just not watch it. If the Olympics aren’t free, I won’t watch those either. There is a lot of talk about cord cutting not being real, but I’m surrounded by cord cutters and cord nevers in my everyday life. Most forgo the cord to save money. But, on the other hand, I hear of people who don’t have enough money to feed their kids, yet just “must have” a premium cable package…
Joanne McDonald says:
October 30, 2013 at 3:33 pm
I’m here to kove to informed readers about y idea if TV stations were to auction off their spectrum by maybe 2015. I’m seen to know how to understand the entire spectrum situation. I would take a bet that Daystar, Trinity, and all the other religious, Spanish networks Azteca America, Estrella TV, LATV, Mexicanal, and all the other spanish, ION, and other minor broadcast network plus all the diginets multicast networks including Cozi, This TV, ME TV, Antenna TV, RTV, Movies, Get TV, Heartland, and others would round up being regulated to cable only network that would be made available to customers with FTA systems and be made available on all cable systems as well as on both Directv and Dish Network and also be allowed to stream their programming online for internet users at no cost. I like the idea in which NBC stations on 1080 share their channel with Telemundo on 480 in widescreen, CBS stations on 1080 sharing with CW on 1080 in widescreen, FOX stations on 720 sharing with MyNET on 720 in widescreen, Univision and UniMas share a channel together on either 480, 720, or 1080 in widescreen, and ABC would continue to not have to worry about sharing their stations with another network or another station and still on 720 in widescreen, but could likely share it with other network affiliated channels on either 480, 720, or 1080 in widescreen. PBS stations would likely be forced to merged and share it’s stations on the same channel frequency and still be able to transmit in 1080 widescreen. The stronger PBS stations would end up sharing the channel space with the weaker PBS stations in markets where there are multiple PBS affiliates in the same market. The mid-sized and smaller TV markets could end up carrying 2 to 3 subchannel feeds in widescreen SDTV or HDTV on the same channel frequency. I would bet that all the TV stations that are now on the UHF 14-51 band in digital that were on 7, 8, 9, 10, 11, 12, and 13 in analog be forced to move on 7, 8, 9, 10, 11, 12, and 13 in digital and all the TV stations that are now on the UHF 14-51 band in digital that were on 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, and 30 in analog be forced to move back to those channels in digital plus all the TV stations that are now on the VHF 7-13 high band with different RF physical channel numbers on the VHF high band in digital that were on 7, 8, 9, 10, 11, 12, and 13 in analog to be forced to move back to those channels in digital as the best way to not mess up on frequency assignments in the future maybe by around 2020. I like the idea of all the TV stations be allowed to transmit all HDTV and SDTV as well as mobile programming in the MPEG 4 format in the future maybe by around 2020. I like the idea of both IVI TV and FilmOn HDi be allowed to go in business again and be able to transmit all the local stations to the viewers on the net for free without any interference from the government for violating any copyright laws with benefits for online viewers that want to watch their favorite stations programming such as local news and shows even after the spectrum auction and plan becomes very mandated and very hard for TV stations to be able to stay on the air without being able to stream all their programming online to the viewers online. Me wanting IVI TV and FilmOn HDi transmitting the locals online for free to the viewers on the internet would be very beneficial when it comes to very severe weather outbreaks and breaking news that the viewers would want to be very informed the sooner and the better as a public service to all online users and all television stations in the future. I’m afraid that my take of what channels the TV stations ought to be on with the planning of an spectrum auction. Thank you for my understanding to this crisis in the TV business lately as it relates to the spectrum crunch going on right now. My comment to this matter is not a negative attack but a opinion and theory on my own terns to the spectrum auction in the future.
mike tomasino says:
October 30, 2013 at 3:45 pm
Blah, Blah, Blah!!!
Wagner Pereira says:
October 30, 2013 at 6:22 pm
It is great you understand the possible Spectrum Auction and know how to run every TV Corporation, things you are convinced the people running Corporations do not understand. Might I suggest you also learn 2nd grade English?
Bobbi Proctor says:
October 30, 2013 at 10:47 pm
There is indeed a move back to OTA television. I do not work in TV, but know several people who have dropped cable and gone to OTA and internet TV. I do a lot of bicycle riding and see more and more TV antennas popping up to receive stations about 70 miles away. Closer stations can be received on indoor antennas which, of course, are not visible from a bike. We already lose some service from the loss of channels 52 to 69 (once 83) due to new interference because stations are too close together (same channel). If the auction goes through it will be even worse.
Jim Church says:
October 31, 2013 at 8:28 am
To all of you OTA deniers, here is reality…deal with it! NAB and the industry uses a term of art which does not show the true OTA audience size. They use “exclusive OTA”. Who is that? The LPTV Spectrum Rights Coalition, representing the rights of over 6400 low power stations and TV translators uses “total OTA” instead. This accounts for all of the TV HHs which use OTA for local TV reception, including the 50% of the DBS users, which comes to 15% of all TV HHs. Here is our formula:
> 2013 US Census USA population estimate = 315 million
> 2010 US Census Average people per HH = 2.6 per HH
> 2013 estimate of US HHs = 121 million HH
> 2013 Neilsen TV HHs = 115 million HH
> 2013 USA TV population = 299 million people
> 2013 NAB/GFK “exclusive OTA” percentage = 19.3%
> 19.3% x 299 million = 57.7 million people
> Cable/Telco MVPD = 54%, or 62.1 million TV HHs
> 62.1 TV HHs x 2.6 = 161.5 million people
> 14th Report says DBS-MVPD = 34 million TV HHs
> 34 million x 2.6 = 88.4 million people
Now it gets interesting…
> 50% of DBS-MVPD also use OTA for local TV
> 88.4 million x 50% = 44.2 million people!
> 10% of cable/telco-MVPD also use OTA
> 10% of 161.5 million = 16 million people
HIGH ESTIMATE
> Exclusive OTA = 57.7 million people
> DBS-MVPD 50% OTA = 44.2 million people
> Cable/Telco-MVPD 10% OTA = 16 million people
> Total OTA Potential = 117.9 million people!
> 118 million OTA potential divided by 299 million TV Population = 39.5% OTA potential
MIDDLE ESTIMATE
> Exclusive OTA = 35.88 million people
> DBS-MVPD 50% OTA = 44.2 million people
> Cable/Telco-MVPD 10% OTA = 16 million people
> Total OTA Potential = 96.08 million people!
> 96.08 million OTA potential divided by 299 million TV Population = 32.1% OTA potential!
LOW ESTIMATE
> Exclusive OTA = 20.93 million people
> DBS-MVPD 50% OTA = 44.2 million people
> Cable/Telco-MVPD 10% OTA = 16 million people
> Total OTA Potential = 81.13 million people!
> 81.13 million OTA potential divided by 299 million TV Population = 27.1% OTA potential!
Maria Black says:
October 31, 2013 at 10:47 am
I am fairly certain this auction will do one of two things: not happen when they are saying or be a huge fiasco. The way people should be tracking the no-cable phenomenon is to get some solid numbers on antenna sales. Forget this anecdotal crap, you only buy a TV antenna if you’re going to use it for over-the-air TV.
Ellen Samrock says:
October 31, 2013 at 11:41 am
Yes! A simple but fairly accurate metric.
Robert Vincent says:
October 31, 2013 at 4:20 pm
I went to work for Paxon Television when it began. Then Bud sold the network to The Eye network. It was a weird sell because he maintained ownership of the stations. Then they finally gave him the $100M to get ride of him totally. Pax had surplus staffing when it sold off. We had an AE, station manager, traffic manager, engineer, assistant engineer, and four master control operators. Then we got rid of the AE in our station along with his staff. Then the I-network later turned to ION. We still had too many staff as the station didn’t really need a manager since traffic and the MCO staff did most of the work. Our engineer had a second fulltime job because he could visit the transmitter once a day and be done with his work in about 10 minutes. Then ION went through the bankruptcy to shed itself of slush fund, Citadel Investments. So even after the bankruptcy, ION stations across the USA had too many employees. We still had the station manager, traffic manager, engineer and four MCO’s. So, I saw the handwriting on the wall and found a job at an ad company, got a pay increase, and had much better than ION’s pathetic offerings. They give you a form to fill out when you leave to send in to HR in Florida. I scanned it into my computer and then filled it out electronically. I suggested 1) at a bare minimum, get rid of the traffic manager position. It was only about 30 minutes of work per day and the station manager could easily do it. 2) get rid of engineer position and go with a contract engineer. 3)if you keep the engineer, get rid of station operations manager. Most of them sit back in their office and do little real wok. How do you manager 5 people? There is so little real work for the SOM at ION, its a complete waste of investment dollars. The engineer can easily manager the station. 4) you only need two master control operators. They can share the 100 hours most stations are budgeted. The 50 hour work week would also help out with the pay issues. Each employee could still work a four to five day week and take care of prime time coverage. So, I found out through the grapevine that one month after I left, they did get rid of all traffic managers at all 59 stations. They probably had realized it prior to my submission.