After years of small-bore shifting and tweaking by media companies in an effort to stay in front of consumers, big deals are back on the table. Using relatively cheap capital, companies in dire need of diversification away from wounded businesses like print are going shopping.

Last Monday, the Tribune Company, fresh out of bankruptcy, spent $2.7 billion to buy 19 stations from Local TV Holdings. Several weeks earlier, the Gannett Company made its own bet on going bigger, buying the Belo Corporation, with its 20 television stations, for $1.5 billion.

“It’s time to gobble or get gobbled,” a media analyst told The New York Times last Monday.

In a conference call, Peter Liguori, chief executive of Tribune, could not have been more direct or more succinct: “Our investment thesis is simple. Scale matters.”

Business people could not be blamed for thinking that they had seen this movie before. Someone blows a whistle in a particular media space and suddenly a company is either a hunter or the hunted. Rhetoric heats up, as do prices, and before you know it investment bankers are racking up fees, reporters finally have deals to cover and moguls are in full frolic.

For much of the 1990s and into early 2000s, roll-ups were all the rage and a new hyperbolic math emerged. “One plus one will add up to four,” Michael Eisner, then chief executive of Disney, said after the company announced in 1995 that it was buying Capital Cities/ABC for $19 billion.

As it turned out, one plus one did not even add up to two in that deal, and in so many others that were part of the frenzy. Merger mania failed most drastically in the instance of AOL-Time Warner, which had executives chanting about synergy and analysts panting about an “unbeatable” partnership with “insurmountable” scale.

So now that we have John C. Malone, the head of Liberty Media, talking of inevitable cable mergers, and companies buying up every television station on the loose, are they in fact heading off the same cliff?

Probably not. The media mergers that took place just after the rise of the consumer Internet were vertical mergers, intended to blend companies that were in different businesses and produce a new kind of product or company. The melding of Time Warner and AOL was a classic example: two companies that could not have been more different in terms of cultures or products sacrificed their identities on the altar of synergy. It turned into a bag of snakes with an enormous price tag.

In contrast, the deals under way now are horizontal mergers, combining similar businesses in an attempt to pile up more assets in a specific category. The goal is not transformation, but leverage, using size to cut better deals with distributors and suppliers.

Jonathan A. Knee is a media investment banker at Evercore Partners who helped to write “The Curse of the Mogul,” a book that served as one of the better obituaries of the last round of mergers. Mr. Knee says there are critical differences between the deals then and now.

“There were many mythological elements to those mergers,” he said, “but in terms of the current television environment, economies of scale are real. When you are negotiating on a national scale with other big companies, it is demonstrable that the bigger you are, the better you do in negotiations.” (Evercore, by the way, is assisting in the possible sale of the Tribune Company’s newspapers.)

Mr. Knee said that valuable mergers in the media business, whether on the cable or the broadcast side, generally involved aggregating local assets. They yield benefits, he said, because the businesses have a relatively fixed cost base.

Being big in television is seen as critical right now because it’s a maturing ecosystem of different components, each trying to gain an advantage over the others.  Cable systems want to come to the table as behemoths with a huge base of customers so big that content providers can’t afford to pass up the audience. And local television stations now depend on cable systems and retransmission fees; only about 10 percent of all viewers of local TV are seeing programming over the airwaves.

Article source: http://www.nytimes.com/2013/07/08/business/media/a-different-deal-mania-grips-tv.html?partner=rss&emc=rss