A period of consolidation is under way in local television — and with it, a renewed debate about the implications of merger and acquisition activity on the industry.
A torrent of deals began in September when the Sinclair Broadcast Group bought seven local stations from the Four Points Media Group for $200 million, and it continued in October when the E. W. Scripps Company bought nine stations from McGraw-Hill for $212 million.
Last week, in the single biggest television station acquisition in four years, Sinclair bought eight stations owned by Freedom Communications for $385 million.
Other groups of stations are believed to be on the market now, further signifying that the broadcast business is becoming more attractive to buyers after several painful years. Analysts say private equity firms that bought into the business years ago — like Cerberus Capital Management, which founded the holding company Four Points in 2007 — are ready to sell.
“We really took it on the chin as an industry during the great recession,” said David Amy, the chief financial officer for Sinclair, referring to steep declines in advertising revenue. But what the economy took away, politics may help restore. Television stations are among the biggest beneficiaries of political ad spending — one of the primary reasons for the increase in sales activity. The election cycle of 2012 is expected to be exceptionally lucrative for stations in competitive states.
“Political hot spots have become a key criteria in the selection of acquisition targeting,” said Steve Ridge, the president of the media strategy group at Frank N. Magid Associates, an adviser to local stations. In some medium-size markets — like Des Moines, where the first caucus will be held in January — “the infusion literally changes the balance sheet,” he said.
Sinclair, which became one of the biggest station operators in the United States through its recent acquisitions, says it is contemplating more purchases. “Generally speaking, the industry needs consolidation,” Mr. Amy said, to better compete against cable companies that sell ads and wireless companies that want broadcast spectrum.
Public interest groups, on the other hand, say that consolidation can be detrimental to local communities because new owners sometimes make cutbacks to station staff and expect the remaining staff members to do more with less.
The Sinclair deal last week “shows that local TV consolidation is alive and well,” said Corie Wright, the policy counsel for Free Press, a nonprofit group that ordinarily opposes such deals. Absent meaningful government oversight, “local communities will have fewer and fewer competing and independent local news voices, and more absentee owners programming from afar,” she said.
Groups like Free Press say that quality and diversity on local TV stations matters because the newscasts by those stations are the biggest sources of news for most Americans.
A report by the market research firm SNL Kagan said that the third quarter of the year brought a “huge increase” in television station deal volume, more than the two previous quarters combined. The report noted, however, that there were still some “troubled and failing station groups.” One such group of four stations, Roberts Broadcasting, filed for bankruptcy last month.
Broadly speaking, stations are worth about half as much as they were a decade ago, when prices peaked, estimated Robin Flynn, a senior analyst for SNL Kagan, who said there was a “pent-up supply of stations for sale.”
Along with the help from political ads, stations are also becoming more attractive to buyers because they are raising money, in the form of retransmission payments, from the cable and satellite distributors that retransmit their signals to subscribers. Mr. Amy of Sinclair said that owning more stations was advantageous in the negotiations with distributors. Acquisitions of stations are regulated by the Federal Communications Commission, which is completing a review of its broadcast ownership rules. Such reviews are supposed to take place every four years.
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