November 28, 2014

The Bud Paxson Show

Jeff Zbar | 6/1/1995
In 1977, Lowell W. "Bud" Paxson owned a struggling AM radio station in St. Petersburg. Tight on money and up against pay day, he visited an advertiser who was late on his invoice. The man had no money to give the station owner, but he had 112 electric can openers, still in the box, worth $20 each retail. Paxson took the appliances back to his station, pulled the disc jockey from the sound booth and, in his deep radio announcer's voice, spread the word that anyone who showed up before noon with $9.95 - cash or certified checks only - would walk with a bargain. "He sold them all out the same day," recalls Arthur Tek, vice president and chief financial officer of Paxson Communications Corp., the emerging media company Paxson now runs. "He said, 'There's something to this.' "

The can-opener venture triggered the creation of a Paxson radio program called "The Bargaineers." Within four years, the show was transformed and launched on UHF broadcast television as the Home Shopping Network, the giant St. Petersburg-based company that Paxson co-founded with attorney and real estate investor Roy Speer. In 1990, with Home Shopping Network ringing up over $1 billion in annual sales, Paxson retired as president and sold HSN stock worth nearly $70 million.

Retirement lasted six months. Paxson, now 60, has been building anew from his base in Clearwater during his last five years away from Home Shopping. His company, Paxson Communications Corp., has been based in a stately two-story headquarters that sits incongruously beside a strip mall off U.S. Highway 19. A Rolls Royce with the license plate "L Paxson" graces the parking lot. Above the entrance, the company's name is spelled out in Old English lettering.

Inside, a pair of bronze lion statues stand guard. Aerial and skyline photos of metro markets where Paxson Communications competes - Jacksonville, Fort Lauderdale, Miami, Orlando, the Tampa Bay area - decorate the walls. The pictures tell a bit about Bud Paxson's acquisition spree over the last two years - at last count, four television stations, four AM and five FM radio stations and other broadcast properties including the right to broadcast University of Florida football games - the total bill coming to about $90 million.

A plaque in the lobby of Paxson Communications' Clearwater office proclaims the virtue of employing Christian values in business dealings - not surprising, given that Paxson describes himself as a born-again Christian and is the founder of a not-for-profit organization that broadcasts Christian programming on most of his TV stations.

But when media man Bud Paxson deals with the media, he can stage mercurial and abrasive scenes. Paxson agreed to be interviewed in his Clearwater office by a writer who flew in from Fort Lauderdale, but abruptly ended the appointment after half an hour, saying he had to catch a flight to New York, then refused to return follow-up phone calls. Paxson later agreed to be photographed at his Clearwater office by Florida Trend, but changed his mind without explanation after the photographer arrived.

While his broadcasting success has made him rich enough to afford a Palm Beach mansion, it also allows him to enter less-material pursuits, such as financially supporting the spread of Christian messages.

Paxson takes pride in his founding of the not-for-profit television broadcasting organization called the Christian Network. Though no longer active in the network, Paxson says such ventures give him a sense of fulfillment. "You'd better do some good while you earn some money," he advises. "If you don't, what's it all for?"

Yet despite his good deeds, Paxson may have more admirers than friends. At Paxson Communications headquarters, the tension is nearly palpable when the boss is on the scene. "He's not well liked. His employees traditionally hate him," says Eric Rhoads, publisher of Radio Ink, a West Palm Beach-based trade magazine. "But he has the respect of every broadcaster in America because he knows how to run a good operation."

The radio business
Paxson's radio holdings have grown substantially since he lugged that box of electric can openers back to his St. Petersburg radio station back in 1977. As of early May, Paxson Communications owned 18 radio stations and held a so-called time brokerage agreement with one other. A time brokerage agreement allows an operator like Paxson to control a station's administration, programming and advertising sales without actually owning it.

Long term, Paxson plans to make big money in television by tapping into the growing infomercial industry. But for now, most of his company's business comes from radio. Last year, about 80% of the company's revenues of $62 million came from radio.

In late 1993, Paxson folded his personal radio-broadcasting business into Paxson Communications, which was formed to own and operate not just AM and FM stations but also television stations and networks. In early 1994, Paxson Communications acquired 68.1% of the voting control of the American Network Group of Nashville, a publicly held company. By the end of 1994, Paxson Communications itself became a NASDAQ-listed, publicly traded company through a merger with American Network. Paxson controls about 97% of the outstanding stock in his company.

With American Network under its wing, Paxson Communications now broadcasts news and sports events, professional and collegiate, to 247 affiliated stations in Florida, Alabama, South Carolina and Tennessee. In Florida, the company broadcasts Miami Dolphins, Tampa Bay Lightning, Tampa Bay Buccaneers, Orlando Magic and Miami Heat games. Paxson Communications also broadcasts football and basketball games played by the University of Florida, the University of Georgia, Penn State and Virginia Tech.

Paxson Communications - which plans to relocate its headquarters from Clearwater to West Palm Beach - isn't making money yet. But so far, there have been funds aplenty to cover losses and to continue acquiring radio and TV stations. Filings with the U.S. Securities and Exchange Commission show that Bud Paxson himself has invested $37 million in his company. In December, Paxson Communications announced a $33 million equity capital investment from a group of banking companies, including Bankers Trust and First Union.

Paxson Communications is making some financial headway but losing money in the process. Last year's revenue of $62 million was nearly double 1993 revenue of $32 million, thanks mainly to acquisitions. But Paxson is paying dearly to finance his growing collection of radio and TV stations. The company's long-term debt more than doubled last year from $32 million to $76 million, boosting interest expenses to $4.9 million, way up from $2.1 million in 1993. The company's 1994 net loss applicable to common shareholders was $8.1 million, compared with losses of $11.6 million in 1993 and $7.9 million in 1992.

Paxson says his radio business is picking up. Advertisers are recognizing the impact of radio, he says, ticking off a statistical summary of the medium's battle with newspapers and magazines: Radio advertising revenues statewide have been rising 15% a year since 1992, he says, while print advertising revenues have declined."Marconi is finally beating Gutenberg!" Paxson declares (claiming a metaphorical media victory by Guglielmo Marconi, who in 1896 patented the wireless telegraph, over Johann Gutenberg, the 15th century printer who created the movable type press).

Some industry observers say it's only a matter of time before Paxson's radio strategy pays off. "Even if he never made a penny operating the stations, he would have made millions of dollars just based on the increased values when radio came back," says one of Paxson's admirers, Russ Oasis, president of New Age Broadcasting, which owns Miami's top-rated FM station. "He saw that was going to happen."

The future of infomercials
Has Paxson also correctly foreseen the future of TV infomercials? Perhaps. A little history from the annals of TV regulation helps to illuminate the path he's taking.

Since 1984, when the U.S. Supreme Court struck down an FCC regulation limiting commercial length to 12 minutes, the infomercial industry has exploded. Product sales from infomercials topped $1 billion in 1993, according to the National Infomercial Marketing Association. Within 10 years, future watcher John Naisbitt, author of the best-selling book "Megatrends," predicts annual sales will hit $10 billion.

To grab a piece of that action, Paxson Communications is developing a network of TV stations to carry mostly infomercial programming. His stations reach not only broadcast television viewers but also cable subscribers because all of them are protected by the Federal Communication Commission's "must carry" rules, which require local cable TV systems to allot them channel space and carry their signal. Stations eligible for such protection typically are independents not affiliated with a major TV network.

So far, Florida-based Paxson Communications has built a network of local TV stations that reach 20 million U.S. homes through cable or broadcast. Paxson wants to expand to 45 million homes in 20 of the nation's top 30 markets.

Rick Michaels is chairman of Communications Equity Associates Inc., a Tampa-based investment banking firm that specializes in media, and a member of Paxson Communications' board of directors. Though more competitors are moving into the development of TV stations as infomercial outlets, Michaels says they'll have to spend more than Paxson to acquire stations: "People have woken up and seen there's another use for them."

That other use, which Paxson unveiled in January, isn't far removed from the TV shopping concept that enriched him in the 1980s. It's called the Infomall TV Network, or IN TV. It isn't a source of programming, like Home Shopping Network, but an infomercial delivery system. Unlike Home Shopping Network, IN TV doesn't burden its owner with production costs, talent issues, merchandising or returns. Paxson simply sells air time to companies that want to place their 30 to 60-minute commercials in front of the IN TV audience.

As evidence of acceptance the infomercial format by mainstream marketers, Paxson says traditional infomercials pitching Jane Fonda workout videos and NordicFlex exercise equipment have been joined, on an experimental basis, by long-form commercials advertising products made by Apple Computer, General Motors, Philips Electronics and Toyota.

Paxson owns four TV stations and has time brokerage agreements with another four stations. With the exception of ABC-affiliate WPBF in West Palm Beach, all Paxson stations carry IN TV programming throughout the day while the overnight programming is filled by the Christian Network, a 501(c)3 charity Paxson started, which airs gospel-oriented music videos, Bible discussions and other religious fare. In addition to television stations owned by Paxson Communications, the Infomall Television Network includes affiliated stations that sign on in exchange for 65% of gross advertising sales revenues generated by the network.

"This is very different than what's been done before," says Steve Dworman, publisher of West L.A.-based industry trade newsletter Infomercial Marketing Report. He says a key ingredient in the IN TV formula is Paxson's focus on stations that must be carried by local cable systems, ensuring that the network's infomercials "are going to get seen."

But who is really watching? Why would millions of people watch commercials that run longer than sitcoms? Paxson explains it this way: Unlike Home Shopping Network and similar shows, which simply hawk products, infomercials are educational marketing tools that tend to attract consumers who want to become informed, not make an immediate purchase at a discounted price.

Though Paxson is touted by some as a visionary, others aren't so sure. Some big experiments with infomercials failed; witness HSN's own "HSN Entertainment" infomercial effort, which came and went in 1991.

Skeptics doubt Paxson can withstand competitive heat. His rivals for infomercial advertising include Cox Broadcasting\Jones Intercable, a joint venture, and Access TV of California, according to Craig Evans, a former Home Shopping Network employee and author of "Marketing Channels: Infomercials and the Future of Televised Marketing."

Evans wonders whether IN TV can consistently attract large enough audiences to satisfy his infomercial advertisers. "There's nothing new under the sun here. There have been so many attempts by people who have had the right idea to go with the wrong execution," Evans says. "If it's just going to be back-to-back infomercials, boring. It will fail if it does not have a consumer-oriented direction."

Paxson's passions
Paxson has been passionate about broadcasting for decades, ever since he broke into the business as a radio announcer in his native Rochester, N.Y. His love of radio and TV is reflected in his corporate environs. The Clearwater headquarters of Paxson Communications was turned into something of a shrine to the industry that Paxson has been involved in for more than 40 years - from his first AM station ownerships in Waterbury, Conn., and Newark, N.Y., to his first and failed television acquisition in 1967, a UHF station in Jamestown, N.Y., that went under when it lost its ABC affiliation. Office walls are lined with autographed memorabilia from radio's golden age, pictures of commentator Charles Osgood and performer Judy Garland.

Now, Paxson is in the process of moving his office and home to Palm Beach County. He gives two reasons, both personal, for uprooting from Florida's west coast. An avid fisherman who's lived in Florida since 1964, Paxson says Atlantic sport fishing is better than that found in the Gulf. And then there's the 35-room Woolworth Donahue mansion he bought in 1994 for $12 million, where he'll live with his wife, Marla, and his 12-year-old step-daughter, Nicole.

Yet another reason for leaving Clearwater may be to move out of the shadow of Home Shopping Network, the company he founded just a few miles away in St. Petersburg. Try as he may, Paxson has been hard-pressed to escape the mantle of HSN founding father, even as he stands at center stage of his own business.

"By remaining here, he's still Mr. Home Shopping," says Tek, "instead of Mr. Paxson Communications."

Tags: Florida Small Business, Politics & Law, Business Florida

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