Florida Trend | Florida's Business Authority

Media Feeding Frenzy

During an 8-day period in September, WTSP Ch. 10 of St. Petersburg had three different owners.

The notion of flipping a property is a familiar one in hot commercial real estate markets. Sports fans know all about triangular trades. But when this sort of fast-paced transaction involves a television station worth hundreds of millions - well, it's a sign of the times.

The Channel 10 deal encapsulates an important trend in the radio and TV business: Values are up, well-heeled buyers abundant, and independents and smaller broadcast groups are cashing in.

The first owner, Citicasters Inc., was exiting the business, selling off its remaining two TV stations and 19 radio stations.

The intermediate owner, Jacor Communications of Cincinnati, has a couple of TV stations and a horde of radio properties. When it traded Channel 10 to Gannett Co. Inc. for six radio stations, Jacor brought its fast-growing portfolio to 67 radio stations owned or under contract. It is one of three companies rapidly assembling lucrative multiple holdings in Florida markets.

Gannett, the third owner, will have 16 TV stations covering 16% of the nation's television market, if the FCC gives its approval and the transaction is completed. Gannett is typical of the current generation of big, publicly traded buyers; in 1996, newspaper companies are the new force, joining the likes of Fox and ABC-Cap Cities in bidding up prices.

The precipitating factor for the trading frenzy is the 1996 Telecommunications Act, which took effect in February. The new law allows TV chains to build their holdings up to coverage of 35% of American households. It also permits radio groups to own as many as eight stations in the largest markets.

Florida is typical rather than unique. But the consolidation trend, especially in radio, has gone as far here as anywhere. When the flurry plays out in coming months, broadcasting will have become - as newspapers did in the 1960s, '70s and '80s - a Florida business dominated by chains, most of them based out-of-state. In fact, the radio clustering trend has gone so far, so fast in the last year that the U.S. Justice Department is making noisy sounds about anti-trust investigations. With the right six or seven stations, the canny consolidator can control 40% or 50% of an audience in a given market.

To the customer, be it advertiser, listener or viewer, the change in all this wheeling and dealing is not so apparent. At Channel 10, Steve Mauldin, a well-traveled veteran of other metro markets, remains as president and general manager. After the Jacor transaction, he says, "We knew the other shoe was going to drop." So the swap to Gannett was a welcome conclusion rather than a shock. Since the sale awaits regulatory approval, Gannett's presence so far has been limited to a one-day get-acquainted visit.

But Mauldin doesn't anticipate life-altering directives from above. "If you're delivering good programing and a good bottom line - and we think we're doing both - there is no reason to change," Mauldin says. His management personality includes taking editorial positions, which he delivers himself on the air, and he expects to continue.

On the business side, chains like Gannett gain some advantage by being both station owners and producers of programming. And multiple ownership provides leverage in negotiations with networks and other program suppliers. Though the newspaper business has improved in the last year, average returns on revenues in the 20% range or below loom into the foreseeable future. With television stations returning 25% to 35%, the math for the big companies is pretty simple. Take newspaper cash flow and invest in TV acquisitions. When Tribune Co. (owner of the Orlando Sentinel and the Fort Lauderdale Sun-Sentinel) agreed last July to acquire six stations, including Miami's WDZL, it briefly became the nation's largest TV company.

The price of the Channel 10 transaction was not disclosed, but Mauldin notes that a group he put together bid $200 million a year and a half ago and was rejected. Multiples as high as 13 times cash flow have been reported. A.H. Belo, owner of the Dallas Morning News, bought nine TV stations in acquiring the Providence Journal Company, a few days after the Channel 10 sale. Belo Corporation's CEO Robert W. Decherd summed it up for the New York Times: "This transaction takes us to the other side of the consolidation hill. There are a lot of people trying to climb that hill, and some will eventually decide they should be sellers rather than consolidators." That dynamic leaves smaller players and would-be players recalculating where the available niches may be. Clarence McKee was the locally based owner of Tampa's WTVT Ch. 13, until he sold his interest in the company four years ago. He's been trying ever since to acquire TV stations with his own and other investors' money.

"I feel like a mouse in an elephant compound and the money folks are baling straw to feed the elephants," McKee says. "I hope there is a little left there for me." McKee thinks that his ticket may be to concentrate on smaller markets that fall beneath the radar of the big guys, but he confesses to the frustration of being outbid on a number of deals when bigger competitors offered prices "that don't cost out."

Big-bucks radio

On the radio side, the prices are lower but the trading action is even quicker. And the prices aren't as modest as they used to be. Tim Menowsky, an associate of McKee's and principal in Media Matrix of Tampa, is an analyst, broker and a bit of a cheerleader for radio. He offers as an example of changing times WKES-FM, a station in Tampa with a religious format that accepts no advertising. So it has no cash flow, only what those in the business call "stick value" - the transmitter, studio and license. A few years ago, WKES went for $5 million. This fall it went under contract to Paxson Communications Corp. of West Palm Beach for $35 million. By contrast, the top-rated radio station in the Tampa Bay market was sold a few years back for $22 million. And Paxson has paid as little as $5 million for stations that are now dominant.

Paxson Communications is a home-grown phenomenon in the acquisition game. Lowell W. "Bud" Paxson, a co-founder of the Home Shopping Network, has built a diverse media company of his own in recent years [FT, June 1995]. It includes a few TV stations, brokering radio time and syndicating regional sports broadcasts. But above all, Paxson is a radio consolidator with 40 stations owned or being acquired as of November 1 - 36 of them in Florida.

The big deal about owning multiple stations in a single market, according to Menowsky and others in the business, is the opportunity to offer a demographically targeted buy across several stations. You want women, ages 18 to 44 in Miami-Fort Lauderdale? Paxson can offer you a combo among the seven stations there he owns. So can Jacor, with clusters in Jacksonville, Tampa and Sarasota. So can Clear Channel Communications of San Antonio, whose clusters are in Miami, Jacksonville and Tampa. Paxson's cluster markets include Orlando, Tampa, Jacksonville, Pensacola, Tallahassee, Panama City and Miami. And since radio formats can be changed with ease, once the WKES acquisition is completed, he can pick whatever seems complementary to his other four holdings in the Tampa market.

Opinions differ on the sensitive question of whether the consolidators can charge higher rates, now or in the future. The big three certainly control a lion's share of audience and revenues in the biggest Florida markets. What is certain is that the consolidators can offer a bigger targeted buy than was available before.

Menowsky compares it to the sorts of options that newspaper advertisers have long had - some like to be in the sports section, some in entertainment, some in the front section of news. "This also helps radio get the critical mass to compete with newspapers or television," he says. "Radio has been a weak third with about a 7% share of media retail advertising. But that is partly because radio has been a very boutique business; it isn't any longer."

Menowsky thinks there are some potential savings on the cost side. One out-of-state consolidator set up his six stations in a busted strip mall with a music store anchor in the middle. But sales forces and studios are not always combined. "It makes some difference whether you have one receptionist or four, but not all that much," says Jacor spokesperson Kirk Brewer. "The essence of it is what you have to sell. When you go to talk to a client like a national brewer, you have something to offer."

How much further can this go? Credit Paxson for starting early, when the ownership rules had been loosened only a little and the prices were lower. But now, a spokesperson says Paxson is near or at its limit under the new rule in Miami, Orlando, Tallahassee, Jacksonville and Panama City. The Justice Department has announced it's exploring potential anti-trust issues in the radio consolidations and has actually blocked Jacor from acquiring one station in Cincinnati. So that could be a further limiter.

Also, as happens in an auction-style buying binge, the winners have the morning-after problem of generating earnings that justify the prices. Case in point: Fallen media baron George Gillett borrowed to pay premium prices for a slew of TV stations in the 1980s, including Tampa's Channel 13. Gillett got caught short and couldn't pay his debt when the economy went south. It's too early to determine whether the consolidators have overpaid in this latest round of media buying. There are new issues for the industry lurking around the bend - notably U.S. Supreme Court consideration of the so-called "must carry" rule, which requires cable companies to carry all locally based cable systems in their markets. If cable operators were relieved of their current legal obligation to carry all the wide-band stations in their markets, TV stations would face negotiations and costs to get on cable - a potential damper on their profits.

On the other hand, consolidation tends not to reverse itself. The news anchors are still exquisitely coifed, the country crooners still sing the same sad songs. But mark 1996 as the year the ownership pattern of broadcasting in Florida changed forever and locally based independents became an endangered species.