Media Deregulation Seen Helping Cash-Strapped Industry
Cash strapped and debt-laden broadcasters would be helped by FCC deregulation, all but one speaker on two panels of a commission media ownership workshop Tuesday said. Some said the prospect of widescale consolidation has waned as investor interest in the industry has declined along with ad revenue and the economy. “Scary conglomerates” are unlikely to come to fruition, said analyst Marci Ryvicker of Wells Fargo. Managing General Partner Terry Jones of media investor Syncom Funds was the only speaker wary of deregulation.
“Some mergers have failed,” Associate Media Bureau Chief Sarah Whitesell told the first panel on large-market and big broadcasters, noting that some consumer groups have worried about additional media mergers. Ryvicker said that for a while, there were companies that were getting bigger just to get bigger.” That time has passed after “huge revenue declines,” she said. “These companies are taking a step back and realizing that bigger is not better … and is there a way to work with regulators to consolidate that’s more friendly to ourselves and to the entire market.”
Bureau Chief Bill Lake said the FCC is “formulating” a notice of inquiry for the ownership review (CD Dec 1 p1), “which we hope to do as early this year as we can.” The notice still is expected to be issued this quarter, another commission official said Monday. Bureau staffers asked panelists several questions about how investors decide to buy stakes in media companies and value them. Jennifer Tatel, chief of the bureau’s industry-analysis division, asked how investors take into account DTV multicast streams. No investment value is seen now, Ryvicker replied. When Tatel asked, most of the speakers said they prefer case-by-case decisions to “bright-line” rules.
Whitesell asked, “What will it take for investors to embrace this industry again?” and got few concrete answers. “Investors generally speaking like businesses that are going up,” replied Brian Rich, managing partner of media investor Catalyst Investors. “Fundamentally, you want to try to figure out how to return the sector to growth again.” Relaxing restrictions on owning both a broadcast station and a daily newspaper in a city and on owning two TV stations in a market would help, panelists said. “The regulatory environment during this next upcoming cycle can have a profound impact on the future of broadcasting,” said Rich, seeking relaxed cross-ownership rules.
“The industry will have to work through its debt load” and “there has been and will be more bankruptcies to accommodate this delevering,” Rich said: “Broadcasting generally has gone past its growth phase,” is “mature” and won’t go “back to the old days.” Ads made up 2.4 percent of U.S. gross domestic product in 2000, versus 1.9 percent now, and are unlikely to return to earlier levels, he said.
“We should not spend too much time on rules that attempt to legislate matters of declining marketplace relevance,” said CEO Brandon Burgess of Ion Media. “Regulation designed to ensure that traditional outlets across various old media don’t dominate yesterday’s world does little to ensure that diverse, independent and innovative players have a fair and equitable chance to compete.” Broadcasters have had financial problems for reasons such as high debt, not regulation, said Jim Cotter, head of media and telecom mergers and acquisitions at SunTrust Bank.
“Operators that have survived are trying to extend the due date of their loans,” Cotter said. “They are replacing loans that are in place with high-yield bonds to sort of give them the runway they need to get out of this recession.” Media companies had $25.1 billion in face value of loans in default or bankruptcy in the first three quarters of 2009, and syndicated loans to the industry totaled only $1.4 billion, SunTrust data show. That’s down from $55.8 billion two years earlier.
Speakers, including those on a second panel about smaller broadcasters, agreed that additional broadcast bankruptcies are likely. “Ninety percent of the companies out there are either on the cusp of default … or in bankruptcy,” said Managing General Partner Brian McNeill of media investor Alta Communications. “It’s in a very dire financial situation now. I don’t believe there is any one silver bullet regulatorywise or otherwise that can fix the problem.” Current limits on cross-ownership are “pretty limiting” and the rule preventing common ownership of TV stations in markets with fewer than eight other broadcasters “doesn’t make sense to me,” he said.
“Consolidation is not the bogeyman” since the industry wouldn’t be viable without it, said Rick Peters, co-founder of radio station owner Bluewater Broadcasting. Susan Patrick, an owner of station broker Patrick Communications, said “your mantra should first be ‘do no harm.'” The effect of FCC rules “is often more severe on smaller market broadcasters,” she said, seeking deregulation of TV duopoly limits.
Jones said he isn’t sure any deregulation will help the industry financially or in serving the public interest. “I haven’t heard much of that talked about today. Otherwise the term public airways is just lip service. … I'm not sure that changing these rules really makes much of a difference.” Doing so, he added, “allows those who have resources, who have gotten those resources free from the commission over the last 80-some years, to be able to buy up what’s really important, which is spectrum.” -- Jonathan Make
Media Ownership Workshop Notebook …
Broadcasters are “undergoing a great change and subject to a great many stresses” affecting their business, Media Bureau Chief Bill Lake said at the workshop’s start. Ownership rules affect the industry’s health, he added. “We understand that the financing opportunities may differ between the large and small companies and between the large and small markets.”
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Missing from Tuesday’s workshop was a “consumer voice,” said Free Press, which opposes media consolidation. “While the agency has encouraged public participation, today’s panel did not include any representatives from consumer or labor groups.” A representative of Free Press spoke at an earlier workshop (CD Nov 4 p2).
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The FCC should change its ban on common ownership of Big Four TV stations in a market to exclude Fox affiliates, said analyst Marci Ryvicker of Wells Fargo. The stations air much less news than affiliates of ABC, CBS and NBC, she said.
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The only broadcaster represented on the first panel considers itself a smaller company, so no one from large broadcasters spoke at the workshop, said CEO Brandon Burgess of Ion Media. “We all know who they are.” The Open Mobile Video Coalition will start a “consumer showcase” in the Washington, D.C., market in several weeks, said Brandon Burgess, the coalition’s chairman and Ion Media’s CEO. Ion’s WPXW-TV Manassas, Va., and seven other stations in the market will take part, he said. “This showcase will be the next giant step on the road to the nationwide availability of mobile DTV.” The update follows up on a promise by the coalition to test the technology in Washington early this year (CD Oct 19 p2).