Broadcasters Expect Lighter Regulation, More Consolidation

Broadcasters are confident the national ownership cap will be relaxed, ownership rules will be rolled back, and broadcasters will continue to grow through M&A, said panelists at S&P Global Market Intelligence’s TV & Radio Finance Summit Thursday in New York. “Consolidation will continue,” said Nexstar Broadcasting President Tim Busch. “Consolidation has to happen,” said Heartland Media CEO Robert Prather. “There’s got to be somebody like Sinclair and Nexstar that has the clout” to push back against the more powerful networks, Prather said. There have been $4.3 billion worth of deals so far in 2017, compared with $5.2 billion in 2016, said S&P Global analyst Robin Flynn: “We anticipate seeing strong M&A momentum.”

Though nearly every panelist said the FCC would loosen ownership regulations and the national cap’s effect on ownership would be reduced, they admitted they weren’t sure of the specifics. These likely haven’t been finalized in the minds of commission leadership, said Gray TV Chief Legal Officer Kevin Latek. “Anything would be more rational” than current FCC ownership rules, which are largely arbitrary, he said. Some panelists said they believe the FCC will relax the national ownership cap, but Fletcher Heald broadcast attorney Dan Kirkpatrick said he believes it's more likely the cap will be addressed by Congress. However, polarization and gridlock have made it difficult for Congress to pass many bills, said Wiley Rein broadcast attorney Ari Meltzer, and he said a majority of FCC commissioners don’t believe the agency has the authority to alter the cap. FCC action to roll back local ownership rules doesn’t face the same obstacles because the Republican commissioners all feel similarly about them, Meltzer said.

As broadcasters grow, they will be better able to push back on increasing “reverse retrans” fees, the percentage of retransmission consent funds they must pay to networks, said MoffettNathanson analyst Michael Nathanson. Bigger broadcasters are needed to make a stand for the whole industry, Prather said. “I don’t have enough clout, they don’t give a damn,” he said. Reverse retrans is still a relatively new concept, and rates have yet to reach equilibrium, panelists said. The split will settle eventually into roughly 40 percent of retransmission consent fees staying with broadcasters, 60 percent going to networks, predicted Steve Foerster, Griffin Communications chief investment officer. Several panelists said they expect future retrans consent negotiations to lead to fewer blackouts. When the FCC and Congress were under Democratic control, federal intervention in blackouts was more likely, encouraging them to take place, said Kirkpatrick.

FCC ownership regulations “hamstrung” the radio industry, said Connoisseur Media CEO Jeff Warshaw. Broadcasters are more heavily regulated than other media, to the degree that it goes against the public interest, he said. Radio also is being held back by a lack of “rate integrity” in the industry and the overloading of content with commercials, he said.

The financial difficulties of large radio broadcasters iHeartMedia and Cumulus created an “overhang” for the industry for outside investors, said Entercom CFO Richard Schmaeling. If ownership rules were relaxed, M&A in radio would likely follow, said Beasley CEO Caroline Beasley. At the least, it would kick off a host of station swaps, Warshaw said.