Editor's Corner—From spectrum auction disappointment springs broadcast consolidation hopes

Ben Munson

The FCC’s highly touted broadcast incentive auctions have just about left the building, and no one seems to miss them much.

Early on, the auctions promised to offer up 126 MHz of beachfront spectrum and possibly clear more than the record $44 billion haul brought in by the AWS-3 auctions. But when the dust settled and the proceeds stopped on $19.6 billion after four grinding rounds of bidding, it seemed clear that many in the broadcast industry were disappointed. Now all that’s left is the assignment bidding phase to allow winners to bid on individual frequencies, which will begin March 6 and is scheduled to wrap up by March 30.

“I think everybody in the for-profit television business got the joke pretty early on that the auction was not going to be any kind of a game changer or a life-affirming event,” said Nexstar Media CEO Perry Sook during his company’s latest earnings call.

Nexstar Media is expecting to receive approximately $475 million of gross proceeds from the sale of Media General’s spectrum and much of those proceeds will go back to Media General’s shareholders.

To be clear, some broadcasters did fairly well. Fox Television is expecting $350 million in proceeds and Univision is expecting $376 million. And major broadcast groups like Sinclair offered relatively charitable recaps of the proceedings.

“So I think we did very well. All things considered. We sold three stations in this auction and yielded $313 million. They were very high per megahertz POP value, so we are very pleased with the unit values that we achieved. Obviously, if it had of been stage one, two or three, this would have been a vastly different number, orders of magnitude bigger and that's just a function of how the auction was set up,” said Sinclair Broadcast CEO Chris Ripley during his company’s latest earnings call.

But other broadcasters like CBS and E.W. Scripps—both of which came away empty handed from the auctions—painted slightly more grim portraits of plummeting spectrum valuations.

“At the top, we saw those initial values and we said, oh, that could be interesting in certain circumstances. But we did not sell any full power signals in the auction. As the auction continued to drop rapidly in value, it just didn't make sense for us to participate because we make so much more money by broadcasting in the highest standards possible. So that's our bread-and-butter, so we weren't going to participate in a process where values were going down significantly,” said CBS CFO Joe Ianniello during his company’s most recent earnings call.

E.W. Scripps, however, seemed eager to brush off the auction and begin looking toward the broadcast industry consolidation possibilities in its wake.

“So I think the timing all of this works really well. And I do think that now with the auction behind us, and positive momentum and probably some regulatory changes, I think, we are anticipating a flurry of activity that begins this year. Some of it small, some of it significant. But I think that timeline is now lining up for the beginning of an event,” said Brian Lawler, senior vice president of broadcast at E.W. Scripps, according to a Seeking Alpha transcript.

Indeed, it appears the consolidation train is already rolling.

As TVNewsCheck’s Doug Halonen pointed out, many so-called “zombie” stations who sold spectrum during the auction are now looking sell off their remaining broadcast assets. He noted that independent station WBIN Boston said it sold its spectrum for $68 million and then sold its television licensing rights to a major broadcast group for as much as $10 million to $30 million.

A Reuters report this week suggested that Sinclair and Tribune Media have begun tentative talks regarding a tie-up. Meanwhile, Sook and CBS CEO Les Moonves both sound ready to mingle among the many broadcasters who may be willing targets of M&A activity.

“If the cap is lifted we’d strategically look to buy more stations,” Moonves said during his company’s latest earnings call.

The current ownership cap, which controls how much reach individual broadcasters can acquire, dictates that a broadcast station group’s audience reach should not exceed 39%. But that cap could be easier to work around if the FCC decides to revamp the UHF discount.

Last year, the FCC changed the UHF discount governing ownership rules for broadcast stations so that UHF stations would now have to count 100% of their reach toward the cap, instead of the previous 50%. Broadcasters like CBS have urged the FCC to reinstate the UHF discount before making any further reforms on the ownership rules.

Now broadcasters like Nexstar feel that the FCC—under the guidance of new Chairman Ajit Pai, a fan of light-touch regulation—are anticipating a shift in the rules.

“Well, we do anticipate there will be deregulatory activity … as we roll through the year. Some things will happen sooner than others. We're optimistic that the UHF discount will be reinstated and then an NPRM issued to discuss all ownership rules, both local and national that the FCC I think will work through,” said Sook according to a Seeking Alpha transcript.

With the broadcast incentive auctions mercifully laid to rest and with scale to be gained by snapping up smaller broadcasters who weren’t able to cash in on the auctions, a big wave of consolidation is likely heading for the broadcast industry. - Ben, @fiercebrdcstng