We are living in the platinum age of television. Consumers are enjoying an abundance of movies, news, sports and entertainment, available anytime and anyplace, in-home or out. Every communications medium from wireless phones to the worldwide web is in the business of broadcasting content over its platform. Although we now call it “video,” at the core, it is television nonetheless, and the world cannot get enough of it. For legacy broadcasters, this is both a blessing and a bane.
Before the end of the year, the Federal Communications Commission (FCC) will finalize its mandatory review of the national ownership rules — a set of regulations governing television and radio station ownership in the U.S. The FCC is expected to expand, and perhaps eliminate, the national ownership cap. If it does, broadcasters will be dealt an unprecedented, but fortuitous, break which will change the media landscape for the foreseeable future. It would be a follow-on to the FCC’s 2017 decision to reinstate the UHF discount, an arrangement that allows broadcasters to count UHF stations as only 50 percent toward the national ownership cap.
{mosads}Rules from a bygone era
Currently, the law prohibits a single company from owning commercial TV stations that reach more than 39 percent of American TV households. The national “ownership cap,” as it is called, dates to 1941 and was imposed to protect localism, diversity and competition in the market, but many believe it has outlived its original intent from a bygone era. The cap has been updated a few times over the years — in 1985, 1996, and 2004, when Congress established the current limit and mandated the FCC to review the rule every four years.
According to most experts, these actions will spark more consolidation in the TV industry at a time when the broadcast industry is undergoing monumental change. If the national ownership cap is eliminated altogether, it will be an overdue lifeline to broadcasters as they face competition from Internet companies and others.
New competitive market
As one of the nation’s most heavily-regulated industries, TV broadcasters are in a fierce battle not only for audiences, but also for advertising dollars, both of which are waning. Beyond traditional television, today’s video market now includes cable and internet video providers that have bigger budgets and deeper pockets. Of the $148 billion spent on local advertising in 2017, only 13 percent went to local television, reflecting a steady decline since the glory days of broadcasting. Due to the ascendance of high-speed Internet service, the video market has exploded with new content and advertising options from pay television and over-the-top (OTT) providers.
Competition has expanded well beyond the five major networks — ABC, CBS, FOX, NBC and CW. It includes the likes of Facebook, Amazon, Apple, Netflix, Google and other OTT Internet services, in addition to pay TV providers such as AT&T, Charter, Comcast and DISH. None of these entities, however, are subject to any rules that limit how many TV homes they can reach whatsoever, and all have a national footprint. The law also imposes numerous public interest obligations on over-the-air broadcasters that do not apply to non-broadcasters.
There is a notable competitive disparity between broadcasters and other video programming distributors, especially in comparative size and value. Consider the market capitalization for the top non-broadcast media players: Apple ($670b); Alphabet ($598b); Amazon ($396b); Comcast ($235b), and Netflix ($59b). By contrast, the total value of all broadcast groups barely approaches $40 billion, which is less than the smallest (and newest) non-broadcast video provider, Netflix. Arguably, these factors have disadvantaged broadcasters and favored the newer entrants in the market.
With this, the stakes surrounding the media ownership rules could not be higher for independent broadcast groups, including Nexstar (130 stations), Sinclair (118 stations), Gray (75 stations), ION (60 stations), Raycom (47 stations), TEGNA (45 stations), Tribune (41 Stations) Univision (38 stations), Hearst (32 stations) and Scripps (27 stations). With an expanded or lifted national ownership cap, these companies would be free to pursue significant growth through mergers and acquisitions.
Recently, we caught a glimpse of the opaque world of TV ownership in the controversial Sinclair — Tribune merger. Announced in 2017, the $4 billion deal would have solidified Sinclair Broadcasting as the single largest owner of local television stations in the United States by far. It required the approval of the Department of Justice and the FCC. But it was not to be. The mega merger failed the public interest test and divestiture conditions required by the FCC.
Despite the demise of that deal, the status quo has been indelibly changed. There has been a flurry of sales by smaller and mid-size broadcasters to get bigger. Cox Television will sell 14 stations. Raycom Media is selling its stations to Gray Television. Scripps bought Katz Broadcast networks. Major broadcast groups, including Nexstar, Tegna and Meredith are expected to join the fray as buyers, sellers or both. With growth, comes greater public interest expectations. Industry leader Perry Sook, CEO of Nexstar, has publicly committed to “putting more stations in the hands of small and minority buyers as part of our future processes” and other big broadcasters have vowed to expand coverage of local news. This comes as critics question the impact of consolidation on local and diverse communities.
TV not dead
Like Mark Twain, reports of TV’s death have been greatly exaggerated. A promising sign of life has been the emergence of top private equity firms as buyers of broadcast stations. Apollo Capital Management, Blackstone, Providence Equity Partners, and others are actively shopping for TV stations in markets throughout the United States. Investors understand that broadcast properties come with brick and mortar assets, free cash flow and predictable annual EBITDA earnings. In political years, revenue rises from state, local and national ad campaigns. As private equity and hedge funds invest, the markets are taking note, even though broadcast stocks remain slightly undervalued.
Beyond earnings, billionaire investors like Michael Dell and Phil Falcone have discovered greater value in broadcast. These deep-pocketed players have been snapping up little low-power TV stations all over the country, not because they are interested in featuring the latest high school football team or delivering the late local news, but because they have found the mother lode of value for broadcasters — spectrum. As a finite resource, spectrum is carefully managed by the FCC and highly coveted by wireless, satellite, cable and Internet companies for future expansion and next generation communications. The last two major spectrum auctions yielded $44.9 billion and $20 billion respectively for the government. Clearly, there is gold in them there towers.
This should be warm comfort for all broadcasters as Next Generation TV — also known as ATSC 3.0 — moves closer to becoming the industry standard. It promises to deliver Internet-like capabilities to broadcast spectrum, including addressable advertising and micro targeting of viewers. Even with this new capability — which is game-changing — broadcasters still need scale to stay competitive.
If the FCC votes to eliminate the national ownership cap — which it should — legacy broadcasters will be empowered to build the capital, size and content they need to compete in today’s media ecosystem. Unlike their competitors, broadcasters also bring an abiding public interest commitment to the television marketplace, and that is very good for America.
Adonis Hoffman is chairman of Business in the Public Interest, Inc. and co-founder of Hx Media LLC. He is a former chief of staff and senior legal advisor to an FCC commissioner.