A regulator’s reversal of arcane channel ownership rules has left US media companies jostling to consolidate America’s local television networks, setting the stage for a wave of deals.
Talks have been under way for weeks between Sinclair Broadcast Group, America’s largest owner of local stations, and Tribune Media, a television group which three years ago was spun out of the group that owns newspapers such as the Los Angeles Times.
On Sunday, 10 days after the Federal Communications Commission restored a media ownership rule the Obama administration had scrapped, Rupert Murdoch’s 21st Century Fox crashed the party with its own plans for Tribune: it has formed a joint venture with Blackstone to mount a rival bid for the station owner with the aim of combining it with its own local channel portfolio.
For the last few years local television stations have faced dual pressures from a worsening advertising environment and increasingly powerful broadcast networks, which have the scale and muscle to charge station owners big fees to carry their programming.
But the recent FCC moves have changed the picture. The regulator voted to reinstate the so-called “UHF discount”, which had been eliminated last year: reinstating it means that station owners will not have to include channels broadcast over UHF waves in calculating how many markets they reach. A barrier to owning more stations has been lifted.
Media executives expect the FCC to take other steps towards allowing companies to own more stations. Aside from Tribune there are several possible consolidation candidates — companies with large station portfolios that could combine with rivals. These include CBS, Walt Disney, Univision and Comcast.
“Local stations won’t be able to survive unless the cap is lifted further,” one senior television executive told the FT. Potential tie-ups between broadcast networks — such as Fox and CBS — would create scale, synergies and, more importantly, allow the combined companies to better exploit expensive sports rights, possibly by owning multiple channels in big metropolitan markets, he added. “If you own NFL rights and can offer advertisers the demographic that watches one network with the demographic that owns another that becomes very powerful.”
This may have occurred to Mr Murdoch and his sons, James and Lachlan, who run 21st Century Fox in their discussions with Tribune. But their plans are also partly defensive.
Fox has 28 owned and operated stations in the US but its broadcast network is carried by dozens of other stations — some of which are owned by Tribune. If Sinclair succeeds in buying Tribune it will own these stations and be better placed to drive a harder bargain in carriage negotiations with Fox.
Fox has other reasons to want Tribune, says Erik Gordon, a professor at the University of Michigan Ross School of Business. “Fox would get more out of owning the Tribune stations because it has expensive rights whose costs it needs to spread over lots of stations,” he said.
Fox and Blackstone declined to comment on their discussions or their plans for Tribune. However, two people close to the talks said that under the proposal being discussed Blackstone would provide the cash and Fox would put its portfolio of owned and operated television stations into a new joint venture company. With Tribune having a market capitalisation of $3.3bn, the interest from Fox and Blackstone should drive up any offer price that had been privately discussed between Sinclair and Tribune.
Fox’s interest in Tribune comes as it awaits regulatory clearance for its £11.7bn bid for the shares it does not already own in Sky, the European pay-TV group. It has a few weeks to wait: Ofcom, the UK communications watchdog, recently put back a decision on the deal until after the UK general election.
The company has also been dealing with the fallout from claims of sexual harassment at Fox News Channel, its lucrative cable news network. On Monday it parted company with Bill Shine, the channel’s co-president, who followed Bill O’Reilly, arguably its biggest star, and Roger Ailes, its former chairman, in leaving in the wake of the scandal.
For now, Mr Murdoch’s company has turned its attention to a sector that has in recent years lacked the glamour or prestige of digital media. With more deregulation likely under the Trump administration’s FCC, it will not be alone in eyeing its potential.
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