Broadcast station owners want to consolidate. They’re struggling to get deals done

The television broadcast industry knows it needs consolidation. He’s just struggling with how to do it.

In August, Nextstar Media Group, The largest owner of broadcast stations in the United States announced a proposed $6.2 billion deal to buy Tegna -A combination It will bring together more than 260 stations across the US

Last week, sinclair, proprietor One of 179 local TV affiliates makes hostile bid to buy smaller peer EW Scripts after purchase almost 10% The company is on the open market

Both potential deals remain uncertain, and executives are growing impatient.

Companies like Sinclair and Nexstar operate affiliate stations of major networks across the U.S. known for local news, sports and other broadcast content. They face the same headwinds as their cable and content studio counterparts; shrinking number The number of pay TV customers has increased due to increased broadcast and technology options.

Broadcast station owners remain profitable, thanks in large part to the high fees they receive from pay-TV distributors.

Approximately 65 million U.S. households still subscribe to a number of linear TV networks. Between 33 percent and 50 percent of a broadcast station group’s annual revenue comes from retransmission fees (payments to the broadcaster for inclusion of local TV affiliates in pay TV packages), with advertising accounting for most of the rest.

However, as the universe of traditional package subscribers shrinks, the profitability of these companies also shrinks. Broadcast strategy for local news and TV is yet to come together, and local newsrooms and sources, like other parts of the media, are interdependent. decreasing.

This left station owners desperate to merge, just as most major media companies did. extraordinary, Warner Bros. Discovery And Comcast’s NBCUniversal – continues to plan its own potential mergers. The impetus for the deals between station owners is to reduce recurring costs and add scale to their businesses, increasing bargaining power when it comes time to renew carriage with the largest pay-TV providers like Comcast. Condition, Google’s YouTube TV and DirecTV.

While some face regulatory headwinds, it is family ownership dynamics and cultural and governance issues that have complicated recent efforts to acquire scale, according to Sinclair.

The company announced In August, it was launching a strategic review to merge its broadcast station business with its peer. At this point, Sinclair and its advisors had been in talks with potential merger partners, CNBC previously reported.

One of these goals was: Gray MediaAccording to people familiar with the matter who spoke on condition of anonymity about internal plans. However, sources said talks with Gray had not progressed, with Gray waiting for government approval for a much smaller deal and not rushing into another transaction.

Sinclair then set his sights on Scripps, which owns more than 60 stations and several entertainment channels such as Ion and Bounce. According to sources familiar with the matter, negotiations for the agreement began last year.

Initial talks revolved around forming a company in which both the Scripps family and the Smith family, which owns a majority of Sinclair’s voting shares, would give up majority control of a combined company but remain involved in the business, according to people familiar with the matter.

These initial discussions included the development of an independent board that would be responsible for making key business decisions, such as whether and when to withhold national programming. In September, Sinclair and Nexstar appeared on “Jimmy Kimmel Live!” They chose their departments first. The late-night host made controversial comments following the murder of conservative activist Charlie Kirk.

Throughout discussions of the Scripps deal, Sinclair proposed three different versions of a transaction, including different terms on who would remain CEO and whether the deal would be structured as a merger or acquisition, people familiar said.

The Scripps family ultimately held out, in part because of management issues and cultural concerns, two of the sources said. Sinclair’s controlling family, in particular, is known for its conservative policies. In 2018, Sinclair released all of its owned stations, calling them “mandatory broadcasts”; This comment sometimes echoed the perspectives of then and current US President Donald Trump. That same year, Sinclair’s attempt to acquire Tribune ultimately failed due to both concerns from the Federal Communications Commission and criticism from Democrats and public advocate groups about whether the merger was in the public interest.

“I think there’s a lot of complexity in any transaction, especially transactions involving family-controlled public companies with highly leveraged balance sheets,” Scripps Chief Financial Officer Jason Combs said at Wells Fargo’s TMT Summit in November. “I think they will add some complexity to a variety of issues, whether it’s economic division, whether it’s the impacts on capital structure and the potential there, whether it’s governance issues. There’s a wide range of issues.”

When the discussions quieted down in September, Sinclair began buying Scripps stock on a weekly basis until its stake reached roughly 8% and it was forced to go public. Securities and Exchange Commission. Sinclair is currently a 9.9% stake at Scripps. sinclair It was announced to the public last month He would go after a hostile transaction by Scripps.

In the days following Sinclair’s public offer to acquire Scripps for $7 per share, or more than $580 million, Scripps adopted Shareholder rights plan, commonly known as “poison pill” To give him more time to evaluate the offer.

“We believe the strategic and financial logic of a potential Sinclair-Scripps combination is unquestionable,” Sinclair said in a statement last week. he said. “Given family control of Scripps, the only effect of adopting a poison pill would be to limit liquidity opportunities for Scripps’ public shareholders.”

A Scripps spokesman on Wednesday said the company adopted the poison pill “to ensure that all shareholders receive full value in its offer to acquire the company.” The spokesman said the plan aims to prevent “coercive tactics” and will expire after a year.

“We are focused on achieving deregulation and continue to advocate for the elimination of legacy restrictions on local television ownership as the best solution to level the competitive playing field for all media,” Nexstar CEO Perry Sook said in a statement in November. he said. release While seeking approval for the Tegna deal.

In addition to the 39% nationwide cap, broadcasters also want to repeal another law on the books that prevents a company from owning three or more ABC, CBS, Fox or NBC affiliates in a given media market.

FCC Chairman Brendan Carr has been outspoken in his support for reforming the law. In one example earlier this year, Carr reportedly He called ownership caps “hidden, artificial limits” and added that such rules “do not apply to Big Tech.”

in late september FCC said will review property rules. However, the changes have not yet materialized and the voice of the opposition is rising.

Additionally, one of the sources said, the Justice Department has been slow to approve deals in the industry, creating obstacles for deals of all sizes.

Trump recently hit Proposed consolidation of the industry in a Truth Social post. Meanwhile, Chris Ruddy, CEO of the conservative cable TV channel Newsmax and a Trump supporter opposes FCC rule changes, discussing consolidation limits it increases the number of potential voices and increases cable prices for Americans by giving affiliate groups more advantages.

A representative for Carr did not respond to requests for comment.

The argument against these mergers of pay-TV distributors is that higher fees will be passed on to consumers, which will likely increase the bleeding of traditional package customers. They also say it’s unclear how merging these companies would help the local news industry, as station owners claim.

“Sinclair is seeking a mega footprint across the country and in local markets across the country that will allow them to charge even more exorbitant retransmission confirmation fees. These higher prices will leave consumers faced with a painful choice: pay up or lose your program,” Grant Spellmeyer, president and CEO of America’s Communications Association, a distributor advocacy group, said in a statement.

Curtis LeGeyt, President and CEO National Association of BroadcastersThe industry’s trade association told CNBC that local broadcasters “are not demanding special treatment; we want the ability to compete in today’s media environment.”

“Removing the arbitrary 39% cap that applies only to broadcast stations will allow station groups to invest in local journalism, sports rights and technology that keeps communities informed during emergencies, especially in smaller markets,” he said. “The national limit was implemented in an era before broadband and streaming reshaped the way Americans get their news, and the longer Washington delays in addressing this issue, the harder it becomes for local stations to maintain the trustworthy local news and reporting Americans rely on every day.”

Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC. Versant would become CNBC’s new parent company, based on Comcast’s planned Versant spinoff.