Experts who follow the buying and selling of television stations predicted late last year that 2004 would be active, as a stronger economy, an improved advertising market, a presidential election and the Summer Olympics would awaken a market that has been moribund.
With the first quarter now behind them, the experts are still waiting for their prediction to come true.
Despite a handful of transactions year to date, many would-be buyers and sellers remain on the sidelines waiting for a number of factors to tilt in their favor to help restore a sheen to television stations that has been lost because of a recession, a slowdown in advertising revenue and fuzziness over station-ownership rules. With so many unknowns dogging TV stations across the country, analysts said few buyers have the temerity to step up and say they believe market conditions for TV stations are on the mend.
Looming particularly large over TV station sales activity is the uncertainty of rules governing aspects such as whether a single company can own two TV stations in a small or midsize market, or whether a TV station owner can also own a newspaper in the same market. The lack of clear answers on both issues has kept many transactions on hold, as potential deal makers fear that any agreement they strike could run into problems at the Federal Communications Commission.
Much of the marketplace has its eye on a Philadelphia federal appeals court, which is expected to rule later this spring on the FCC ownership rules adopted last June. Analysts are divided on whether a decision in Philadelphia will usher in the wave of station sales activity that the market has been anticipating.
Mark Fratrik, a VP at BIA Financial, described market participants as “waiting at the gate to hear from the Philadelphia court.”
Lee Westerfield, an analyst at Harris Nesbitt, thinks the Philadelphia court could remand one or several rules to the FCC for revisions, which could trigger more lawsuits and delay clarity in the marketplace for another two or three years.
The recent agreement by Congress to impose the station-ownership cap at 39 percent isn’t seen as having much of an impact on TV station activity, since the cap affects mainly network owned-and-operated stations.
Valuations in Dispute
Another significant factor blocking transactions from taking place is the persistent disagreement over station valuations, as buyers continue to shy away from paying higher prices for TV stations in the face of spotty evidence that the national economy is improving and that advertising dollars are beginning to flow freely again. Market participants said buyers are saying that unless they know for certain that the advertising picture is improving, they are perfectly content to wait things out.
“The first quarter was not as strong as people had hoped,” said one person who works closely with station groups. “So people, including strategic buyers, are being careful.”
One station group executive said that while local advertising has been improving, national is only “generally OK,” with conditions improving only in certain markets.
What’s more, political advertising has not matched the expectations of many station group executives, who were betting that the large number of Democratic primary candidates would inject significant revenues into their stations.
Those hopes were dashed fairly early in the quarter, as Sen. John Kerry managed to lock up the required delegate votes sooner than many had anticipated.
An indirect factor weighing on station activity in recent weeks is Wall Street’s tempered enthusiasm for station group stocks. The share prices of many pure-play TV station owners have declined against the backdrop of a weaker-than-expected advertising market and in the wake of Janet Jackson’s breast-baring incident at the Super Bowl. Shares in Sinclair Broadcast Group have fallen 13 percent since February, while Nexstar Broadcasting shares have tumbled 19 percent and Young Broadcasting 16 percent.
While no one expects Ms. Jackson’s “wardrobe malfunction” to be a factor in killing a transaction, there is some worry among some investors that the incident could have implications for future station ownership rules, since FCC Commissioner Michael Copps has said there might be a connection between “the increasing pervasiveness of offensive and indecent programming” and media consolidation.