When the economic hemorrhaging stops, broadcast TV stations will still be struggling to close the $3 billion-plus gap between their declining advertising revenues and new online or other digital income.

The widening gap will force some stations to go black or to merge with other local media under more liberal cross-ownership deregulation -- a life preserver that could be provided by a new FCC. Surviving broadcasters will have created and mined digital wireless connections between local consumers, marketers and content. Within five years, it is likely that the TV station business as we have known it will be radically changed.

It is not difficult to draw such assumptions from recently released statistics and revised forecasts.

Q4 2008 Earnings Call Transcript

February 25, 2009 9:30 am ET

Last week the magazine industry suffered from more cutbacks.

Thursday, the Reader's Digest Association said it will lay off about 300 people, some eight percent of its employees, it'll put employees on unpaid furloughs and suspend contributions to workers' 401(k)s. The Company publishes its eponymous Readers' Digest, Every Day with Rachael Ray, many magazines overseas, websites including Allrecipes.com, and a new magazine and organization, Purpose Driven Connection, built around Rick Warren. The company isn't shuttering any of its U.S. magazines or websites, but it is cutting back at its operations around the world.

We've seen lots of wry, earnest and soul-searching comments about whether newspapers should get in line for federal bailouts, since all other pillars of society seem to be stretching their hands out.

Most, I think, are missing the point. The bailout is on the way. Thankfully, it's not coming in the form of direct federal payment to newspapers. It's coming in the largest stimulus package in US history. $100 billion, are you kidding? $300 billion? How about $500 or $700 billion? That stimulus, combined with other economic recovery programs, gives newspaper companies a new shot at getting some growth in 2009.

The continuing consolidation and collapse of finance, automotive, real estate and other major categories are taking a big chunk out of deflated advertiser spending–some of which may never return to the media fold. That prospect is fraying the nerves, as well as the revenue and earnings forecasts, of ad-supported media from broadcast and cable to print, outdoor and even Internet display.

This huge unraveling of advertising dollars is just becoming evident, and local newspaper and TV broadcasters in particular are running scared and slashing costs to cut their losses. It is becoming more apparent that even after the economic recession hits bottom and ad spending rebounds, there will be fewer brand marketers and small local businesses.

This week's list of top performers has high exposure to retail and solar; areas we have been moving into the past few weeks with greater weightings.... but more into solar than retail for the fund. This list continues to show us that "beaten down" merchandise from the past year is the market's favorite right now. At the very bottom of the entry I also posted the top returners in the $1B to $1.75B range of market capitalization since we are increasingly buying some smaller fare.

Criteria

Local TV broadcasters besieged by an advertising freefall and maneuvering the transition to digital have to be asking themselves: "What would Google do?"

It might not be a bad idea to wonder what the online giant–which is hotly pursuing broadcasters' unused wireless white spectrum–would do to fashion a digital salvation plan for local TV in what is shaping up to be the worst local TV advertising market in decades. It's far from over, and in the end could have a devastating impact on some TV station owners.

Q2 2008 Earnings Call

August 1, 2008 9:30 am ET

Hearst-Argyle Television, Inc. (HTV)

Q1 2008 Earnings Call

Q4 2007 Earnings Call

February 22, 2008 9:30 am ET

Late last week, LIN Television (TVL) announced it had secured a retransmission deal with Dish Network Corp. (DISH), formerly Echostar Communications, for 26 television stations in 17 of its local markets. In its March 13, 2008 note to clients, a Bear Stearns analyst estimates this deal to be worth approximately $3.6 million per year (based on an estimated 1 million subscribers at $0.30 per subscriber, per month). The note goes on to state that, “we believe TVL is on track for $13 million of retransmission fees in 2008 based on the 4Q run rate and now are more confident of the $25 to $30 million in fees longer term as reflected by this deal”. They maintain an Outperform rating on TVL.

Retransmission fees, for those not in the day to day of the television industry, are fees paid by cable and satellite operators to local broadcast television stations for the right to retransmit the over the air broadcast signal to their subscribers as part of their overall programming offering to consumers. While the concept of retransmission consent has been around for a while, it is only in recent years that television broadcasters have been able to maximize the revenue opportunities therein, primarily as a result of the ongoing battle between satellite operators such as Dish and Directv (DTV) and cable operators including Comcast (CMCSA), Charter (CHTR), Cablevision (CVC), Time Warner (TWX) and a myriad of smaller carriers. Television broadcasters have historically had two options by law when negotiating with cable carriers- retransmission consent and “must-carry”. Must-carry is simply an obligation of the cable operator to carry the local television station on its system so long as the television station meets certain standards and conditions, but no consideration is otherwise given by the cable companies. On the other hand, retransmission consent is the free-market negotiation between the parties for cable carriage. In the past, it may have had a monetary component to it, but more often provided the broadcaster better or additional channel positions and other promotional consideration for the right to redistribute their signals. Both create a no-lose situation for local broadcasters in expanding their reach beyond the over the air signal, but retransmission consent heavily rewards broadcasters who invest in quality news operations, syndicated programming and network affiliations that consumers desire. Rupert Murdoch was known to use retransmission consent to his fullest advantage in the 1990’s. Newscorp (NWS) capitalized heavily on the strength of the Fox Network and its owned and operated television stations to secure national carriage for many of the then fledgling cable networks that are now highly profitable franchises for that company. EW Scripps Co. (SSP) is another company that used this strategy to create lucrative national cable networks on the backs of its television station group. Others, such as Belo Corp (BLC), used the negotiating leverage of their station groups to launch local and regional news networks on cable systems. Cable operators were willing to provide additional channel capacity then as they wanted to ensure they continued to offer such things as local news and sporting events, but did not want to pay-out rights fees to do so. In addition, capacity was not as constrained or as valuable as it would become, hence the concessions were made. However, cable positions did eventually became much more in-demand with the proliferation of niche cable networks on both the analog and digital tiers of their systems, and cable operators significantly curtailed this practice. The introduction of satellite television as a formidable competitor forced the cable companies to revisit their stance on retransmission consent, though. The likes of Dish and Directv began aggressively seeking new ways to offer differentiated content, and broadcasters eventually persuaded regulators to mandate certain retransmission rights on satellite as well. This put many broadcasters in an enviable position, and finally gave them significant leverage to demand cash payments from the cable companies in the retransmission consent process.

In their cover story this week, Barron's identifies a handful of industries and companies where “investors who play their cards right could see big payoffs in debt-laden companies whose shares have been pummeled in recent months”.

One of the areas they feature is operators of radio and television stations, considering these levered equity plays with stocks that “could rebound sharply when the credit climate improves”.

One of the most important things to look for when investing is management friendliness towards shareholders. There are countless companies out there who are very adept at promoting their stock, but as we've seen with Enron, WorldCom, Adelphia, etc., following such advice is a very bad idea. Many lost their entire retirement assuming that upper-level management wouldn't lie to them. How, then, is it possible to determine whether management is acting in the best interest of the shareholders?

There are a few ways to do this. You could listen to conference calls and read through 10-K and 10-Q SEC reports. Unfortunately, not everyone can derive the information needed to make a decision from these sources. There is, in fact, a much simpler way to find companies that are truly aligned with their shareholders: by tracking insider buying.

Editor’s note: I knew we were speaking too soon. One more deal to add to the list: Time Warner to buy Quigo. Added to the bottom of the list, under ad networks.

According to The Jordan Edmiston Group Inc.’s October 2007 Client Briefing report, the number of deals through the first three quarters of 2007 exceeded full year 2006 figures: 637 transactions with $95B in value thus far. Do the math and that is $150M per deal, quite rich.

I don't think Kevin Martin got enough attention when he was a kid. He seems to have a penchant for blowing things up -- newspaper/TV cross-ownership, the cable industry brotherhood -- to get attention, and he's getting plenty from Congress, irate Republicans upset about new regulatin' and irate Democrats sending out petition letters by the millions in the name of "diversity."

So Martin should get some kind of award (if those pesky writers weren't striking the awards shows; maybe he can take on that controversy next) for getting some new conversation going about media's place in this ever-digitizing world. That'll have to wait though.

Q3 2007 Earnings Call

November 8, 2007 9:30 am ET

I have been busy today buying stocks. I added Mothers Work (MWRK) and I accumulated shares of an actual Graham net-net for the Fat Pitch Financials Port. I also picked up shares of an odd lot tender offer and earlier this week I sold my very profitable KBR position in the Special Situations Real Money Port. More details will follow shortly on some of my purchases.

YouTube, Google's online video-sharing unit, announced Sunday it has reached a revenue-sharing deal with local TV station operator Hearst-Argyle TV. Hearst-Argyle, which owns 26 stations, will provide YouTube with news, weather and entertainment content as well as digital video clips of local interest, including high school football and basketball games and amateur entertainment. In exchange, YouTube will pay licensing fees to the originating local stations each time their clips are viewed on the site. This will be the first time YouTube has paid for video content from local TV. The fees will be paid from the ad revenue YouTube earns when users view Hearst-Argyle's clips. The percentage that will go to Hearst-Argyle was not disclosed. "We have great content, and they have great distribution," said Terry Mackin, Hearst-Argyle's executive VP. The announcement follows YouTube's agreement last week to enter into a video and music licensing agreement with EMI Group. That deal will allow users to play EMI videos and recordings on YouTube and also to incorporate them into their own video content. YouTube will track viewers' use of EMI content and pay its artists accordingly.