TV Stations Rebound, But How High?

A recent report from David Wyss, chief economist at Standard & Poors, adds perspective: "The economy seems to be coming out of the longest and deepest recession in postwar history, but we expect the recovery to be slow," Wyss writes. "The recent data have turned less upbeat, as the initial impact of the stimulus package boosted third-quarter numbers. Still, the continued calming of financial markets and the stabilization of housing suggest the recession is technically over, even if it won't feel like it for a few more months."

It has been a particularly rough period for station groups. While bankruptcies are up across the board in all sectors, station groups account for an unusually high number of filings over the past 18 months. Among them: Tribune, Young, Pappas, New Vision, Freedom and Equity Media.

There's a lull at the moment, says Shea, but filings may ramp up again next year. "A number of broadcasters have had covenants relaxed or in forbearance periods running from now to sometime in early to mid 2010 at which time covenants step down again," he says.

A second factor for the pause: "Lenders are waiting to see what the third quarter looks like," Shea says. "No one is taking any formal action right now."

If there's a motto for the broadcast business this year, it's "less down is the new up."

"Stocks are up, but I don't know that business is up that much over last year," says Gabelli & Co.'s Lucas. "The decline in the core business appears to be abating. My only issue is I'm getting tired of less down being the new up. I'd like to see the new up."

That's probably going to have to wait until the second or third quarter of next year. And even then, it's likely to be up so little as to be nearly invisible.

BIA/Kelsey projects 2010 revenues for virtually all the U.S. television markets will increase about $100 million, to $16.2 billion. That's a 0.6 percent increase spread across 200-plus television markets and so far off the recent industry peak of $22.8 billion in 2006 that it's a little surprising that stocks didn't fall further.

Others are more optimistic. Each fall, the Television Bureau of Advertising reviews the revenue forecasts for the upcoming year of industry analysts and sales rep firms. The consensus for 2010: 3.6 percent to 6.1 percent.

With upticks in stock and debt prices, can a restart of the M&A market be far behind? Depends on whom you ask.

Shea projects private equity will be the bellwether: "I see the first M&A deal getting done by a private equity investor that buys a [station] platform and pays cash on the expectation they'll finance it later."

Schmaeling has a somewhat different take. "There's no doubt that for companies like LIN, credit availability is significantly better than back in March. Does that lead to M&A? I think it likely does over time, when there's more stability in the outlook.

"I don't share the view that some of my colleagues have that private equity is going to come back into the sector in a big way," Schmaeling adds. "A lot of private equity money got burned in the broadcast space in a big way."