It's Time For A New Business Model

Veteran broadcaster Tony Cassara wants to reenter the TV station business and may soon do so -- albeit by a back door.

After three decades as a TV station sales and management executive, Cassara is now advising some of the lenders who pumped a lot of money into rapidly expanding broadcast groups a few years ago and are now trying to salvage what they can.

If the lenders -- or other investors who buy their notes on the cheap -- end up with controlling interest in a station group, Cassara may be called in to run it.

After stints in broadcast sales, Cassara joined KTLA Los Angeles as sales manager and was later upped to GM. In 1982, he fronted the KKR-backed leveraged buyout of the station from Gene Autry for $245 million and he was still there when KKR sold the station to Tribune just two years later for a then single-station record of $530 million.

From 1993 to 2000, he ran the Paramount Pictures Television Stations Group. Starting in 2000, he worked closely with Jerry Perenchio in expanding the Univision network and station group until they were sold to a private equity consortium in March 2007.

In this interview with TVNewsCheck Editor Harry A. Jessell, Cassara says he believes the business can rebound from its current difficulties, but only if it can find new revenue, drastically cut costs and get along with operating margins half of what they were just a few years ago.

An edited transcript:

We've had a number of bankruptcies over the past several months: Pappas, Tribune, Ion, Young. Should we expect to see more of those this year?           

I would definitely think so. The business has not improved to the point where marginal broadcasters are getting the help they probably need if they're overleveraged. With the euphoria of the last five or six years of easy money, a lot of people did a lot of borrowing money and no one foresaw this cliff that we were all going over.

But I'm told that most groups should be able to work things out with their creditors and wait for better times.

And in some cases, that will definitely happen. But some of the creditors are under tremendous pressure, too, and sometimes they sell the debt at a huge discount -- say, 35 cents on the dollar -- to a hedge fund that is interested basically in putting the company into bankruptcy.

Do you want to mention any names?

No, I don't.

Is broadcasting's business model broken or is everything going to be back where it was in a year or two?

I don't think that it's either of the two. There are two things going on at the same time. One of them is a tremendous increase in competition for viewers and therefore for advertising dollars. That's coming from everything from cable to the Internet -- even cell phones at this point. Then, we have the economy, which really has hurt advertising, automotive especially, which is a huge category for broadcasters.

Will it come back to what it was? It will to some degree. As the economy improves advertising will come back, but broadcasters do need a new business model. I don't think they can go back to the old one. They're going to need new sources of revenue in addition to the 30-second traditional advertiser.

What other sources or revenue look the most promising?

There are a number of things. No. 1 is stations becoming much more involved with local advertisers. With the demise of the newspaper business, there's an opportunity for stations to go after some of the advertising that newspapers used to have. They can do that in a number of ways, including producing low-cost commercials for local businesses and so on. It's the new business department that many stations already have.

I also think there's the possibility of doing something with the fact that they have a signal that covers the entire DMA. In most cases, cable companies don't have that. Satellite companies don't have that. Also, in digital, broadcasters are able to broadcast more than one signal and offer more channels than they could before. I can't point to a lot of success stories in that area yet, but that is an upside for broadcasters.

Broadcasters may also end up selling a piece of their digital spectrum. When I say selling it, I mean it almost becomes a real estate play, where another company buys or leases a portion of the channel. They can program it or do whatever they want with it as long as it's consistent with the station's license obligations.

Do you share the excitement for the new mobile DTV standard?

I don't know. It's hard for me to say. I don't want to watch a movie on my phone. My guess is that it will take hold as a short-form application. Some people are producing programming specifically for mobile devices. It's much shorter -- webisodes that might be 30-seconds or two-minutes long.