Bullish Big Time On Buying TV Stations

Buy low, sell high.

George Lilly has been applying that basic business principle in the buying and selling stations since 1983.

In 2005, he partnered with the private equity firm The Blackstone Group to form Montecito Broadcast Group and purchased four stations from Emmis Communications for $259 million. Less than two years later, he flipped the stations to New Vision for a figure somewhere north of $330 million.

Now he thinks he can work that buy-low, sell-high formula at least one more time. Backed by Sankaty Advisors, a unit of Bain Capital, Lilly last month agreed to buy two small-market ABC O&Os — WJRT-TV Flint, Mich., and WTVG Toledo, Ohio — for $30 million.

With the worst of the recession apparently past and new sources of revenue beginning to materialize, Lilly believes the stations’ price tag is low and that he will be able to sell at a considerable markup several years from now.

How low? According to BIA/Kelsey, the same George Lilly and yet another investment group sold the stations to ABC for $120 million.

With the Sankaty money, Lilly hopes to purchase four to six more stations over the next year or year and a half in mid-size markets and operate them under the flag of the SJL Broadcast Group.

It will be kept separate from Lilly’s three family-owned stations: WICU (NBC) and WSEE (CBS with CW on a subchannel) in Erie, Pa., and WENY (ABC with CBS and CW on subchannels) in Elmira, N.Y.

In this interview with TVNewsCheck Editor Harry A. Jessell, Lilly talks about his latest deal, why his faith in the broadcasting business in undiminished and why it’s a good time to buy.

Why are you buying stations when it seems so many other are selling or at least trying to?

Well, a lot of the selling that you’re seeing are persons who got trapped two years ago and are overleveraged. They had a bad time in our industry, and the net result is a lot of people lost a lot of value. Some of them went under water and lost a lot of their equity value and don’t see merit in staying in the television business.

Do you expect a lot of action in station trading next year?

It’s just starting. The Freedom stations just came up for sale. Those people that got into difficulty and went through bankruptcy will start to put stations on the market to minimize their losses and exit the business.

What’s the upside on stations in small, no-growth markets like Flint and Toledo?

The upside is that there is growth. On the advertising side it’s modest, but there is growth. We are still better than any other medium at moving products, goods and services for advertisers. As long as there are people in those markets selling cars or bank services or refrigerators or washing machines, there will be a great need for television. If we do the job right, we can serve a lot of advertisers, increase their business and profit margins and make the marketplace a lot healthier.

So you think you can significantly grow revenue?

Over the past few years we have seen other revenue streams open up to television that I think gives us a very positive look at the future. That would be retransmission revenues. That would be the use of the digital channel for multicasting purposes. That would be the use of the Internet. All of these are revenue streams weren’t available to us five, 10 years ago and all are beyond the exploratory stage. I am not suggesting they will blow the lid off, but I think it’s going to give us high single-digit — possibly low double-digit — revenue growth for the next five years.

And you’re looking for more stations in these types of markets, right?

We’ve had good success over the years at mid-size television markets. We don’t have any interest in being in the top 10 or the top 20. That’s not our skill. We have done very well in the 50 to 100 range. We think we know how to run those stations extremely well. We think we know how to be very competitive in those markets and so that’s what we would be looking for. Specifically, we would be looking for stations with a strong history of audience revenue and service to the communities. We’re looking at being the No. 1 or No. 2 station in each market. We’re not looking to buy a CW or the No. 3 or No. 4 station. We’re looking for the dominant stations in the markets.

Are there duopoly opportunities in either Flint or Toledo?

I don’t think the FCC would approve of duopolies in those markets at this point, but we certainly are open to looking at what they call local marketing agreements, where you partner with somebody in the market. You keep your programming and your news and sales separate, but you combine your backroom activities, which could be fairly significant in your cost savings and benefit both parties.