Auction Talk Draws TV Spectrum Speculators

Cheap beachfront real estate. That’s how NRJ TV, a fledgling media group, views cellar-dwelling TV stations in major markets.

Betting on an eventual auction of broadcast spectrum by the federal government, NRJ is buying such TV stations on the cheap in the hope of one day sharing in the proceeds of that auction, according to industry sources following such speculation.

NRJ last month bought two former Multicultural Television stations — KCNS San Francisco and WFMP Boston — for $15 million and $5 million, respectively. And the company has its eye on as many as a dozen additional stations, according to the sources. WSAH Bridgeport, Conn., in the New York market, may be next on the list. Like KCNS and WFMP, WSAH is one of five Multicultural stations that were placed in a trust after owner Arthur Liu defaulted on loans.

NRJ also was among the bidders for KWHY, the Los Angeles station NBCU sold in January to the Hispanic-owned Meruelo Group for $40 million.

Ted Bartley, managing partner of NRJ, doesn’t dismiss the idea of spectrum investing, but he does downplay it. “We are buying TV stations — we think at historical lows in some cases,” he said. “We don’t know what the outcome will be. We’re trying to buy at a price to operate them efficiently and make money as broadcasters.

“I think all broadcasters hope for good things [on spectrum], but there’s no certainty,” he says. “We are certainly not speculating on that as the only way to make money.”

Along with Bartley, NRJ’s principals include Larry Patrick of Patrick Communications and Dan Sullivan and Bert Ellis of Titan Broadcast Management. Titan focuses on turning around bankrupt or struggling stations. It will manage the Multicultural stations under contract with NRJ.

NRJ isn’t alone in seeking to acquire stations in major markets at least in part for the value of the spectrum "They're not the only ones; there are some other stations already under letters of intent,” said a broker working on some of those deals.

Among those stations is WZMY, the MNT affiliate in Boston owned by ShootingStar Broadcasting. Diane Sutter, president-CEO of ShootingStar, declined to comment other than to say, “My equity partners and I are, by definition, always sellers at the right price.”

The broker, who spoke on the condition of anonymity, noted that would-be buyers are particularly interested in the Top 25 markets and some smaller outliers. Those are the markets where wireless broadband use and demand is high and where there are the largest numbers of marginal stations.

“These are stations that aren’t going to win Emmys, but they’ve got some real estate,” the broker said. “If this kills five to seven stations in New York or Los Angeles, it’s not going to kill any good things.”

Some broadcasters and financial experts find the spectrum play interesting, but aren’t convinced it will produce a big payoff.

“It’s a highly speculative investment at this point,” says Randy Bongarten, principal of group owner Bonten Media. “I think there are a lot of people interested in television, but the people I talk to don’t talk about buying up spectrum.”

For Barry Lucas, of Gabelli & Co., several conditions would have to be met for spectrum speculation to work: “You’d have to really buy it cheap, number one,” he says. “Number two, you’d have to have a high degree of confidence that [an auction] is the direction the FCC is going to take. And number three, you’ve got to be reasonably confident that Congress is going to allow you to keep some important percentage of the proceeds.”

The FCC’s National Broadband Plan, issued in March 2010, proposes recapturing 120 MHz of the 300 MHz of broadcast spectrum so that it can be reallocated to wireless broadband, a service the FCC believes is more critical to the economic health of the country.

Some of that spectrum would come through repacking the broadcast band, modifying the coverage areas and channel assignments of stations to make sure they are using the spectrum as efficiently as possible.

But the bulk of spectrum would come through so-called incentive auctions, whereby broadcast licensees would be induced to give up all or some of of their spectrum in exchange for a hefty cut of the proceeds from the eventual auction of the spectrum to wireless broadband providers.

The FCC is already empowered to repack stations, even though that is not without controversy. Implementing spectrum auctions will require an act of Congress.

Although Rep. John Dingell (D-Mich.), last week likened the auction idea to holding a gun to the industry’s head, the broker said there appears to be bipartisan support for auctions.

“Congress wants this really, really badly,” the broker said. “If you’re a Tea Party person, it’s a way to reduce the deficit. If you’re a spender, this is a way to get money for your programs.”