Sinclair Broadcast Group: Big Plans, Big Role
The last five years have been a heckuva stretch for the Sinclair Broadcast Group.
After nearly collapsing under the weight of the economic downturn in 2009, the Baltimore-based station group has roared back, leading a consolidation surge that’s restored local TV broadcasting’s luster on Wall Street even as it reshapes the industry.
In the last two years, it has invested $3.2 billion in station acquisitions, amassing the single largest share of the industry’s nearly $10 billion in deals.
Sinclair has strengthened not only itself — its stock price has shot up 220% in the two years since Dec. 15, 2011 — but the rest of TV broadcasting as well.
“The industry always benefits from a consolidator,” says Bishop Cheen, an independent analyst and SNL Kagan consultant. “It proves asset liquidity, proves asset value.”
Regardless of the yardstick, Sinclair is big.
By number of stations (owned or operated), it ranks first with 162 stations in 77 markets, assuming all pending deals close. By TV homes reached, it is second with coverage of 38.7% of the U.S. And by 2012 revenue, it is sixth with nearly $1.3 billion, behind only Fox, CBS, Gannett, NBC and Tribune.
But Sinclair’s impact goes beyond its sheer size.
Sinclair’s visionary CEO David Smith eschews the broadcasting establishment, but leads, nonetheless, if not by what he says, but by what his company does.
Sinclair emerged early as a prospector of retransmission revenues and has played a pivotal role in developing what’s become an essential second revenue stream for broadcasters.
It has pushed the boundaries of the FCC ownership rules to operate multiple stations in a single market, benefiting itself and providing a model for others to follow.
Lately, it has begun leading the charge for a new broadcast standard that it believes will open up new business opportunities and provide broadcasters with the tools to mine a rich future.
HITTING ITS STRIDE
Sinclair’s role as a leading industry consolidator has come to the forefront over the last two years, although the group has been building its station portfolio steadily since the late 1980s.
In the past two years, Sinclair has acquired 107 television stations, starting in 2011 with the Four Points Media and Freedom Communications buys for $585 million.
It hit its buying stride in 2013 with six deals: Cox stations for $99 million, Barrington stations for $370 million, Fisher for $373 million, TTBG for $115 million, Allbritton for $985 million and New Age for $90 million.
Sinclair’s financial engineering makes the buying binge even more impressive: More than $600 million in financial upside including $478 million in new EBITDA from the acquired stations.
During the 1990s, Sinclair discovered loopholes in the FCC’s local ownership rules that have allowed it to operate at least one more station, per market, than the rules dictate. Enhanced economies of scale boosted the finances of Sinclair and of broadcasters that followed its lead.
Through operational allies — so-called sidecar companies like Cunningham Broadcasting — that technically own the stations, Sinclair achieves the financial benefit of multiple properties without violating FCC rules.
Now, of the 77 markets Sinclair is in, it has multiple stations in 49, or more than 60%.
The consolidation — locally and nationally — has given Sinclair tremendous clout in its dealings with the Hollywood syndicators. After all, with Sinclair, a syndicator can clear nearly 40% of TV homes.
In the mid-2000s, Sinclair was among the handful of broadcasters that risked losing viewers and revenue to aggressively pursue retransmission consent payments from cable and satellite operators. Retrans payments have revitalized the broadcast sector and helped it compete for professional sports and other costly programming.
Sinclair’s hardball approach in retrans disputes with Suddenlink, Mediacom, Time Warner and Comcast, among others, set the tone for the rest of the industry.
“They played a tough game, stared down their broadband opponents and won every match,” Cheen says.
“It goes to the issue of what’s our value as far as consumers are concerned, what are we entitled to,” Smith says. “Les Moonves [the CBS CEO] and Time Warner [Cable] — that’s the tip of the iceberg of what should be coming to us on a relative basis.”
In a landmark case in August 2013, CBS stared down Time Warner Cable and ended up getting what it wanted. According to various reports, that’s $2 a subscriber per month, plus retention of its digital content rights.
Retrans is a key element in Sinclair’s growth formula. When it buys stations, it gets an immediate uptick in revenues from the newly acquired properties by locking in its most-favored-nation status on retrans payments. If the acquired group was receiving 35 cents a sub and Sinclair gets 70 cents, for example, that’s an immediate 100% increase.