TVN Station Group of the Year

Sinclair Broadcast Group: Big Plans, Big Role

The Baltimore super group grows dramatically in size and industry influence. With the great expansion, Sinclair has moved to the top ranks of TV broadcasting and earned its recognition as TVNewsCheck’s Station Group of the Year for 2014. This story originally appeared in TVNewsCheck's Executive Outlook magazine in January. (Photo by Jonathan Hanson)
TVNewsCheck/Executive Outlook,

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.

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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.”

Brand Connections
With the great expansion, Sinclair has moved to the top ranks of TV broadcasting and earned its recognition as TVNewsCheck ’s Station Group of the Year for 2014.

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.

EXPLOITING LOOPHOLES

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.

ROCKING RETRANS

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.

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Comments (8) -

SalesGrrl Nickname posted over 4 years ago
Interesting that this article failed to mention Sinclair's purchase of Dielectric.
Smackey Nickname posted over 4 years ago
Any organization of any size is as good at the people that do the day to day work. ultimately the quality of the work experience for Sinclair employees in the local markets will determine Sinclair's ability not just to own but to successfully operate these stations will be key to their success.
reality Nickname posted over 4 years ago
agree with salesgirl. with the purchase of dielectric david smith will control a broad part of the spectrum auction aftermath. when folks have to repack where will they get their antennas etc?? only one place...... wonder if the folks at the fcc have thought of this????
Bee Ahh posted over 4 years ago
As a shareholder I love this company. It has been a great run. As a former employee, this company is pretty lame. They are losing quality people and replacing them with inexperienced low paid employee. I was at a station they acquired in 2011 and their pay scale was grime so I left for a better job, as have many of the long time professionals I worked with during my time. Sinclair then hires people lacking experience and the quality of their stations go down. The station I left lost most of their number one sales team in less than a year and replaced them with sales people who never worked in television. In fact the new local sales manager comes from Radio and has no idea of television ratings, formulas etc. The proof is in the pudding. They have not hit their budgets in nearly three years… In the long term this will be a big negative. I'm holding my stock until it hits $40 then I'm out. All IMHO.
Insider Nickname posted over 4 years ago
This post shows the stupidity of most posts here from disgruntled ex-employees of Broadcast Stations who could not adapt. They talk about the cuts, the cuts, the cuts and all the "quality" people leaving. They go on to say the station has not made its budget in 3 years saying "the proof is in the pudding". HOWEVER, they also note how they love it as a shareholder and are holding til the stock hits $40. Simple Elementary school math teaches you that if you are not making money (missing budget for years) the bottom line (and Company value) does not go UP. The simple fact that their stock price has gone up proves Sinclair is not in the disarray that people like to project. That does NOT happen with stations consistently not making budgets.
JamesV Nickname posted over 4 years ago
So how do you explain the high stock prices of companies that have never shown a profit, or whose profits are infinitesimal compared to their revenue or size? Facebook, Amazon, Pandora, etc. Point two: not hitting budgets doesn't necessarily mean the stations were not making money. Budgets project expenses and revenues. One could have higher expenses than are budgeted, and/or lower revenues, and still make money, just not as much as the "budget" predicts or calls for. I have no personal experience with Sinclair, though some stations I used to have some involvement a while ago are now owned or run by Sinclair (subsequent to my involvement). There are any number of companies who are profitable yet are lousy companies to work for from an employee perspective, or don't necessarily provide the best products or services.
Insider Nickname posted over 4 years ago
Incorrect. First you need to learn how to read SEC filings. Then you need to learn the difference in buying on forward looking earnings of new companies versus trailing earnings on mature operations. Once you understand that, you will understand your question was factually incorrect and you will answer your own question. As for Bee Ahh's post claims that people were cut and budgets were missed for years and as thus the stock should collapse. As the stock is NOT collapsing and to get to the $40 target stated, it needs to go up 35%, one would have to be delusional (which many here appear to be) to hold the stock for $40 if they believed what they had posted..
Roger O. Thornhill Nickname posted over 4 years ago
If any private company can alter the direction of or at least change the discussion on the incentive auction, Sinclair can do it. Best of all, they have gotten strong at just the right time. The FCC is free to pick off the sick strays like KCET in Los Angeles or many of the Class A stations but Sinclair is a force to be reckoned with and they have a war chest big enough to take the Commission to court if need be.
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Ratings

Overnights, adults 18-49 for November 19, 2017
  • 1.
    5.1/17
  • 2.
    2.0/7
  • 3.
    1.5/5
  • 4.
    0.9/3
  • 5.
    0.6/2
  • 6.
    0.1/0
Source: Nielsen

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