Monday, November 01, 2004
Monday, November 1, 2004. Why Sincalir and Pappas Aren't Bigger.
Bill Grimes wrote the following in response to my blog about television station owners Sinclair (24 percent coverage of US TV homes) and Pappas (15 percent of US TV homes) and provides some excellent insights into the future of local television broadcasting:
It is past dusk for the broadcast television industry, particulalrly for mid-size station groups like these two which have no networks, no cable ownership, or no other media assets to possibly warm up their chilly evening with earnings.
Bill Grimes wrote the following in response to my blog about television station owners Sinclair (24 percent coverage of US TV homes) and Pappas (15 percent of US TV homes) and provides some excellent insights into the future of local television broadcasting:
The reason I think neither of these companies are acquiring more television stations (they could own up to 39% coverage) is that the business of broadcast television is in secular decline and sophisticated investors in these companies would sell shares. The unspoken business story for TV stations is not so much the continual, sustaining loss of audience, it is the relatively recent smart and aggressive competition from local cable systems for ad revenue.. Did you know that Comcast last year generated $1 Billion, yes, billion, in ad revenue for its cable systems. Comcat has 23 million subscribers--22% of US homes. Time Warner Cable with 11 million subs must have near $500 million in system ad revenues. This money is coming out of radio and, particularly now, TV stations' pockets. Cable systems with two commercial minutes an hour on 50+ basic cable network channels have finally figured out how to package and price this commercial inventory. And, nearly as important and very detrimental to TV stations, is the reality that cable subscriber penetration is at approximately 70% of US households, and in some markets even higher, so broadcast television stations' (and networks') old refrain that cable's reach is low does not work with advertisers any longer. National advertisers with more information and marketing expertise have invested a far greater (and growing) percentage of their televison budgets with cable networks than local retailers and businesses have with cable systems. But, alas, those days of are over for the TV stations.
And this is why Sinclair and Pappas are far from the legal number of television stations that they could own. They will be buyers again someday, perhaps, but only when prices of tTV stations fall by 30-50% which is likely. Just check out share price performance in last couple of years of Clear Channel; it's now about 50% of its 2-3 year high. A nightmare for investors. Mr. Pappas and Mr. Smith of Sinclair are reminded of this quite frequently by their bankers and investors.
It is past dusk for the broadcast television industry, particulalrly for mid-size station groups like these two which have no networks, no cable ownership, or no other media assets to possibly warm up their chilly evening with earnings.
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