Tribune Co. (TRBAA:US) Chief Executive Officer Peter Liguori, with his $2.73 billion acquisition of 19 TV stations, is accelerating a wave of consolidation that strengthens the hand of broadcasters and network owners over cable providers in pay-TV negotiations.
The all-cash deal with Local TV Holdings LLC, announced yesterday, will extend Tribune’s broadcast footprint into 50 million homes. A larger Tribune is in a better position to seek higher licensing fees from cable companies such as Comcast Corp. and Time Warner Cable Inc., which purchase the rights to air local broadcasts.
Recent deals have left TV stations in the clutches of fewer media companies, and investors are driving up stock prices amid speculation more will ensue. Aside from helping boost fees, the added revenue will give Liguori more firepower to invest in original programming -- another way for Tribune to vie for more of the billions of dollars spent on paid content.
“Part of the investment thesis of the deal is marrying a larger distribution footprint with investment in content,” Liguori said in an interview yesterday. “There’s so much potential now with this deal.”
Liguori’s strategy hinges in part on Chicago-based Tribune’s sole cable network, WGN America, which operates separately from the broadcast division, with distribution in 75 million homes. The channel now mostly airs reruns of popular network shows such as “How I Met Your Mother” and “Law & Order.” With its own programming, it could become a must-have for cable and satellite providers, just as 21st Century Fox Inc.’s FX and AMC Networks Inc. (AMCX:US)’s AMC are today, Liguori said.
“Looking at the value of FX and AMC cable networks, we believe WGN America down the road presents the same opportunity,” said Liguori. “We need to create new content and get better distribution for WGN America.”
Fox is one of the pioneers of the strategy, with a package of local stations and cable channels that give it a leg up when discussing fees with cable carriers. Liguori was chairman of entertainment for Fox Broadcasting and CEO of the company’s FX Networks, then went to Discovery Communications Inc. as chief operating officer before joining Tribune.
At Fox, which until last week was part of News Corp., broadcast revenues climbed 15 percent in the quarter ended in March from a year earlier, even with ratings down for shows such as “American Idol.” The reason for the gain was pay-TV licensing fees, which almost doubled. Affiliate fees for New York-based Fox’s cable channels, meanwhile, rose 11 percent.
Like Tribune, New York-based CBS Corp., owner of the most-watched U.S. broadcast network, is expanding into cable channels. It acquired 50 percent of TV Guide Network in March and plans to revamp it into a new entertainment channel. CBS’s affiliate fees rose 14 percent in the first quarter from a year earlier.
The deal also spotlights the shift among traditional newspaper publishers toward the more lucrative television business. Tribune, which owns eight English-language daily newspapers including the Los Angeles Times and the Chicago Tribune, hasn’t decided whether to sell some or all of its newspapers after receiving unsolicited offers earlier this year.
“Being new to the newspaper business and keeping an arms-length, rookie perspective, I do believe there are ways to manage the business differently,” Liguori said, adding that there could be ways to change how the company manages content, as well as distribution.
“It’s the difference between running eight different businesses versus one business with eight different locations -- if you try to use that optic, what changes would you make?” he said.
Gannett Co., the publisher of USA Today, is also reducing its exposure to newspapers, which are suffering from declining advertising as readers move online. The newspaper publisher agreed to buy local-TV company Belo Corp. for $1.5 billion two weeks ago, amid a wave of acquisitions in the broadcast industry.
Last month, Sinclair Broadcast Group Inc. (SBGI:US), based in Hunt Valley, Maryland, agreed to buy four outlets from Titan Broadcast Management for $115.4 million. That accord was followed on June 6 by the $870 million merger of Media General Inc. (MEG:US), backed by Warren Buffett and Mario Gabelli, with New Young Broadcasting Holding Co.
Original television content garners more money than ever, Liguori said. Even beyond the fees from satellite and cable providers, online streaming distributors such as Netflix Inc. (NFLX:US) and Amazon.com Inc. are providing new sources of revenue, he said.
“The cable-network business is the best business in media,” said Paul Sweeney, an analyst at Bloomberg Industries. “How do you convince a cable company to carry your cable network? You have to have leverage. One of the ways Tribune thinks they can leverage is by owning a lot of TV stations.”
Liguori said he’s agnostic about whether Tribune would create more scripted shows, as he did at Fox and FX, or the kind of reality programming that drives Discovery.
“I’m agnostic on that front,” he said. “It’s not about the form, it’s about the characters.”
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