Remember local TV? It’s the latest media asset of choice, thanks partly to Trump, the rise of licensing fees and sports. We explain.
First, the money. Sinclair, one of the largest owners of local TV stations, agreed to buy Tribune, another big owner of TV stations, for $3.9 billion, which gives us the latest going rate for a TV station.
The deal appears odd at first since these things should be declining in value. Who cares what’s on your local TV station when we have Netflix and Hulu and Snapchat? But it turns out there are some good reasons for the deal.
Obviously, Sinclair wants to be bigger (and Trump made that happen). The company wants a larger slice of what are known as retransmission fees — the money cable and satellite operators pay to retransmit local broadcast signals. Owning more stations gives Sinclair more of those fees, which altogether are expected to grow to over $10 billion by 2021, up from $8 billion this year.
That may be a clear-cut play, but regulators had previously forbidden any one company from owning enough broadcast stations to reach more than 39 percent of homes. That changed after Trump won. The combined Sinclair and Tribune station holdings will now hit as much as half of all U.S. households.
That also tells you other mergers are more likely thanks to a merger-friendly FCC under Trump. Expect Fox and CBS to look at owning more local stations to reap more of these retransmission fees.
For Sinclair, the acquisition allows it to leverage its larger size in two directions: It can negotiate higher fees from those pay-TV companies. And, since it has to pass along some portion of those fees (as much as 30 percent) to national TV programmers like CBS and Fox, Sinclair can haggle for a better deal and pay less. (Or, not pass along whatever higher proportion of fees it negotiates from the cable companies.)
That’s partly why 21st Century Fox was interested in a deal to acquire Tribune before it went to Sinclair, which will own 70 Fox affiliates after the deal.
Why are those fees going up at all? Sports rights, of course. Tribune owns the local rights to some professional basketball, hockey and baseball games, including the Cubs and Yankees, which should help Sinclair negotiate for even better fees from the cable guys.
For that reason, CBS and Fox might try to buy local TV stations in key NFL markets like Green Bay, Dallas, Buffalo, Cincinnati and Houston.
What’s interesting to note here is just how valuable local sports rights have become and how it’s helping to keep the legacy TV infrastructure intact. In fact, it’s one of the few pieces of content that continues to elude online streaming services like YouTube TV, Dish’s Sling, DirecTV Now and Hulu.
These services are meant to be the cheaper alternative to the big bundles of channels the cable companies sell, so that might be fine for the people who don’t necessarily need to watch the Cubs lose an 18-inning heartbreaker to the Yankees, but then that’s some people.
And Trump again. Political advertising is big in election years even more so now thanks to Trump. Expect big dollars going to local stations for the coming midterm elections.
There’s also another factor here that’s entirely political. The chairman of Sinclair is noted Trump backer David Smith, who appears to have the same media ambitions as Rupert Murdoch. The FT’s Matt Garrahan smartly outlined a scenario where Smith could craft a conservative news channel to rival Fox News after bringing Tribune’s stations into his fold.
It’s also noteworthy that one of the first major moves by the FCC under Trump was the relaxation of an ownership rule that immediately benefited Sinclair.
Last year, the company struck a deal with Trump’s campaign, granting its local news station more access to Trump in exchange for better coverage, according to Trump son-in-law Jared Kushner. Sinclair denied this ever happened.
Lastly, the internet. If what happened to music is any indication, TV will eventually become unbundled and go almost entirely online. If so, when? And who will reap the benefit of that transition?
The big cable networks and the broadcast programmers are already working out deals with Google and Sony and Hulu, but local content still tends to stymie the internet players.
Remember when Apple was going to offer TV over the web? And then it changed its mind? One of the many sticking points was it didn’t want to have to negotiate deals with the major broadcast networks and then negotiate again with multiple local affiliate providers to carry the local signals.
Also, remember what happened to Aereo?
