Thursday, May 05, 2005

Taking Stock

The Peoria Pundit posts to articles about the companies that own some of our local stations.


Jonathan Ahl said...

Look at the numbers closely and you will see why local television is facing the challenges it is.

Since the FCC loosened rules on how many stations one company can own, there has been a buying spree.

Nexstar's quarterly revenue was 52.7 million, while paying debt service of 13.1 million. That means 25-percent of every dollar that comes into the company is used to pay of the debt incurred in recent years through buying new stations.

Granite's quarterly revenue was 25.7 million, while paying debt service of 11.1 million. That means 43-percent of every dollar that comes into the company is used to pay off the debt, incurred in part by acquisition of new stations.

In the long run these companies accumulating property and taking on debt may be the best financial option for the company and its shareholders. I begrudge nobody for wanting to make money on their investments.

But while the debt service still eats up such a large percentage of revenue, the companies are forced to cut costs in other ways. So if your wondering why TV salaries are low, stations seem reluctant to buy new equipment, etc.. look at your ownership's debt service payments, and what a large percentage of the budget it includes.

Then send a thank you to the FCC for allowing companies to buy more and more stations, and let that number grow and grow.

Billy Dennis said...

I've been meaning to start doing this sort of thing for a long time. I finally got around to it. I see Mr. Ahl added some good insight and perspective to the figures. Of course, he works in public radio where he doesn't have to worry about the whims of the stockmarket. Just the whims of the contributors. I just worry about my tip jar.

Anonymous said...

I do not think Mr. Ahls' comments tell the whole or the completely accurate story. The FCC really has not loosened the rules on ownership in smaller markets like Peoria and therein lies some of the real financial difficulty.

In actuality, survival of some broadcast channels in markets like Peoria now depends on consolidation of operations, much like radio went through in the 90's. Without consolidation, there are TV channels in this market that will in fact risk going dark.

Part of the problem has been in fact caused by the FCC, not due to loosening of rules, but by dictating a very rocky and disorganized conversion to digital broadcast which no one but Congress wanted in the first place. Many of these smaller media companies now have 10's of millions of dollars tied up in digital conversion (all paid for through conventional commercial means rather than donations from the government that public broadcasting enjoys), and have yet to realize a return for that investment.

In the meantime, competition for viewers time increases and advertising markets like Peoria are flat or down. Ahl is correct that the impact does translate into seeking efficiencies through expense control. And that comes from the financial strain on companies and the industry as a whole. But it is not so much the acumulation of additional properties that hurts companies like Nexstar and Granite. It is the lack of cash flow due to escalating operating costs without revenue growth.

Mr. Ahl is also incorrect when he states that stations "are reluctant to buy new equipment". In fact, all stations have been investing heavily in equipment -- digital conversion equipment. Local stations have probably invested 3 or 4 times what they would have normally spent on capital investment in the last four or five years. This investment has been for digital transmitters, antennas and other digital equipment to be in compliance with the FCC directives. In the meantime, cameras, edit bays and daily production equipment capital purchases have not occured due to the millions already spent on this new technology. So the investement in stations has continued and in fact increased over previous years -- it just hasn't been for the equipment that has the most obvious impact on daily operations.

Capital investment in digital has put great strain on broadcast companies and some, like the former Benedek that owned WHOI here, were put out of business because of it.

The FCC is partially to blame, as Mr. Ahl indicates, but it is not due to consolidation or accumulation of more stations.

As I said, survival in commercial broadcast television will depend on more consolidation.