Nexstar CEO: Broadcast Consolidation Needed, Likely
Consolidation among TV stations is needed soon, Nexstar Broadcasting Group Chairman and CEO Perry Sook told investors Wednesday. In media industries like radio and cable, major consolidation has already occurred, he said. And in broadcast TV, the national networks and production studios are highly concentrated, Sook said. “Consolidation has largely happened in those industries and it hasn’t happened here,” he said. “We think it does need to happen."
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About 36 TV station groups are of Nexstar’s size, Sook said. “We think those three-dozen companies probably should become a half-a-dozen companies at the end of the day.” TV broadcasters’ debt-laden balance sheets will make it difficult for any single company to lead a consolidation wave, he said. Without one big buyer, consolidation could be achieved through smaller mergers, Sook said.
Private-equity firms, unburdened by the capital structures of current station groups, could be buyers, Sook said. Their primary targets would be companies who have recently restructured or are restructuring, he said. “The concept of roll-up has been bandied about in private meetings again,” Sook said. “I know there’s more than one thesis running around in the sponsored community about trying to roll up a number of those and then finding an operating company to try to manage that business."
Meanwhile, the market has yet to set how much TV stations will pay the networks in affiliation fees, Sook said. Nexstar’s recent affiliation agreement for its Johnstown-Altoona, Pa., station resulted in increased fees to CBS, Sook said. “Very early on in the discussions CBS made it clear to me that they were not after a piece of our retrans fees,” he said. “Rather, they were looking to affiliates in their renewals to help support CBS’s investments in programming by increasing the fees we currently pay to the network."
Though the market is still developing, Sook said, he “could see the proposed Comcast-NBC merger ending up playing a role in setting the market for these kind of discussions, perhaps even the process for retransmission consent-negotiations going forward.” In the best case, networks would negotiate with the pay-TV distributors on behalf of their affiliates and find a way to share the revenue, Sook said.
Political ad sales for 2010 are ahead of projections, said Tom Carter, the chief financial officer. Even compared with 2008, the last big election year, political ad sales in 2010 are ahead of budget, he said. “But as we all know the game is played in the eight weeks prior to the election in November,” he said. “Do we feel good about it and are we ahead of budget and expectations? Yes. But we don’t want to declare victory yet."
Nexstar’s Q1 sales gained 23.7 percent from a year earlier to $68.6 million. It swung to a net loss of $3.6 million from a $6 million profit a year earlier on higher operating and interest expenses. Shares gained 12 percent Wednesday.