FCC Rule Changes Pave Way for Roll-Ups and Mergers

Against the background of FCC Chairman Kevin Martin’s blitzkrieg effort to change long-standing rules on multiple media property ownership in American cities, we see what seems to be a confusing crazy-quilt of response from the big daily chains.

Tribune’s telling the FCC that unless it gets clearance (permanent or temporary waiver) to grandfather its newspaper/TV properties (in New York, Chicago, Los Angeles, Hartford and South Florida) its sale to Sam Zell won’t go through. Meanwhile, Scripps is busy splitting dividing its diversified company assets in two, creating a new “Local” company, comprising newspaper and broadcast TV assets, while separating out national/global cable and Internet. At the same time, Belo is tearing itself in two, separating out broadcast and newspaper assets, a notion Gannett is mulling as well.

So what’s happening here? What exactly is the commercial value of having multiple properties in a single metro area?

The answers are simple and complex. Long story short, though, I think, if the FCC changes are passed and stick, we’ll see a greater push of roll-up and merger, as print and broadcast assets inevitably come together, and in the hands of fewer, big players.

The answer is simple in that it’s better for those owning media properties to have maximum flexibility in keeping – or selling – properties. With government placing fewer fetters on who can own, merge and trade properties, perceived value increases. Would Sam Zell sell the L.A. Times and KTLA-TV? If so, buyers may well value them higher together than apart. And the same can be said for various other sets of assets and combos. If the FCC decision goes through, and makes it through the courts, expect an unprecedented level of sales and swaps.

But the complexity is more interesting – and raises the big questions about overarching news Internet strategy going forward.

The Tribune’s recent plaint is part of that complexity, and there’s an irony in it as well. You may remember that when Tribune bought Times Mirror in 2000, it distinguished its play with a big-city, newspaper/TV station, bundled-ad-buy-we’ll-get-more-market share strategy. That stood against the national network strategies of the day, including Knight Ridder’s Real Cities Network.

The Tribune said, no, the money’s in the market, and leveraging TV and newspaper (daily and niche), and in some cases radio, to get it would bring in lots of new revenue. The strategy didn’t work, many of those involved with it will tell you. Why? Even five-plus years ago, different ad buyers bought broadcast and print separately, and Tribune managed little pick-up of market share, eventually all-but-publicly acknowledging it had overpaid for the Times Mirror.

Flash forward to the brink of 2008, and we see an even greater change in ad buying. Almost $20 billion a year has moved to the web, but most significantly, web-based advertising is leading the revolution affecting all parts of the estimated $275 billion U.S. industry. Ad buyers have multiplying tools at their fingertips to measure effectiveness, and as those tools ravage all traditional ad selling models, the power’s moving from ad sellers to ad buyers.

So does owning both TV and newspaper properties in a single market provide ad advantage? Probably, not much, though owning two TV stations – a duopoly (which Martin’s rule relaxation might allow as well) may be marginally more valuable, same ad buyers at least.

What then might be the other advantages of owning a TV station and a newspaper in Chicago, Dallas or L.A.?

Certainly, we’d think there would be a certain promotional benefit. You know, “for more on this story” TV voice-overs pointing to print, for instance. But newspapers and broadcasters – usually by agreement, not common ownership -- have engaged in cross-promo deals for more than a decade now, and you can find few enthusiastic supporters of the results. Whether it’s been a matter of too little energy put into the relationship – as partners inevitably wrangle about leveling the relationship – or just the fact that the promo doesn’t really introduce customers to products they don’t already know about, the value’s been minor.

So, if ad bundling and cross-promo are minor, what about editorial sharing?

Here’s where it may get interesting. Sure, early on, newspaper sites tried to do video-sharing deals with local news stations (usually as part of cross-promo deals), but those deals faltered. They often fell apart, again in partner suspicion of inequality or just for lack of care and feeding. In addition, broadcasters have had a hard time exporting their news video in a timely, segmented way – the way online news readers want it.

So looking back, you’d say, there’s not much here, not much to recommend owning print and broadcast assets in the same market. But think again. Clearly as we approach the next decade, the local media model is pixel-clear. Local media companies based on singular, multi-media producing newsrooms – use the medium (video, audio, text) best for the storytelling, produce once, distribute many. That’s the model newspaper companies from Gannett (Seven Desks) to Lee (Lee University) to Scripps (check out the new multimedia SIDS report) are slowly adopting, and it’s one that fledging companies from Pegasus News to MinnPost to The Politico must embrace as their funding allows.

If this world existed fully today, it would only take fast-charging operators (think Rupert Murdoch and Dean Singleton) to quickly dis-assemble the old pieces and re-assemble the new ones, with far fewer layers of management and overhead. It’s the newspaper clustering approach (put together lots of print properties in a single region) applied more broadly.

 

Sure, newspapers are in print reader (average age: 56) decline and ad freefall, and broadcast is mature (average news viewer age of 60) with its ad revenues largely flat. But take apart the assets, the brands, the reach and the content-producing ability, cut to the bone and hire younger, cheaper content creators, and you’ve got something of real business value.

When this Friday’s rushed FCC Seattle hearing takes place, we’ll probably hear a lot of the old arguments, pro and con, on changing the regs. For my money, it’s not what the current owners will do or what they need, but what the next set of owners – the smart roll-up-the-assets-at-bargain-rates guys, the Zells, the Singletons, the Murdochs – will do with a freer set of options. Roll-up and merger are likely outcomes, I believe.

Short story, there is a lot of unlocked commercial value in multiple city properties, if you can acquire them cheaply enough.

But that’s just the commercial reckoning. The FCC regs were put in place long ago to encourage more news voices, rather than fewer. Martin and relaxation advocates look at the media landscape and point to the Internet to say that so many more voices are available today than a decade. But that’s disingenuous.

Yes, the web offers easy entry for many voices, but just take a look at the top 20 news sites on the web, courtesy of cyberjournalist.org. Most are the old familiar names that would be advantaged by a relaxation – from old broadcast (ABC, CNN, CBS) to old newspaper (New York Times, Tribune, Gannett, McClatchy, Hearst).

The “new” names on the list are those topping it: the news aggregators. But Yahoo, MSN, AOL and Google produce little, if any, new voices. Rather they’ve made huge businesses by simply better organizing those old voices for a new medium. To the point of new voices, we see essentially none in the Top 20.

While there are tens of thousands out there, birthed by the web, they reach relatively small audiences. Sure, in America, anyone can start up new local multimedia newsgathering operation, and these could -- in the abstract -- eclipse the old players. But, in our day, 10 years into the Internet revolution, big well-capitalized brands still rule the day, and the likely upcoming FCC 3-2 vote, would only help to extend A.J. Liebling's perceptive observation that "freedom of the press belongs to those who own one."

Kevin Martin's done a decent job of increasing cable competition, witness last week's decision on apartment building monopolies. If he were really serious about increasing competition in news, he'd have to consult a few new sources and come up with better remedies, innovations that push new voices forward and give them better, higher-profile access to new audiences.