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Cable Ops Face New Retrans Brute

Media General’s $2.4 billion deal to purchase midsized broadcaster Meredith Corp. cast the spotlight on continued consolidation in the broadcast sector, a deal fueled in part by the added retransmission-consent clout the combined company would have in top markets and perhaps signaling further deals ahead.

The combined company, which will be called Meredith Media General, will control 88 TV stations in 54 markets, or about 30% of U.S. TV households. Media General said it would divest or swap six stations that butt up against Federal Communications Commission rules in Portland, Ore.; Nashville, Tenn.; Hartford- New Haven, Conn.; Greenville-Spartanburg, S.C.-Asheville, N.C.; Mobile, Ala.-Pensacola, Fla.; and Springfield, Mass.

After the dust settles, Meredith Media General will be the largest Big Four affiliate group in the top 50 U.S. markets, with 25 stations, and the second-largest in the top 75 DMAs, with 40 stations. That should translate into increased negotiating power in retrans deals. The company said it expects retrans revenue to improve by $30 million in its first year after the close and by $37 million in the second year.

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That haul is expected to grow. On a conference call announcing the deal, Meredith CEO Steve Lacy, who will become CEO of the combined company after the deal closes next June, said he expects retrans revenue to rise, in particular at the 17 Meredith stations moved over to the higher Media General rates. The company also expects to be an aggressive consolidator of stations, he said, targeting properties that are either No. 1 or No. 2 in their markets.

“There is opportunity for further consolidation under the FCC caps,” Lacy said on the call.

Media General had already been an aggressive acquirer — it purchased LIN Media’s 43 stations in 2014 for $1.6 billion and Young Broadcasting’s 18 stations in 2013 in an all-stock deal valued at about $715 million.

Broadcast consolidation peaked in 2013, when about $11.4 billion of deals were done, according to SNL Kagan. Activity slowed in 2014 to $7.3 billion in deals as new FCC rules made it harder for groups to own multiple stations in the same market.

So far in 2015, not including the Meredith deal, about $130 million in broadcast deals have been announced. This year, the FCC has threatened to crack down even harder as it reviews the definition of good-faith negotiations in retrans disputes.

That could lead to real reform, including restrictions on blackouts during negotiations. FCC chairman Tom Wheeler has pushed for rules that would protect viewers, and the discussions could let him address such issues as blackouts, standstills and access to online content. (See Rules).

At the same time, distributors have added scale, with AT&T completing its $48.5 billion purchase of DirecTV in July, making it the largest MVPD in the country with 26.3 million video customers. Charter Communications is expected to complete its $78.7 billion buy of Time Warner Cable around year-end, making it No. 3 with more than 17 million video customers. With consolidation happening on both sides, Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said he doesn’t expect many big changes in the retrans climate.

“The larger they get, the more leverage they have to try to push through more aggressive hikes and try to push back if the broadcast nets try to squeeze them,” Wlodarczak said. “I would be surprised if things change around retrans. More likely, the content players will keep pushing through big hikes on distributors that the distributors will then turn around and pass on to consumers, for what I would argue is less-compelling product.” Wlodarczak predicts annual pay TV subscriber losses will hover around 2% for the next five years as a result.

Telsey Advisory Group media analyst Tom Eagan said he expects the retrans situation will probably get worse before it gets better.

“But if the programmers are smart, they’ll realize that the regulatory threat this time is real,” Eagan said. “The FCC is looking to get involved in several elements of their business, including network bundling and retransmission negotiations.”