Gannett, Belo to merge

In what is believed to be one of the biggest deals in at least a decade, McLean, Va.-based Gannett, Inc. announced Thursday morning their intent to buy Dallas-based Belo, Inc. for $2.2 billion, plus the assumption of debt. The deal should close at the end of the year, pending regulatory approval.

The sale increased Gannett’s station count to 43; outside of network owned-and-operated stations, Gannett now has the fourth-largest ABC affiliate group, and the most CBS and NBC stations.

When the transaction closes, Gannett will own the largest ABC affiliate not owned by the network in market size with WFAA-TV in Dallas (DMA #5), in addition to the largest non-O&O CBS affiliate in market size, WUSA-TV in Washington D.C. (DMA #8).

Gannett also plans to “restructure” its ownership in five markets where there is overlap due to FCC rules. Former KTVK/Phoenix GM Jack Sander will run the new “sidecar company” where he will own stations in five markets while Gannett continues to provide things through joint or shared services agreements.

One of those markets is St. Louis, which serves much of southwestern Illinois. Since two of the market’s top-rated stations overlap (Belo’s KMOV and Gannett’s KSDK), Gannett is expected to transfer KMOV to the third-party company Sander plans to form. Belo bought KMOV from Viacom in 1997 (which in turn bought it from CBS in 1986); Gannett bought KSDK with its purchase of Multimedia, Inc. in 1995.

The mega-merger frenzy currently taking place in TV is reminiscent of the era shortly after the FCC legalized duopolies and what happened to radio at the dawn of the 21st century. Last week, Media General and Young announced a merger; and a few weeks ago, Sinclair announced its purchase of Fisher Communications, owners of KOMO in Seattle, KATU Portland, OR, and eighteen other stations, mainly in the Pacific Northwest. Sinclair and Nexstar Broadcasting have been buying up stations in smaller markets, particularly in downstate Illinois.

So why is this happening? Simple: Broadcasters need to increase their clout against cable MSOs (multiple system operators) and satellite providers to extract their fair share of retransmission revenue, i.e. receive money from the MSOs to retransmit their signal over their systems. Another is the major networks are demanding more revenue from their affiliates (i.e. “reverse compensation”.) Also, as viewers are increasingly time-shifting network programming on their DVRs – and watching on alternative platforms (Netflix, Amazon, Hulu, YouTube, etc.), local stations want more resources to beef up their local news operations, seeing what happened when Comcast merged with NBC and did just that (of course, it doesn’t mean an increase in quality.) Ratings for local news remain strong (particularly in Chicago) despite audience erosion elsewhere.

The consolidation wave is also giving the station groups more clout with syndicators, too. Large groups – especially in bigger markets – can make or break a show.

Meanwhile, media watchdog groups have criticized these deals because it would lead to lackluster local news coverage (that ship has already sailed) and less coverage of local community issues. And while not criticizing this particular deal directly, local ad agencies and media buyers are also expressing concern about media consolidation as this article from an Eugene, Ore. attests, since the new owners of a local station fired almost all the staff in a merger.

But Wall Street is cheering – Gannett stock hit a five-year high on Thursday based on the news and analysts praised the deal. Of course, these guys could care less about local communities being served.

All of this while the FCC and the Obama Administration have showed indifference to the matter, despite a campaign promise made in 2007 to look into media mergers.

So what station group is next? Keep in mind Local TV LLC and Allbritton are on the block. And others (Gray, Schurz, McKinnon, and even Chicago-based Weigel) could become targets.

Look for more of these deals to continue, where viewers, ad buyers, and those who work in the industry like it or not.