Gannett Broadcasting and Lionsgate-owned Debmar-Mercury have formed a partnership to develop, produce, test and distribute first-run syndicated TV series built around the concept of interactivity. Through the partnership, Gannett will be able to create and test first-run syndicated programming across all genres on its stations beginning in 2015. “We will work together to design shows to take advantage of how television has changed and create a new genre of syndicated programming,” said Gannett president Dave Lougee. “With more than 40 stations across the country, we will have the ability to experiment, test and refine programs throughout the development process.” Meanwhile, Debmar-Mercury, which is behind such 10-90 sitcoms as Anger Management and syndicated talk shows like Wendy Williams, gains distribution for its shows on Gannett, which operates the largest independent TV station group of major network affiliates in the top 25 U.S. television markets. When Gannett and Debmar-Mercury agree on the concept and timing of their first project together, they will test the series on various Gannett stations and at various times throughout the year at different test run durations. Debmar-Mercury’s Wendy Williams Show started off with a test run on the Fox stations, which had been the most active with that model.
Debmar-Mercury & Gannett Broadcasting Ink Deal To Develop & Distribute Interactive First-Run Syndicated Programming
The agreement gives the studio opportunities to develop scripted or unscripted “multiplatform projects” from work on any of Gannett‘s TV stations, digital assets, and newspapers including USA Today. The companies will hire a development exec to lead the effort. “This groundbreaking venture with Gannett will allow us to discover and explore rich new storylines and narratives for a wide array of audiences,” says Weinstein Company president David Glasser. Gannett CMO Maryam Banikarim called TWC “an innovative marketer” that can help to “bring new content partnerships as well as branded entertainment opportunities to our advertisers.” The companies announced the partnership in New York at Gannett’s upfront presentation to advertisers. Its recent $1.5B acquisition of Belo added 20 TV outlets to Gannett’s portfolio and made the company — which was already the No. 1 owner of NBC affiliates — also the top independent owner of CBS affiliates, and No. 4 with ABC.
That was fast. Gannett not only completed the $1.5B (not including debt) deal to buy TV station power Belo — it also announced an agreement to sell St. Louis’ KMOV just a week after it agreed to do so to win Justice Department approval for the transaction. Meredith Corp. will pay about $407.5M for KMOV as well as two Belo stations in Phoenix: independent KTVK and CW affiliate KASW. “Meredith is a highly respected multi-media company which shares our commitment to outstanding local journalism, and we are confident that these stations will be in good hands,” Gannett CEO Gracia Martore says. She adds that the terms “will significantly lower the effective purchase price for Belo while reducing only minimally the expected synergies associated with the Belo transaction.” The company says that the loss of the three stations will only cut about $2M of the $175M in annual synergies it expects to realize over the next three years. Gannett will continue to wield a lot of clout in the two cities: It owns NBC affiliates KSDK in St. Louis and KPNX in Phoenix. The FCC approved the deal with Belo late last week. Gannett — which was already the No. 1 owner of NBC affiliates — now also is the top independent owner of CBS affiliates, and No. 4 with ABC. Gannett shares are up 3.4% at mid-day while Meredith is +5.2%.
The TV station deals, both announced over the summer, now are cleared to close. Gannett, which owns 23 stations, will pay $1.5B (not including $715M in debt) to add Belo’s 20 outlets. The owner of USA Today is already the No. 1 owner of NBC affiliates (not including the network-owned group), and will become the No. 1 outside owner of CBS stations and No. 4 with ABC. It also will reach about 30% of all TV owners. Meanwhile, Tribune’s $2.73B acquisition of Local TV gives it an additional 16 stations to the 23 it already owns. The combination will reach about 44% of viewers which Tribune says makes it “the largest combined independent broadcast group and content creator in the country.” Already the top owner of CW stations, it now also has the largest portfolio of Fox affiliates. CEO Peter Liguori says that the deal reflects his view that “in a fragmenting media landscape, there is value in scale, for our viewers, advertisers, networks, cable and satellite partners and, most important, the communities we serve.” But activist group Free Press charged that the regulators enabled Gannett and Tribune to make deals that “run afoul of the FCC’s media ownership limits” in several markets including Cleveland; Dallas; Denver; Louisville; Norfolk, Va.; Phoenix; Portland, Ore.; Seattle; and St. Louis. “These kinds of deals shutter newsrooms and silence competing viewpoints, …
Gannett already owns the local NBC station in St. Louis, KSDK. So it isn’t terribly concerned about the Justice Department’s insistence that it unload “substantially all” of the assets at Belo’s local CBS station, KMOV, as a condition to win antitrust approval for its $1.5B acquisition of the TV station power. “The synergies associated with KMOV-TV were nominal” and won’t change their forecast to realize $175M in savings for each of the first three years after the deal closes, the companies say. Gannett’s local clout “will not be impacted” when KMOV is divested, expected sometime next year. Bill Baer, Assistant Attorney General in charge of Justice’s Antitrust Division, says that KSDK and KMOV “compete head-to-head in the sale of broadcast television spot advertising in the St. Louis area, and this rivalry constrains advertising rates. The full divestiture required by the department will ensure that KMOV-TV will remain a vigorous competitor in St. Louis.” Gannett and Belo still have to win the FCC’s endorsement before the deal can close. But investors are encouraged. Gannett shares are up 1.9% in mid-afternoon trading.
The $1.5B acquisition agreement changed a lot of investors’ minds about how much companies in the sector are worth. Gannett was up 34% to $26.60, the highest it’s been in more than five years and increasing its market value about as much as it will pay for the deal itself. Belo, up 28.3% to $13.77, also hit a five-year high. But the deal seemed to rise the tide for others as well. For example, LIN TV was +20.1%, E.W. Scripps was +12.9%, Sinclair Broadcasting was +12.7%, the New York Times was +6%, and McClatchy was +5%. Gannett prompted investors to look more favorably on TV stations by agreeing to pay a price for Belo that equaled 9.4 times its recent cash flow. Recent deals including several made by Sinclair Broadcasting went for less than 8 times cash flow.
With this deal, Gannett — which is already the top owner of NBC affiliates — will also have the No. 1 independent CBS station group and become No. 4 for ABC. It will control 43 stations, up from 23, that will reach about a third of the country including 21 of the 25 largest markets. The news has already propelled Belo shares +27% in pre-market trading while Gannett’s +14%. Gannett is the nation’s largest newspaper owner with properties including USA Today, but has been eager to diversify as the print business continues to decline. CEO Gracia Martore calls the Belo deal “another important step in the process” that will leave it with “one of the largest, most geographically diverse and network-balanced TV station groups in the country.” It agreed to pay $13.75 for each share of Belo, which closed Wednesday at $10.73. If you add in Belo’s $715M in debt, the enterprise value of the deal comes to $2.2B. Despite the additional financial burden, Gannett says it can continue with its plans to repurchase its shares and pay a dividend while it “expects to promptly pay down the debt associated with this transaction and maintain significant financial flexibility going forward.” The companies expect the deal to close by year end after it’s reviewed by the FCC and antitrust officials.
Gannett’s agreement to buy Belo is part of a consolidation wave in broadcasting: For example, last week Media General said it will merge with Young Broadcasting and before that Sinclair unveiled plans to buy several smaller groups including Fisher Communications. Many sellers see this as a good time to bail out of a mature business that’s struggling to keep viewers from rivals on pay TV and the Internet. But buyers typically say that broadcasting should continue to grow, especially as stations raise the retransmission consent fees they collect from pay TV distributors. Those payments could rise to $6.1B in 2018 from $2.4B last year, SNL Kagan projects.
Here’s today’s release from Gannett and Belo with additional details about the terms:
Al Neuharth, former Gannett chairman and founder of USA Today, died today from complications of a fall at his home in Cocoa Beach, FL. He was 89. Neuharth’s death was reported by USA Today and the Newseum, which he also founded. Neuharth became president of Gannett in 1970 and CEO three years later. During his more than 15 years at the helm, Neuharth built Gannett into one of the largest American media companies with annual revenues increasing from $200 million to more than $3 billion. He founded USA Today in 1982, while president of Gannett newspaper group. The colorful, easy-to-read newspaper was at first dismissed, some deriding it as “McPaper”, but it went on to become the nation’s second-largest daily newspaper. Neuharth retired from Gannett in 1989.
Gannett offers no details, except that it has “reached an agreement” that will enable DirecTV to continue retransmitting signals from its 23 television stations. Gannett had warned viewers that a “signal disruption” was possible if the companies remained at impasse over a new contract last night, when the previous deal with DirecTV expired. The broadcaster said that it wanted “a fair, market-based deal.” But DirecTV countered that Gannett was trying to “get customers angry and pressure DirecTV to accept a deal that would more than double the cost of their stations.” NBC would have been hit especially hard if Gannett stations had gone dark on DirecTV: Gannett is the largest independent owner of NBC stations with 12 affiliates in markets including Atlanta, Minneapolis-St. Paul, Denver, Cleveland, and Phoenix. The company also has six CBS affiliates, three with ABC, and two with MyNetworkTV. About 20% of the 20.1M households in Gannett’s markets watch the stations’ programming on DirecTV, according to SNL Kagan data. In October Gannett’s carriage negotiations with Dish Network also went right to the wire, without any disruption of service.
Television stations were the star performers for Gannett, helping to overcome weak results in its core newspaper business to edge past Wall Street’s expectations for Q3. The company reported net income of $148.6M, up 32.9% vs the period last year, on revenues of $1.31B, +3.4%. Revenues were slightly ahead of the $1.29B that analysts anticipated. And earnings, excluding unusual events, came in at 56 cents a share — beating the 53 cents that company watchers forecast. The largest independent owner of NBC affiliates says it benefited from $37M in ad sales related to the Summer Olympics in London, $41.7M in political ads, and $22.3M in retransmission consent payments from pay TV distributors. All told, the Broadcasting division generated $237.0M in revenues (+36%) with operating income of $118.7M (+73.1%). Gannett needed the boost: Revenues at its Publishing division, which includes USA Today, fell 3% to $890.2M, with operating income of $73.7M, down 31.7%. Ad sales at the U.S. publishing operations dropped 6.%%; with the 7.4% decline at UK-based Newsquest they were down 6.6% to $552.7M. Employment and real estate ads were especially weak in the U.S. although auto-related sales were up 1.3%. Meanwhile, Gannett’s Digital segment — which includes CareerBuilder — saw a 4.7% increase in revenues, to $182.0M while operating income rose 16.2% to $34.4M. “Our results this quarter demonstrate that the growth strategy we announced in February is gaining traction,” CEO Gracia Martore says. “In September we re-launched …
UPDATE, 7:10 AM: The announcement, without details, hit literally a minute after I posted the story below about the companies’ decision to extend their negotiations. The companies simply say that they “have reached an agreement regarding Dish Network’s continued retransmission of Gannett stations.”
PREVIOUS, 7:05 AM: The old contract that enabled Dish Network to offer programming from Gannett stations in 19 markets expired at midnight. But Dish customers continue to see them: The companies said this morning that “both sides have agreed to extend the deadline by several hours” to work out a new agreement. Dish said on Friday that it had agreed to a 200% increase in the fees it pays to carry stations controlled by Gannett. The increase is “the same as our closest direct competitor” — presumably DirecTV.
Gannett typically kicks off the earnings season for media companies. And while the story it tells this morning for Q2 is far from cheery — revenues and profits are down for the No. 1 newspaper publisher — it’s also not as bad as Wall Street feared. The company reported net income of $135.6M, down 18.1% vs the period last year, on revenues of $1.31B, -2.1%. The revenue figure is slightly short of the $1.32B analysts projected. But earnings per share, excluding special items for this year and last year, came in at 56 cents, ahead of the consensus forecast of 52 cents. Gannett’s broadcasting unit, which includes 23 TV stations, provided most of the good news. Its revenues were up 11.4% to $205.4M — including a $9M boost from political ads. But even if you factor out political spots, ad sales would have been up 6.2% with strong demand from auto makers, the company says. Gannett forecasts that ad sales in Q3 will be up “in the low-thirties… benefiting from the Summer Olympic
The trading day ended with a thud. The benchmark Standard & Poor’s 500 wound up -2.1% as word spread that Germany might balk at a proposal to help bail out debt-laden members of the European Union including Greece and Portugal. That affected media stocks; the Dow Jones U.S. Media Index fell 3%. Disney was the hardest hit among the Big Guns, with shares off 3.2%. It was followed by News Corp (-3.1%), CBS (-3%), Comcast (-2.9%), Time Warner (-2.7%), Viacom (-2.3%), and Sony (-2.1%). Newspaper companies were big losers led by McClatchy (-10%), New York Times (-7.3%), E.W. Scripps (-6.5%), and Gannett (-6.3%). But others weren’t far behind: Cablevision (-6.1%) hit a 52-week low. The losers list also included Crown Media (-6.6%), AOL (-5.9%), DirecTV (-4.7%), Live Nation (-4.4%), Barnes & Noble (-4.3%), TiVo (-4.2%), Sirius XM (-4.2%) and Dish Network (-4.2%). Today’s few gainers were led by Coinstar, up 7.8% on a report that its Redbox unit will team up with Verizon to offer an online video service. Martha Stewart Living Omnimedia was up 1.7% the day after J.C. Penney said it bought 16.6% of the company. And Madison Square Garden was up 1.7%, hitting a 52-week high, after Morgan Stanley’s Benjamin Swinburne changed his recommendation to “overweight” from “underweight” following the resolution of the NBA lockout.
The partnership involves big names in local TV including Belo, Cox, E.W. Scripps, Gannett, Hearst, and Media General. They want to enhance TV viewing beginning in early 2012 by offering an app that enables Apple or Android mobile devices to automatically detect what you’re watching. The stations then would feed additional info about the shows — including local and syndicated fare — as well as opportunities to connect with other viewers. Yes, they’ll also send ads to your device. Here’s how they describe the free service, to be called ConnecTV:
Everyone’s reacting today to Greek Prime Minister George Papandreou’s startling decision to hold a referendum on the deal cut last week to save his country’s economy. The agreement is unpopular — lenders would wipe out about half of Greece’s debt if the country accepts austerity measures that would cut social services. The fear is that a Greek default on its debt would have a ripple effect, pulling down other troubled economies.
Media stocks are falling along with the overall market. At mid-day, the Dow Jones Media Index is -1.6%. Sony’s been the hardest hit of the industry’s big guns with shares down 12%. Here’s how the others are faring: Disney -7.6%, Viacom -7.4%, CBS -5.6%, Time Warner -4.5%, News Corp -4.4%, and Comcast -2.4%. Media companies down double-digits include Entercom (-13.4%), IMAX (-11.9%), and Gannett (-10.9%). The only gainers thus far are Time Warner Cable (+2.4%), Regal (+1.9%), Lionsgate (+1.6%), and Pandora (1.1%).
The results were ugly, but no worse than analysts already forecast. Net income attributable to Gannett came in at $99.8M, down 1.6% vs last year’s 3Q, on revenues of $1.26B, down 3.5%. Excluding special one-time charges, earnings came in at 44 cents a share, matching the Street consensus. The nation’s largest newspaper publisher, with 83 dailies, blamed a “lackluster economic environment” for the 5.3% drop in publishing revenues, at $917.8M. Newspaper ad sales in the U.S. fell 9.3% — including a 20.1% drop in real estate ads. Revenues for the broadcast unit, with 23 TV stations, fell 5.9% to $174.3M, but the decline is due in part to the fact that this isn’t a major election year. Gannett stations collected $21.3M in political ads in last year’s 3Q. The company says that — excluding the impact from political ads — it expects TV revenues to “increase in the very high single digits” in the fourth quarter. While its traditional media businesses struggle, Gannett is placing a lot of chips on its digital businesses. Revenues there were up 10.3% to $173.9M. “I’m convinced we have the right strategy and team in place to continue to remake Gannett in the digital age,” says CEO Gracia Martore — who recently replaced Craig Dubow, who resigned for health reasons.
The bears are back. After a relatively calm week, stocks prices across the board — including in media — are tanking today following reports that point to rising unemployment and inflation, and weakness in manufacturing. An hour before the market close, the Dow Jones, S&P 500, and NASDAQ indexes for media stocks each were down at least 5.4%. Among the Big Media giants CBS is -10.7% followed by Time Warner (-6.1%), Sony (-5.7%), News Corp (-5.2%), Viacom (-5.2%), Comcast (-4.8%), and Disney (-3.2%). Elsewhere on our watch list, Pandora Media (-12.9) is taking the biggest hit with LIN TV -9.4%. Others falling at least 8% include Gannett, Live Nation, Entercom, IMAX, Radio One, McGraw-Hill, and Discovery. Those off at least 7% include Cablevision, Amazon, TiVo, Netflix, McClatchy, Coinstar, Arbitron, and Scripps Networks. And companies down at least 6% include Barnes & Noble, Washington Post, E.W. Scripps, Sinclair Broadcasting, Outdoor Channel, and Dish Network. The only gainers are Lionsgate (+0.3%) and Cinedigm (+1.3%).
Media stocks likely will take even more punishment if the economy weakens. When times are bad shares of companies with high fixed costs, lots of debt, and that depend on ad sales, fall more dramatically than the overall market, Needham & Co analyst Laura Martin says today. She says that Discovery may be the best media stock to own now — but adds that it would be even safer for investors to own a fund of stocks that mirrors the S&P 500.