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Lighter regulation will lead to more TV, radio consolidation

Based on a belief that regulatory ownership caps could soon be lifted or eliminated, TV and radio stations executives expect to see more merger and acquisition activity.

Moderating a panel at S&P Global Market Intelligence's TV & Radio Finance Summit on June 15 in New York, Elliot Evers, managing director with MVP Capital, asked whether the TV station industry, if the national cap is eliminated, would morph into five super groups as players look to further leverage retransmission consent clout.

Scott Shapiro, vice president of corporate development at Sinclair Broadcast Group Inc., said a healthy industry "should always attract more entrants and newcomers." However, he anticipates more consolidation owing to the benefits emanating from economies of scale.

"I think it's inevitable," Shapiro said. Sinclair is presently seeking to combine with Tribune Media Co. in a $3.9 billion deal.

Under the current national ownership cap, a single broadcast station group cannot own TV stations that together reach more than 39% of U.S. TV households. Federal Communications Commission Chairman Ajit Pai said in April he would begin a new proceeding to review the rule, though there is some question whether the FCC has the authority to change the cap given it was last amended by Congress through the 2004 Consolidated Appropriations Act.

Even if the cap is lifted, however, Marci Ryvicker, managing director of equity research at Wells Fargo Securities LLC, said some companies are not necessarily willing sellers right now. Financial considerations aside, the TV station sector, Ryvicker said, is "an emotional industry" in which owners are part of American society. Likening it to companies holding on to newspapers and being part of the fabric of the community, Ryvicker said she does not see many players raising their hands to sell at this juncture.

Bob Prather, president and CEO of Heartland Media LLC, which owns 11 stations, said ego is definitely involved, and that it is a big deal to control a TV station in a small town, where the owner is viewed as "a mover and shaker." He noted that many of these owners have spent their entire lives in these areas and there is reluctance to sell until their children assume a leadership role.

Ryvicker also does not envision major broadcast networks making moves to significantly increase their owned-and-operated station holdings. She said she did not think that 21st Century Fox Inc., for instance, would allocate its capital on FOX (US) station purchases. And CBS Corp. has expressed some interest in bolstering its CBS (US) base in the top 25 markets, but little beyond that. "I don't think that's going to change," Ryvicker said.

She noted that Comcast Corp.'s NBC (US) may have some interest in one or two markets, and Walt Disney Co.'s ABC (US) could perhaps be a seller.

On the radio side, Caroline Beasley, CEO of Beasley Broadcast Group Inc., which acquired Greater Media Inc. in 2016, said: "There are consolidation opportunities coming down the road."

Connoisseur Media President and CEO Jeff Warshaw said "there should be no rules on how many stations you can own in a market." He believes there is "tremendous value in station swaps" in which players could take advantage of enhanced positions within different markets.

Richard Schmaeling, CFO of Entercom Communications Corp., which is in the process of merging with CBS Radio Inc., said deregulation of ownership rules would serve to build more clusters. That would result in synergistic values and attract private equity money, he said.

Article amended at 3:11 p.m. ET on June 21, 2017, to correctly identify the moderator of the TV panel.