Auction End Likely to Lead to TV Dealmaking

The auction quiet period and accompanying ban on transactions being consummated will be the spur for much of the dealmaking that goes on, said numerous attorneys and analysts. Broadcasters have been under the quiet period for a year, and the lead-up to the auction was seen as putting a damper on making deals, attorneys said. Some broadcasters who otherwise might have sold deferred in anticipation of greater gains from the incentive auction, Guy said. Transactions that otherwise would have happened then will occur when the auction ends, BIA/Kelsey Chief Economist Mark Fratrik said. Broadcast attorneys said there are licensees in dire financial straits that need to sell but have been unable to do so during the auction, and those transactions likely will happen now.

Along with deals blocked by the auction will be transactions caused by the auction, industry officials said. Many broadcasters went into the auction with the belief their spectrum would sell and they would be out of the broadcast business, Guy said. With the auction ending on a clearing target of 84 MHz, it's likely many of these broadcasters are disappointed, but remain ready to offload their stations, industry officials said. Broadcasters in such a position may have been able to stave off creditors before the auction when larger proceeds seemed likely, only to be left still needing to sell, Guy said. That creates an opportunity for making deals, he said. Before the auction, speculators bought many stations, and the low clearing target makes it likely not all of them sold their spectrum, a broadcast attorney said. Such licensees never wanted to be broadcasters, so they will be looking to sell, said industry officials.

The likelihood of deregulation also will feed into TV dealmaking, said several industry officials. It's widely believed among broadcasters that the new FCC will seek to roll back ownership rules that block TV deals, making more transactions feasible, numerous broadcast attorneys said. The new administration will have “a realistic view” of the competition faced by broadcasters in the video marketplace, said a broadcast executive. Such rule changes might not be an immediate spark to transactions, said Fratrik, since they will likely take a while. Removing duopoly rules or altering the national ownership cap are likely to lead to court challenges, and they can take a long time and go either way, said broadcast attorneys. The TV multiple ownership rules outlasted several Republican administrations, one attorney pointed out. Even if deregulation doesn't happen quickly, the specter of it can still motivate transactions, Guy said. With the prospect of deregulation, broadcasters who might not otherwise be in position to make a deal will begin looking for opportunities in the marketplace, or looking to assemble the pieces of a sale, he said. That by itself can lead to transactions, he said.

Other market forces are likely to drive dealmaking, Fratrik said. “Consolidation in this industry will continue,” a broadcast executive said. Broadcasters need scale to come out ahead in retransmission consent negotiations with pay-TV giants, Fratrik said, and that's an incentive to grow. Interest rates are also low, which makes it more cost effective to finance purchases, he said. Though the coming repacking might be seen as a possible barrier to making deals, Guy said that's not the case. The repacking adds an extra level of complication but won't keep sales from happening, he said: “It's a headache, not a barrier.”