Broadcaster Auction Results Don't Say Much About Auction; Confidential Letters Mailed
Recent announcements of incentive auction proceeds by several large publicly traded broadcasters don't provide much to extrapolate from on how other, quieter broadcasters did or where successful bids were concentrated, analysts and attorneys told us. Though learning that Sinclair will receive $313 million, Tribune Media $190 million, Gray Television $90.8 million and Fox Television Stations $350 million (see 1702080081) is interesting, the vast majority of the $10 billion clearing cost is unaccounted for, said Fletcher Heald broadcast attorney Frank Jazzo.
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A real portrait of the auction won't be available until the FCC releases a station-by-station breakdown of what spectrum sold where and for how much, which won't happen until the action is complete, said Wiley Rein broadcast attorney Ari Meltzer. Though that's likely some time away, the FCC has brought the end closer by mailing out confidential channel assignment letters this week, an Incentive Auction Task Force (IATF) spokesman confirmed. Some broadcasters already have received them, and planning for the repacking has begun, broadcast lawyers said. “It's gonna be tough to get an engineer on the phone today,” Meltzer said.
The forward auction is still proceeding, and the IATF announced a change to the price increments on the auction public reporting system Thursday. Beginning Friday, the increment will change from 10 percent to 15 percent, the IATF said. The activity requirement for forward bidders will also increase Friday, rising from 95 percent to 100 percent of a bidder's eligibility, said the PRS post. Forward-auction bidders are looking to the end of the auction and the relaxation of their own quiet period, said Cowen analyst Paul Gallant. “Investors are focused on this because it's expected to kick off extensive M&A discussion among carriers,” Gallant said. Citigroup continues “to expect the bidding to end in the near term (i.e. any day now)," and sees "anti-collusion rules that are restricting possible strategic discussions between auction participants likely to end in either late-March or April,” analyst Michael Rollins emailed investors.
There are too many variables to learn much from the recent announcements of auction proceeds, said BIA/Kelsey Chief Economist Mark Fratrik. The gains could reflect a few stations that “froze” at high prices or numerous smaller winning bids, he said. “There are different dynamics in each and every market.” The auction gains for the big groups aren't as much as forecast, but that's because the clearing target was far smaller than most analysts and companies expected, said Justin Nielson, senior researcher for S&P Global Market Intelligence.
The less-than-expected-gains by big broadcast groups could indicate “independent stick stations ... very well might be receiving the majority of the proceeds,” Wells Fargo analyst Marci Ryvicker emailed investors. “Remember, this was the FCC's intention all along, as the purpose of this auction was to repurpose ‘excess’ spectrum,“ Ryvicker said. “Meaning, the FCC was explicitly targeting unprofitable or minimally profitable stations, NOT ones that generate meaningful cash flow (i.e. - Big 4 stations in large markets).”
Many of the corporate releases on auction proceeds contain language saying that spectrum sales won't affect the operations of stations and employees in the involved markets. That suggests the groups involved sold the spectrum of stations only in markets where they had duopolies, Jazzo said. In such a situation, the broadcast groups likely plan to preserve the sold channel through channel sharing with their other station in the same market, he said. Fox's and Tribune's announcements both included this type of statement.