You Wanna Buy A Duck?

You’re forgiven if you’ve never heard of Joe Penner.  After all, he never lived to see World War II, and the few surviving examples of his work are pretty much limited to grainy old time radio recordings and some animated caricatures in Disney and Warner Brothers cartoons of the 1930s.  But trust me, at one time, he was to your grandparents and great-grandparents what Mr. Beast is to you.  His catch phrase “You Wanna Buy A Duck?” was on the lips of every Roosevelt-loving child in America, and his exaggerated, slurred speech would send his fans into hysterics.  You’re free to give a look or a listen to some of his work and if you’re as underwhelmed as I was do bear in mind: it was in the heart of the Great Depression.  Anything other than a bread line was considered hilarious.

Indeed, it spawned a craze where the phrase would trigger a chain of non-responses to what on the surface was a ludicrous question because, let’s face it, who among us besides a gourmet chef or a lazy hunter has woken up on a given day actually thinking “ya know, today, I gotta buy a me a duck”?  Let’s at least safely say it wasn’t a top of mind thought.

Which I dare say is about what the temperature is of folks who would be responding with anything beyond an eye-roll to this news that dropped from CNBC’s Lillian Rizzo and Alex Sherman late yesterday:

Sinclair, one of the largest owners of broadcast stations in the U.S., is looking to sell more than 30% of its footprint, according to people familiar with the matter.

The company has hired Moelis as its investment banker and has identified more than 60 stations in various regions of the U.S. that it would be willing to sell, said the people, who asked not to be named because the discussions are private. Sinclair owns or operates 185 TV stations in 86 markets.

The stations are a mix of affiliates including Fox, NBC, ABC, CBS and the CW. If sold together, their average revenue for 2023 and 2024 is an estimated $1.56 billion, the people said. Sinclair is willing to sell all or some of the stations, which are in top markets like Minneapolis; Portland, Ore.; Pittsburgh; Austin, Texas and Fresno, Calif., among others.

Sinclair built upon a relatively small family-owned business of independent television stations, beginning with an upstart independent in their hometown of Baltimore, and leveraged arcane FCC rules that somehow gave only 50 per cent market coverage value against its mandated cap limits to stations on legacy UHF channels–even long after cable and eventually digital transmission, not to mention the popularity of syndicated reruns and networks like FOX eliminated virtually all of those handicaps.   They used tricks like local marketing agreements and the creation of “virtual” channels to accommodate the demand for UPN and WB affiliates to compliment their major-market cornerstones to assure enough coverage to sell national commercial time competitively.  With the gluttony of a Catskills housewife on vacation, they became far and away the largest single owner of broadcast stations in the United States.

In boom times, that’s all well and good.  In bear times, not so great.  As Rizzo and Sherman elaborated:

Broadcast TV station groups have suffered in the past five years as millions of Americans have canceled traditional pay TV. Most stations make money from so-called retransmission fees, paid on a per-subscriber rate by traditional TV distributors, such as Comcast, DirecTV, and Charter, for the right to carry the stations.

Sinclair has lost more than 70% of its market value in the last five years. The company’s market capitalization is about $975 million with an enterprise value of about $4.7 billion.

Moreover, Sinclair was lured in by the siren’s song of another overbloated portfolio–the once FOX-owned regional sports network business–when Disney needed to unload them to help pay down their $71B acquisition of everything Rupert Murdoch didn’t want to own.  Regular readers to our musings know all too well how that’s worked out:

Sinclair acquired the largest portfolio of regional sports networks from Disney in 2019 for $10.6 billion, including $8.8 billion in debt. Between ramped-up cord-cutting and the hefty debt load, Diamond Sports, the independently run and unconsolidated subsidiary of Sinclair, sought bankruptcy protection last year.

Diamond later sued parent Sinclair, and the litigation was settled in January. Sinclair made a $495 million payment to settle lawsuits related to Diamond.

And if the allure and reach of Sinclair’s equivalent of Golden Corral outlets isn’t sexy enough for any prospective duck buyers out there, you have another option out there of slightly larger-reach outlets, as THE NEW YORK TIMES’ Benjamin Mullin and Lauren Hirsch reported Wednesday:

Shari Redstone helped build Paramount Global into a media empire, but if Sony Pictures Entertainment and the private-equity giant Apollo Global Management succeed in acquiring it, they plan to break it all up, according to three people familiar with the matter. The plan would include auctioning off CBS, cable channels like MTV and the Paramount Plus streaming service, said the people, who asked not to be identified sharing private details. 

Though it’s still early, the two bidders have already begun to envision how a deal for Paramount could unfold. The two would likely operate the company as a joint venture controlled by Sony, with a minority stake owned by Apollo, the people said.  Any deal by Sony would face regulatory hurdles. Regulations restrict foreign owners from holding licenses for U.S. broadcast stations, which could prevent Sony — which is owned by the Japanese-based Sony Group — from owning CBS-affiliated TV stations. But they could divest the stations immediately, or have Apollo apply for the license. They are also considering other options for the stations.

So who needs Minneapolis and Fresno when you can have duopolies in New York and Los Angeles, right?

Besides, Rizzo and Sherman have taken the liberty of reminding any of you prospective duck lovers it may be a most fortituous time to indulge:

The stations are up for sale in the months before the 2024 election, which usually draws high political advertising revenue for broadcast TV companies. Sinclair said during earnings on Wednesday that it pre-booked $77 million in political advertising for the second half of the year through Election Day, compared with $21 million at the same point in 2020, the last time former President Donald Trump and President Joe Biden were on the ticket.

But every time a once-sucker is the one that’s looking to bail out, the opportunity to find another sucker diminishes.  P.T. Barnum may have been correct to assume that one is born every minute, but their adult counterparts do eventually learn from others’ mistakes, especially when recency bias is a factor.

So it’s unsurprising that DEADLINE’s Jill Goldsmith dropped this coy observation from one prospective duck lover yesterday:

With Paramount Global and its assets currently in play, Nexstar CEO Perry Sook was asked on a call today if the nation’s biggest broadcast might look at CBS stations.

“Obviously, given our station footprint, the digestion of CBS station assets would be a tough nut, particularly under this regulatory environment and regime,” he said on a call after quarterly earnings. “If that were to change, maybe our opinion would change. But that certainly would have to happen, I think, for anyone to have confidence they could pursue a complicated regulatory transaction in the current environment.”

That pretty much aligns with the caveats that the TIMES reporters pointed out as Sony and Apollo formulate their strategery:

Any deal by Sony would face regulatory hurdles. Regulations restrict foreign owners from holding licenses for U.S. broadcast stations, which could prevent Sony — which is owned by the Japanese-based Sony Group — from owning CBS-affiliated TV stations. But they could divest the stations immediately, or have Apollo apply for the license. They are also considering other options for the stations.

Both Sook and Sinclair CEO Chris Ripley both enjoy favored-nations relationships with a certain Presidential candidate who is a bit preoccupied this week with some lurid testimony from a “porn star”, so if things go the way they may hope this fall there may yet be a path where an entity like Nexstar could swallow up both of these companies.  As Goldsmith reminded, Nexstar, parent of the CW, is a big company with a hefty market cap of $5.8 billion and an enterprise value of about $12 billion, cash on hand and low debt.  But what happens if somehow pragmatism and democracy, and the current FCC approach to regulation, prevail?

I’d offer that perhaps it may be prudent to revisit the earliest days of TV history in the same manner that moi revisited the earliest days of cartoons and radio.  TV stations of the 50s and 60s had fewer network and syndicated options, so they produced an awful lot of inexpensive local shows.  Not just news that some ambitious sales executive believes can be sold at higher CPMs even if the number of available GRPs balloons so high as to diminish demand.  They found local advertisers willing to foot the bill for more ambitious productions.  They partnered with other media like newspapers and magazines.  The physical distribution channels may be different these days but the opportunities and efficiencies still exist.  How many user generated videos are out there? How many podcasts are out there?  How many Instragram feeds are out there?  Plenty of them do suck, but more than a few are intriguing enough to hold the attention of a lot of people who are otherwise eschewing traditional TV.

And as Exhibit A, allow me to present that little Nielsen chart which I should have provided yesterday when we were pointing out who the likes of Disney+ and MAX are chasing.  Far and away number one on even that partial lens is YouTube.   If you’ve seen actual ratings these days, you know an awful lot of these talented outliers aren’t all that far away from matching their appeal.

If one wants to prevent history from repeating itself, one might want to take a different course of action.  Rather than hold out for the possibility of someone like Sook and Nexstar to overstuff themselves the way Ripley and Sinclair did, to the point of implosion, why not go one-by-one to local and/or regional investors and find some truly entreprenurial folks who would be open to broadening the exposure for their talents over and above what they already have?

Sure, it might take a little longer to find dozens of such deals.  But we’re in a holding pattern now anyway.  Why not at least be open to the possibility of reinvention and breaking through during some pretty depressing economic times?

You know, the way Joe Penner was.

Until next time…


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