Gray TV President Says Incentive Spectrum Auction Still ‘Way Up in the Air’
It’s still too soon to know how the FCC’s planned incentive spectrum auction will affect TV broadcasters, Gray TV President Bob Prather told analysts Wednesday during the company’s Q4 earning teleconference. He was asked if the auction might make the competitive environment better for stations that stay in the business by forcing weaker operators to exit. “It probably would,” he said. But “I think those auctions are still way up in the air and way down the road,” he said. “I don’t think anybody knows what’s going to happen."
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The reverse incentive spectrum auction and the forward auction for the reclaimed spectrum “may wind up being a lot more lucrative than anyone thinks, or they may be a bust,” he said. At this point, before the FCC has settled on a final process, it’s “still speculation,” he said. He noted Gray TV is making the most of its spectrum by multicasting major network-affiliated program streams on many of its stations. “And we've saved a little space for live mobile if the industry can ever figure out how to make that work right,” he said.
Meanwhile, Prather said he expects consolidation among TV stations to continue, even if Gray itself isn’t involved in any of the transactions. Several station groups, including Fisher, have said they're considering strategic alternatives to operating their businesses as-is, he said, and more are in the pipeline.
"You just hear through the deal grapevine that several groups are thinking about putting themselves up for, as they say, seeking strategic alternatives,” Prather said. Most of the prospective buyers are other TV station groups, he said. Private equity buyers largely seem to be on the sidelines. Among existing operators, “there’s an appetite for consolidation that I think will continue,” he said.
As for Gray, it looks for stations that are either at the top or near the top in their markets and that can make the company more profitable, Prather said. “Frankly, there aren’t many of those deals running around out there,” he said. The company remains focused on using its cash to reduce its debt, he said.
So far in the first quarter of 2013, quarterly ad sales are on pace to exceed those of a year earlier, said Jim Ryan, Gray’s chief financial officer. But one sector that’s already spending less than it did a year earlier is communications, he said. Some of the drop is due to pulled-back spending from regional wireless carriers, such as U.S. Cellular, he said. Gray had anticipated that, he said. Last year, U.S. Cellular agreed to sell some of its Midwest operations to Sprint. Cable operators have spent less than expected on local TV ads with Gray so far this year, Ryan said. “We think that might be more about the timing of their ad spends for their own product releases,” he said. “We're not viewing that as a major red flag right now, but we have seen some [softness] … in the first quarter."
Q4 sales at Gray increased 50 percent from a year earlier to $126.6 million on higher political ad sales and retransmission consent revenue, it said. A “significant portion” of its retransmission consent contracts expired in 2011 and the company renewed “substantially all” of those deals on better terms for Gray, it said. The company reported a quarterly net loss of $2.6 million, down from a $5.8 million profit a year earlier as a result of a $46 million loss on an early debt payment.