A Chicago Win: Nexstar to Revive WGN America
January 2020
Chicago rarely wins when another company purchases a Chicago media company or cultural asset. Consider what happened to the Field Empire after its assets were purchased by Fox or how the Barn Dance and the Prairie Farmer were summarily killed as soon as the American Broadcasting Company got control of WLS’s broadcast license. But perhaps the recent purchase of Trib Media by Texas based Nexstar will result in a big positive development.
Nexstar announced this month (January 2020) that WGN America will offer three hours of news and the studio news headquarters will be here in Chicago in WGN’s Northside studio building. It is a longshot for Nexstar as the audience for cable news is not very fluid. The audience for CNN, MSNBC and Fox News seems to want their political preferences and paranoia certified instead of being enlightened with reliable information. Will Nexstar be able to attract sufficient audience and advertising to cover the large costs of a national news network? It is obviously a risky endeavor. Nevertheless, Trib Media’s cable channel WGN America had become a shell with little audience. Trib Media used it for entertainment programming including some that Trib Media produced themselves although never in Chicago and rarely resulting in any success. It was of no use to Chicago’s entertainment production community because Trib Media used Los Angeles’ facilities and talent. So it was no big loss.
Good Bye Trib Media
September 2019
It’s the end of an era, the FCC has approved the merger of Trib Media and Nexstar of Dallas, Texas as expected by a 3 to 2 vote. Trib Media was the last Chicago-based media company of any national import and a pioneer of the broadcast industry. Chicago which was once a national media center is now a media desert. There was very little interest in the FCC review in Chicago unlike the Sinclair-Tribune merger where most of the outrage was based on Sinclair having a conservative bent and saying nice things about Donald Trump. Nexstar avoided political tiger traps and has agreed to sell stations where there were multiple stations or where FCC coverage limits would have been exceeded such as Trib Media’s New York station. Because Chicago ignored the merger proceedings there are still unresolved issues that does concern Chicago’s entertainment industry such as WGN radio. Nexstar is a television station group so WGN radio becomes something of an orphan. Or, WGN America, the old Tribune super station, which is a cable channel that produces original entertainment programs although never in Chicago rather in Los Angeles?
The merger of Trib Media and Nexstar was all about distribution and negotiating strength. The broadcast stations need leverage in negotiations with cable companies and satellite companies that distribute to viewers and who pay the broad stations who need leverage with the networks who distribute news and entertainment to the broadcasters for which they must pay. Size does matter.
Senator Durbin Opposes Nexstar Trib Media Merger, Sort Of
April 2019
Some time ago we queried Senator Durbin, Illinois’s Senior Senator, as to his position on the announced Nexstar acquisition of Chicago-based Trib Media. In mid-April we received his reply. (pdf copy at end of blog). He expressed concerns that “with the proposed merger, concerns are again being raised that the deal would stifle competition and impede localism and diversity in broadcasting.” And yet he doesn’t actually state that he opposes this merger. The fire just doesn’t seem to be there as it was when conservative-leaning Sinclair tried to buy Trib Media. In that regard, he is not alone. There were hundreds of public comments on the FCC’s proceedings log opposing the Sinclair-Trib merger but only a handful opposing the Nexstar merger. (the proceeding case number is MB Docket No. 19-30 at fcc.gov if you wish to make a public comment.) Most of the objections are coming from cable companies and their trade associations who fear negotiating new agreements with a more powerful Nexstar.
Nexstar as just reported by Variety.com has just sold some of their television stations to get to the FCC limit of 39 percent national coverage. So they will likely be in compliance with current size restrictions which actually has nothing to do with the concerns of Chicagoans. Trib-Media unlike Sinclair or Nexstar does have a cable operation that produces original entertainment programming although they never produce the shows in Chicago but rather in Los Angeles. That is the issue that Chicago’s leadership should be concerned about. What is to become of Trib Media’s program production business? Unless Nexstar agrees to use Chicago assets to abet Chicago’s production economy, why shouldn’t Chicago oppose the merger?
Killing Trib-Media
January 2019
In 1996 the Chief Executive Officer of the Chicago-based Tribune Company (predecessor company to Trib Media), had a vision that he could create a media empire. There was a schism opening in the ownership of the Times Mirror Corporation, a similar conglomerate of newspapers and television stations based in Los Angeles, and this could lead, it was hoped, to a merger, actually a takeover, of the similar company if an offer was made that could not be refused. Times Mirror was controlled by a family trust created six decades earlier and the conventional wisdom had always been that the trust obviated the sale of the underlying companies. After an extensive review of the legal documents creating the trust, Tribune lawyers discovered to the contrary; the trust could sell if the trustees voted to do so unanimously.
And when the eight billion dollar offer was made and accepted, the Tribune Company had created a national multi-media conglomerate with newspapers and television stations across the nation and in the three biggest cities, New York, Los Angeles and Chicago. It stunned the business community, it stunned the employees of both companies and it especially stunned the civic leadership of Los Angeles who discovered their newspaper was now controlled by someone in Chicago.
While the Tribune executives were plotting their takeover of Times Mirror in 1996, a young sales executive in broadcast television, Perry Sook who started as a radio disc jockey in Punxsutawney, Pennsylvania the town where a groundhog is a celebrity, started his own company and bought a small television station in Scranton. Two decades and two years later his company, Nexstar would takeover what remained of the Tribune Company’s television division.
The seeds of the Tribune Company’s demise was planted in the ill-fated merger with the Time Mirror Company. As is not uncommon in corporate empire building, the Tribune executives seemed to have overvalued the assets and undervalued the liabilities. The combined company had newspapers and television stations in several markets including the big LA market and the FCC had traditionally prohibited combined ownership. The Trib executives believed this to be an obsolete regulation that could be overturned especially as the pro-business Republicans had just resumed control of the Federal Government. Instead of restructuring their business or their industry they tried to reform the body politic. Even as the FCC seemed to agree with them about combined newspaper and television ownership, both liberals and conservatives in the Congress instead feared “media consolation” and overturned the FCC initiative.
Ultimately the Tribune Company was able to maintain ownership of their television station and newspaper in Los Angeles after much lobbying but even greater problems arose with the Internal Revenue Service. Just prior to the Tribune Times Mirror merger, Times Mirror had sold a publishing division that it no longer considered a core asset but instead of paying a capital gain, they had instead reported it as a non-taxable corporate “reorganization.” The IRS viewed the sale as a sale and disagreed. The tax liability which was growing with interest and penalties, now fell on the Tribune Company and it was approaching a cool billion dollars.
While the Tribune Company struggled with issues related to their merger with Times Mirror, Perry Sook was buying more small television stations in his native Pennsylvania and then in 2003 he bought a company that owned ten stations. Nexstar had become a “television station group.” Sook also pioneered the concept of service outsourcing for small market television stations. Nexstar would operate a television station on a contract basis for someone else who held license ownership. An awkward variation of this strategy was tried by Sinclair to skirt FCC ownership limits in the ill-fated Trib-Media merger but the Commission saw it for what it was, a ruse to disguise actual ownership, and the merger failed.
As the Tribune Company commenced a court trial with the IRS in early 2005 with a billion dollars at risk, the entire national newspaper industry seemed to be coming asunder. The market value of venerable old publishing companies was in free fall. Circulation of daily newspapers was dropping quickly and as circulation dropped advertising income dropped tantamount to the circulation decline. It didn’t help that some newspapers including several owned by the Tribune Company were caught cheating on official circulation numbers causing some advertisers to search for alternatives. As advertising revenue declined the Tribune Company, as with most newspapers, began reducing content while raising prices which made the papers less desirable to readers. It became a cycle of decline; fewer readers, less advertising, and then panicked investors.
When the Times Mirror Corporation had merged into the Tribune Company, the family trust that had owned the Times Mirror became the second largest stockholder in the merged company and they pushed for action. They wanted the Tribune Company sold either whole to another company or all the assets sold off to the highest bidders. The investor group that had saddled the merged company with a near billion dollar tax bill now wanted the company dismembered to maximized their return. Still, they were not alone to want some action to save shareholder value. The largest shareholder in the company was another trust that had been formed by Colonel McCormick in the 1950’s before his death. The beneficiary of the Tribune Trust was a charity so as the value of the company declined, there would be less for the widows and orphans who depended upon it. This situation brought in the Attorney General of Illinois who, by law, is required to represent charities but it seemed to put Illinois’s Government in the same position as the greedy Los Angeles investors who wanted the Chicago-based Tribune Company sold in whole or in parts.
While the Tribune Company’s executives pondered their unpleasant options during 2005, Perry Sook pioneered a movement that changed the television broadcast industry. The genesis of the cable industry had been receiver reception fidelity not content quantity or quality. In rural areas home receivers often couldn’t receive broadcast signals without some interference. Cable companies formed to bring local television broadcasts, or “rebroadcasts,” which the cable company paid nothing for, into the home via coaxial cable. Television stations didn’t object because the cable companies were increasing the stations’ audience which appealed to advertisers; but as time went on cable companies added more original content channels that pulled some audience and advertisers away from broadcast stations and they were still paying nothing for the local station rebroadcasts. Sook changed the relationship by demanding payment or he would sue for copyright infringement. Cable companies began paying fees to rebroadcast local station programs and Nexstar had fuel to grow.
By 2007 as the market value of the Tribune Company continued to atrophy, a sale became ineluctable. There was a two billion dollar offer for the Los Angeles Times alone but management concluded the company was worth more whole than in parts and there were several offers for the company, one of which maintained the company integrity and kept it Chicago-based. In 2007, the Tribune Company was sold to Sam Zell a Chicago billionaire who had no experience in television or newspaper operation, but what he did have was a reputation for maximizing value in companies or properties that he owned. Where others feared to go, Zell found a way to make a profit and the investment banks seemed confident Zell could get a greater return from assets than the managers who presided over their decline. Zell created an ESOP (Employee Stock Ownership Plan) which allows the previous owners to cash out by providing the employees with stock which is paid for with company contributions or borrowed money. In this case, Zell chose to use borrowed money, a lot of it, and 2007, it would turn out, was a bad year to assume debt.
While Sam Zell was pushing debt on the Tribune Company and its employees, another billionaire was changing the world. On June 29th of that year, Steve Jobs, Chairman of Apple Computer, introduced the iphone which was more than a new cordless phone. On the contrary, the new smart phones with a wireless connection to the internet was now also a digital newspaper presaging the end of the old ink and paper newspaper. The movement of advertisers from “old media” such as newspapers, magazines, radio and television, to “new media” was exacerbated. Ironically, the management at the Tribune Company had seemed to be more visionary about the digital future than many in old media. While many old media companies ignored the threat of technological change, the Tribune Company seemed to embrace it. They were an early investor in America On-Line which was the first of the great tech internet companies. They invested in a new television network from Warner Brothers which targeted the youth market. Before that they had been an investor in the Food Channel which became a very popular cable channel. They invested in monster.com and car.com so as the new media devoured the old media classified ad revenue, some of it would at least come back to the Tribune Company.
The Tribune Company did more than make astute investments in new companies with new technologies; they attempted to be a technological innovator themselves. While the nation shifted from analog television to digital, the Tribune Company went further by allying with MIT to create an “electronic paper” a device that could receive digital copies of the Tribune Company’s various daily newspapers. They also partnered with Microsoft Corporation to make television interactive. They seemed to be positioned on the cutting edge of technology for both their television stations and their newspapers but when the technology was market ready several years into the century the Tribune Company was unable to avail their research and development because they were bankrupt.
There probably was no year worse than 2007 to put debt on the corporate balance sheet. Interest rates had been rising, the real estate market appeared unstable and investment banks were rumored to be struggling with bad debt. Sam Zell sold some Tribune Company assets including a New York newspaper and a Los Angeles movie production studio and the Chicago Cubs baseball team but none of it made much of a dent in their indebtedness. The interest on company debt exceeded their gross revenue. In 2008, just over a year of gaining control of the conglomerate, Zell took the company into bankruptcy court.
A debt-fueled real estate boom ended in a financial panic which caused the largest economic contraction since the Great Depression of the 1930’s. Advertising revenue which had been slowly migrating to new media, just about dried up entirely for old media in 2009. The Tribune Company was not alone in bankruptcy. Many old media companies either liquidated or reorganized in bankruptcy court including crosstown rival the Chicago Sun Times and the weekly Chicago Reader. All of the old media conglomerates were struggling to survive but the Tribune Company bankruptcy seemed different. The bankruptcy of the Tribune Company had occurred nearly one year to the day that Sam Zell had taken the company private. To many observers and most of the creditors, it seemed that even if the economy had continued to perform at 2007 levels, Zell still would not have been able to make his debt payments; a situation known as a “fraudulent conveyance.” The bankruptcy court judge seemed to agree and ordered an investigation while the various Tribune companies continued to operate under Court supervision. It would result in the longest corporate bankruptcy in American history. The Tribune Company’s still considerable revenue streams would be consumed by lawyers and temporary managers instead of being used for investments in new technologies or content producing opportunities. One source estimated that the protracted bankruptcy would ultimately cost the company five hundred million dollars.
While legal vampires drained Colonel McCormick’s once great media empire, Perry Sook resumed building his television station empire. Advertising revenue had rebounded more in television broadcasting than for the old print industry probably based on the belief that viewers of live events such as news or sports can not avoid viewing the advertisements. Sook had been instrumental in changing the industry by gaining a new revenue stream from cable companies who rebroadcast local station content over cable but that had inspired the old broadcast networks (ABC,CBS,NBC,FOX) to change the established network affiliate relationship. Traditionally the national networks had paid their many affiliate stations to broadcast content that the network had purchased or produced. If the affiliate stations were now garnering revenue from content that the networks had originally distributed then they wanted a share of it. The pricing of television programming, unlike tangible commodities which is set in the marketplace, was set in a negotiating room and the negotiations became intense and even adversarial, often moving into court rooms. To augment their negotiating strength, the cable companies and the television station groups began to rapidly consolidate and Perry Sook proved to be better at aggregating new television stations than most of his competitors. By the time the remnants of the Tribune Company had exited bankruptcy, Sook was on his way to owning well over a hundred television stations across America.
After four years in bankruptcy, the old Tribune Company emerged in late 2013 as two companies under two different ownership groups: Trib Media and Tribune Newspapers, the later of which went through several name changes including the patently silly name Tronc. Both companies were described as Chicago-based but the investors were not and that is where the true power resides. Trib Media was obviously the healthier of the two as it was composed of the television and radio stations, the cable and internet investments and the valuable real estate while the newspaper company got legacy costs like pensions. Trib Media emerged from bankruptcy as the most viable of the two companies but it was clear from the start that the new owners wanted to sell the company either in whole or in pieces which is the same situation the predecessor company had been in ten years earlier. Desperately needed new investments were made to buy more television stations and to improve the technology of the existing stations. Profits improved as the economy slowly recovered from the contraction of 2008 and 2009. The first sale to Sinclair failed due to Sinclair’s hubris but the sale to Nexstar appears more favorable. The empire that Colonel McCormick built and tried to endow for Chicago will soon be no more.
Who killed Trib Media? The downfall clearly starts with the ill-fated merger with the Times Mirror Corporation of Los Angeles. The Los Angeles Times newspaper was intertwined with Southern California history, it was a civic institution, it was the crown jewel of a city that professed to be world class but the fact was, it was not well-run. Besides inheriting a tax liability from Times Mirror that diverted resources to fighting the IRS, the LA Times was losing circulation and advertising faster than the Chicago Tribune. Even worse, the staff deeply resented being directed by people from Chicago whom they believed were ruining the newspaper.
In Chicago, there wasn’t much sympathy for the business. Chicago’s mayor who was often the target of investigations and unflattering editorials by the newspaper seemed to take delight in its plight. When the company bled money during the longest bankruptcy in American history, Chicago’s civic and political leadership didn’t seem a bit interested. It was not as if they didn’t have influence. The President of the United States at the time was from Chicago. The television and radio licenses’ change of ownership still had to be approved by the FCC and no one objected to vulture funds assuming ownership of Chicago-based assets. Eventually a Southern California businessman would gain ownership of the Los Angeles Times for five hundred million dollars which is only twenty-five percent of what was offered ten years earlier. And the television and radio division will soon belong to Perry Sook of Pennsylvania. Perhaps he will be a better shepherd of a Chicago cultural asset than Sam Zell.
Nexstar Buys Trib-Media
December, 2018
Dallas based Nexstar won the bidding competition to buy Chicago-based Trib-Media now that the Sinclair merger is almost history (the two corporations still have lawsuits against each other stemming from the failed merger) for about half a billion more than Sinclair had offered over a year and a half ago. The CEO and founder of Nexstar, Perry Sook, has gone to great links to avoid the controversies that seemed to sink Sinclair; that is, the charge that Sinclair undermined local news and tried to impose a conservative agenda on unwilling local news directors. Remember Senator Durbin’s impassioned opposition to the Sinclair merger because it would destroy local television news operations.
While Nexstar is not known as a conservative operation like Sinclair, it will still be big, in fact, Nexstar will surpass Sinclair and in as many as thirteen markets, Nexstar’s main competitor is Trib Media. So many of the structural problems that Sinclair faced unsuccessfully, will challenge Nexstar as well, and several Congressional Democrats are already claiming it is “too big.”
With the loss of Trib-Media, Chicago will not have a single VHF television station under local control other than WTTW, a non-commercial station. It is a major loss to a city that aspires to be “world class.” It is not as if Trib-Media has ever used Chicago as a program production center. The Trib owned WGN America cable channel does present original entertainment programming but it has always been produced in Southern California which abets their industry not Chicago’s. If Nexstar should increase original program production, as they claim they will if the merger is approved, it isn’t likely to be produced in Chicago.
Nexstar faces big hurdles to get this merger approved. One hurdle should be a commitment to produce a major share of their programming in Chicago. But Chicago has a history of timidity as cultural assets are purchased and moved by outside interests.
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