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Private Equity & Local Broadcast TV: A Risky Relationship

Tim Hanlon

Rafael Arkenau/@rflrkn via Unsplash

Private equity firms have developed a sudden fascination with broadcast TV, pouring billions (and pitching more) into an industry that, on paper, appears to be in secular decline. While this influx of capital might seem like a much-needed boost, it risks destabilizing the media landscape in ways that could have lasting consequences.

Broadcast TV stations appeal to PE for several reasons. First, despite the growing shift away from traditional TV, stations still pull in substantial retransmission fees from cable and satellite providers. In fact, by 2024, the average annual broadcast retransmission fee per subscriber is set to hit $20.45, with that number projected to climb to $24.05 by 2028. This steady stream of revenue remains a significant asset for investors looking for consistent returns, even as pay-TV subscriptions continue to decline. In an era where many media companies are struggling to adapt to digital trends, this kind of predictable cash flow is rare and highly attractive.

Next, the current 2024 presidential election is generating a surge in political advertising dollars, with TV stations expected to collectively pocket nearly $4 billion by the end of Q4. That’s at least a 10% increase in ad revenue from the last election cycle - a reliable short-term financial windfall that private equity can’t resist. Election years have long been a lifeline for broadcasters, and investors see a clear opportunity to capitalize on the heightened demand for political ad slots.

Private equity’s interest also stems from the belief that broadcast TV stations are undervalued assets ripe for consolidation. The fragmented nature of the industry offers prime opportunities for roll-ups, cost-cutting, and the creation of more centralized broadcasting entities. For these firms, local TV stations represent a chance to streamline operations and improve efficiency by reducing redundancies and local oversight.

But this interest in broadcast TV isn’t about revitalizing the industry — it’s about maximizing short-term profits, often at the expense of long-term sustainability. The risks posed by this private equity influx are significant, and they could reshape the industry in ways that ultimately harm the public interest.

The Impact of Debt on Broadcasting

Private equity firms frequently use leveraged buyouts to finance acquisitions, loading companies with considerable debt in the process. For broadcasters, this can result in a financial strain that limits their ability to invest in essential areas like quality programming, local news, and technological upgrades. The focus shifts from producing compelling content to meeting debt obligations, and the effects are often most evident in local newsrooms, where budget cuts often hit the hardest.

Local journalism, already under considerable pressure nationwide, risks further deterioration. Investigative reporting and community-focused coverage could fall by the wayside as PE owners prioritize cost reductions. The very essence of local news — its ability to inform citizens, hold governments accountable, and spotlight community issues — stands to suffer.

Short-Term Cash vs. Long-Term Sustainability

Private equity operates on a relatively short investment timeline, typically ranging from 3 to 5 years. This short-term approach often conflicts with the longer-term demands of broadcasting, which requires steady investment in content creation, infrastructure, and innovation. To meet their financial goals, these PE firms may resort to aggressive cost-cutting measures, which could lead to significant reductions in staffing, local content production, and overall broadcast quality.

The potentially broader industry impact is concerning. Private equity’s short-term focus may undermine the long-term health of broadcasting, especially at the local level. While some investors may achieve quick financial gains, the industry itself could face increased challenges as resources are diverted away from innovation and public service and towards servicing debt and PE management fees.

The Risks of Consolidation

As private equity firms consolidate their acquisitions, the diversity of media ownership shrinks. Merging smaller stations into larger chains may lead to fewer independent voices in the media landscape and less diverse programming specifically tailored to local communities. Without the local ownership that has traditionally defined much of American broadcasting, stations could lose their connection to the communities they serve, resulting in more homogenized or syndicated content that fails to address local issues.

The trend toward consolidation has already raised concerns about the erosion of competition in local media markets even before private equity’s recent interest in the space. With fewer owners controlling larger swaths of the broadcast landscape, the quality and variety of local programming could decline, leaving viewers with fewer choices and less relevant content. While private equity firms may see consolidation as a means of achieving efficiencies, the potential for reduced localism and diminished media diversity is a real concern.

Regulatory Overhaul

The Federal Communications Commission (FCC) has already shown signs of skepticism toward private equity’s growing role in the broadcast industry. Recent regulatory moves, such as tightening ownership rules and scrutinizing mergers involving private equity, suggest that the agency is beginning to recognize the potential risks posed by these transactions. The resistance to the recently scuttled Standard General-Tegna deal, for instance, illustrates a growing wariness about the impact of financial engineering on local media markets.

While regulatory oversight could help mitigate some of these risks, it may not be enough to fully address the challenges posed by private equity’s growing influence. A more comprehensive approach to media ownership regulations may be necessary to ensure that the public interest remains a priority as the industry evolves.

The Consequences for Public Service

Private equity’s growing footprint in broadcast TV also threatens the public service role that local stations have long played. Broadcasters provide critical services during emergencies, deliver public interest programming, and offer free, over-the-air content that’s ostensibly accessible to all. Under private equity ownership, these functions may take a backseat to profitability, especially if stations are forced to prioritize revenue generation to meet debt obligations.

Local news coverage is often the first area to face cutbacks when private equity takes over. As resources are diverted toward servicing debt or boosting short-term returns, newsrooms are hollowed out, and investigative reporting suffers. The result is a weakened ability to serve the public with essential information, particularly in times of crisis.

Moreover, as the quality of programming declines, the migration of viewers to streaming services may accelerate. If broadcast TV fails to maintain its standards, viewers will increasingly seek alternatives that offer more engaging, on-demand content, further eroding the long-term viability of the industry.

A More Measured Path Forward

Private equity’s increased involvement in broadcast TV represents both an opportunity and a risk. While the infusion of capital can offer short-term benefits, the longer-term implications should not be ignored. The industry must strike a balance between leveraging private investment and preserving the critical public service functions that have defined broadcast TV for decades.

Regulators, policymakers, and industry leaders must consider how to safeguard the future of local broadcasting in a media landscape that is rapidly evolving. Ensuring that private equity’s growing influence doesn’t come at the cost of media diversity, localism, and public service should be a priority as this trend continues to unfold.

In the rush to capitalize on broadcast TV’s remaining value, PE investment may be setting the stage for a less diverse, less locally-focused media environment. The decisions made today will shape the future of broadcasting for years to come, and careful consideration is needed to ensure that the public’s interests aren’t sidelined in the process.

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