Tuesday, April 03, 2007

KY3 ownership group in TV Newsday--duopoly talk

As a small, family-owned business with media roots going back to 1872, Schurz Communications takes the long view and does not move hastily.

But, over the past year, the multimedia company has been unusually active in TV broadcasting. It pushed into a new market last summer with the purchase of KWCH, the CBS affiliate in Wichita, Kan. (DMA 67), from Media General for $73 million.

And, recognizing the value of duopolies, it followed up that deal just last week with the purchase of the Wichita’s CW affiliate, KSCW, from Banks Broadcasting for about $7 million.

Schurz is also in the process of engineering a so-called virtual duopoly in Springfield, Mo. (DMA 76). There, it owns the NBC affiliate, KYTV, and it has a deal to manage the ABC affiliate, KSPR, which it is helping a third party to buy for $21 million.

Once all the deals are close, Schurz will have significantly expanded its media portfolio, which also includes TV stations in South Bend, Ind. (WSBT, DMA 88), Augusta, Ga., (WAGT, DMA 114) and Roanoke, Va. (WDBJ, DMA 68); a couple of cable systems; a group of radio stations; and a string of small-market newspapers.

Schurz is the media force in its hometown of South Bend, where, in addition to WSBT and a companion digital “independent” TV station, it owns the daily paper (South Bend Tribune) and an AM-FM combo.

In this interview with TVNEWSDAY Editor Harry A. Jessell, President and COO Todd Schurz, a member of the fifth generation of family owners, talks about the sudden acquisitiveness and the how the company deals with being both broadcaster and cable operator.

With the purchase of KSCW to double up in Wichita last week, it seems clear that you are pursuing a duopoly strategy.

I’m not sure I’d describe duopoly as our broadcast strategy per se. We have looked at television stations over the years and really got active again in the last couple of years.

In Wichita, KWCH, the station we bought from Media General last year, is a terrific station. It’s the number-one station in the state of Kansas. We’ve been very pleased with that acquisition and then we found out that the Banks station might become available.

Our feeling is if you’re a stand-alone fifth or sixth station in the market, you’re in a very tough business these days. But those stations become very interesting for the strong stations in a market, especially in markets the size of ours. I’d say we would probably look at duopolies in any of our markets.

One of the nice things for us about KSCW is that the station has a lot of the University of Kansas basketball games, which, as you might imagine, is great local programming. That would be difficult to do if you’ve got a [major] network affiliation. You'd have to clear so much network programming.

Other broadcasters in Springfield say the virtual duopoly you’re putting together there violates the local ownership limits. How do you answer them?

We were very careful with what we did in Springfield. Our partner’s a local guy, well known in the community, well known in the advertising community with broadcasting experience.
Bill Perkin.

Yes, Bill Perkin.

Bill will do all the programming, except for a certain percentage of the day and we’ll use that for local news. We have really looked at how these [virtual duopolies] are constructed in other markets where the FCC’s given approval.

Whether you like or dislike the idea of these things, the FCC has basically said they are OK. Once the commission did that and we had some opportunities come before us, we said, let’s take a look at this and see if we can do this in a way that passes muster. We’ll see whether it’s approved or not. We believe it will be. I understand people’s qualms about it, but the commission has been pretty consistent already about it.

I assume you would like to see the small-market duopoly rules loosened so that you don’t have to jump through all these regulatory hoops to get a second station in a market?

Well, yes. Actually, my uncle Frank Schurz [chairman and CEO] has been involved in a group with Raycom, Liz Burns [of the Morgan Murphy Stations] and others that is trying to get that done at the commission.

My sense is that the marketplace, the technology and the consumers are moving far, far faster than the regulatory bodies. I understand and support completely the kind of the mandate that the FCC is under. These are the public’s airwaves and none of us should ever forget that, but I think the whole regulatory process is certainly not keeping up with what is happening in the marketplace.

The counter argument to allowing duopolies in small markets is that you will be reducing the number of independent voices in places that don’t have a lot of them in the first place. How do you answer that?

I think if they go into the marketplace and actually look at what’s going on, they would see that there are fewer voices today then there were a number of years ago because of the changing economics. If nothing is done to change that, there will continue to be fewer voices. If you want to keep as many voices as possible, duopolies will help you do that.

We’re also in the newspaper business and the Justice Department has allowed joint operating agreements between two newspapers in markets. You have separate newsrooms, but you combine all the business operations of the newspaper.

It’s highly debatable whether that’s been a good thing or a bad thing for the industry or not, but you can always propose something like that in small markets. I don’t think the economics would work in broadcasting, but it’s time for a real look at what’s going on, a real debate about it. If we want voices, we’ve got to do something because there are fewer today than there were 10 years ago.

So, your idea is that in terms of broadcasting, we could keep the two voices, but allow them to have the same transmitter?

Well, no, I’m not necessarily advocating the newspaper solution because I’m not sure that would work in terms of the economics and if the economics don’t work, then there’s no reason for somebody to try it.

Let me just say that in Springfield we believe that we’re going to have a better news product on KSPR than they’ve had traditionally and we’re eventually going to have more news then there would have been otherwise. We think that’s a plus for the community.

You are the dominant media operation in South Bend, Ind., with a newspaper, a TV station and an AM-FM combo. Would you have made a play for WNDU when it came on the market if the FCC rules would have allowed it? [Editor’s note: Gray Television bought the station from the University of Notre Dame last year.]

No, no. But that has nothing to do with NDU, which is a very good station. The reason I say no is, just as you diversify your portfolio stocks and investments to mitigate risk, we want to diversity our portfolio of media assets.

We have a lot of assets in the South Bend market already and, as we looked at it, we said, gee, would we rather get another asset in a market where we already have a lot of things or go after a KWCH in Wichita? From an investment perspective as a privately owned company, we kind of like to hedge our bets.

What about the newspaper crossownership rule? If that went away, you would be able to own TV stations where you now own newspapers.

I think that rule doesn’t make sense at all. When the appellate court basically sent the rules back to the FCC, it did not take issue with that part of the ruling. Would we take a look at stations in markets where we have newspapers? Yes, we would.

At one point in my career, I was the publisher of the newspaper in SouthBend. At another point in my career, I was the general manager of the CBS station we own in SouthBend. Having had a chance to sit in both of those chairs, I can tell you we were able to do some interesting things together.

We probably could have done those things together without common ownership, but with common ownership it made it simpler.

Let me give an example. We’ve had a company of Marines from this area go back to Iraq. We have an editor who works at the newspaper who is a former Marine and has been in Iraq and been embedded, I think, on three separate occasions. When he went, he found stories for the newspaper and took photographs for the newspaper. He also took a video camera and shot video for the TV station and he also did audio for the radio stations.

Sending an employee over to Iraq to get embedded with local troops is a very expensive proposition and for one entity to try to do that would have been prohibitive, but because he was filing many reports for many entities, we shared the cost. It worked, and it worked beautifully. We got wonderful feedback from the community.

There are lots of things that you can do. From a business perspective, yes, there are some operations that you could streamline. But my personal feeling is it needs to be a win-win. It’s got to be a win for the readers and the viewers as well. If there’s a win for the customers and the community, then you’ve got something that is very compelling.

You’re a small cable operator with systems in Hagerstown, Md., and in Florida.

Yes. We joke that we’re an MSO. If there was a DSO, a dual system operator, we would be it.

As a company with interests in broadcasting and cable, how do you see the broadcasters’ determination to get retrans payments out of cable operators?

As you might imagine, our company meetings can be very interesting when our cable people and our broadcast people are sitting next to each other.

Overall, [the retrans negotiations] have not always gone well and that’s speaking for the cable operators as well as for the broadcasters in the individual markets. Sometimes your relative negotiating strength is quite different.

But we think retrans actually works. We don’t think the FCC needs to revisit that because everybody’s actually sorting it out over time. There’s a lot of noise and smoke around the issue, but at the end of the day most stations are still carried on cable systems and most people are reaching agreements.

But the question is, do you now want to push for cash payments from cable operators in your markets?

Well, my broadcasters would say absolutely yes. My cable guys would say no.

And what’s the boss say?

The boss says do the best you can in your market.

In Hagerstown, your cable system knocked heads over retrans with the TV station there [Nexstar’s WHAG]. How did that go?

It was unnecessarily ugly and not initiated by us and you can quote me on that. That was regrettable, but, at the end of the day, an agreement was reached.

And are you paying for WHAG?

Because of nondisclosure, I can’t say what we’re doing or not doing.

So you’re telling me that if one of your stations wants to take a hard line with its cable system as Nexstar took with you in Hagerstown, you would say OK?

Our perspective may be a little different. We really do believe in empowering our local managers. That’s kind of one of our core values. Having said that, a retrans negotiation is an event that happens once every three years. I would hate for any of our companies to do something that would damage our reputation and credibility within the community. You can be aggressive in negotiations, but also professional and cognizant of that you’re going to have to come back to the table in three years. We have a very long-term perspective in this company. I don’t know if that makes sense.

My understanding is that you’re not inclined to take a hard line on this as some broadcasters are and you’re looking to play it down the middle and build long-term relationships with people.

We are. We’re looking for value. We may or may not be getting paid today, but we’ve got lots of product on the cable systems and we think that has value and we think that there’s been a recognition of that value and we appreciate that.

Gee, would we like more? Well, yeah, everybody would always like more. When I say that I think the system works, I mean that some people obviously want cash and they want cash as soon as they can get it. I can appreciate and understand that. Other people may have things that they’re looking for in terms of distribution of additional channels and things of that nature. It all depends.

Much of this is up to our people. Marci Burdick [senior vice president-broadcast] is a very talented person and quite accomplished. She’s done great things within our company. As a privately held company, one of the ways that we can retain that kind of talent is to really give them latitude to showcase their skills.

Are you an advocate of multicast must carry? Would you like to see an FCC rule or law saying that cable operators have to carry all your digital signals?

That’s one rule we have not yet taken a position on as a company.

If you are to grow into new markets, how would you go about doing that?

The Wichita station we picked up from Media General was actually a station that we identified about four or five years ago as one that would fit us to a tee. We liked the market. We like to have the No. 1 station in a market and the local news leader. We like a station that has solid operations and a good staff.

We have a small corporate staff. We don’t have people who can parachute in. So when we looked at a Wichita, we said, KWCH really fits us well and if Media General ever should decide to sell the station because it doesn’t fit in with its Southeast strategy, we ought to buy it. We’ve been looking at that station for a long time.

As a privately owned, long-term player, high multiples don’t scare you as much as they do others, do they?

No. We don’t have to do quarterly reports. I’m a member of the fifth generation of my family in this business so our time horizon is very different. High multiples don’t scare us if we think it’s the right property. We’re going to still look for things like KWCH. Those don’t come along that often.

What was the multiple on KWCH?

About a 14.

Anything else in terms of acquisition?

I’d say if we find other opportunities in adjacent markets or duopolies or things of that nature, we’ll certainly take a look at those, but again they are limited opportunities.

Is there a sixth generation?

Yes. Not in the business yet. In the fifth generation, I’m the oldest at 46 and the youngest is 17. In the sixth generation, the oldest is 17 and it goes down to less than a year.
So, yes, there is a sixth generation. If we could get the company to them, I would be quite pleased because we’ve taken what we’ve received and passed it along.

Copyright 2007 TV Newsday, Inc. All rights reserved.

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