NEW STATION SUPER GROUP REACHES HALF OF U.S.

It’s a monster.

Out of a flurry of dealmaking in the waning days of 2007 has emerged a TV station group with coverage of nearly half the country and as much programming and technology buying power as any in the nation.

The yet-unnamed super group of 40 full-power, network affiliated stations in 33 markets (see chart below) is the product of an unusual, if not unique, combination of Tribune Co. and Local TV LLC.

It’s two major groups with common management, says BIAfn analyst Mark Fratrik, who is unaware of anything similar. “It’s a very different animal.”

Following its takeover by financier Sam Zell in December, Tribune created a yet-unnamed company that would manage not only its own 23 stations (including seven in the top 10 markets), but also the nine small-market stations of Local TV, owned by Oak Hill Capital Partners, a private equity firm.

And Tribune hired Local TV CEO Randy Michaels to run the new company as CEO of interactive and broadcasting. (In the 1990s, Zell was a backer of Michaels’ radio station group, Jacor Communications.)

The Tribune-Local TV group got bigger just days later when Local TV announced that it had agreed to purchase another eight stations in midsize markets—including Cleveland, Denver and St.Louis—from Fox for $1.1 billion.

By one key measure—TV household coverage calculated for purposes of the FCC ownership cap—the super group is the largest in the nation, reaching 36.3 percent of the national TV households. That puts the group just three percentage points under the cap.

Its total TV coverage is 46.3 percent of all TV households, second only to Ion Media.

According to BIAfn, the group ranks fourth in annual revenue with around $1.6 billion in 2006. Only the Fox, CBS and NBC groups with their collection of prime major-market stations generate more top-line cash.

Most of revenue ($1.1 billion) comes from the Tribune stations, but it was the $326 million from the eight Fox stations that pushed the super group past ABC in the rankings.

The super group has seven duopolies, all involving a Big Four network affiliate paired with either a CW or MNT affiliate.

Tribune is contributing four of the duopolies—in Seattle, Indianapolis, Hartford and New Orleans, while Local TV brings one, in Oklahoma City.

And then the Tribune-Local partnership creates two new duopolies in Denver and St.Louis. In both markets, Tribune CW affiliates are doubling up with Fox affiliates that Local TV is buying from Fox.

The super group will have the marketplace clout that comes with size.

“They have more negotiating power now with the equipment manufacturers and program syndicators,” says Fratrik.

In a prepared statement at the time the combination was announced, Michaels indicates his intention to use whatever leverage he has.

“Tribune and Local TV expect to realize significant savings in management, technology, and other overhead costs," he says.

"Things like research and development and automation technology are more efficient on a large platform,” he says. “All of the stations get to share the benefits. We are going to find new ways to operate smarter, cheaper, and more efficiently."

Michaels could not be reached for comment on this story.

It’s not clear how much bigger the group can get.

Tribune will undoubtedly maintain that the household coverage of the Tribune-owed stations and the Local TV-owed stations should be treated separately in determining compliance with the FCC’s national ownership limit.

Indeed, in its press release, Tribune went out of its way to emphasize the distinct ownership of the stations.

 “Tribune Company and Local TV will maintain their own board of directors, senior management, financial structure, shareholders, station management, programming, and network affiliations,” the company says. “The functions that are common across corporate headquarters will be combined in a transparent manner to both companies.”

Tribune also hints that the company may seek to manage other stations or station groups. “The management company will also look towards serving potential third-party-owned stations in the future,” it says.

If the FCC sees the arrangement the same way that Tribune does, there will be virtually no limit on how many stations and TV households can come under the management wing of Tribune and Randy Michaels.

THE TRIBUNE/LOCAL SUPER GROUP

Note: Stations in red are the eight that Local TV is purchasing from Fox in a $1.1 billion sale still subject to FCC approval. Duopoly stations are shown against gray background.