In this articleSBGISSPNXSTTGNAGTNFollow your favorite stocksCREATE FREE ACCOUNTThe Sinclair Broadcast Group, Inc. headquarters are seen July 17, 2024 in Cockeysville, Maryland.Kevin Dietsch | Getty ImagesThe broadcast television industry knows it needs to consolidate. It’s just struggling with how to do it.In August, Nexstar Media Group, the largest owner of broadcast stations in the U.S., announced a proposed $6.2 billion deal to buy Tegna — a combination that would bring together more than 260 stations across the U.S. Last week, Sinclair, the owner of 179 local TV affiliates, made a hostile offer to acquire its smaller peer E.W. Scripps after buying up nearly 10% of the company on the open market. Both potential deals remain in limbo, and executives are getting antsy.Companies like Sinclair and Nexstar run the affiliate stations of the major networks across the U.S. known for local news, sports and other broadcast content. They face the same headwinds as their cable and content studio counterparts — the shrinking number of pay-TV customers due to the rise of streaming and tech options. Broadcast station owners remain profitable, largely from the hefty fees they receive from pay-TV distributors. About 65 million U.S. households still subscribe to a bundle of linear TV networks. Anywhere from 33% to 50% of a broadcast station group’s annual revenue stems from retransmission fees — payments made to a broadcaster for the inclusion of local TV affiliates in pay-TV bundles — with advertising making up most of the rest.Yet profitability is shrinking for these companies as the universe of traditional bundle subscribers gets smaller. The streaming strategy for local news and TV has yet to come together, and like other parts of the media, local newsrooms and their resources are dwindling. That’s made station owners desperate to consolidate, just as the biggest media companies — including Paramount, Warner Bros. Discovery and Comcast’s NBCUniversal — continue to plan their own potential mergers. The impetus for deals among station owners is to cut duplicate costs and add scale to their businesses, increasing negotiating power when it comes time for carriage renewals with the largest pay-TV providers such as Comcast, Charter, Google’s YouTube TV and DirecTV.While some are facing regulatory headwinds, for Sinclair, it’s family ownership dynamics coupled with cultural and governance issues that have complicated its latest efforts to buy scale. Family squabblesSinclair has been looking for an acquisition target for nearly a year. The company announced in August it was launching a strategic review with an eye toward merging its broadcast station business with a peer. By that point Sinclair and its advisors had already held discussions with potential merger partners, CNBC previously reported. One of those targets was Gray Media, according to people familiar with the matter, who spoke on the condition of anonymity about internal plans. But the conversations with Gray haven’t advanced, the people said, as Gray is already awaiting government approval for a much smaller deal and isn’t in a rush to explore another transaction.Sinclair then set its sights on Scripps, the owner of more than 60 stations and a variety of entertainment channels like Ion and Bounce. Deal discussions started in the last year, according to people familiar with the matter.Thomas Fuller | SOPA Images | Lightrocket | Getty ImagesInitial talks revolved around creating a company where both the Scripps family and the Smith family, which owns the majority of Sinclair’s voting shares, would give up majority control of a combined company but remain involved, according to people familiar with the matter. Those early talks included developing an independent board that would be in charge of making pivotal business decisions, such as whether and when to preempt national programming. In September, Sinclair and Nexstar both preempted episodes of “Jimmy Kimmel Live!” after the late night host made controversial comments following the assassination of conservative activist Charlie Kirk. Throughout the Scripps deal discussions, Sinclair proposed three different variations of a transaction, including different stipulations of who would remain as CEO and whether the deal would be structured as a merger or an acquisition, said the people familiar. The Scripps family ultimately balked, in part due to governance issues and cultural concerns, two of the people said. In particular, Sinclair’s controlling family is known for its conservative politics. In 2018 Sinclair made all of its owned stations air so-called “must-runs” — commentary that sometimes echoed viewpoints of then-and-now-U.S. President Donald Trump. That same year, Sinclair’s attempt to to acquire Tribune ultimately failed amid both Federal Communications Commission concerns and criticism by Democrats and public advocacy groups over whether the merger was in the public interest.”I think there’s a lot of complexity to any transaction, especially transactions that involve family-controlled public companies with highly levered balance sheets,” Scripps Chief Financial Officer Jason Combs said during Wells Fargo’s TMT Summit in November. “I think they’d add some complexity around a variety of issues, whether it’s economic splits, whether it is impacts to the capital structure and potential there, whether it’s governance issues. There’s a whole range of issues.”When discussions went quiet in September, Sinclair began buying Scripps shares weekly until its stake amounted to roughly 8% and it had to go public, per the Securities and Exchange Commission. …
