There is an underlying fact that makes the Scripps and Journal deal make sense: Broadcasting is still profitable. Second quarter earnings have been strong and topped last year’s numbers.
Wall Street loves broadcasting, and bigger broadcast companies do better than smaller ones these days. Bigger companies have more leverage to negotiate retransmission deals with cable companies. Once this deal is approved, Scripps will be the powerhouse owner of ABC stations, which gives the company leverage to influence the network. Scripps stock hit five-year highs Thursday in response to the news that the company was spinning off its newspapers from the broadcast and online properties.
Wednesday’s deal is part of a mosaic of mega-media mergers that have produced super-sized broadcast owners that are more than twice the size of what they were only a decade ago. These giant companies include Sinclair, Nexstar, Media General, Gannett, Gray and others all of whom have grown considerably even while newspapers retreat.
All have seen stocks soar to at or around five-year peaks.
Scripps is not new to the spinoff play. In 2008, riding on a wave of popularity with its food and lifestyle cable channels, the company created Scripps Networks Interactive, which includes Food Network, The Travel Channel, HGTV and the Cooking Channel. The new company’s value has been steadily rising since the spinoff.
Last year, Scripps paid $110 million cash for ABC affiliate WKBW in Buffalo and WMYD, a MyNetworkTV affiliate in Detroit, where Scripps owns WXYZ as well. In 2011, Scripps bought up the McGraw-Hill group for $212 million cash.
This year, Scripps made news by adding staff and launching a paywalled broadcast news website at WCPO in Cincinnati. The group said it intended to produce Web-exclusive material that would be worth paying for and if the gamble worked, it would expand the idea to other markets. It has not expanded yet.
Look at this chart Pew Research published in May, which showed how the biggest owners have grown even before the Scripps-Journal deal. (With stations in 27 markets, the Scripps/Journal deal will make that company the fifth-largest holder of television stations in the country.)
And local television still is the main source of local news for Americans.
Local broadcasters also are rising a wave of favorable Supreme Court decisions. Broadcast stocks rocketed after the Supreme Court struck down Aereo’s attempt to pass along local station signals without paying for them, and the court’s Citizens United decision virtually assures the windfall from political ads will continue.
Some of the biggest broadcast players, including Scripps, Sinclair, Gray and Nexstar are heavily invested in states that have the most heated midterm political elections this year. Early forecasts predicted a $2.6 billion spend on midterm races this year, rivaling the $2.9 billion spent in the last presidential election.
Scripps stations also have a history of being deeply involved in community affairs. The Scripps Howard Foundation contributes millions to local causes and educational institutions in markets where it has properties. (Disclosure: The Poynter Institute received $20k in support from SHF in 2013 and 2014 and Poynter hosts the Scripps Howard National Awards judging each year.)
