Does The CW have to worry that it might lose its biggest affiliate owner, Tribune Media, after the company on Monday announced that it had taken a big write-down on its TV operations — and hired two financial advisers to explore “strategic and financial alternatives” including asset sales?
Probably not, or at least no more so than the network did before this week, analysts who follow Tribune say. The Chicago-based TV provider has several options to raise whatever cash it needs, and is unlikely to unload many of the stations that are so important for CW’s distribution.
“Liquidity is not an issue,” says Moody’s Investors Service VP Carl Salas. “This is a solid company,” that might see a “huge windfall” this year from political ad sales.
Tribune didn’t look so strong early this week when CEO Peter Liguori reported a net loss in Q4 of $380.9 million, down from a $314.7 million profit for the year-end period in 2014, on revenues of $547.6 million, down 1.1%.
The bottom line included a $385 million impairment charge and a $74 million write down from WGN America’s syndication last year of Persons of Interest and Elementary.
That plus the announcement of potential asset sales might have worried some industry observers given the timing. The CW’s affiliation deal with Tribune expires in August. The stations’ future should be determined by the May upfronts when the CW will begin to sell ads for the upcoming season in the upfront market. The negotiations had been difficult, but are ongoing.
Money continues to appear to be the main sticking point, and, in light of the Tribune announcement, some had questioned the company’s ability to step up and reach a financial agreement with the CW owners CBS and Warner Bros. TV. But analysts say that they would be shocked if Tribune and CW don’t make a deal.
Tribune owns 13 CW affiliates in markets including New York, Los Angeles, and Chicago. And “ratings could be materially worse,” without an affiliation, says independent analyst Craig Huber of Huber Research Partners. “Changing viewer habits is not easy.”
Tribune could license or make alternative programs, and keep the bulk of the ad sales. But “that’s easier said than done,” the analyst says.
Many doubt that Tribune would sell its TV stations. They reason that it would make the most sense to sell them as a package. But they’re probably too big for an existing TV owner. The Tribune group reaches 44% of U.S. households and only complies with the FCC’s ownership limit of 39% because regulators apply a discount to UHF stations.
Yet Wells Fargo Securities’ Marci Ryvicker says she can envision stations being sold piecemeal, adding that “yes, there would be interested buyers.”
Tribune has several other options. Morgan Stanley’s Ryan Fiftal figures the company could see $436.8 million after taxes by selling its Gracenote digital data unit, $620.5 million from real estate, $1.5 billion from its 31% stake in the Food Network, $322.6 million from its 32% of CareerBuilder.
It also might find a few hundred million more from the FCC’s planned auction of TV airwave spectrum. Liguori told analysts this week that he couldn’t discuss Tribune’s plans due to an FCC imposed quiet period.
The company could find several uses for its cash — many more compelling than to replace CW programming. For example, Liguori is eager to build WGN America which he just converted into a basic cable channel from a superstation.
“WGNA is beginning to hit its stride, expanding distribution, growing audience and carriage fee revenue and sharpening its brand,” he told analysts this week.
The company also might want to pay down its hefty debt, which includes $3.45 billion in long term obligations. Moody’s says that any asset sales “may require debt prepayments” to maintain its credit rating — which, at Ba3, is considered speculative.
The three investment firms that control 29% of Tribune’s shares — Oaktree Capital Management; Angelo, Godron & Co, and JPMorgan Chase — also might favor that.
“Financial owners and management are getting frustrated with the stock price” which lost 40.8% of its value over the last 12 months, Huber says. “If they have current amount of debt, and we go into a recession, their stock will get annihilated.”
So while it’s possible that Tribune’s talks with CW could collapse, the conventional wisdom holds that both sides have the means and the motivation to make a deal.
“It’s rare that [retransmission] negotiations are not successful,” Salas says.