After Sinclair-Tribune Falls Apart, How Do You Model A Media Merger?

Posted by Forbes

After Sinclair-Tribune Falls Apart, How Do You Model A Media Merger?

By Howard Homonoff

This week saw the formal announcement of the end of the Sinclair Broadcasting-Tribune Media merger, a victim of, among other things, the gathering opposition to the deal inside the Federal Communications Commission. In its aftermath, given the still-perilous future for broadcasters and traditional media more broadly, it raises a fair question: What does it take to get a merger around here?

Every deal is different, with its own set of facts, internal corporate dynamics and external legal and regulatory context. The Sinclair-Tribune merger attracted an unusual amount of external heat from the beginning, given Sinclair’s size in the broadcasting universe and the company’s conservative political profile that drew heat not only from the left but perhaps more surprisingly from right-wing figures such as Newsmax CEO Chris Ruddy. But given the federal government’s apparent halt to this horizontal merger, and its continued opposition to the AT&T-Time Warner vertical integration (with its appeal filed this week), it does suggest that broadcasters and media brethren seeking the next set of acquisitions ought to craft a thoughtful playbook about how they proceed.

Without any judgment on what would have/could have worked for Sinclair-Tribune, I see several chapters of that merger book that should be included moving forward:

Economic efficiency alone won’t get it done

Years ago, (prior to his failed nomination to the U.S. Supreme Court) then-Judge Robert Bork wrote in The Antitrust Paradox (oh, would Professor Frank be proud of me!) that the only true basis for the antitrust laws of the early 20th century (and that still govern us today) was to promote economic efficiency. This seemed to be the prevailing view among free market conservatives for decades. But even with the most conservative Administration since Herbert Hoover’s, that isn’t winning the day anymore.

Unquestionably, external pressures are squeezing broadcaster revenues, as consumers now feast on content from thousands of non-broadcaster sources, thus threatening ratings-driven advertising. At the same time, premium content suppliers have so many buyers for their content (Hulu, Netflix, and Amazon among them) that broadcasters face rising prices for acquiring premium content and talent. There is little doubt of the economic efficiencies that a merger of Sinclair and Tribune would bring to the market. But going forward, ask yourself – what else have you got?

The promise of technology innovation is essential

In the District Court’s opinion in the AT&T-Time Warner case, the judge clearly believed that a vertically-merged entity would provide more internal incentive and opportunity for technological innovation in areas such as mobile content distribution and advertising. For broadcasters, one obvious place to promote more aggressively is around the new standard for broadcast television transmission known as ATSC 3.0 or for those making at least a passing attempt at consumer understanding, Next Gen TV.

After years of discussion, an aggressive regulatory push from the Pearl TV coalition among others, and the go-ahead from the FCC, Next Gen TV remains a virtual unknown to anyone else operating in the TV ecosystem, never mind the public. What does this playbook look like and how will it enhance the viewing experience for consumers, the value of advertising for marketers (bringing capabilities such as more precise audience segmentation, ad delivery and reporting), and even for first responders making use of this more efficient and agile use of spectrum? Promising concrete investment in this area, and telling the story more clearly, are essential merger playbook elements.

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