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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER : 0-26076
SINCLAIR BROADCAST GROUP, INC.
(Exact name of Registrant as specified in its charter)
----------------
Maryland 52-1494660
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2000 WEST 41ST STREET
BALTIMORE, MARYLAND 21211
(Address of principal executive offices)
(410) 467-5005
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (g) of the Act:
Class A Common Stock, par value $.01 per share Series D
Preferred Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports required
to be files by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes[X] No [ ]
Indicate by check mark if disclosure of delinquent filings pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Based on the closing sale price of $56 15/16 per share as of March 16, 1998, the
aggregate market value of the voting stock held by non-affiliates of the
Registrant was approximately $803.4 million.
As of March 13, 1998, there are 14,380,770 shares of Class A Common stock, $.01
par value; 25,166,432 shares of Class B Common Stock, $.01 par value; 976,380
shares of Series B Preferred Stock, $.01 par value, convertible into 3,550,484
shares of Class A Common Stock; and 3,450,000 shares of Series D Preferred
Stock, $.01 par value, convertible into 3,780,822 shares of Class A Common Stock
of the Registrant issued and outstanding.
In addition, 2,000,000 shares of $200 million aggregate liquidation value of 11
5/8% High Yield Trust Offered Preferred Securities of Sinclair Capital, a
subsidiary trust of Sinclair Broadcast Group, Inc., are issued and outstanding.
PART I
FORWARD-LOOKING STATEMENTS
The matters discussed in this Form 10-K include forward-looking statements.
In addition, when used in this Form 10-K, the words "intends to," "believes,"
"anticipates," "expects" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to a number of risks and
uncertainties. Actual results in the future could differ materially and
adversely from those described in the forward-looking statements as a result of
various important factors, including the impact of changes in national and
regional economies, successful integration of acquired television and radio
stations (including achievement of synergies and cost reductions), pricing
fluctuations in local and national advertising, volatility in programming costs,
the availability of suitable acquisitions on acceptable terms and the other risk
factors set forth in the Company's prospectus filed with the Securities and
Exchange Commission on December 12, 1997, pursuant to rule 424(b)(5). The
Company undertakes no obligation to publicly release the result of any revisions
to these forward-looking statements that may be made to reflect any future
events or circumstances.
ITEM 1. BUSINESS
BUSINESS OF SINCLAIR
The Company is a diversified broadcasting company that currently owns or
programs pursuant to LMAs 35 television stations, and upon consummation of all
pending acquisitions and dispositions, the Company will own or program pursuant
to LMAs 56 television stations. The Company owns or programs pursuant to LMAs 52
radio stations and upon consummation of all pending acquisitions and
dispositions, the Company will own or program pursuant to LMAs 51 radio
stations. The Company also has options to acquire two additional radio stations.
The Company believes that upon completion of all pending acquisitions and
dispositions it will be one of the top 10 radio groups in the United States,
when measured by the total number of radio stations owned or programmed pursuant
to LMAs.
The 35 television stations the Company owns or programs pursuant to LMAs
are located in 24 geographically diverse markets, with 23 of the stations in the
top 51 television DMAs in the United States. Upon consummation of all pending
acquisitions and dispositions, the Company will own or program television
stations in 37 geographically diverse markets (with 30 of such stations in the
top 51 DMAs) and will reach approximately 22.5% of the television households in
the United States. The Company currently owns or programs 11 stations affiliated
with Fox, 10 with WB, four with ABC, two with NBC, two with UPN, and one with
CBS. Five stations operate as independents. Upon consummation of all pending
acquisitions and dispositions and the transfer of affiliations pursuant to
existing agreements, 23 of the Company's owned or programmed television stations
will be Fox affiliates, 11 will be WB affiliates, seven will be UPN affiliates,
five will be ABC affiliates, three will be NBC affiliates, one will be a CBS
affiliate and six will be operated as independents. Upon consummation of all
pending acquisitions and dispositions and transfers of affiliations pursuant to
existing agreements, the Company will own or program more stations affiliated
with Fox than any other broadcaster.
The Company's radio station group is geographically diverse with a variety
of programming formats including country, urban, news/talk/sports, rock and
adult contemporary. Of the 52 stations owned or provided programming services by
the Company, 19 broadcast on the AM band and 33 on the FM band. The Company owns
between three and eight stations in all but one of the 12 radio markets it
serves.
The Company has undergone rapid and significant growth over the course of
the last seven years. Since 1991, the Company has increased the number of
stations it owns or provides programming services to from three television
stations to 35 television stations and 52 radio stations. From 1991 to 1997, net
broadcast revenues and Adjusted EBITDA (as defined herein) increased from $39.7
million to $471.2 million, and from $15.5 million to $229.0 million,
respectively. Pro forma for pending acquisitions and dispositions described
below (except the Montecito Acquisition, the Lakeland Acquisition, and the
execution of an LMA with respect to WSYX-TV), net broadcast revenue and Adjusted
EBITDA would have been $715.1 million and $345.7 million, respectively.
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The Company is a Maryland corporation formed in 1986. The Company's
principal offices are located at 2000 West 41st Street, Baltimore, Maryland
21211, and its telephone number is (410) 467-5005.
TELEVISION BROADCASTING
The Company owns and operates, provides programming services to, or has
agreed to acquire the following television stations:
NUMBER OF
COMMERCIAL EXPIRATION
MARKET STATIONS IN STATION DATE OF
MARKET RANK(A) STATIONS STATUS(B) CHANNEL AFFILIATION THE MARKET (C) RANK(D) FCC LICENSE
- ------------------------------ --------- ---------- ------------- --------- ------------- ---------------- --------- -------------
Minneapolis/St. Paul,
Minnesota ................... 14 KLGT Pending 23 WB 6 6 4/1/98 (f)
Pittsburgh, Pennsylvania ..... 19 WPGH O&O 53 FOX 6 4 8/1/99
WCWB LMA 22 WB 5 8/1/99
Sacramento, California ....... 20 KOVR O&O 13 CBS 7 3 12/1/98
St. Louis, Missouri .......... 21 KDNL O&O 30 ABC 6 5 2/1/06
Baltimore, Maryland .......... 23 WBFF O&O 45 FOX 5 4 10/1/04
WNUV LMA 54 WB 5 10/1/04
Indianapolis, Indiana ........ 25 WTTV LMA (e) 4 IND (h)(u) 8 5 8/1/05
WTTK LMA (e)(g) 29 IND (h) 5 8/1/05
Raleigh/Durham,
North Carolina .............. 29 WLFL O&O 22 FOX 7 4 12/1/04
WRDC LMA 28 UPN 5 12/1/04
Cincinnati, Ohio ............. 30 WSTR O&O 64 WB 5 5 10/1/05
Milwaukee, Wisconsin ......... 31 WCGV O&O 24 IND 6 5 12/1/97 (f)
WVTV LMA 18 WB 6 12/1/05
Kansas City, Missouri ........ 32 KSMO O&O 62 IND (h)(v) 8 5 2/1/06
Nashville, Tennessee ......... 33 WZTV Pending (q) 17 FOX 6 4 8/1/05
WUXP Pending (r) 30 UPN 5 8/1/05
Columbus, Ohio ............... 34 WTTE O&O 28 FOX 5 4 10/1/05
Asheville, North Carolina
and Greenville/
Spartanburg/ Anderson,
South Carolina .............. 35 WFBC LMA 40 IND (h) 6 5 12/1/04
WLOS O&O 13 ABC 6 3 12/1/04
San Antonio, Texas ........... 38 KABB O&O 29 FOX 7 4 8/1/98
KRRT LMA 35 WB 6 8/1/98
Norfolk, Virginia ............ 39 WTVZ O&O 33 FOX 6 4 10/1/04
Buffalo, New York ............ 40 WUTV Pending (q) 29 FOX 5 4 6/1/99
Oklahoma City, Oklahoma 44 KOCB O&O 34 WB 5 5 6/1/98 (f)
KOKH Pending (r) 25 FOX 4 6/1/98 (f)
Greensboro/Winston-
Salem/High Point,
North Carolina .............. 46 WXLV Pending (q) 45 ABC 7 4 12/1/04
WUPN Pending (r) 48 UPN 5 12/1/04
Birmingham, Alabama .......... 51 WTTO O&O (m) 21 WB 6 5 4/1/05
WABM LMA 68 IND (h) 6 4/1/05
Dayton, Ohio ................. 53 WKEF Pending (n) 22 NBC 4 3 10/1/05
WRGT Pending (r) 45 FOX 4 10/1/05
Charleston/Huntington,
West Virginia ............... 57 WCHS O&O 8 ABC 4 3 10/1/04
WVAH Pending (r) 11 FOX 4 10/1/04
Richmond, Virginia ........... 59 WRLH Pending (q) 35 FOX 5 4 10/1/04
Las Vegas, Nevada ............ 61 KUPN O&O 21 WB 8 5 10/1/98
KFBT Pending (s) 8 10/1/98
2
NUMBER OF
COMMERCIAL EXPIRATION
MARKET STATIONS IN STATION DATE OF
MARKET RANK(A) STATIONS STATUS(B) CHANNEL AFFILIATION THE MARKET (C) RANK(D) FCC LICENSE
- ------------------------------- --------- ---------- -------------- --------- ------------- ---------------- --------- -------------
Mobile, Alabama and
Pensacola, Florida ........... 62 WEAR O&O 3 ABC 6 2 2/01/05
WFGX LMA 35 WB 6 2/01/05
Flint/Saginaw/Bay City,
Michigan ..................... 63 WSMH O&O 66 FOX 4 4 10/1/05
Lexington, Kentucky ........... 67 WDKY O&O 56 FOX 5 4 8/1/05
Des Moines, Iowa .............. 69 KDSM O&O 17 FOX 4 4 2/1/06
Syracuse, New York ............ 72 WSYT Pending (n) 68 FOX 5 4 6/1/99
WNYS Pending (o) 43 UPN 5 6/1/99
Rochester, New York ........... 75 WUHF Pending (q) 31 FOX 4 4 6/1/99
Paducah, Kentucky and Cape
Girardeau, Missouri .......... 79 KBSI Pending (n) 23 FOX 5 4 2/1/06
WDKA Pending (o) 49 UPN 5 (t)
Madison, Wisconsin ............ 84 WMSN Pending (q) 47 FOX 4 4 12/1/05
Burlington, Vermont and
Plattsburgh, New York ........ 91 WPTZ O&O (i) 5 NBC 5 2 6/1/99
WNNE O&O (i)(k) 31 NBC 4 4/1/99
WFFF LMA (j) 44 FOX (l) (l)
Tri-Cities, Tennessee/
Virginia ..................... 93 WEMT Pending (n) 39 FOX 5 4 8/1/05
Tyler/Longview, Texas ......... 107 KETK Pending (n) 56 NBC 3 2 8/1/98
KLSB Pending (o) 19 NBC (p) 8/1/98
Peoria/Bloomington,
Illinois ..................... 110 WYZZ O&O 43 FOX 4 4 12/1/05
Charleston, South Carolina..... 117 WMMP Pending (n) 36 UPN 5 5 12/1/04
WTAT Pending (r) 24 FOX 4 12/1/04
Utica, New York ............... 169 WFXV Pending (q) 33 FOX 4 3 6/1/99
WPNY Pending (q) 11 UPN 4 6/1/98 (f)
Tuscaloosa, Alabama ........... 187 WDBB LMA (m) 17 WB 2 2 4/1/05
- ----------
(a) Rankings are based on the relative size of a station's DMA among the 211
generally recognized DMAs in the United States as estimated by Nielsen.
(b) "O&O" refers to stations owned and operated by the Company, "LMA" refers to
stations to which the Company provides programming services pursuant to an
LMA and "Pending" refers to stations the Company has agreed to acquire. See
"-- 1997 Acquisitions."
(c) Represents the number of television stations designated by Nielsen as
"local" to the DMA, excluding public television stations and stations which
do not meet the minimum Nielsen reporting standards (weekly cumulative
audience of at least 2.5%) for the Sunday-Saturday, 6:00 a.m. to 2:00 a.m.
time period.
(d) The rank of each station in its market is based upon the November 1997
Nielsen estimates of the percentage of persons tuned to each station in the
market from 6:00 a.m. to 2:00 a.m., Sunday-Saturday.
(e) Non-License Assets acquired from River City Broadcasting, L.P. ("River
City") and option exercised to acquire License Assets. Will become owned
and operated upon FCC approval of transfer of License Assets and closing of
acquisition of License Assets.
(f) License renewal application pending.
(g) WTTK currently simulcasts all of the programming aired on WTTV and the
station rank applies to the combined viewership of these stations.
(h) "IND" or "Independent" refers to a station that is not affiliated with any
of ABC, CBS, NBC, Fox, WB or UPN.
(i) The Company has agreed to sell this station to a third party.
(j) The Company has agreed to assign its right to program this station to the
third party to whom the Company has agreed to sell WPTZ and WNNE.
(k) WNNE currently simulcasts the programming broadcast on WPTZ.
(l) This station began broadcast operations in August 1997 pursuant to program
test authority and does not yet have a license. This station has not yet
established a rank.
(m) WDBB simulcasts the programming broadcast on WTTO.
(n) This station will be owned upon the completion of the Max Media
Acquisition.
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(o) The Company will provide programming services to this station upon the
completion of the Max Media Acquisition.
(p) KLSB simulcasts the programming broadcast of KETK.
(q) This station will be owned upon the completion of the Sullivan Acquisition.
(r) The Company anticipates that it will provide programming services to this
station upon the completion of the Sullivan Acquisition.
(s) The Company has entered into an agreement to provide programming to this
station effective upon termination of the HSR Act waiting period. The
Company has also entered into an agreement to acquire this station's
licensee.
(t) This station has begun broadcast operations pursuant to program test
authority and does not yet have a license.
(u) WTTV will become an affiliate of WB effective April 6, 1998.
(v) KSMO will become an affiliate of WB effective March 30, 1998.
Operating Strategy
The Company's television operating strategy includes the following key
elements:
Attracting Viewership
- ---------------------
The Company seeks to attract viewership and expand its audience share
through selective, high-quality programming.
Popular Programming. The Company believes that an important factor in
attracting viewership to its stations is their network affiliations with Fox,
WB, ABC, NBC, CBS and UPN. These affiliations enable the Company to attract
viewers by virtue of the quality first-run original programming provided by
these networks and the networks' promotion of such programming. The Company also
seeks to obtain, at attractive prices, popular syndicated programming that is
complementary to the station's network affiliation. Examples of popular
syndicated programming obtained by the Company for broadcast on its Fox, WB and
UPN affiliates and independent stations are "Mad About You," "Frasier," "The
Simpsons," "Home Improvement" and "Seinfeld." In addition to network
programming, the Company's ABC and CBS affiliates broadcast news magazine, talk
show, and game show programming such as "Hard Copy," "Entertainment Tonight,"
"Regis and Kathie Lee," "Wheel of Fortune" and "Jeopardy."
Children's Programming. The Company seeks to be a leader in children's
programming in each of its respective DMAs. The Company's nationally recognized
"Kids Club" was the forerunner and model for the Fox network-wide marketing
efforts promoting children's programming. Sinclair carries the Fox Children's
Network ("FCN") and WB and UPN children's programming, all of which include
significant amounts of animated programming throughout the week. In those
markets where the Company owns or programs ABC, NBC or CBS affiliates, the
Company broadcasts those networks' animated programming during weekends. In
addition to this animated programming, the Company broadcasts other forms of
children's programming, which may be produced by the Company or by an affiliated
network or supplied by a syndicated programmer.
Counter-Programming. The Company's programming strategy on its Fox, WB, UPN
and independent stations also includes "counter-programming," which consists of
broadcasting programs that are alternatives to the types of programs being shown
concurrently on competing stations. This strategy is designed to attract
additional audience share in demographic groups not served by concurrent
programming on competing stations. The Company believes that implementation of
this strategy enables its stations to achieve competitive rankings in households
in the 18-34, 18-49 and 25-54 demographics and to offer greater diversity of
programming in each of its DMAs.
Local News. The Company believes that the production and broadcasting of
local news can be an important link to the community and an aid to the station's
efforts to expand its viewership. In addition, local news programming can
provide access to advertising sources targeted specifically to local news. The
Company carefully assesses the anticipated benefits and costs of producing local
news prior to introduction at a Company station because a significant investment
in capital equipment is required and substantial operating expenses are incurred
in introducing, developing and producing local news programming. The Company
currently provides local news programming at WBFF and WNUV in Baltimore, WLFL in
Raleigh/Durham, KDNL in St. Louis, KABB in San Antonio, KOVR in Sacramento, WPGH
in Pittsburgh and WLOS in Asheville and Greenville/Spartanburg/Anderson. The
Company also
4
broadcasts news programs on WDKY in Lexington, which are produced in part by the
Company and in part through the purchase of production services from an
independent third party, and on WTTV in Indianapolis, which are produced by a
third party in exchange for a limited number of advertising spots. River City
provides the Company certain services with respect to the production of news
programming and on air talent on WTTE in Columbus. Pursuant to an agreement,
River City provides these services to the Company in return for a fee equal to
approximately $416,000 per year. The possible introduction of local news at the
other Company stations is reviewed periodically. The Company's policy is to
institute local news programming at a specific station only if the expected
benefits of local news programming at the station are believed to exceed the
associated costs after an appropriate start-up period.
Popular Sporting Events. The Company attempts to capture a portion of
advertising dollars designated to sports programming in selected DMAs. The
Company's WB, UPN and independent stations generally face fewer restrictions on
broadcasting live local sporting events than do their competitors that are
affiliates of the major networks and Fox since affiliates of the major networks
and Fox are subject to prohibitions against preemptions of network programming.
The Company has been able to acquire the local television broadcast rights for
certain sporting events, including NBA basketball, Major League Baseball, NFL
football, NHL hockey, ACC basketball, Big Ten football and basketball, and SEC
football. The Company seeks to expand its sports broadcasting in DMAs as
profitable opportunities arise. In addition, the Company's stations that are
affiliated with Fox, NBC, ABC and CBS broadcast certain Major League Baseball
games, NFL football games and NHL hockey games as well as the Olympics and other
popular sporting events.
Innovative Local Sales and Marketing
- ------------------------------------
The Company believes that it is able to attract new advertisers to its
stations and increase its share of existing customers' advertising budgets by
creating a sense of partnership with those advertisers. The Company develops
such relationships by training its sales forces to offer new marketing ideas and
campaigns to advertisers. These campaigns often involve the sponsorship by
advertisers of local promotional events that capitalize on the station's local
identity and programming franchises. For example, several of the Company's
stations stage local "Kids Fairs" which allow station advertisers to reinforce
their on-air advertising with their target audience. Through its strong local
sales and marketing focus, the Company seeks to capture an increasing share of
its revenues from local sources, which are generally more stable than national
advertising.
Control of Operating and Programming Costs
- ------------------------------------------
By employing a disciplined approach to managing programming acquisition and
other costs, the Company has been able to achieve operating margins that the
Company believes are among the highest in the television broadcast industry. The
Company has sought and will continue to seek to acquire quality programming for
prices at or below prices paid in the past. As an owner or provider of
programming services to a substantial number of television stations throughout
the country, the Company believes that it is able to negotiate favorable terms
for the acquisition of programming. Moreover, the Company emphasizes control of
each of its stations' programming and operating costs through program-specific
profit analysis, detailed budgeting, tight control over staffing levels and
detailed long-term planning models.
Attract and Retain High Quality Management
- ------------------------------------------
The Company believes that much of its success is due to its ability to
attract and retain highly skilled and motivated managers, both at the corporate
and local station levels. A portion of the compensation provided to regional
managers, general managers, sales managers and other station managers is based
on their achieving certain operating results. The Company also provides its
corporate and station managers with deferred compensation plans offering options
to acquire Class A Common Stock.
Community Involvement
- ---------------------
Each of the Company's stations actively participates in various community
activities and offers many community services. The Company's activities include
broadcasting programming of local interest and sponsorship of community and
charitable events. The Company also encourages its station employ-
5
ees to become active members of their communities and to promote involvement in
community and charitable affairs. The Company believes that active community
involvement by its stations provides its stations with increased exposure in
their respective DMAs and ultimately increases viewership and advertising
support.
Establish LMAs
- --------------
The Company believes that it can attain significant growth in operating
cash flow through the utilization of LMAs. By expanding its presence in a market
in which it owns a station, the Company can improve its competitive position
with respect to a demographic sector. In addition, by providing programming
services to an additional station in a market, the Company is able to realize
significant economies of scale in marketing, programming, overhead and capital
expenditures. After giving effect to all pending acquisitions and dispositions,
the Company will provide programming services pursuant to an LMA to an
additional station in 18 of the 37 television markets in which the Company will
own or program a station.
Programming and Affiliations
The Company continually reviews its existing programming inventory and
seeks to purchase the most profitable and cost-effective syndicated programs
available for each time period. In developing its selection of syndicated
programming, the Company balances the cost of available syndicated programs with
their potential to increase advertising revenue and the risk of their reduced
popularity during the term of the program contract. The Company seeks to
purchase only those programs with contractual periods that permit programming
flexibility and which complement a station's overall programming strategy.
Programs that can perform successfully in more than one time period are more
attractive due to the long lead time and multi-year commitments inherent in
program purchasing.
Of the 35 stations owned or provided programming services by the Company,
11 stations are Fox affiliates, 10 stations are WB affiliates, four stations are
ABC affiliates, two stations are NBC affiliates, two stations are UPN
affiliates, and one station is a CBS affiliate. The networks produce and
distribute programming in exchange for each station's commitment to air the
programming at specified times and for commercial announcement time during the
programming. In addition, networks other than Fox and UPN pay each affiliated
station a fee for each network-sponsored program broadcast by the stations.
On August 21, 1996, the Company entered into an agreement with Fox (the
"Fox Agreement") which, among other things, provides that the affiliation
agreements between Fox and eight stations owned or provided programming services
by the Company (except as noted below) would be amended to have new five-year
terms commencing on the date of the Fox Agreement. Fox has the option to extend
the affiliation agreements for additional five-year terms and must extend all of
the affiliation agreements if it extends any (except that Fox may selectively
renew affiliation agreements if any station has breached its affiliation
agreement). The Fox Agreement also provides that the Company will have the right
to purchase, for fair market value, any station Fox acquires in a market
currently served by a Company-owned Fox affiliate (other than the Norfolk,
Virginia and Raleigh/Durham, North Carolina markets) if Fox determines to
terminate the affiliation agreement with the Company's station in that market
and operate the station acquired by Fox as a Fox affiliate. The Fox Agreement
confirmed that the affiliation agreements for WTVZ-TV (Norfolk) and WLFL-TV
(Raleigh/Durham) will terminate on August 31, 1998. The Fox Agreement also
includes provisions limiting the ability of the Company to preempt Fox
programming except where it has existing programming conflicts or where the
Company preempts to serve a public purpose.
On July 4, 1997, the Company entered into the WB Agreement, pursuant to
which the Company agreed that certain stations affiliated with UPN would
terminate their affiliations with UPN at the end of the current affiliation term
in January 1998, and would enter into affiliation agreements with WB effective
as of that date. With respect to the following stations, the Company did not
renew their affiliation agreements with UPN when their agreements expired on
January 15, 1998: WCWB-TV, Pittsburgh, Pennsylvania, WNUV-TV, Baltimore,
Maryland, WSTR-TV, Cincinnati, Ohio, KRRT-TV, San Antonio, Texas, KOCB-TV,
Oklahoma City, Oklahoma, KSMO-TV, Kansas City, Missouri, KUPN-TV, Las
6
Vegas, Nevada, WCGV-TV, Milwaukee, Wisconsin, and WABM-TV, Birmingham, Alabama.
Additionally, the Company cancelled its UPN affiliation agreement with
WTTV-TV/WTTK-TV, Indianapolis, Indiana. These stations (other than WCGV-TV, and
WABM-TV, which will either operate as independents or enter into new affiliation
agreements with WB or another network) entered into ten-year affiliation
agreements with WB which became effective on January 16, 1998 (other than
WTTV-TV/ WTTK-TV, with respect to which the affiliation agreement is expected to
begin April 6, 1998 and KSMO-TV, with respect to which the affiliation agreement
is expected to begin March 30, 1998). Pursuant to the WB Agreement, the WB
affiliation agreements of WVTV-TV, Milwaukee, Wisconsin, and WTTO-TV,
Birmingham, Alabama (whose programming is simulcast on WDBB-TV, Tuscaloosa,
Alabama), have been extended to January 16, 2008. In addition, WFBC-TV in the
Asheville, North Carolina and Greenville/Spartanburg/Anderson, South Carolina
market will become affiliated with WB on November 1, 1999 when WB's current
affiliation with another station in that market expires. WTVZ-TV, Norfolk,
Virginia and WLFL-TV, Raleigh/Durham North Carolina, will become affiliated with
WB when their affiliations with Fox expire. These Fox affiliations are scheduled
to expire on August 31, 1998.
Under the terms of the WB Agreement, WB has agreed to pay the Company $64
million in aggregate amount in monthly installments during the first eight years
commencing on January 16, 1998 in consideration for the Company's entering into
affiliation agreements with WB. In addition, WB will be obligated to pay an
additional $10 million aggregate amount in monthly installments in each of the
following two years provided that WB is in the business of supplying programming
as a television network during each of those years.
The affiliation agreements relating to stations that have been acquired by
the Company are terminable by the network upon transfer to the Company of the
License Assets of the station. The Company does not seek consents of the
affected network to the transfer of License Assets in connection with its
acquisitions. As of the date of this Form 10-K, no network has terminated an
affiliation agreement following transfer of License Assets to the Company.
RADIO BROADCASTING
The following table sets forth certain information regarding the radio
stations (i) owned and/or operated by the Company or (ii) which the Company has
an option or has agreed to acquire:
RANKING OF STATION RANK EXPIRATION
GEOGRAPHIC STATION'S PRIMARY IN PRIMARY DATE
MARKET MARKET BY PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC OF FCC
SERVED/STATION (A) REVENUE (B) FORMAT TARGET (C) TARGET (D) LICENSE
- ----------------------------- ------------- --------------------------- -------------- -------------- -----------
Los Angeles, California ..... 1
KBLA-AM(e) Korean N/A N/A 12/1/05
St. Louis, Missouri ......... 18
KPNT-FM Alternative Rock Adults 18-34 2 2/1/05
WVRV-FM Modern Adult Contemporary Adults 18-34 7 12/1/04
WRTH-AM Adult Standards Adults 25-54 23 2/1/05
WIL-FM Country Adults 25-54 1 2/1/05
KIHT-FM 70s Rock Adults 25-54 9 2/1/05
Portland, Oregon ............ 22
KKSN-AM (h) Adult Standards Adults 25-54 22 2/1/06
KKSN-FM (h)(u) 60s Oldies Adults 25-54 1 2/1/06
KKRH-FM (h)(u) 70s Rock Adults 25-54 9 2/1/06
Kansas City, Missouri ....... 29
KCAZ-AM (e)(t) Childrens N/A N/A 6/1/05
KCFX-FM 70s Rock Adults 25-54 2 2/1/05
KQRC-FM Active Rock Adults 18-34 2 6/1/05
KCIY-FM Smooth Jazz Adults 25-54 9 2/1/05
KXTR-FM Classical Adults 25-54 13 2/1/05
Milwaukee, Wisconsin ........ 32
WEMP-AM 60s Oldies Adults 25-54 24 12/1/04
WMYX-FM Adult Contemporary Adults 25-54 6 12/1/04
WAMG-FM Rhythmic Adults 25-54 11 12/1/04
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RANKING OF STATION RANK EXPIRATION
GEOGRAPHIC STATION'S PRIMARY IN PRIMARY DATE
MARKET MARKET BY PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC OF FCC
SERVED/STATION (A) REVENUE (B) FORMAT TARGET (C) TARGET (D) LICENSE
- ------------------------------- ------------- -------------------------- -------------- -------------- ------------
Nashville, Tennessee .......... 34
WLAC-FM (h) Adult Contemporary Women 25-54 8 8/1/04
WJZC-FM (h) Smooth Jazz Women 25-54 8 8/1/04
WLAC-AM (h) News/Talk/Sports Adults 35-64 8 8/1/04
New Orleans, Louisiana(r) ..... 38
WLMG-FM Adult Contemporary Women 25-54 3 6/1/04
KMEZ-FM Urban Oldies Women 25-54 12 6/1/04
WWL-AM News/Talk/Sports Adults 35-64 2 6/1/04
WSMB-AM Talk/Sports Adults 35-64 17 6/1/04
WBYU-AM (g) Adult Standards Adults 25-54 16 6/1/04
WEZB-FM (g)(i) Adult Contemporary Adults 25-54 9 6/1/04
WRNO-FM (g) 70s Rock Adults 25-54 7 6/1/04
WLTS-FM(p) Adult Contemporary Women 25-54 5 6/1/04
WTKL-FM(p) Oldies Adults 25-54 5 6/1/04
Memphis, Tennessee ............ 40
WRVR-FM Soft Adult Contemporary Women 25-54 1 8/1/04
WJCE-AM Urban Oldies Women 25-54 19 8/1/04
WOGY-FM Country Adults 25-54 9 8/1/04
Norfolk, Virginia(r) .......... 41
WGH-AM Sports Talk Country Adults 25-54 18 10/1/03
WGH-FM Country Adults 25-54 3 10/1/03
WVCL-FM (j) 60s Oldies Adults 25-54 9 10/1/03
WFOG-FM (o) Soft Adult Contemporary Women 25-54 4 10/1/03
WPTE-FM (o) Adult Contemporary Adults 18-34 3 10/1/03
WWDE-FM (o) Adult Contemporary Women 25-54 4 10/1/03
WNVZ-FM (o) Contemporary Hit Radio Women 18-49 2 10/1/03
Buffalo, New York ............. 42
WMJQ-FM Adult Contemporary Women 25-54 3 6/1/98
WKSE-FM Contemporary Hit Radio Women 18-49 2 6/1/98
WBEN-AM News/Talk/Sports Adults 35-64 3 6/1/98
WWKB-AM Country Adults 35-64 18 6/1/98
WGR-AM Sports Adults 25-54 10 6/1/98
WWWS-AM Urban Oldies Adults 25-54 14 6/1/98
Greensboro/Winston
Salem/High Point,
North Carolina ............. 52
WMQX-FM (o) Oldies Adults 25-54 5 12/1/03
WQMG-FM (o) Urban Adult Contemporary Adults 25-54 4 12/1/03
WJMH-FM (o) Urban Adults 18-34 1 12/1/03
WQMG-AM (o) Gospel Adults 35-64 9 12/1/03
Rochester, New York ........... 53
WBBF-AM (h) Adult Standards Adults 25-54 13 6/1/98
WBEE-FM (h) Country Adults 25-54 1 6/1/98
WKLX-FM (h) 60s Oldies Adults 25-54 6 6/1/98
WQRV-FM (h) Classic Hits Adults 25-54 12 6/1/98
Asheville, North Carolina
Greenville/Spartanburg,
South Carolina .............. 60
WFBC-FM(k) Contemporary Hit Radio Women 18-49 2 12/1/03
WORD-AM (k) News/Talk Adults 35-64 8 12/1/03
WYRD-AM (k) News/Talk Adults 35-64 14 12/1/03
WSPA-AM (k) Full Service/Talk Adults 35-64 21 12/1/03
WSPA-FM (k) Soft Adult Contemporary Women 25-54 1 12/1/03
WOLI-FM (k) Oldies Adults 25-54 12 12/1/03
WOLT-FM (k) Oldies Adults 25-54 16 12/1/03
8
RANKING OF STATION RANK EXPIRATION
GEOGRAPHIC STATION'S PRIMARY IN PRIMARY DATE
MARKET MARKET BY PROGRAMMING DEMOGRAPHIC DEMOGRAPHIC OF FCC
SERVED/STATION (A) REVENUE (B) FORMAT TARGET (C) TARGET (D) LICENSE
- ------------------------ ------------- ------------------------ -------------- -------------- ------------
Wilkes-Barre/Scranton,
Pennsylvania .......... 68
WKRZ-FM (l) Contemporary Hit Radio Adults 18-49 1 8/1/98
WGGY-FM Country Adults 25-54 3 8/1/98
WGGI-FM(q) Country Adults 25-54 21 8/1/98
WILK-AM (m) News/Talk/Sports Adults 35-64 5 8/1/98
WGBI-AM (m) News/Talk/Sports Adults 35-64 35 8/1/98
WWSH-FM (n) Soft Hits Women 25-54 23 8/1/98
WILP-AM (m) News/Talk/Sports Adults 35-64 40 8/1/98
WWFH-FM (n) Soft Hits Women 25-54 12 8/1/98
WKRF-FM (l) Contemporary Hit Radio Adults 18-49 30 8/1/98
WILT-AM(m)(s) News/Talk/Sports Adults 35-64 40 8/1/98
- ----------
(a) Actual city of license may differ from the geographic market served.
(b) Ranking of the principal radio market served by the station among all U.S.
radio markets by 1996 aggregate gross radio broadcast revenue according to
Duncan's Radio Market Guide -- 1997 Edition.
(c) Due to variations that may exist within programming formats, the primary
demographic target of stations with the same programming format may be
different.
(d) All information concerning ratings and audience listening information is
derived from the Fall 1997 Arbitron Metro Area Ratings Survey (the "Fall
1997 Arbitron"). Arbitron is the generally accepted industry source for
statistical information concerning audience ratings. Due to the nature of
listener surveys, other radio ratings services may report different
rankings; however, the Company does not believe that any radio ratings
service other than Arbitron is accorded significant weight in the radio
broadcast industry. "Station Rank in Primary Demographic Target" is the
ranking of the station among all radio stations in its market that are
ranked in its target demographic group and is based on the station's
average persons share in the primary demographic target in the applicable
Metro Survey Area. Source: Average Quarter Hour Estimates, Monday through
Sunday, 6:00 a.m. to midnight, Fall 1997 Arbitron.
(e) Programming is provided to this station by a third party pursuant to an
LMA.
(f) License renewal application pending.
(g) The Company has the right to acquire the assets of this station in the
Heritage Acquisition, subject to FCC approval, and has an agreement to sell
such assets to a third party.
(h) The Company has agreed to sell this station to a third party, which
currently programs the station pursuant to an LMA.
(i) An application for review of the grant of this station's license renewal is
pending.
(j) EEO reporting conditions for 1997, 1998 and 1999 were placed on this
station's most recent license renewal.
(k) The Company has exercised its option to acquire Keymarket of South
Carolina, Inc. ("Keymarket" or "KSC"), which owns and operates WYRD-AM,
WORD-AM and WFBC-FM, and provides sales services pursuant to a JSA or LMA
and has an option to acquire WOLI-FM and WOLT-FM. The Company has also
agreed to acquire WSPA-AM and WSPA-FM, which KSC programs pursuant to an
LMA. FCC approval of the Company's acquisition of WYRD-AM, WORD-AM,
WFBC-FM, WSPA-AM, and WSPA-FM is pending.
(l) WKRZ-FM and WKRF-FM simulcast their programming.
(m) WILK-AM, WGBI-AM, WILP-AM and WILT-AM simulcast their programming.
(n) WWSH-FM and WWFH-FM simulcast their programming.
(o) The Company has the right to acquire this radio station in conjunction with
the Max Media Acquisition.
(p) The Company provides sales and programming services to this station
pursuant to an LMA and has an option to acquire substantially all the
assets of this station.
(q) The Company provides sales and programming services to this radio station
pursuant to an LMA and has received FCC approval to acquire substantially
all the assets of this station.
(r) The Company intends to sell two FM stations and one AM station in the New
Orleans market and two FM stations in the Norfolk market in order to comply
with current FCC or DOJ guidelines.
(s) The Company provides sales and programming services to this station
pursuant to an LMA.
9
(t) A third party has exercised their option to purchase this station, the
closing of which is subject to FCC approval.
(u) A petition to deny the transfer of the licenses of these stations was filed
with the FCC objecting to the acquisition of such licenses by the proposed
assignee.
Radio Operating Strategy
The Company's radio strategy is to operate a cluster of radio stations in
selected geographic markets throughout the country. In each geographic market,
the Company employs broadly diversified programming formats to appeal to a
variety of demographic groups within the market. The Company seeks to strengthen
the identity of each of its stations through its programming and promotional
efforts, and emphasizes that identity to a far greater degree than the identity
of any local radio personality.
The Company believes that its strategy of appealing to diverse demographic
groups in selected geographic markets allows it to reach a larger share of the
overall advertising market while realizing economies of scale and avoiding
dependence on one demographic or geographic market. The Company realizes
economies of scale by combining sales and marketing forces, back office
operations and general management in each geographic market. At the same time,
the geographic diversity of its portfolio of radio stations helps lessen the
potential impact of economic downturns in specific markets and the diversity of
target audiences served helps lessen the impact of changes in listening
preferences. In addition, the geographic and demographic diversity allows the
Company to avoid dependence on any one or any small group of advertisers.
The Company's group of radio stations includes the top billing station
group in four markets and one of the top three billing station groups in each of
its markets other than Los Angeles, Milwaukee, Portland, Rochester and
Nashville. Through ownership or LMAs, the group also includes duopolies in 12 of
its 13 markets.
Depending on the programming format of a particular station, there are a
predetermined number of advertisements broadcast each hour. The Company
determines the optimum number of advertisements available for sale during each
hour without jeopardizing listening levels (and the resulting ratings). Although
there may be shifts from time to time in the number of advertisements available
for sale during a particular time of day, the total number of advertisements
available for sale on a particular station normally does not vary significantly.
Any change in net radio broadcasting revenue, with the exception of those
instances where stations are acquired or sold, is generally the result of
pricing adjustments made to ensure that the station effectively uses advertising
time available for sale, an increase in the number of commercials sold or a
combination of these two factors.
Large, well-trained local sales forces are maintained by the Company in
each of its radio markets. The Company's principal goal is to utilize its sales
efforts to develop long-standing customer relationships through frequent direct
contacts, which the Company believes provide it with a competitive advantage.
Additionally, in some radio markets, duopolies permit the Company to offer
creative advertising packages to local, regional and national advertisers. Each
radio station owned by the Company also engages a national independent sales
representative to assist it in obtaining national advertising revenues. These
representatives obtain advertising through national advertising agencies and
receive a commission from the radio station based on its gross revenue from the
advertising obtained.
BROADCASTING ACQUISITION STRATEGY
On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Act")
was signed into law. The 1996 Act represents the most sweeping overhaul of the
country's telecommunications laws since the Communications Act of 1934, as
amended (the "Communications Act"). The 1996 Act relaxes the broadcast ownership
rules and simplifies the process for renewal of broadcast station licenses.
The Company believes that the enactment of the 1996 Act has presented a
unique opportunity to build a larger and more diversified broadcasting company.
Additionally, the Company expects that the opportunity to act as one of the
consolidators of the industry will enable the Company to gain additional
influence with program suppliers, television networks, other vendors, and
alternative delivery media.
10
The additions to the Company's management team as a result of the River City
Acquisition have given it additional resources to take advantage of these
developments.
In implementing its acquisition strategy, the Company seeks to identify and
pursue favorable station or group acquisition opportunities primarily in the
15th to 75th largest DMAs and Metro Service Areas ("MSAs"). In assessing
potential acquisitions, the Company examines opportunities to improve revenue
share, audience share and/or cost control. Additional factors considered by the
Company in a potential acquisition include geographic location, demographic
characteristics and competitive dynamics of the market. The Company also
considers the opportunity for cross-ownership of television and radio stations
and the opportunity it may provide for cross-promotion and cross-selling.
In conjunction with its acquisitions, the Company may determine that
certain of the acquired stations may not be consistent with the Company's
strategic plan. In such an event, the Company reviews opportunities for swapping
such stations with third parties for other stations or selling such stations
outright. The Heritage, Max Media, and Sullivan Acquisitions may provide such
opportunities.
Certain terms of the Company's acquisitions in 1998 and 1997, and other
pending acquisitions, are described below.
1998 ACQUISITIONS
Sullivan Acquisition. In February 1998, the Company entered into merger
agreements by which the Company agreed to acquire all of the issued and
outstanding capital stock of Sullivan Broadcast Holdings, Inc. ("Sullivan
Holdings") and Sullivan Broadcasting Company II, Inc. ("Sullivan II" and,
together with Sullivan Holdings, "Sullivan") for an aggregate purchase price
expected to be approximately $950 million to $1 billion, less the amount of
outstanding indebtedness of Sullivan Holdings assumed by the Company (the
"Sullivan Acquisition"). The Sullivan Acquisition will be accomplished by two
separate merger closings.
At the initial closing, the Company will acquire all of the issued and
outstanding capital stock of Sullivan Holdings, after which the Company will
indirectly own all of the operating assets (excluding the License Assets) of,
and pursuant to LMAs will provide programming services to, 13 additional
television stations (the "Sullivan Stations") in the following markets:
Nashville, Tennessee; Buffalo, New York; Oklahoma City, Oklahoma;
Greensboro/Winston-Salem/High Point, North Carolina; Dayton, Ohio;
Charleston/Huntington, West Virginia; Richmond, Virginia; Las Vegas, Nevada;
Rochester, New York; Madison, Wisconsin; and Utica, New York.
The purchase price to be paid at the initial closing will be based on a
multiple of Sullivan's projected 1998 cash flow calculated as of the time of the
initial closing. As part of the total consideration to be paid at the initial
closing, the Company, at its option, may issue to the Sullivan shareholders up
to $100 million of the Company's Class A Common Stock based on an average
closing price of the Class A Common Stock. The initial closing is subject to
termination of the applicable waiting period under the HSR Act and is expected
to occur during the second quarter of 1998.
At the second closing, the Company will acquire all of the issued and
outstanding capital stock of Sullivan II. The second closing is subject to,
among other things, FCC approval and is expected to close during the third
quarter of 1998. FCC regulations require the Company to obtain waivers from the
FCC of multiple ownership rules prior to the second closing. Although the
Company is confident that it will receive FCC consents for the merger with
Sullivan II, there can be no assurance that such consents will be obtained.
After the second closing, the Company will indirectly own the License Assets of
six of the 13 Sullivan Stations, and will continue to program the remaining
seven Sullivan Stations pursuant to seven LMAs, five with Sullivan Broadcast
Company III, Inc. ("Sullivan III"), which at the time of the second closing will
hold the License Assets for such stations, and two with the existing owners of
the License Assets of such stations.
In connection with the Sullivan Acquisition, Glencairn, Ltd. ("Glencairn")
has entered into a plan of merger with Sullivan III which, if completed, would
result in Glencairn's ownership of all the issued and outstanding capital stock
of Sullivan III. After the merger, the Company intends to enter into an
11
LMA with Glencairn and continue to provide programming services to the five
stations the License Assets of which are acquired by Glencairn in the merger.
Montecito Acquisition. In February 1998, the Company entered into an
agreement to acquire all of the capital stock of Montecito for approximately $33
million. Montecito owns all of the issued and outstanding stock of Channel 33,
Inc., which owns and operates KFBT-TV in Las Vegas, Nevada. Sinclair cannot
acquire Montecito unless and until FCC rules permit Sinclair to own the
broadcast license for more than one station in the Las Vegas market, or unless
Sinclair no longer owns the broadcast license for KUPN-TV in Las Vegas. The
Company will operate KFBT-TV through an LMA, upon expiration of the applicable
HSR Act waiting period. The Company expects to be able to enter into the LMA in
the second quarter of 1998.
Columbus Purchase Option. In connection with the Company's 1996 acquisition
of the radio and television broadcasting assets of River City Broadcasting, L.P.
("River City"), the Company acquired a three-year option to purchase the assets
of WSYX-TV in Columbus, Ohio (the "Columbus Option"). The exercise price for the
Columbus Option is approximately $100 million plus an amount of indebtedness
relating to the WSYX-TV assets on the date of exercise (such indebtedness not to
exceed $135 million). The exercise price is expected to be financed through
borrowings under the Company's Bank Credit Agreement. Pursuant to the Columbus
Option, the Company is required to make certain quarterly "Option Extension Fee"
payments, as defined in the Columbus Option . These fees began December 31,
1996, and continue until the exercise price on the Columbus Option is paid. The
Option Extension Fees are calculated as 8% per annum of the option exercise
price through the first anniversary of the date of grant, 15% per annum of the
option exercise price through the second anniversary of the date of grant and
25% per annum of the option exercise price thereafter. As of December 31, 1997,
the Company incurred Option Extension Fees and other costs relating to WSYX-TV
totaling $22.9 million. The Company currently intends to pay $100 million of the
option exercise price prior to May 31, 1998 (the date on which the Option
Extension fee of 25% per annum goes into effect) in order to extinguish the
Company's obligations to make continuing Option Extension Fee payments. Due to
the Company's ownership of another television station in the Columbus, Ohio
market, the Antitrust Division of the DOJ is currently reviewing the Company's
acquisition of and the right to operate WSYX-TV pursuant to an LMA. The Company
has entered into an agreement with the DOJ pursuant to which the Company is
required to notify the DOJ 10 business days before it begins programming WSYX-TV
pursuant to on LMA or exercises the Columbus Option or enters into a LMA with
respect to WSYX-TV, which will give the DOJ the opportunity to enjoin the
Company's action, if it chooses to do so.
The Company has agreed to sell the License Assets of WTTE-TV in Columbus,
Ohio to Glencairn and to enter into an LMA with Glencairn to provide programming
services to WTTE-TV. The FCC has approved this transaction, but the Company does
not believe that this transaction will be completed unless the Company acquires
WSYX-TV.
Other Dispositions. The Company has entered into on agreement to sell three
radio stations in the Nashville, Tennessee market for approximately $35 million.
The Company expects the closing to occur in the fourth quarter of 1998.
1997 ACQUISITIONS
Max Media Acquisition. On December 2, 1997, the Company entered into
agreements to acquire, directly or indirectly, all of the equity interests of
Max Media. As a result of this transaction, the Company will acquire, or acquire
the right to program pursuant to LMAs, nine television stations and eight radio
stations in eight markets. The television stations serve the following markets:
Dayton, Ohio; Syracuse, New York; Paducah, Kentucky and Cape Girardeau,
Missouri; Tri-Cities, Tennessee/Virginia; Tyler/Longview, Texas; and Charleston,
South Carolina. The radio stations serve the Norfolk, Virginia and
Greensboro/Winston Salem/High Point, North Carolina markets. The aggregate
purchase price is approximately $255 million payable in cash at closing (less a
deposit of $12.8 million paid at the time of signing the acquisition agreement),
a portion of which will be used to retire existing debt of Max Media at closing.
Max Media's television station WKEF-TV in Dayton, Ohio has an overlapping
service area with the Company's television stations WTTE-TV in Columbus, Ohio
and WSTR-TV in Cincinnati,
12
Ohio as well as with Company LMA station WTTV-TV in Indianapolis, Indiana. In
addition, Max Media's television station WEMT-TV in Tri-Cities,
Tennessee/Virginia has an overlapping service area with the Company's television
station WLOS-TV in Asheville, North Carolina and Greenville/
Spartanburg/Anderson, South Carolina and Max Media's television station KBSI-TV
in Paducah, Kentucky and Cape Girardeau, Missouri has an overlapping service
area with the Company's television station KDNL-TV in St. Louis, Missouri.
Furthermore, the Company owns a television station and three radio stations in
the Norfolk, Virginia market, where four of Max Media's radio stations are
located. Consequently, the Company has requested various waivers from the FCC to
allow the Company to complete the Max Media Acquisition. There can be no
assurance that such waivers will be granted. As a result of the Max Media
Acquisition and the Heritage Acquisition, the Company intends to dispose of two
of the FM radio stations in the Norfolk, Virginia radio market that it has
agreed to acquire from Heritage and Max Media in order to be in compliance with
the FCC regulations that limit the number of radio stations that can be owned in
a market. The Company has sought FCC approval to assign the licenses of such
radio stations and an additional radio station it presently owns in the Norfolk,
Virginia market to an independent trustee. The Max Media Acquisition is subject
to approval by the FCC and termination of the applicable waiting period under
the HSR Act, and is expected to close in the second quarter of 1998. The
transaction is expected to be financed through borrowings under the Company's
Bank Credit Agreement.
Lakeland Acquisition. On November 14, 1997, the Company entered into a
definitive agreement to acquire 100% of the stock of Lakeland Group Television,
Inc. In the Lakeland Acquisition, the Company will acquire television station
KLGT in Minneapolis/St. Paul, Minnesota. The purchase price is approximately $50
million in cash plus the assumption of certain indebtedness of Lakeland not to
exceed $2.5 million. KLGT-TV, Channel 23, is the WB affiliate in Minneapolis,
the nation's 14th largest market. The Company intends to finance the purchase
price from borrowings under the Bank Credit Agreement. The Lakeland Acquisition
is subject to, among other things, approval by the FCC and termination of the
applicable waiting period under the HSR Act, and is expected to close in the
first or second quarter of 1998.
Heritage Acquisition. On July 16, 1997, the Company entered into the
Heritage Acquisition Agreements with certain subsidiaries of Heritage. The
aggregate purchase price of the Heritage Acquisition is approximately $630
million, less deposits paid of $65.5 million and amounts paid in January 1998
relating to the closing of certain television assets of $215 million. Pursuant
to the Heritage Acquisition Agreements, the Company obtained the right to
acquire the assets of five television stations (the interests in three of which
the Company has agreed to dispose or described herein), programming rights under
LMAs with respect to two additional television stations (one of which the
Company has agreed to dispose as described herein), and the assets of 24 radio
stations (11 of which the Company has agreed to dispose as described herein).
On January 29, 1998, the Company closed on the acquisitions of the Heritage
television stations serving the Charleston/Huntington market, Mobile and
Pensacola market and the Oklahoma City market for an aggregate purchase price of
$215 million. Simultaneously with the closing, the Company disposed of
television station KOKH-TV in Oklahoma City to Sullivan Broadcasting Company,
Inc. for an aggregate sale price of $60 million. Also simultaneously with the
closing, the Company entered into purchase option agreements pursuant to which
the Company has the option to acquire KOKH-TV from Sullivan for an aggregate
purchase price of $60 million and Sullivan has the option to acquire from the
Company television station WCHS-TV in the Charleston/Huntington, West Virginia
market for an aggregate purchase price of $30 million. In consideration for the
execution of the purchase option agreements, the Company made an option grant
payment to Sullivan of $45 million and Sullivan made an option grant payment to
the Company of $15 million. In connection with the Sullivan Acquisition, the
Company will reacquire KOKH-TV. On February 27, 1998 the Company closed on its
acquisition of all of the Heritage radio stations except the three stations in
the New Orleans market. On March 6, 1998, the Company closed on the acquisition
of the Heritage television stations serving the Burlington, Vermont and
Plattsburgh, New York market for an aggregate purchase price of $75 million.
In January 1998, the Company entered into an agreement with Entercom
pursuant to which the Company will sell to Entercom the Portland, Oregon and
Rochester, New York radio stations which the
13
Company acquired from Heritage for an aggregate sales price of approximately
$126.5 million. Subject to approval by the FCC and termination of the applicable
waiting period under the HSR Act, the Company anticipates it will close on the
sale of the Portland and Rochester radio stations to Entercom during the second
quarter of 1998. Entercom is operating these stations pursuant to an LMA pending
closing of the sale.
In February 1998, the Company entered into an agreement with STC pursuant
to which STC has agreed to acquire the License and Non-License Assets of
Burlington, Vermont and Plattsburgh, New York television stations WPTZ-TV,
WNNE-TV, and the Non-License Assets of WFFF-TV for $75 million. The Company
expects to close the sale to STC during the second quarter of 1998 subject to,
among other conditions, approval by the FCC and termination of the applicable
waiting period under the HSR Act.
Acquisition of the Heritage radio stations in the New Orleans market is
conditioned on, among other things, FCC approval and the expiration of the
applicable waiting period under the HSR Act. The Company has entered into an
agreement to divest certain radio stations it owns or has the right to acquire
in the New Orleans market and expects to receive FCC approval and clearance
under the HSR Act in connection with such disposition. In addition, the Company
intends to dispose of two of the FM radio stations in the Norfolk, Virginia
radio market that it has agreed to acquire from Heritage and Max Media in order
to be in compliance with FCC regulations that limit the number of radio stations
that can be owned in a market. See "-- Max Media Acquisition." A third party has
also exercised its option to acquire from the Company radio station KCAZ in
Kansas City, Missouri.
Las Vegas Acquisition. On January 30, 1997, the Company entered into an
agreement to acquire the assets of KUPN-TV, the UPN affiliate in Las Vegas,
Nevada, for approximately $87.0 million. The Company completed this acquisition
on May 30, 1997.
ONGOING DISCUSSIONS
In furtherance of its acquisition strategy, the Company routinely reviews
and conducts investigations of potential television, radio station and related
businesses acquisitions. When the Company believes a favorable opportunity
exists, the Company seeks to enter into discussions with the owners of such
businesses regarding the possibility of an acquisition, disposition or station
swap. At any given time, the Company may be in discussions with one or more such
business owners. The Company is in serious negotiations with various parties
relating to the disposition and acquisition of television, radio and related
properties which would be disposed of and acquired for aggregate consideration
of approximately $75 million and $60 million, respectively. There can be no
assurance that any of these or other negotiations will lead to definitive
agreement or, if agreements are reached, that any transactions would be
consummated.
LOCAL MARKETING AGREEMENTS
The Company currently has LMA arrangements with television stations in nine
markets in which it owns a television station: Pittsburgh, Pennsylvania (WCWB),
Baltimore, Maryland (WNUV), Raleigh/ Durham, North Carolina (WRDC), Milwaukee,
Wisconsin (WVTV), Birmingham, Alabama (WABM), San Antonio, Texas (KRRT),
Asheville, North Carolina and Greenville/Spartanburg/Anderson, South Carolina
(WFBC), Mobile, Alabama and Pensacola, Florida (WFGX), and Burlington, Vermont
and Plattsburgh, New York (WFFF). The Company will provide programming under an
LMA to a station in a tenth market where it owns a television station (KFBT, Las
Vegas) upon expiration of the applicable HSR Act waiting period. In addition,
the Company has an LMA arrangement with a station in the Tuscaloosa, Alabama
market (WDBB), which is adjacent to Birmingham. In each of these markets other
than Pittsburgh, Tuscaloosa, Mobile and Pensacola, Las Vegas and Burlington and
Plattsburgh, the LMA arrangement is with Glencairn and the Company owns the
Non-License Assets of the stations. The Company also has LMA arrangements with
radio stations in two markets in which it owns radio stations,
Wilkes-Barre/Scranton, Pennsylvania and New Orleans, Louisiana. In addition, the
Company entered into two LMAs with respect to WTTV and WTTK in Indianapolis,
Indiana. At the Company's request, the FCC has withheld action on an application
for the Company's acquisition of WTTV and
14
WTTK in Indianapolis (and a pending application for the Controlling Stockholders
to divest their attributable interests in WIIB) until the FCC completes its
pending rulemaking proceeding considering the cross-interest policy. In
addition, in connection with the pending acquisitions, the Company will enter
into certain LMAs. See "-- 1998 Acquisitions and "-- 1997 Acquisitions."
The Company believes that it is able to increase its revenues and improve
its margins by providing programming services to stations in selected DMAs and
MSAs where the Company already owns a station. In certain instances, single
station operators and stations operated by smaller ownership groups do not have
the management expertise or the operating efficiencies available to the Company
as a multi-station broadcaster. The Company seeks to identify such stations in
selected markets and to provide such stations with programming services pursuant
to LMAs. In addition to providing the Company with additional revenue
opportunities, the Company believes that these LMA arrangements have assisted
certain stations whose operations may have been marginally profitable to
continue to air popular programming and contribute to diversity of programming
in their respective DMAs and MSAs.
In many cases where the Company enters into LMA arrangements in connection
with a station whose acquisition by the Company is pending FCC approval, the
Company (i) obtains an option to acquire the station assets essential for
broadcasting a television or radio signal in compliance with regulatory
guidelines, generally consisting of the FCC license, transmitter, transmission
lines, technical equipment, call letters and trademarks, and certain furniture,
fixtures and equipment (the "License Assets") and (ii) acquires the remaining
assets (the "Non-License Assets") at the time it enters into the option.
Following acquisition of the Non-License Assets, the License Assets continue to
be owned by the owner-operator and holder of the FCC license, which enters into
an LMA with the Company. After FCC approval for transfer of the License Assets
is obtained, the Company exercises its option to acquire the License Assets and
become the owner-operator of the station, and the LMA arrangement is terminated.
USE OF DIGITAL TELEVISION TECHNOLOGY
The Company believes that television broadcasting may be enhanced
significantly by the development and increased availability of digital
broadcasting service technology. This technology has the potential to permit the
Company to provide viewers multiple channels of digital television over each of
its existing standard channels, to provide certain programming in a high
definition television format and to deliver various forms of data, including
data on the Internet, to home and business computers. These additional
capabilities may provide the Company with additional sources of revenue,
although the Company may be required to incur significant additional costs in
connection therewith. The Company is currently considering plans to provide high
definition television ("HDTV"), to provide multiple channels of television
including the provision of additional broadcast programming and transmitted data
on a subscription basis, and to continue its current TV program channels on its
allocated digital television ("DTV") channels. The FCC has granted authority for
the Company to conduct experimental DTV multicasting operations in Baltimore,
Maryland. The 1996 Act allows the FCC to charge a spectrum fee to broadcasters
who use the digital spectrum to offer subscription-based services, and the FCC
has opened a rulemaking to consider the spectrum fees to be charged to
broadcasters for such use. In addition, Congress has held hearings on
broadcasters' plans for the use of their digital spectrum. The Company cannot
predict what future actions the FCC or Congress might take with respect to DTV,
nor can it predict the effect of the FCC's present DTV implementation plan or
such future actions on the Company's business. DTV technology is not currently
available to the viewing public and a successful transition from the current
analog broadcast format to a digital format may take many years. There can be no
assurance that the Company's efforts to take advantage of the new technology
will be commercially successful.
FEDERAL REGULATION OF TELEVISION AND RADIO BROADCASTING
The ownership, operation and sale of television and radio stations are
subject to the jurisdiction of the FCC, which acts under authority granted by
the Communications Act. Among other things, the FCC assigns frequency bands for
broadcasting; determines the particular frequencies, locations and operating
power of stations; issues, renews, revokes and modifies station licenses;
regulates equipment used by stations; adopts and implements regulations and
policies that directly or indirectly affect the ownership,
15
operation and employment practices of stations; and has the power to impose
penalties for violations of its rules or the Communications Act.
The following is a brief summary of certain provisions of the
Communications Act, the 1996 Act and specific FCC regulations and policies.
Reference should be made to the Communications Act, the 1996 Act, FCC rules and
the public notices and rulings of the FCC for further information concerning the
nature and extent of federal regulation of broadcast stations.
License Grant and Renewal. Television and radio stations operate pursuant
to broadcasting licenses that are granted by the FCC for maximum terms of eight
years.
Television and radio station licenses are subject to renewal upon
application to the FCC. During certain periods when renewal applications are
pending, competing applicants may file for the radio or television frequency
being used by the renewal applicant. During the same periods, petitions to deny
license renewal applications may be filed by interested parties, including
members of the public. The FCC is required to hold hearings on renewal
applications if it is unable to determine that renewal of a license would serve
the public interest, convenience and necessity, or if a petition to deny raises
a "substantial and material question of fact" as to whether the grant of the
renewal application would be prima facie inconsistent with the public interest,
convenience and necessity. However, the FCC is prohibited from considering
competing applications for a renewal applicant's frequency, and is required to
grant the renewal application, if the FCC finds: (i) that the station has served
the public interest, convenience and necessity; (ii) that there have been no
serious violations by the licensee of the Communications Act or the rules and
regulations of the FCC; and (iii) that there have been no other violations by
the licensee of the Communications Act or the rules and regulations of the FCC
that, when taken together, would constitute a pattern of abuse.
All of the stations that the Company currently owns and operates or
provides programming services to pursuant to LMAs, or intends to acquire or
provide programming services pursuant to LMAs in connection with pending
acquisitions, are presently operating under regular licenses, which expire as to
each station on the dates set forth under "-- Television Broadcasting" and "--
Radio Broadcasting," above. Although renewal of license is granted in the vast
majority of cases even when petitions to deny are filed, there can be no
assurance that the licenses of such stations will be renewed.
Ownership Matters
General
- -------
The Communications Act prohibits the assignment of a broadcast license or
the transfer of control of a broadcast licensee without the prior approval of
the FCC. In determining whether to permit the assignment or transfer of control
of, or the grant or renewal of, a broadcast license, the FCC considers a number
of factors pertaining to the licensee, including compliance with various rules
limiting common ownership of media properties, the "character" of the licensee
and those persons holding "attributable" interests therein, and compliance with
the Communications Act's limitations on alien ownership.
To obtain the FCC's prior consent to assign a broadcast license or transfer
control of a broadcast licensee, an appropriate application must be filed with
the FCC. If the application involves a "substantial change" in ownership or
control, the application must be placed on public notice for a period of
approximately 30 days during which petitions to deny the application may be
filed by interested parties, including members of the public. If the application
does not involve a "substantial change" in ownership or control, it is a "pro
forma" application. The "pro forma" application is not subject to petitions to
deny or a mandatory waiting period, but is nevertheless subject to having
informal objections filed against it. If the FCC grants an assignment or
transfer application, interested parties have approximately 30 days from public
notice of the grant to seek reconsideration or review of that grant. Generally,
parties that do not file initial petitions to deny or informal objections
against the application face difficulty in seeking reconsideration or review of
the grant. The FCC normally has approximately an additional 10 days to set aside
such grant on its own motion. When passing on an assignment or transfer
application, the FCC is prohibited from considering whether the public interest
might be served by an assignment or transfer to any party other than the
assignee or transferee specified in the application.
16
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other association. In the
case of corporations holding, or through subsidiaries controlling, broadcast
licenses, the interests of officers, directors and those who, directly or
indirectly, have the right to vote 5% or more of the corporation's stock (or 10%
or more of such stock in the case of insurance companies, investment companies
and bank trust departments that are passive investors) are generally
attributable, except that, in general, no minority voting stock interest will be
attributable if there is a single holder of more than 50% of the outstanding
voting power of the corporation. The FCC has pending a rulemaking proceeding
that, among other things, seeks comment on whether the FCC should modify its
attribution rules by (i) raising the attribution stock benchmark from 5% to 10%;
(ii) raising the attribution stock benchmark for passive investors from 10% to
20%; (iii) restricting the availability of the single majority shareholder
exemption; and (iv) attributing certain interests such as non-voting stock, debt
and certain holdings by limited liability corporations in certain circumstances.
More recently, the FCC has solicited comment on proposed rules that would (i)
treat an otherwise nonattributable equity or debt interest in a licensee as an
attributable interest where the interest holder is a program supplier or the
owner of a broadcast station in the same market and the equity and/or debt
holding is greater than a specified benchmark; (ii) treat a licensee of a
television station which, under an LMA, brokers more than 15% of the time on
another television station serving the same market, as having an attributable
interest in the brokered station; and (iii) in certain circumstances, treat the
licensee of a broadcast station that sells advertising time on another station
in the same market pursuant to a JSA as having an attributable interest in the
station whose advertising is being sold.
The Controlling Stockholders hold attributable interests in two entities
owning media properties, namely: Channel 63, Inc., licensee of WIIB-TV, a UHF
television station in Bloomington, Indiana, and Bay Television, Inc., licensee
of WTTA-TV, a UHF television station in St. Petersburg, Florida. All of the
issued and outstanding shares of Channel 63, Inc. are owned by the Controlling
Stockholders. All of the issued and outstanding shares of Bay Television, Inc.
are owned by the Controlling Stockholders (75%) and Robert L. Simmons (25%), a
former stockholder of the Company. The Controlling Stockholders have agreed to
divest their attributable interests in Channel 63, Inc. and the Company believes
that, after doing so, such holdings will not materially restrict its ability to
acquire or program additional broadcast stations.
Under its "cross-interest" policy, the FCC considers certain "meaningful"
relationships among competing media outlets in the same market, even if the
ownership rules do not specifically prohibit the relationship. Under this
policy, the FCC may consider significant nonattributable equity or debt
interests in a media outlet combined with an attributable interest in another
media outlet in the same market, joint ventures, and common key employees among
competitors. The cross-interest policy does not necessarily prohibit all of
these interests, but requires that the FCC consider whether, in a particular
market, the "meaningful" relationships between competitors could have a
significant adverse effect upon economic competition and program diversity.
Heretofore, the FCC has not applied its cross-interest policy to LMAs and JSAs
between broadcast stations. In its ongoing rulemaking proceeding concerning the
attribution rules, the FCC has sought comment on, among other things, (i)
whether the cross-interest policy should be applied only in smaller markets, and
(ii) whether non-equity financial relationships such as debt, when combined with
multiple business interrelationships such as LMAs and JSAs, raise concerns under
the cross-interest policy. Moreover, in its most recent proposals in its ongoing
attribution rulemaking proceeding, the FCC has proposed treating television
LMAs, television and radio JSAs, and presently nonattributable debt or equity
interests as attributable interests in certain circumstances without regard to
the cross-interest policy.
The Communications Act prohibits the issuance of broadcast licenses to, or
the holding of a broadcast license by, any corporation of which more than 20% of
the capital stock is owned of record or voted by non-U.S. citizens or their
representatives or by a foreign government or a representative thereof, or by
any corporation organized under the laws of a foreign country (collectively,
"Aliens"). The Communications Act also authorizes the FCC, if the FCC determines
that it would be in the public interest, to prohibit the issuance of a broadcast
license to, or the holding of a broadcast license by, any corporation directly
or indirectly controlled by any other corporation of which more than 25% of the
capital stock is owned of record or voted by Aliens. The Company has been
advised that the FCC staff has interpreted this provision to require a finding
that such grant or holding would be in the public interest before a broadcast
license may be granted to or held by any such corporation and that the FCC staff
has made such a finding only in limited
17
circumstances. The FCC has issued interpretations of existing law under which
these restrictions in modified form apply to other forms of business
organizations, including partnerships. As a result of these provisions, the
licenses granted to Subsidiaries of the Company by the FCC could be revoked if,
among other restrictions imposed by the FCC, more than 25% of the Company's
stock were directly or indirectly owned or voted by Aliens. The Company and the
Subsidiaries are domestic corporations, and the Controlling Stockholders are all
United States citizens. The Amended and Restated Articles of Incorporation of
the Company (the "Amended Certificate") contain limitations on Alien ownership
and control that are substantially similar to those contained in the
Communications Act. Pursuant to the Amended Certificate, the Company has the
right to repurchase Alien-owned shares at their fair market value to the extent
necessary, in the judgment of the Board of Directors, to comply with the Alien
ownership restrictions.
Television
- ----------
National Ownership Rule. Prior to the 1996 Act, FCC rules generally
prohibited an individual or entity from having an attributable interest in more
than 12 television stations nationwide, or in television stations reaching more
than 25% of the national television viewing audience. Pursuant to the 1996 Act,
the FCC has modified its rules to eliminate any limitation on the number of
television stations an individual or entity may own nationwide, subject to the
restriction that no individual or entity may have an attributable interest in
television stations reaching more than 35% of the national television viewing
audience. Historically, VHF stations have shared a larger portion of the market
than UHF stations. Therefore, only half of the households in the market area of
any UHF station are included when calculating whether an entity or individual
owns television stations reaching more than 35% of the national television
viewing audience. All but six of the stations owned and operated by the Company,
or to which the Company provides programming services, are UHF. Upon completion
of all pending acquisitions and dispositions, the Company will reach
approximately 14% of U.S. television households using the FCC's method of
calculation.
Duopoly Rule. On a local level, the television "duopoly" rule generally
prohibits a single individual or entity from having an attributable interest in
two or more television stations with overlapping Grade B service areas. While
the 1996 Act did not eliminate the television duopoly rule, it did direct the
FCC to initiate a rulemaking proceeding to determine whether to retain, modify,
or eliminate the rule. The FCC has pending a rulemaking proceeding in which it
has proposed, among other options, to modify the television duopoly rule to
permit the common ownership of television stations in different DMAs, so long as
the Grade A signal contours of the stations do not overlap. Pending resolution
of its rulemaking proceeding, the FCC has adopted an interim waiver policy that
permits the common ownership of television stations in different DMAs with no
overlapping Grade A signal contours, conditioned on the final outcome of the
rulemaking proceeding. The FCC has also sought comment on whether common
ownership of two television stations in a market should be permitted (i) where
one or more of the commonly owned stations is UHF, (ii) where one of the
stations is in bankruptcy or has been off the air for a substantial period of
time and (iii) where the commonly owned stations have very small audience or
advertising shares, are located in a very large market, and/or a specified
number of independently owned media voices would remain after the acquisition.
Local Marketing Agreements. A number of television stations, including
certain of the Company's stations, have entered into what have commonly been
referred to as local marketing agreements, or LMAs. While these agreements may
take varying forms, pursuant to a typical LMA, separately owned and licensed
television stations agree to enter into cooperative arrangements of varying
sorts, subject to compliance with the requirements of antitrust laws and with
the FCC's rules and policies. Under these types of arrangements, separately
owned stations could agree to function cooperatively in terms of programming,
advertising sales, etc., subject to the requirement that the licensee of each
station maintain independent control over the programming and operations of its
own station. One typical type of LMA is a programming agreement between two
separately owned television stations serving a common service area, whereby the
licensee of one station programs substantial portions of the broadcast day on
the other licensee's station, subject to ultimate editorial and other controls
being exercised by the latter licensee, and sells advertising time during such
program segments. Such arrangements are an extension of the concept of "time
brokerage" agreements, under which a licensee of a station sells blocks of time
on its station to an entity or entities which program the blocks of time and
which sell their own com-
18
mercial advertising announcements during the time periods in question. The staff
of the FCC's Mass Media Bureau has held that LMAs are not contrary to the
Communications Act, provided that the licensee of the station which is being
substantially programmed by another entity maintains complete responsibility for
and control over the programming and operations of its broadcast station and
assures compliance with applicable FCC rules and policies.
At present, FCC rules permit television station LMAs, and the licensee of a
television station brokering time on another television station is not
considered to have an attributable interest in the brokered station. However, in
connection with its ongoing rulemaking proceeding regarding the television
duopoly rule, the FCC has proposed to adopt rules providing that the licensee of
a television station which brokers more than 15% of the time on another
television station serving the same market would be deemed to have an
attributable interest in the brokered station for purposes of the national and
local multiple ownership rules. In connection with this proceeding, the FCC has
solicited detailed information from parties to television LMAs as to the terms
and characteristics of such LMAs.
The 1996 Act provides that nothing therein "shall be construed to prohibit
the origination, continuation, or renewal of any television local marketing
agreement that is in compliance with the regulations of the [FCC]." The
legislative history of the 1996 Act reflects that this provision was intended to
grandfather television LMAs that were in existence upon enactment of the 1996
Act, and to allow television LMAs consistent with the FCC's rules subsequent to
enactment of the 1996 Act. In its pending rulemaking proceeding regarding the
television duopoly rule, the FCC has proposed to adopt a grandfathering policy
providing that, in the event that television LMAs become attributable interests,
LMAs that are in compliance with existing FCC rules and policies and were
entered into before November 5, 1996, would be permitted to continue in force
until the original term of the LMA expires. Under the FCC's proposal, television
LMAs that are entered into, renewed, or assigned after November 5, 1996 would
have to be terminated if LMAs are made attributable interests and the LMA in
question resulted in a violation of the television multiple ownership rules. The
Company's LMAs with television stations WPTT in Pittsburgh, Pennsylvania, WNUV
in Baltimore, Maryland, WVTV in Milwaukee, Wisconsin, WRDC in Raleigh/Durham,
North Carolina, WABM in Birmingham, Alabama, and WDBB in Tuscaloosa, Alabama,
were in existence on both the date of enactment of the 1996 Act and November 5,
1996. The Company's LMAs with television stations WTTV and WTTK in Indianapolis,
Indiana were entered into subsequent to the date of enactment of the 1996 Act
but prior to November 5, 1996. The Company's LMA with television station KRRT in
San Antonio, Texas was in existence on the date of enactment of the 1996 Act,
but was assumed by the Company subsequent to that date but prior to November 5,
1996. The licensee's rights under the Company's LMA with KRRT-TV were assumed by
Glencairn subsequent to November 5, 1996. The Company's LMAs with television
stations WFGX-TV in Mobile, Alabama and Pensacola, Florida and WFFF-TV in
Burlington, Vermont and Plattsburgh, New York were in existence on both the date
of enactment of the 1996 Act and November 5, 1996, but were assumed by the
Company subsequent to November 5, 1996. The Company's LMA with WFBC-TV in
Asheville, North Carolina and Greenville/Spartanburg/Anderson, South Carolina,
was entered into by the Company subsequent to the date of enactment of the 1996
Act but prior to November 5, 1996, and the licensee's rights under that LMA were
assumed by Glencairn subsequent to November 5, 1996. The Company's LMA with KFBT
in Las Vegas, Nevada (which will be effective upon expiration of the HSR waiting
period) was entered into subsequent to November 5, 1996. The Company cannot
predict if any or all of its LMAs will be grandfathered.
The Conference Agreement adopted as part of the Balanced Budget Act of 1997
(the "Balanced Budget Act") clarifies Congress' intent with respect to LMAs and
duopolies. The Conference Agreement states as follows: "The conferees do not
intend that the duopoly and television-newspaper cross-ownership relief provided
herein should have any bearing upon the [FCC's] current proceedings, which
concerns more immediate relief. The conferees expect that the [FCC] will proceed
with its own independent examination in these matters. Specifically, the
conferees expect that the [FCC] will provide additional relief (e.g., VHF/UHF
combinations) that it finds to be in the public interest, and will implement the
permanent grandfather requirement for local marketing agreements as provided in
the Telecommunications Act of 1996."
19
The TV duopoly rule currently prevents the Company from acquiring the
licenses of television stations with which it has LMAs in those markets where
the Company owns a television station. As a result, if the FCC were to decide
that the provider of programming services under a television LMA should be
treated as having an attributable interest in the brokered station, and if it
did not relax its television duopoly rule, the Company could be required to
modify or terminate those of its LMAs that were not in existence on the date of
enactment of the 1996 Act or on November 5, 1996. Furthermore, if the FCC adopts
its present proposal with respect to the grandfathering of television LMAs, the
Company could be required to terminate even those LMAs that were in effect prior
to the date of enactment of the 1996 Act or prior to November 5, 1996, after the
initial term of the LMA or upon assignment of the LMA. In such an event, the
Company could be required to pay termination penalties under certain of such
LMAs. Further, if the FCC were to find, in connection with any of the Company's
LMAs, that the owners/licensees of the stations with which the Company has LMAs
failed to maintain control over their operations as required by FCC rules and
policies, the licensee of the LMA station and/or the Company could be fined or
set for hearing, the outcome of which could be a monetary forfeiture or, under
certain circumstances, loss of the applicable FCC license. The Company is unable
to predict the ultimate outcome of possible changes to these FCC rules and the
impact such changes may have on its broadcasting operations.
On June 1, 1995, the Chief of the FCC's Mass Media Bureau released a Public
Notice concerning the processing of television assignment and transfer of
control applications proposing LMAs. Due to the pendency of the ongoing
rulemaking proceeding concerning attribution of ownership, the Mass Media Bureau
has placed certain restrictions on the types of television assignment and
transfer of control applications involving LMAs that it will approve during the
pendency of the rulemaking. Specifically, the Mass Media Bureau has stated that
it will not approve arrangements where a time broker seeks to finance a station
acquisition and hold an option to purchase the station in the future. The
Company believes that none of the Company's LMAs fall within the ambit of this
Public Notice.
Radio
- -----
National Ownership Rule. Prior to the 1996 Act, the FCC's rules limited an
individual or entity from holding attributable interests in more than 20 AM and
20 FM radio stations nationwide. Pursuant to the 1996 Act, the FCC has modified
its rules to eliminate any limitation on the number of radio stations a single
individual or entity may own nationwide.
Local Ownership Rule. Prior to the 1996 Act, the FCC's rules generally
permitted an individual or entity to hold attributable interests in no more than
four radio stations in a local market (no more than two of which could be in the
same service (AM or FM)), and then only if the aggregate audience share of the
commonly owned stations did not exceed 25%. In markets with fewer than 15
commercial radio stations, an individual or entity could hold an attributable
interest in no more than three radio stations in the market (no more than two of
which could be in the same service), and then only if the number of the commonly
owned stations did not exceed 50% of the total number of commercial radio
stations in the market.
Pursuant to the 1996 Act, the limits on the number of radio stations one
entity may own locally have been increased as follows: (i) in a market with 45
or more commercial radio stations, an entity may own up to eight commercial
radio stations, not more than five of which are in the same service (AM or FM);
(ii) in a market with between 30 and 44 (inclusive) commercial radio stations,
an entity may own up to seven commercial radio stations, not more than four of
which are in the same service; (iii) in a market with between 15 and 29
(inclusive) commercial radio stations, an entity may own up to six commercial
radio stations, not more than four of which are in the same service; and (iv) in
a market with 14 or fewer commercial radio stations, an entity may own up to
five commercial radio stations, not more than three of which are in the same
service, except that an entity may not own more than 50% of the stations in such
market. These numerical limits apply regardless of the aggregate audience share
of the stations sought to be commonly owned. FCC ownership rules continue to
permit an entity to own one FM and one AM station in a local market regardless
of market size. Irrespective of FCC rules governing radio ownership, however,
the DOJ and the Federal Trade Commission have the authority to determine, and in
certain radio transactions have determined, that a particular transaction
presents antitrust con-
20
cerns. Moreover, in certain recent cases the FCC has signaled a willingness to
independently examine issues of market concentration notwithstanding a
transaction's compliance with the numerical station limits. The FCC has also
indicated that it may propose further revisions to its radio multiple ownership
rules.
Local Marketing Agreements. As in television, a number of radio stations
have entered into LMAs. The FCC's multiple ownership rules specifically permit
radio station LMAs to be entered into and implemented, so long as the licensee
of the station which is being programmed under the LMA maintains complete
responsibility for and control over programming and operations of its broadcast
station and assures compliance with applicable FCC rules and policies. For the
purposes of the multiple ownership rules, in general, a radio station being
programmed pursuant to an LMA by an entity is not considered an attributable
ownership interest of that entity unless that entity already owns a radio
station in the same market. However, a licensee that owns a radio station in a
market, and brokers more than 15% of the time on another station serving the
same market (i.e., a station whose principal community contour overlaps that of
the owned station), is considered to have an attributable ownership interest in
the brokered station for purposes of the FCC's multiple ownership rules. As a
result, in a market in which the Company owns a radio station, the Company would
not be permitted to enter into an LMA with another local radio station which it
could not own under the local ownership rules, unless the Company's programming
constituted 15% or less of the other local station's programming time on a
weekly basis. The FCC's rules also prohibit a broadcast licensee from
simulcasting more than 25% of its programming on another station in the same
broadcast service (i.e., AM-AM or FM-FM) through a time brokerage or LMA
arrangement where the brokered and brokering stations serve substantially the
same area.
Joint Sales Agreements. A number of radio (and television) stations have
entered into cooperative arrangements commonly known as joint sales agreements,
or JSAs. While these agreements may take varying forms, under the typical JSA, a
station licensee obtains, for a fee, the right to sell substantially all of the
commercial advertising on a separately-owned and licensed station in the same
market. The typical JSA also customarily involves the provision by the selling
licensee of certain sales, accounting, and "back office" services to the station
whose advertising is being sold. The typical JSA is distinct from an LMA in that
a JSA (unlike an LMA) normally does not involve programming.
The FCC has determined that issues of joint advertising sales should be
left to enforcement by antitrust authorities, and therefore does not generally
regulate joint sales practices between stations. Currently, stations for which a
licensee sells time under a JSA are not deemed by the FCC to be attributable
interests of that licensee. However, in connection with its ongoing rulemaking
proceeding concerning the attribution rules, the FCC is considering whether JSAs
should be considered attributable interests or within the scope of the FCC's
cross-interest policy, particularly when JSAs contain provisions for the supply
of programming services and/or other elements typically associated with LMAs. If
JSAs become attributable interests as a result of changes in the FCC rules, the
Company may be required to terminate any JSA it might have with a radio station
which the Company could not own under the FCC's multiple ownership rules.
Other Ownership Matters
- -----------------------
There remain in place after the 1996 Act a number of additional
cross-ownership rules and prohibitions pertaining to licensees of television and
radio stations. FCC rules, the Communications Act, or both generally prohibit an
individual or entity from having an attributable interest in both a television
station and a radio station, a daily newspaper, or a cable television system
that is located in or serves the same market area.
Antitrust Regulation. The DOJ and the Federal Trade Commission have
increased their scrutiny of the television and radio industry since the adoption
of the 1996 Act, and have indicated their intention to review matters related to
the concentration of ownership within markets (including LMAs and JSAs) even
when the ownership or LMA or JSA in question is permitted under the laws
administered by the FCC or by FCC rules and regulations. For instance, the DOJ
has for some time taken the position that an LMA entered into in anticipation of
a station's acquisition with the proposed buyer of the station constitutes a
change in beneficial ownership of the station which, if subject to filing under
the HSR Act, cannot be implemented until the waiting period required by that
statute has ended or been terminated.
21
Radio/Television Cross-Ownership Rule. The FCC's radio/television
cross-ownership rule (the "one to a market" rule) generally prohibits a single
individual or entity from having an attributable interest in a television
station and a radio station serving the same market. However, in each of the 25
largest local markets in the United States, provided that there remain at least
30 separately owned television and radio stations in the particular market after
the acquisition in question, the FCC has traditionally employed a policy that
presumptively allows waivers of the one to a market rule to permit the common
ownership of one AM, one FM and one TV station in the market. The 1996 Act
directs the FCC to extend this policy to each of the top 50 markets. Moreover,
the FCC has pending a rulemaking proceeding in which it has solicited comment on
whether the one to a market rule should be eliminated altogether. The Company
has pending several requests for waivers of the one to a market rule in
connection with its applications to acquire radio stations in the Max Media
Acquisition and from Keymarket of South Carolina, Inc. and Spartan Radiocasting,
Inc., in markets where the Company owns or proposes to own a television station.
However, the FCC does not apply its presumptive waiver policy in cases
involving the common ownership of one television station, and two or more radio
stations in the same service (AM or FM), in the same market. Pending its ongoing
rulemaking proceeding to reexamine the one to a market rule, the FCC has stated
that it will consider waivers of the rule in such instances on a case-by-case
basis, considering (i) the public service benefits that will arise from the
joint operation of the facilities such as economies of scale, cost savings and
programming and service benefits; (ii) the types of facilities involved; (iii)
the number of media outlets owned by the applicant in the relevant market; (iv)
the financial difficulties of the stations involved; and (v) the nature of the
relevant market in light of the level of competition and diversity after joint
operation is implemented. Generally, any such waivers that are granted, and
which allow common ownership of a television station and more than two
same-service radio stations in the same market, are temporary and conditioned on
the outcome of the rulemaking proceeding. The Company obtained such temporary,
conditional waivers of the one to a market rule in connection with its
acquisition of the Heritage radio stations in the Kansas City and St. Louis
markets.
In its ongoing rulemaking proceeding to reexamine the one to a market rule,
the FCC has proposed the following options for modifying the rule in the event
it is not eliminated: (i) extending the presumptive waiver policy to any
television market in which a specified number of independently owned media
"voices" would remain after common ownership of a television station and one or
more radio stations is effectuated; (ii) extending the presumptive waiver policy
to entities that seek to own more than one FM and/or one AM radio station; (iii)
reducing the minimum number of independently owned voices that must remain after
a transaction is effectuated; and (iv) modifying the five-factor case-by-case
test for waivers.
Local Television/Cable Cross-Ownership Rule. While the 1996 Act eliminates
a previous statutory prohibition against the common ownership of a television
broadcast station and a cable system that serve the same local market, the 1996
Act leaves the current FCC rule in place. The legislative history of the Act
indicates that the repeal of the statutory ban should not prejudge the outcome
of any FCC review of the rule.
Broadcast Network/Cable Cross-Ownership Rule. The 1996 Act directs the FCC
to eliminate its rules which formerly prohibited the common ownership of a
broadcast network and a cable system, subject to the provision that the FCC
revise its rules as necessary to ensure carriage, channel positioning, and
non-discriminatory treatment of non-affiliated broadcast stations by cable
systems affiliated with a broadcast network. In March 1996, the FCC issued an
order implementing this legislative change.
Broadcast/Daily Newspaper Cross-Ownership Rule. The FCC's rules prohibit
the common ownership of a radio or television broadcast station and a daily
newspaper in the same market. The 1996 Act does not eliminate or modify this
prohibition. In October 1996, however, the FCC initiated a rulemaking proceeding
to determine whether it should liberalize its waiver policy with respect to
cross-ownership of a daily newspaper and one or more radio stations in the same
market.
Dual Network Rule. The 1996 Act directs the FCC to repeal its rule which
formerly prohibited an entity from operating more than one television network.
In March 1996, the FCC issued an order implementing this legislative change.
Under the modified rule, a network entity is permitted to operate
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more than one television network, provided, however, that ABC, CBS, NBC, and/or
Fox are prohibited from merging with each other or with another network
television entity such as WB or UPN.
The 1996 Act requires the FCC to review its broadcast ownership rules every
two years to "determine whether any of such rules are necessary in the public
interest as the result of competition," and to repeal or modify any rules that
are determined to be no longer in the public interest. In March 1998, the FCC
initiated a rulemaking proceeding to review certain of its broadcast ownership
rules pursuant to the statutory mandate, including: (i) the rule limiting
ownership of television stations nationally to stations reaching 35% of the
national television audience; (ii) the rule attributing only 50% of television
households in a market to the audience reach of a UHF television station for
purposes of the 35% national audience reach limit; (iii) the rule prohibiting
common ownership of a broadcast station and a daily newspaper in the same
market; (iv) the rule prohibiting common ownership of a broadcast television
station and a cable system in the same market; (v) the local radio multiple<