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$370 Million In TV Deals Done for Spectrum Auction Tender

NEW YORK — Around $370 million worth of TV stations have traded hands with the express purpose of offering them up in the incentive auction, Wells Fargo analysts report. In round numbers, at least 70 TV stations are going on the block through the group led by former Disney lobbyist Preston Padden, who described them as “heavily weighted toward the largest markets.”

Both Padden and the Wells Fargo team, led by Marci Ryvicker, attended the SNL Kagan Broadcast Summit in New York on Thursday.

Padden said his group “remains bullish about the prospects for a successful auction by the end of 2014.” Broadcasters at the summit pegged 2015-16 as a more realistic timeframe, Ryvicker said.

“Some of the concerns they raised include repacking, the Mexican and Canadian border issues, the uncertainty around final spectrum proceeds, and the overall complexity of the entire auction process,” she wrote in a note released today.

One element of that complexity involves how stations will be repacked into whatever spectrum remains dedicated to television after the auctions. The Federal Communications Commission is pushing for a variable band plan allowing TV stations and wireless broadband to occupy the same channels in different markets. Broadcasters and wireless providers are pushing back.

The commission is also contemplating limits on participation so that Verizon and AT&T don’t dominate the auction as they did the 2008 auction of 700 MHz TV spectrum.

“We think there could be restrictions, but not outright exclusions,” the Wells Fargo team said.

The other obstacle to a 2014 auction is that the commission remains two commissioners short of a full house. Tom Wheeler remains unconfirmed by the Senate as the new chairman, and a second Republican has yet to be nominated. The three sitting commissioners will hear an update on the incentive auction at their regular meeting on Thursday, June 27, from the Incentive Auction Task Force.

The TV station market is heating up in the meantime. The Wells Fargo team reports that between $7 billion and $8 billion in TV assets are up for sale, or likely to be put on the block in the next 12 to 24 months. The current focus of mergers and acquisitions remains private equity deals, followed by “mergers of equals,” as with the Media General-Young Broadcasting deal announced Thursday.

“While retrans is still a big driver of synergies, there is more focus on efficiencies from both a cost perspective and duopolies,” the Wells Fargo team said. “One key point—negotiations haven’t gotten tougher, with sellers multiples still 8-9x and buyers at 5-6x.”

Overall, the analysts pronounced the core business of broadcasting to be healthy. Automotive advertising is driving growth again; telecomm, particularly T-Mobile, is strong, as well as “anything related to housing,” they said.

On the retrans front, broadcasters told the analysts that revenues will be split 50-50 with networks over the next three to four years, and many reported getting average fees of around $1 per sub per month. Retrans contracts are averaging about three years, they said, compared to five years for reverse compensation contracts with the networks.

“In our view,” they said, “this is a positive, as this structure allows operators to negotiate retrans twice during each reverse comp window.”