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Thursday, June 22, 2006

Big Media's Cross to Bear

By Sandy Brown
The Street
6/22/2006 10:47 AM EDT

Newspapers and local TV stations aren't necessarily a match made in heaven, big media companies are learning.

A number of big newspaper outfits bought into the TV business in a bid to reap supposed advertising synergies. But while some operators have succeeded -- E.W. Scripps (SSP:NYSE - news - research - Cramer's Take) and Belo (BLC:NYSE - news - research - Cramer's Take) come to mind -- such cases are proving to be the exception, not the rule.
Hard-won experience shows both the paper and the TV station must be market leaders for the owner to enjoy the benefits of cross-ownership. And of course, both properties must be in the same market.

The turmoil at Tribune (TRB:NYSE - news - research - Cramer's Take) is a case in point. The Chandler family, a 12% shareholder, has demanded a breakup at the Chicago-based company, arguing that the cross-media strategy behind 2000's Tribune/Times Mirror merger has failed.

One industry veteran says the Chandlers are asking the right questions.

"We've always tried to have the No. 1 or No. 2 station in each of our market," says one media company manager at a rival company. "If you have the fifth TV station and a newspaper, the synergies just aren't there." This source says the Chandlers question whether management's plan to sell some assets goes far enough.

Tribune's properties in New York City serve as case in point. The company may have hot properties in L.A. and Chicago, but coupling the fifth or sixth most popular TV station in New York City with a print property like Long Island's Newsday just isn't likely to yield many advertising or cost-saving benefits.

To be fair, Tribune has sold two local TV stations in the last two weeks. One of which, a station in Atlanta, will give Gannett (GCI:NYSE - news - research - Cramer's Take) its third duopoly TV market. Duopolies are widely acknowledged in the broadcasting industry as being economically advantageous.

But other media players, such as New York Times (NYT:NYSE - news - research - Cramer's Take), own TV stations in markets that don't even hold tangential links to their print-media properties. New York Times owns five stations in such must-have localities as Wilkes-Barre, Pa., Moline, Ill., Fort Smith, Ark., and Oklahoma City, Okla.

At the Newspaper Association of America's midyear media review Tuesday, Times management was asked why it didn't sell the stations and return the cash to shareholders. Management's answer: TV stations produce cash.

But while some execs still see value in the local TV business, others are looking to move elsewhere. News Corp.'s (NWS:NYSE - news - research - Cramer's Take) Rupert Murdoch is likely to powwow with Liberty Media's (LINTA:Nasdaq - news - research - Cramer's Take) John Malone about unwinding the latter's 18% stake in his company. That deal seems likely to involve News Corp. selling 10 noncore TV stations in small to midsized markets, plus a boatload of cash.

Similarly, CBS (CBS:NYSE - news - research - Cramer's Take) is in the process of selling some 35 or so smaller-market radio stations and focus on larger markets.

Newspaper companies that don't enjoy significant efficiencies from local TV assets might be smart to follow suit. Murdoch and Moonves, like 'em or not, have been known to make a smart move now and again.

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