Titan Broadcast ManagementTitan Marches To A Different Drummer

Titan Marches To A Different Drummer

Aug 10, 2010, 8:53 AM ET

Titan Broadcast Management is not an ordinary TV station group. It doesn't own stations. It manages them, mostly for TTVG LLC, the creditors who wound up with the keys to most of the Pappas Telecasting stations after that group fell into bankruptcy.

Titan is headed by two veteran broadcasters, Dan Sullivan, chairman and CEO, and Bert Ellis, president. Right now, its portfolio includes 13 stations in nine markets.

In addition to the TTVG stations, which include two CBS affiliates and three Fox affiliates, Titan manages independents in Boston and San Francisco for Multicultural Capital Trust and KDOC Los Angeles, another independent that Ellis purchased with the backing of the Kelso & Co. equity fund in 2006.

In this interview with TVNewsCheck Editor Harry A. Jessell, Ellis discusses the station management business, which he expects to grow; the moribund station trading market; prospects for mobile DTV; and his open-minded attitude toward the FCC's plan for reclaiming broadcast spectrum.

An edited transcript:

This idea of broadcasters that manages other stations for a fee is a fairly new one, isn't it?

We are the only ones we know of that was purpose-built to do this. We figured out that the business was going to hit the skids and that some of the lenders -- non-broadcasters -- were going to foreclose and end up owning stations. So we thought that there was an opportunity for us to provide services to them, and that has been the case. We focused initially on stations that were in financial trouble either because the station was underperforming or just because the capital structure was inappropriate or a little bit of both. We also believe that there's an opportunity for our set of skills at standalone stations or in very small groups, one- or two-station groups that just don't have the leverage and the array of contacts that we can bring to the table.

If you go to our website, you will see the bios of Dan [Sullivan] and myself and Janet [Schoff] and Dave [Pulido] and Jim [Sandry]. We have got an array of functional skills and bring a lot to the table. We have operated in the top 10 markets, we have operated in small markets, we have -- and still do -- operate indies, we operate Hispanic stations, we operate traditional affiliates, we operate stations with news and stations without news, we operate CWs and we operate in duopolies.

Are you looking for more stations to bring under your wing?

Our clients are investors in lots of other stations. So, there are stations that are being posed to us as we speak.

Did you make a run at managing the Young stations?

We did and we were not chosen for that. They chose Gray and they're still on the sidelines. That's been a very lucrative contract for Gray -- very easy for them to do and very lucrative.       

Are you getting the stations you manage ready for sale or are you in for the long haul?

The people that have hired us are lenders that are locked into a deal longer than they intended to be or where they've had to take a much bigger position than they intended and they want to get out. They have hired us not because we want to own these stations and run them forever, but because we are prepared to run them as long as it takes until we find an M&A window where we can exit.

In the meantime, our job is to increase the cash flow and clean up the stations if they have oddball structures and deals and get them in a position where they can be bought if and when there's an M&A marketplace.

Are there any buyers out there?

At the moment, very few. You haven't had any stories about M&As other than the Norfolk deal with Local [TV LLC]. That's about the only one that I can even think of in the last year or so, other than foreclosures.

Why is the market all bound up? Why isn't anything happening out there at this point?

It's the bidding aspect. The spread is too much. Buyers are still worried about the economy, regulations, spectrum issues and network issues -- how all that is going to play out. Sellers don't want to sell at the price the buyers want to buy.

Are you a buyer?

No. We're not a buyer. We're not trying to get management contracts so that we get an inside edge to buy the stations. We're here to operate the stations on behalf of our clients for as long as it takes to either build up the cash flow itself or build up the cash flow and pay off the debt.

You say that there's this gap between bid and ask. What's it going to take to close that gap?              

We have got to get closer to the future if you will. Some of the issues that no one can quantify yet have got to play out so somebody can make a financial decision on them. Which cash flow do you use? There's no seller that wants to sell on a non-political year. No buyer wants to buy on a political year so you have got to average them. And then some political years are different than others. If you have a gubernatorial campaign in the state, the political can be two times what it might otherwise be. If you're in a state that becomes a battleground state in a presidential year, you can have a lot of money and if you're not in a battleground state there can be no money.

Political is a huge part of the revenue so you have got to figure that out and then you have got to figure out some of the other macro issues. What's going to happen with retransmission? What's going to happen with network comp? What's going to happen with some of the spectrum issues? What's going to happen with regulations?   

There is a lot of uncertainty, I guess. 

That's correct. And if you're going to buy into uncertainty, you want to buy in at a lower value.    

What about the banks? Are the banks willing to lend into this business now?

Yes, but nowhere near as aggressively as they used to. So you're not going to get the multiples and the covenant-like debt agreements that were available three and four years ago. You used to be able to do a deal that was 20% equity and 80% debt. Right now, you're going to have to have almost 50% equity. Without the leverage, you reduce the returns and it just makes it that much more difficult to figure out how to buy these things to make a 20% return.

How is business right now and what's the outlook for the rest of the year?

Business for the first half of 2010 has been great. We aren't anywhere near back to what we were in '06. It's a whole lot better than '07 or '08 and '09. So everybody is feeling good and everybody in the business has cut a significant amount of cost. That means that revenue in '10 is going to bring back cash flows maybe comparable to '06 or '07 without the revenue that we had then.

The question is what's going to happen in '11. You're not going to have the political so you're going to lose that stimulus. What happens with our deficits? What happens when you have got eight or 10 states that are just absolute financial disasters and what's going to happen to them and their state employees? You have got an awful lot of factors that you can't figure out in '11.

Have you been able to get retransmission money in small markets like El Paso, Omaha and Sioux City?

It's not a function of market size; it's a function of your television station and what programming you have. So if you have got a Big Four network, for sure. If you have got news, probably. If you are a CW, probably. If you have got really good sports contracts, for sure. If you are a part of a group, you can do better than if you are a standalone station because you have got more experience, you have got more leverage, you know the cable and satellite operators. You just don't get as much gross dollars because there aren't as many subscribers, but you can get the same per-subscriber fee.

Are the networks just going to take it all away?

It remains to be seen. It's going to be a battle royal between all the network affiliates and their networks and it's playing out as we speak. If you go back and read [the earning reports of] Nexstar, Sinclair, they were touting how much of their growth in cash flow was coming from retransmission. They ain't touting that right now because they have made that money a target of their networks.

I have been told by a couple of your peers that Fox has been trying to squeeze some of its affiliates in retrans sharing talks by threatening to take their affiliation away and putting it on a D2 on another station in the market. Have you heard any of that?

I have heard people say that. The networks are playing hardball with their affiliates and it's a negotiation between the affiliate boards and the networks. We want the networks to be healthy, but the affiliates have to be healthy too. So there is going to be some kind of sharing. It's pretty clear that the affiliates are not going to keep a 100% of their retransmission dollars. So, if you built your business on the idea of having a 100%, you are going to have a rude awakening.

What do you think the potential for mobile DTV is?

That's another thing we have got to figure out. I mean, multicast is one way to use your spectrum. Another way to use your spectrum is broadcast to mobile and nobody's cracked the code yet, but I'm active in the Mobile 500 initiative, which is an alternative to the Pearl Nine joint venture.

[The Mobile 500] is an effort to collectively negotiate with private and or public players that are interested in leasing our spectrum or working through us to use our spectrum to provide a pure mobile service. [Editor's note: The Pearl Nine in a consortium of nine leading broadcast station groups formed to pursue the mobile DTV business. To that end, it formed a joint venture with Fox, NBC and Ion called Media Content Venture.]

I understand that you are one of the leaders of the Mobile 500 effort. Who else is involved?

It's Mark Aitken [of Sinclair], Colleen [Brown of Fisher Communications], myself, Kerry Oslund from Schurz, Rebecca Duke from LIN and Jimmy Goodmon from Capital. I hope I haven't left anybody out. That group has had a number of discussions on an initial structure for the Mobile 500.

Do you and other members of the Mobile 500 think you can get rights to broadcast network programming to mobile?

That's a negotiation that's in play. We are assuming that we can use our spectrum to broadcast to handheld as well as to television sets. The negotiations as to how the economics of that work are part of these network negotiations that are ongoing amongst all the station groups.

Well, it sounds like NBC and Fox have already made their play. They have joined the Pearl Nine in Mobile Convent Venture and are going to offer a pay service. That sort of leaves you out in the cold, doesn't it?

Just because they have joined the Pearl Nine doesn't mean that the Pearl Nine group is going to control our spectrum in our markets. That may just mean that they put together the deal structure and the Pearl Nine guys get an equity play in the broadcast-to-mobile thing.

It hasn't been determined for sure whose rights [include] the mobile delivery in a market and what happens if there is a pure disagreement as to the rights in a market -- if nobody gets to play, or if both sides get to play or what. There are negotiations that have still yet to play out.

Are you saying that you believe that you have a claim on the mobile rights to Fox and NBC in your markets?

No. I don't know what I have got.

Let's talk about Fox. Do you think in Sioux City or in Omaha, you have some claim on the mobile rights to Fox?

I don't know what we have got yet, but we are the Fox affiliate so our assumption is that we are the broadcaster for the Fox network in Sioux City. Now there's a dispute as to whether that applies to broadcast-to-mobile or does it just apply to broadcast. I'm not sure I understand what the difference is. Either you're a broadcaster or you're not, but that's in negotiations. I am confident that we're going to find a way that the broadcaster is the broadcast-to-mobiler too, but how the economics are going to be split are in negotiation.              

Is there a scenario under which the Mobile 500 work with the Pearl Nine and NBC and Fox.    

Absolutely. We are not against them. We're just not part of them. So we didn't want to sit around waiting for somebody to call us and say "OK, now it's your turn." We wanted to have enough spectrum and enough markets so that we could start negotiating with folks whether they be our networks or with other potential utilizers of that spectrum.           

Are you enticed by the FCC's offer to recapture your spectrum by allowing you to enjoy some of the proceeds from the auctioning of the spectrum? Are you interested in giving up any of your spectrum?    

Oh, I am definitely interested in playing this out. It's another opportunity for us to figure out how to utilize our spectrum. There are certain parties in the government that just think it's their spectrum and they just want to take it back. I say bullshit to that. But if they are trying to genuinely acquire and repurpose spectrum for what in their view is a greater good -- another mobile network -- and they want to do something in a faster time frame, I think they need to make it an incentive auction. There are ways to do this with some type of either incentive auction or dutch auction.

Until it's determined what it is, I'm not going to say no to it. I want to see what we can make out of it and make it an option for broadcasters. I want as many options as I can for our stations.                                            

So you would like to see like how much you could get from turning back your spectrum?

That's what the industry can't quantify. I mean if you're talking about taking my spectrum back for a dollar, I'm not interested. If you're talking about taking my spectrum back for a million bucks, I may be interested. Is it a bit of my spectrum? Is it all of my spectrum? Is it just a portion of it? That's what we do. We are a very entrepreneurial with our management approach and and we're not tied to just being a traditional broadcaster. You know, what was traditional 10 years ago is not traditional now.