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News Analysis: WQEX's future is no clearer after FCC decision

Saturday, June 14, 2003

By Rob Owen, Post-Gazette TV Editor

It's the media parlor game of the year: trying to figure out who's in the running to buy WQEX, Channel 16.

Last week's decision by the Federal Communications Commission to allow the nation's biggest conglomerates to grow larger could increase the number of interested potential buyers from the three that WQED Multimedia president George Miles has long acknowledged but refuses to identify.

Then again, maybe not.

Buying a station in market No. 21 might make sense for a media company in theory, but what programs do you put on it when there's no network affiliation easily available and all the most popular syndicated programs have been snapped up by other local outlets?

Around the same time a deal to sell the station to Diane Sutter's Shooting Star Broadcasting for $20 million fell apart, WQED received long-awaited permission from the FCC in October to convert Channel 16's license from non-commercial/educational to commercial. Miles said he's been talking with three prospective buyers in recent months, none of them religious broadcasters or home shopping channels. Since the FCC's decision last week, Miles said two more parties have inquired about the station's status.

"We've got an offer on the table that I could take tomorrow, but at the moment, I think we can do better," Miles said.

Engineering studies to examine WQEX's signal coverage in the coming digital era are under way, and Miles said WQED might still opt to lease the station instead. He offered no timetable for when a sale or lease of the station might happen.

"We want to get this done, but we can't give the station away either. A fire sale is not in the making."

A network buyer?

Last week, the FCC raised the cap on the percentage of stations a single company can own nationally from 35 percent to 45 percent.

Ron Bruno, owner of independent low-power station WBGN, thinks the 45 percent rule and the availability of Channel 16 could provide a club for some of the biggest players to wield.

So let's run through the possibilities. ABC-Disney hasn't been in an acquisition mode of late and seems an unlikely buyer. Pittsburgh still doesn't have enough stations to permit a triopoly, which could be what WQED was hoping the FCC's new rules would allow. Without that, Viacom's CBS, which already owns KDKA and WNPA, is out as a potential bidder.

"Only two companies -- Rupert Murdoch's Fox and Viacom -- were at or over the 35 percent limit," Shooting Star's Sutter said. Last year, Shooting Star sought to modify its deal to buy WQEX. WQED balked and the deal collapsed.

In October, Sinclair Broadcast Group, which owns WPGH, Pittsburgh's Fox affiliate, and WCWB, The WB's local affiliate, signed a new agreement to keep WPGH a Fox station through June 2005. But how iron-clad are affiliation agreements?

That depends on who you ask, and it probably differs by company. Insiders say Fox affiliation agreements typically include an out clause that allows Fox to yank its affiliation if it buys a station in the same city. Whether Sinclair's new agreement with Fox includes that clause is unknown. A spokesman for Fox refused to comment, and Sinclair's spokes-man did not return a call.

Tribune Co., which owns TV stations in 26 markets nationwide, last week said it's interested in acquiring more stations in the Top 30 markets. Tribune owns 22 percent of The WB, which has a long-term affiliation agreement with Sinclair's WCWB.

Paxson was part of a WQEX deal in the past. After that plan fell apart, the company cut a deal to get Pax on some local cable systems and seems uninterested in a broadcast outlet. Pax TV is in a state of transition, with no new series developed for fall, and it is pushing for NBC, which owns a portion of Pax, to buy it outright.

With or without Pax, might NBC buy Channel 16 and pull its network affiliation from WPXI? That seems unlikely, too. NBC and Channel 11 recently signed a new affiliation agreement that runs through 2013.

"We feel quite good about our relationship with NBC," said Bruce Baker, executive vice president of television at Cox Communications, which owns WPXI. He pointed out that Cox has two other NBC stations in the area -- one in Johnstown, one in Steubenville.

Another reason NBC might not want to mess with Cox: The company owns cable systems in other parts of the country. NBC wouldn't want to see its distribution disrupted there, so the company would probably opt to play nice with Cox in Pittsburgh.

For similar reasons, Fox might not want to antagonize Sinclair, which operates a total of 20 Fox and 19 WB affiliates.

NBC, which recently bought Telemundo, might be more interested in Pittsburgh if Western Pennsylvania had a rapidly growing Spanish-speaking population, but it doesn't. That also knocks Spanish-language network Univision out of the running.

Even if a network saw an opportunity to yank an affiliation in Pittsburgh, such upheaval often has negative ratings consequences.

"When Fox did affiliate switches eight years ago, the affiliates that got moved to a different channel weren't the ones that did well," Sutter said. "The ones that did well are the ones that didn't switch."

A market player?

When Sutter had an agreement to buy WQEX, she talked to the owners of other local stations about partnering in operation of WQEX.

Hearst Argyle, which owns local ABC affiliate WTAE, considered the possibility but passed.

Conversations with Cox went further with several scenarios discussed. "Just as good business people, we've explored the options with Diane and without Diane, and nothing new has transpired in literally months," Cox's Baker said.

Sutter said she'd still be interested in buying WQEX. She had to withdraw because the revenue potential for a new station dipped along with the amount advertisers spent in the Pittsburgh market.

Mark Fratrik, vice president of the media consulting firm BIA Financial Network in Chantilly, Va., said the Pittsburgh market took in $243.2 million in advertising revenue in 2000. With the recession and Sept. 11, that dipped to $207.4 million in 2001. In 2002, it rebounded somewhat to $233.1 million and he expects sales to be more than $241 million in 2003.

"The general growth in the Pittsburgh market isn't stellar," Fratrik said. "It's not one of your high-growth markets."

Political ads, particularly from the race for governor, helped improve market revenue in 2002 and with the 2004 presidential campaign looming and Pennsylvania a battleground state, Pittsburgh should get another boost.

Still, WBGN's Bruno said he's run the math for buying WQEX -- which includes not only the cost of the license, but also operating and programming costs -- and could never make the finances work.

"George really does want somebody who will treat that station well and do good things with it," Bruno said. "He's not just going to sell it to a shopping network, because he could have done that already. To his credit, he's holding out for the best possible use of the channel from a new buyer."

Eddie Edwards, owner of Edwards Broadcasting and former owner of WCWB, said he was approached by investors interested in involving him in a bid for the station. Edwards said he balked at a $27 million price tag.

"The price was just too prohibitive to make any money at that time," Edwards said.

Miles denied Edwards' price tag.

"We never once discussed a number with Eddie," Miles said. "I don't think Eddie could come up with the financing."

As for what the current asking price is, Miles would say only that he expects to sell WQEX for more than Sutter offered.

Out of left field?

The FCC decision paved the way for a single company to own a newspaper and TV station in the same market. Last week, Allan Block, managing director of family-run Block Communications Inc., which owns the Post-Gazette, discounted the possibility that Block would buy a TV station in Pittsburgh.

"The only change that impacts the Pittsburgh market is that a newspaper could own [WQEX] if they wanted it," Sutter said. "But I think it would be highly unlikely for a newspaper that doesn't own television in the market to come in and buy a television station."

Edward H. Harrell, the president of the Tribune-Review, didn't return a telephone call seeking comment.

"He could do that, but I'm not seeing any indication he's looking to do that," Sutter said of the possibility that Richard Mellon Scaife could make an offer for WQEX. "The only broadcast media he owns is KQV-AM."

Miles said Scaife is not in the mix, "not at the moment, I don't think."

And so the guessing game continues.

WBGN's Bruno said it could be WQEX hasn't sold simply because of the economy.

"The market is so bad for buying and selling and getting venture capital for anything related to TV, radio and the Internet," Bruno said. "There just isn't any excitement being built anywhere. It's just the wrong time to sell."

Post-Gazette staff writer Barbara Vancheri contributed to this report.

Rob Owen can be reached at rowen@post-gazette.com or 412-263-2582.

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