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    Tune In Now For Three Great Deals

    When you hear mention in the media of big deals, takeovers and heady market activity you may think about another wave of Internet companies run by teenagers from their parent’s garage turning themselves into billionaires.

    Sure, there have been a bunch of those over the years. But most of those tend to reward the sellers, not the investing public. A prime example is Facebook, which made its hoodie sweatshirt-wearing founder some $18.7 billion but not so much for investors, who have barely broken even. After the company went public with its initial public offering its stock fell like a rock and has only recently returned to first day levels more than a year later.

    Now we might think that the Internet is the prime market for media that not only attracts more market attention but dominates the lives of the majority of Americans. But the reality is that the Internet is small potatoes compared to an older media technology. The media I’m writing about is the good old television.

    While the Internet is lauded as the ubiquitous form of media, the reality is that Americans not only watch a lot more television but we do so across all age groups.

    Television reaches nearly 89 percent of the total U.S. population. The Internet can only reach some 73.1 percent. That’s good, but nowhere near the total reach of television. And as for other media, radio only offers a 58.8 percent reach and newspapers only a mere 36.1 percent of the nation.

    This brings more and more revenue dollars in advertising to television stations because — from companies trying to sell us stuff to politicos trying to win our votes — television simply reaches more people.

    From rich to poor, and especially in the high-consuming and more likely to vote demographic group of seniors, television consumption out-guns all forms of media, including the Internet by 46.9 percent or more.

    Advertisers know that not only do they reach more folks through television, but they also get more action. Advertising industry studies show that nearly 40 percent of consumers first learn of brands that they buy from TV ads. Only 8.7 percent of consumers learn about the brands they buy from Internet ads.

    And for politicos, decisions are more likely to come from TV viewers as 37.2 percent cite TV ads against a paltry 5.6 percent citing decision making from Internet ads.

    This all points to the obvious; that television controls the vast majority of ad spending. And over the past few tracked and reported years, television has gone from 52 percent of all media ad spending to 54 percent of all ad spending in the U.S. Putting this into perspective, that’s multiples of radio and newspapers and twice the total spent on Internet advertising.

    But there’s even more good news on the television ad market. If you look at local television websites, they’re gaining ground not only in eyeballs but their local online advertising revenues nationwide are up over 175.19 percent over the past five years. Again, this growth is 1.3 times the overall growth of Internet ad spending.

    Buying A Bigger Television

    These days it seems all of us are buying much bigger televisions compared to what we used to watch a decade or more before. Bigger seems to be better for most consumers. It’s this same concept of bigger is better that’s happening for television station companies as well.

    Companies that own and control local stations and broadcasting bandwidth are recognizing that not only is their business good, but it can get even better by getting bigger and expanding into markets around their home regions and even nationwide.

    There are some key reasons for this. It starts with the attention that television gets. As I noted above, television dominates media attention and spending. So if some spending is good, more is better.

    Next, as companies expand and acquire other local stations a few things get even better. Costs get to come down. If you have news reporters in each locality you can have fewer covering larger scale events and news that can be centralized with fewer reporters to handle local news and events.

    When buying content from the national networks — whether it’s entertainment programming, movie film broadcasting rights and syndicated shows and re-runs — the bigger you are the better the deals that you can cut.

    In fact, the bigger television companies with more market controls are even getting national networks to pay them to put their content out on local broadcasts. And the same goes for cable and satellite providers.

    As they know all too well, folks demand local news and local content as well as network broadcasts that all have to flow through or from local television companies. And the more areas that a television broadcasting company controls, the better the bargaining power that they have.

    So, armed with all of this good news, leaders in local television are scrambling to buy more local stations and other broadcast companies. Again, bigger is better.

    Recent years have seen deals coming at a fast pace. Tribune (TRBAB) has upped its television companies by 100 percent — to 42 nationwide — with its latest deal to buy 19 stations from privately held Local TV Holdings.

    And Gannett (GCI) is in the process of expanding its station count to 42 with the additional 23 coming from its deal to absorb Belo (BLC).

    So, those deals and a few others are already done or are priced into the market. The real deal for you to cash in on this televised merger mania is to find the next potential targets. And even if they stay independent this is a very good market to be in right now.

    To see the next potential targets I looked at those that are on the smaller side that are already owning and running a collection of profitable local television broadcasting businesses. These are good takeover or merger candidates.

    I focused on companies with $1 billion or less in market value that make for very temping new targets for speculative investors. I came up with three that are buys right now.

    I’ll start with Gray Television in Atlanta (GTN). With its collection of stations in the southern, mid-western and western U.S. and as the company is valued currently at only about $400 million, it could easily be absorbed by a larger company.

    On its own, revenues are strong and climbing by some 31 percent. And while its stock price has been climbing nicely, it’s still a value trading at only one time its trailing revenues, which makes it a bargain compared to some of its larger peers.

    Second is a multi-media company called EW Scripps (SSP) that could make a deal or might have to make a deal. Based in Cincinnati, it’s strapped by its newspaper business and would make for a good split up or sale to a larger broadcasting company. It is valued only $830 million.

    Despite the newspaper unit, EW Scripps is still delivering revenue gains of more than 24 percent. And its stock, while climbing nicely over the past year, is even cheaper than Gray as it’s valued at less that its trailing sales.

    The third company has actually been acquiring local stations itself as it is trying to consolidate local broadcasters out of Irving, Texas.

    Nexstar Broadcasting Group (NXST) — while a buyer — could see its next deal being a great takeover by a more established company in this segment. A bit larger with a market value of a slightly more than $1 billion dollars, it’s not so pricey that bigger companies couldn’t easily get the funding for a deal. Revenues are climbing on strong sales by some 23 percent. And its margins are better than its smaller peers and are set to expand with its own acquisition successes.

    Trading a bit more expensively than Gray and EW Scripps, Nexstar is still a great target and a company that should put on a good show for investors, even if it stays on its own.

    —Neil George

    Neil George is the editor of By George, an investment advisory publication. George was the editor of Personal Finance for many years. In addition, he served as editor for a collection of other investment journals published in the United States, Germany and other selected nations. Prior to his career in media, George worked for more than two decades on six continents in senior positions with a select group of financial institutions in investment banking, bond trading, brokerage and asset management. The institutions included Merrill Lynch International Bank in Europe, Asia and the Americas, as well as U.S. Bank and British- and Chinese-based Investec PLC. In addition, George worked to build a collection of independent public and private brokerage and fund-management companies in Los Angeles and New York. He also currently serves as an adjunct professor and board member of Webster University's Walker School of Business and Technology. George earned an MBA in international finance from Webster University in Europe and a bachelor's degree in economics from Kings College.

    | All posts from Neil George

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