Broadcast Consolidation: The Independent Syndication Situation

By Sarah Barry James
SNL Kagan

Connection III Entertainment Corp. is an independent producer and distributor of content, including three nationally syndicated, weekly TV shows available in more than 107 million U.S. homes. But the company might not have existed if its founders had attempted to launch in the consolidated broadcast TV station market of today.

Cleveland O’Neal III, President and CEO of Connection III, told SNL Kagan that it used to be much easier for an independent syndicator to get a show carried on a local station.

“I literally flew and drove to nearly every station in America as I built my company, and it’s something that you could do 15 years ago,” O’Neal said. “Today it would be virtually impossible. Particularly because of consolidation, every local station would say, ‘I don’t make that decision. You have to go to corporate.'”

He noted that a decade or two ago, station managers not only liked that they had direct access to O’Neal but they also felt empowered to make programming decisions on their own. “There was no middle man between my office in Los Angeles and that station,” O’Neal said.

Connection III’s shows include the entertainment-focused “Made In Hollywood,” the spin-off “Made In Hollywood: Teen Edition,” and the educational and informational series “Live Life and Win!”

Bill Carroll, vice president and director of programming for Katz Media Group’s Katz Television Group, agreed that the TV industry now is much different than when O’Neal launched his company. “The door-to-door salesman approach doesn’t work today because the opportunities are less and the competition is greater,” he said. “If we were talking 25 or 30 years ago, a lot more of the decisions — particularly weekend decisions — were made on an individual station basis. Now, that happens somewhat but it’s more done on a corporate level if the station belongs to a larger group.”

Carroll noted, however, that the changes in the syndication market go well beyond the recent consolidation among station groups, as that M&A activity occurred only after a wave of consolidation among the syndicators themselves. The bigger studios spent years acquiring and accumulating many of the smaller production and distribution companies, and as a result, those big studios now dominate the market. A prime example is CBS Corp., which owns and/or distributes shows from Paramount Domestic Television, Worldvision Enterprises, King World Productions, Spelling Television, Group W Productions and of course CBS Productions, among others.

“Certainly, in the Monday-through-Friday syndication arena … it’s nearly impossible for what I’ll call a boutique syndicator to get into that game,” Carroll said. “I think the last of those was probably Debmar-Mercury and now they are part of Lions Gate [Entertainment Corp.]”

As for the weekends, Carroll said the opportunities are also increasingly limited. “Most Monday-through-Friday shows have a sixth or seventh day airing,” he said. Also, affiliates of the major broadcast networks — especially FOX and CBS — air quite a bit of sports content during the weekends, further limiting the time available for syndicated content from independent producers.

“Now the only prime-time weekend opportunities are on The CW, MyNetworkTV or pure independent. So in some markets, you might be talking about one station,” Carroll said.

Another key change was the introduction of barter in syndicated programming, which made having a national footprint at launch almost essential. Under the barter system, stations agree to give syndicators advertising time in the show in exchange for airing it rather than paying the syndicator a pure cash license fee. Even under the best circumstances, syndicators can have a difficult time supporting first-run shows relying solely on barter revenue.

“Prior to [the barter system], you could launch a show in 30% of the country or 40% of the country on the right stations and in the right time period. And then, over time, you could build that out to a national footprint,” Carroll said. “Now, the first question you have to ask yourself is, ‘Who is your launch group and what is your clearance in New York, Los Angeles and Chicago?’ If you can’t answer that question, realistically, you are going to be offering on a pure-cash basis, which is pretty difficult, or it’s not going to go.”

Still, both O’Neal and Carroll acknowledge that some of the market changes have made the TV industry as a whole stronger. For instance, consolidation among the stations helped to offset the impact of consolidation that occurred among the syndicators. “To a degree, it balances it out,” Carroll said.

Additionally, station group consolidation has helped to drive higher retransmission consent revenues and thus given the station owners more financial security.

“Those broadcast station groups know exactly how to run multiple stations efficiently and … lower their operating costs,” O’Neal said. “So the overall marketplace might be getting a little bit stronger and healthier, but it’s because you do have these powerful station groups.”

Yet he does worry that independent stations are being left behind.

But for all the changes that have occurred in the syndication market thus far, both Carroll and O’Neal say more are on the horizon.

Carroll pointed to the move by different station groups to get back into the production business. E.W. Scripps Co., for instance, has developed “Let’s Ask America,” a half-hour game show where contestants participate via webcam, and “The List,” a half-hour magazine program. Scripps also teamed up with Cox Enterprises Inc.‘s Cox Media Group Inc., Raycom Media Inc. and MagicDust Television to create “RightThisMinute,” a syndicated broadcast strip that covers news and video clips from the Web.

As for O’Neal, he is keeping a close eye on how technology is changing the business and finding cost-effective ways to respond.

“We don’t have the kind of resources that billion-dollar parent companies have,” he said, pointing to Walt Disney Co.‘s recent $500 million acquisition of Maker Studios, which also included a performance-linked earn-out of up to $450 million if performance targets are met.

“We don’t have $950 million to acquire a company that specializes in the YouTube universe,” O’Neal said.

O’Neal is working with the West Coast campus of Boston University, looking at strategies that Connection III can employ to better monetize its library in the new digital universe.

“For a smaller, growing independent to attack the proliferation of platforms and consumer viewer choices, we need to retreat a little bit. We need to experiment — we need to go back to the laboratory,” he said.

He added that there is one thing that has not changed about the syndication business over the last 20 to 30 years: “You have to keep your nose to the ground, and you have to be able to explore every single potential opportunity.”

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