Sinclair Inc. CEO Christopher Ripley has been running the nation’s second-biggest chain of broadcast TV stations since 2017. But broadcast is only part of Sinclair these days. Indeed, in a recent reorganization, the company removed the words “Broadcast Group” from its name, as it focuses on areas with higher growth potential, even though it continues to operate more than 190 stations in markets big and small from Washington D.C. to Seattle, Washington. In an exclusive interview, I talked recently with Ripley about broadcasting’s regulatory handicaps; the importance of sports and gambling to Sinclair despite its challenges with Diamond Sports Group, its now-independent (and in bankruptcy) collection of regional sports networks; building a venture-capital-style investment division, Wall Street’s “valuation disconnect,” and the company’s plans to use Next-Gen TV to make autonomous vehicles smarter. The interview has been edited for clarity and length.
David Bloom: Let’s talk about Sinclair’s recent reorganization and what that means.
Sinclair CEO Christopher Ripley: I’ll start with just the basic facts: We split the company into two sides. One is a pure-play, local-media company, with our legacy broadcast business. And then the other (side) is what we call Ventures, which includes Tennis Channel (and) Compulse 360, our ad platform. The easiest way to understand that is that (Compulse is) Trade Desk for local. It’s a platform for other local media companies and global agencies, and of course, we use it ourselves. And then we have our investment portfolio, which currently amounts to about $1.3 billion of value, about $100 million of which is in cash, and the rest is in minority investments. So we separated them out to two sides so that people could get greater visibility and transparency on the financial performance of just the local media business, and other areas on the Ventures side, (which has) a number of growth factors. We also wanted flexibility. When we thought about growing Compulse, for instance, M&A will be part of that strategy, and potentially equity issuance and debt issuance. When it was in one big balance sheet, doing something with Compulse to scale the business was not necessarily impossible, but very much more difficult. Now, it’s freed up to have its own capital structure, its own balance sheet.
DB: That allows you to maximize growth areas, right?
CR: Yes, one (possible) deal last year was a merger with another company that would give (Compulse) a lot more scale. That would involve issuing equity for Compulse, and combining these two entities. As long as it was part of this much bigger entity, any merger partner wouldn’t want equity in a subsidiary under this much larger balance sheet. So now that it’s on its own, and it’s separate, we can do that. And we would just be another shareholder as they would be another shareholder.
DB: This is a little bit like the Disney reorganization that gave ESPN its own P&L, followed by CEO Bob Iger saying “We’re open for dealmaking.” Similarly, now you can do deals because it’s a clean structure?
CR: Yes, it’s not in the balance sheet of the local media company, which includes a bunch of debt and liens, etc. So if you want to be an equity participant in Compulse, we can deliver a Compulse-only balance-sheet view.
DB: So what’s the opportunity in that local-media ad segment?
CR: Well, it is a huge market Compulse is addressing. It’s a platform for sales organizations like local media companies, other broadcasters, (and) tens of thousands of agencies across the country that buy linear, they buy it from us, they buy connected TV ads, they do (Google) AdWords campaigns, they do social campaigns. This brings that all into one platform where they can transact at a much lower price, because they ride the volume we bring to the table. It implements the campaign in an automated way, then brings (results) back with reporting and performance reports, and unified billing. It’s a one-stop shop platform for any digital-marketing service you can imagine.
DB: What’s your expectation for ad markets in the short term, given the Hollywood strikes and other challenges, and into next year?
CR: I’d say, generally, there’s been a weak-ish ad marketplace this year. It hasn’t been terrible, but it hasn’t been great. We’re thinking it will pick up in the back half of the year. You’ve seen big tech and media companies announcing a bounce, so digital (advertising)’s firming up. And there seems to be more positivity around the general economic climate. So we expect that to filter through to the ad market in the next couple of quarters, but we don’t see it necessarily firming up tremendously. But what will have a big impact is political (spending). We expect political to start hitting the books in Q4, and then really gets hot and heavy in Q3, Q4, of next year, but primaries are becoming a bigger part of the overall mix. When political comes in, it tends to tighten up all the inventory, because it’s taking inventory out of the general market. And that tends to be a good thing for the overall business. All indications are this 2024 political season will be record-breaking. And the basic equation for us is money raised equals money spent. Politicians don’t return the (contributions) at the end of the election.
DB: Sinclair is valuing the Ventures side of your company at $1.3 billion. Your company’s market capitalization is less than $1 billion ($530 million on Aug. 22), so you’re saying Sinclair has assets worth far more than the market’s value for your entire company. Is that accurate?
CR: Yes, that is an accurate representation. If you look at Ventures, you’ve got the investment portfolio, worth $1.3 billion; you got Tennis Channel, Compulse, which we think collectively, those are worth over $1 billion. And so you’ve got well in excess of $2 billion worth of value there that compares up to a market cap, which, gosh, it’s less than ($1) billion last time I checked, so there’s a big disconnect in the marketplace, in terms of our valuation, not to mention the local media company that we’re investing heavily in. So we think there’s a big disconnect on our valuation. One reason we did this reorg was to highlight that sum of the parts, to prove to Wall Street that this valuation disconnect is real and substantial.
DB: You’re a long-time proponent of ATSC 3.0, Next-Gen TV. Where is that initiative going next?
CR: We’ve built a pretty significant portfolio of free ad-supported channels: Charge, which is action focused; Comet, which is sci fi; TBD, which is taking premium Internet content and bringing it to linear, regular television. We’ve got T2, which is our second Tennis Channel, and is meant to be free and ad supported. And we’ll be adding shortly here pickleball channels that will be free and ad supported. Those channels are largely over the air or on a streaming basis, and meant for mass distribution. They’re top of the funnel, (designed to) get people into our properties, get them interested and then move them down into higher-value, subscription services or other products that we have. When we complete the rollout of Next-Gen, we will have significantly more over-the-air capacity for many more channels. And so I think you’re gonna see a proliferation of those channels, just like you’re seeing right now in the FAST ecosystem. What’s even more interesting, we will have more capacity to do data-casting. We’re really excited about things like backing up the nation’s GPS system, where we can take the accuracy of a regular GPS (down) from one to 10 meters to six centimeters. (Other uses include) connected car services, firmware updates, entertainment, infotainment. And then content CDN, prepositioning highly desired content in wireless networks. We think there’s a lot of opportunity there beyond just broadcast.
DB: What will it take for generally nationwide adoption of Next-Gen TV/ATSC 3.0?
CR: It’s a good question. The broadcasts absolutely are out there. If you’re in a 3.0 market, you can experience a more modern interface and interactivity on a connected TV with over-the-air television. I think the elephant in the room is why is the industry taking so long to roll this out? Why has there not been more oomph to it? Even though it is available in over 60% of the country, very few people know about it.
That’s really because of the antiquated way in which we’re structured as an industry and regulated. (Unlike) our primary competitors, big media and big tech, which have nationwide and global platforms, broadcasters have been relegated to this very parochial little territory-by-territory model. (It) maybe made sense in the 1970s, but certainly doesn’t make sense today. Getting things done on a nationwide basis requires a lot of cooperation from a lot of different players. And it underscores how our regulatory framework really is hampering the industry from moving forward on these growth opportunities, which (would) make the industry robust.
If you’re not developing new revenue streams, you’re not going to survive. A lot of our inability to push forward aggressively comes back to the fact that no one has a nationwide footprint. No one controls a big enough slice of the industry that they can just make a decision and march forward. You have to herd the cats together. It’s a small miracle we’ve managed to get the industry above 60% (market penetration) today, because that’s been a lot of herding cats. And it’s not just one station that has to be converted. The real potential for Next-Gen is when we get all the stations converted. One of two things needs to happen: either the government needs to push that (rollout) along, or the government needs to deregulate. A major motivation for this change in strategy and diversifying into Ventures is that we recognize that the broadcast industry is just so over-regulated, in a way that its competition is not. Our primary competition is Disney, Paramount, Comcast, Apple, Google, Amazon. These guys are thousands of times bigger than we are financially. And it didn’t make sense for us to continue to buy more TV stations if we were going to be so hamstrung from a regulatory perspective. So we’re going to be investing in acquiring businesses on the venture side more aggressively.
DB: What is the status of your investment and engagement with Diamond Sports Group and its regional sports cable networks at this point?
CR: There’s still a bunch of (litigation) pending, so I can’t really comment about those matters. But Diamond is on its way. It has its own management team, it has an independent board. We provide management services, and it will figure out its own way. Largely Sinclair’s passive at this point. We’ve been in that position for quite some time now. And we just have to support Diamond and whatever its future may be. That’s getting worked out right now. But we’re largely bystanders, and outside viewers just like you.
DB: As the Diamond situation plays out, where does Sinclair go next with sports, which continues to keep people tuning into broadcast?
CR: Sports is still at the heart of this company, regardless of what happens to Diamond. Take a look at what drives our business on the local media side and the broadcast side, it’s sports. The NFL is a huge property for us. And we continue to believe that it should be gamified and more highly integrated with sports betting, but also, not-for-money interactivity for virtual goods, or badging, or recognition. And so we’re working on strategies for that. And Tennis (Channel) is a place we often do some of our groundwork in. We had a whole Metaverse release at Indian Wells (one of the biggest pro tennis tournaments) where you could walk through all of Indian Wells in a virtual basis and play games, while you also watched the tennis matches.
We think sports betting and just broadly, interactivity and gamification is a huge opportunity for us. We also are active on the sales side. We have (ad sales) relationships with (viral video maker) Wave and (sports podcasting network) Blue Wire. We think sports and news will be a major component of our linear networks for the foreseeable future. We’re really excited about what we’re doing at Tennis because we’re not just looking at it domestically, we’re looking at international. We’re in eight countries now, about to launch a ninth. We have T2, which is purely ad supported and will be available on a direct consumer basis. Next year, we’re moving into other sports like pickleball and padel. Sports betting and gamification will figure significantly into the future of tennis and our other sports on broadcast.
DB: YouTube TV is making a big play for NFL viewers with cut-rate deals on Sunday Ticket. At the same time, they’re not required to carry local broadcasters. You said the government should either get more involved or deregulate when it comes to Next-Gen TV. This feels like more of that.
CR: It’s another one of these regulatory loopholes or shadows from the past where, for some crazy reason, MVPDs like Comcast and DirecTV are treated different than virtual MVPDs, like YouTube TV. One has a facility, one does not, that’s the only difference from a technical perspective. But they offer exactly the same service. That creates a loophole for the networks to essentially leave us out of the negotiation. That’s another reason why we’re not buying more TV stations. It’s something that needs to be fixed and I think eventually it will be. The incubation period is over, and there’s no reason that vMVPDs should be treated differently. There’s no reason the regulation should essentially pick winners and losers, which is essentially what it’s doing right now.
DB: Can Next-Gen TV become a home for all those teams and conferences facing distribution problems with the collapse of the regional sports networks?
CR: I think there will always be a significant place for sports on over-the-air broadcast. We did a deal with the (NBA’s) Utah Jazz, which lost its RSN because Warner Brothers Discovery basically shut it down. And they recognized they really needed maximum reach. We had a unique station KJazz (KJZZ-TV) in Salt Lake, and we were able to come to a very sensible arrangement. Any sport should be including over-the-air broadcast as a significant component. It doesn’t have to be everything, but having a component of your sport on the most broadly available and most broadly watched platform will continue to make your sport healthy, and that will only be accelerated by (Next-Gen TV). It’ll really take it to the next level.
DB: Is there a time when Sinclair doesn’t have broadcast? You took the words “broadcast group” out of your corporate name.
CR: There’s still a Sinclair Broadcast Group, which is now a pure-play, local-media division. I think we’ll always have broadcasting in the portfolio. If regulations change, then I think you could see us pivot back into broadcast and getting more active there.
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