But what does all this mean for the media industry and specifically Media General? We will
spend considerable time below debunking myths that have plagued the minds of investors. In
short, those companies with must have content will find their video content in continued
demand. How they get paid for this content may change but consumers will retain a desire to
watch great shows, great movies and important news. It is possible that niche audience
oriented content will lose value as skinnier bundles take away some of today’s revenue from
such offerings. But those with the most in demand content will continue to get paid.
What will be the impact on Media General? We already have a good idea of the cash flow
Media General will produce in 2015 and 2016. As we look past these two years, continued
growth in retransmission fees, digital revenue, and political ad spending combined with
enhanced cost controls and merger synergies will driver higher free cash flow above and
beyond 2015/2016 levels. Much of the growth coming from retransmission fees is already
under contract and expense control and synergy plans simply need execution. So we can look
forward and have comfort about continued growth in free cash flow for Media General.
More fundamentally, what provides comfort about the longer term viability of Media General? It
largely comes down to the content of its stations. The big four networks and their local affiliates
will play prominent roles in even the skinniest bundles. ABC, CBS, NBC and FOX are not
niche, small audience cable channels.
Live local programming is a primary revenue driver for Media General and other broadcasters
and has shown to be resilient in the midst of challenges facing media companies more broadly.
In fact, ratings for most local news are actually increasing whereas the declines across cable
have been pronounced and much better documented.
In summary, Media General has a solid and enduring business that generates
tremendous levels of free cash flow and is available today at a wildly attractive valuation.
Before going further, I want to point out three key tenets to the investment thesis with local
broadcasters generally and Media General more specifically:
1. Broadcasters deliver by far the largest audiences across the TV landscape.
2. Local broadcasters in particular have a preponderance of live programming throughout
the day including three large chunks of local news, sports and weather, morning and
daytime talk shows, live sports, live events and late night talk, amongst other
programming viewed in real time. This makes them less reliant on any continued
declines in the linear viewing of scripted primetime programming.
3. Many local broadcasters including Media General trade at by far the best valuations in a
media industry that is already attractive in many other areas. Media General is available
at a greater than 20% free cash flow yield and that, paired with some of the best
underlying business dynamics with continued growth coming from increasing retrans
fees, growing digital revenue streams, accretive M&A and effective capital allocation,
makes for an unusually attractive investment.
TV is Dead, Long Live TV (or at least the local news, sports and programming of the