Act III Broadcasting

Act III Broadcasting was a company that owned several television stations that started as independents, and later became Fox affiliates. The stations were located in medium-sized DMA's (markets) and were primarily UHF stations. Act III Broadcasting was in business from 1985 to 1994 when it was sold to ABRY Partners for $500 million. Legendary TV producer Norman Lear owned a controlling stake in Act III Broadcasting through his company Act III Communications.

Early Experience In Broadcasting - Spanish Language

Prior to the formation of ACT III, Lear had a history in Broadcasting beginning with the acquisition of WNJU by Lear with his long time partners Jerry Perenchio and Bud Yorkin. WNJU was located in Linden, New Jersey and served the Spanish language market in the New York City area. The station offered religious English speaking programming in the mornings and Spanish programming weekday afternoons and evenings. On weekend afternoons, the station offered a variety of ethnic brokered programming. Under their ownership, the station phased out the ethnic shows in favor of more Spanish entertainment programming.

This ownership group then acquired WVAH-TV, channel 23 in Charleston, West Virginia which had signed on as the first independent station in the state. Prior to that, Huntington-Charleston was the largest market without an independent station. WVAH's sign-on was possible because the West Virginia legislature forced the state educational broadcasting authority to withdraw its application for the channel, which had tied up its assignment for over a decade.

They then signed on channel 45 in Dayton, Ohio in the fall of 1984 as WRGT-TV. Before WRGT came, WTJC (now WBDT), a religious-based independent station that had been on the air for a few years had some entertainment programs, the only real over-the-air source of non-network programming in Dayton.

In 1984, WNJU formed an alliance with Weigel Broadcasting's WCIU in Chicago and locally owned KSTS in San Jose to acquire Spanish programming to air on all three stations under a network called Net Span. Blair Broadcasting, which newly acquired WSCV in Miami and KVEA in Los Angeles and converted these into full-time Spanish independent outlets, joined the alliance in 1985. WNJU and KSTS would be sold in 1986 to Reliance Capital Group which was acquiring Blair Broadcasting,[1] which in turn sold four of these stations to a newly formed company called Telemundo later that year. Net Span would be renamed Telemundo which is now owned by NBC/Universal. WCIU would be in that alliance for another year but retained by Wiegel Broadcasting. Telemundo would eventually acquire Univision affiliate WSNS in Chicago causing Univision to affiliate part-time with WCIU once again until it could buy WGBO in early 1996.

Lear and Perenchio exited the stations business in 1986 with the sale of WNJU to Reliance.[2]

These early, primarily Spanish Language stations, are unrelated to the later Act III Broadcasting which was launched in late 1985. However, they are part of Norman Lear's early Broadcast ownership experience.

Formation of Act III Broadcasting

ACT III Broadcasting was formed as a subsidiary of Act III Communications in 1985 under the leadership of Tom McGrath and Burt Ellis. McGrath and Ellis had met in 1984 when McGrath was with Columbia Pictures and the two had researched the value of independent TV stations at great length, a strategy that was later realized with the launch of Act III.

1986

1987

1988

1989

1990

1991

Local Marketing Agreements

In the late 1980s ACT III pioneered the concept of the local marketing agreement, or LMA for short. Under an LMA, one station would buy all or most of another station's broadcast day and take over its operations, but the other station would technically remain under separate ownership. The senior partner in the LMA would then program the other station with shows that it didn't have time to air. Act III, however, was not interested in this concept. It was the approval of the LMA concept that allowed Act III to consolidate ownership and control of programming in small markets, significantly enhancing the value of its stations. This revolution in Broadcasting was the first step in the FCC's eventual de-regulation of station ownership and the lifting the of the 12-station cap on ownership that had existed for decades prior to Act III's initiatives.[14]

Management

The management team of Act III Broadcasting from its formation in 1985 through 1991 consisted of: Tom McGrath, Chairman who was President and chief Operating Officer of Norman Lear's holding company, Act III Communications; U. Bertram Ellis, jr. (aka Bert Ellis) Chief Executive Officer; Bill Castleman, President and Chief Operating Officer; Dick Kantor, EVP and Head of Programming; and Blair Schmidt-Fellner as CFO. All of Act III's station acquisitions and other transactions were conducted during this period. McGrath was succeeded by Hal Gaba in late 1990; Bill Castleman was succeeded by Dick Kantor and Blair Schmidt-Fellner was succeeded by John DeLorenzo and Warren Spector. Ellis left in early 1992 to form Ellis Communications.

Sale to ABRY

Abry Partners, a Boston based investment firm, already owned two Fox network affiliates when in September of 1991 they entered into an agreement to acquire Norman Lear's controlling interest in Act III Broadcasting in late August/early September of that year.[15] The remaining shareholders, including Prudential Insurance, agreed to roll over their shares into the new company.[16] However, the deal fell apart shortly thereafter with CEO Bert Ellis declaring the deal, "Dead as a doornail."[17]

Ellis left Act III in early 1992 to form Ellis Communications and the group was put under the leadership of long-time Lear and Perenchio associate Hal Gaba. Gaba did not continue to growth of the group or conduct any acquisitions but rather focused on selling the group as the financial markets began to recover from the deep recession of 1990-92 and the collapse of Drexel Burnham Lambert.[18] During the 1989-1991 period virtually no takeover activity was undertaken and asset values in general experienced steep, if temporary declines.

In late 1994 Gaba and Lear successfully exited the Broadcasting business with the sale of Act III Broadcasting to ABRY, closing in 1995. ABRY had embarked on a similar "roll-up" of independent stations a few years earlier, including the LMA strategy.[19] Lear sold Act III Broadcasting for over $500 million (a 600% return on his original investment[20]) despite receiving an absurdly low estimate of "$15 million" only a few years earlier from Boston Ventures, a group seeking to acquire the stations during the height of the 1990 recession.[21][22][23]This record setting valuation came despite Fox's policy of not allowing acquisitions that result in more than eight Fox affiliates in one company's hand, which acted as a deterrent on some potential bidders.[24]Sinclair Broadcast Group then bought Abry's interest later that year; Sinclair had also implemented the LMA concept back in 1991.[25]

Financing

Although majority controlled by Norman Lear, Act III Broadcasting was financed by a large group of other Wall Street interests and shareholders. The company was seeded by Lear, but quickly added the General Motors Pension Fund as a shareholder. Debt was provided by GE Capital.[26] The company was comprehensively refinanced in 1989 with a $100m bond offering taken down by Prudential Insurance. The Prudential notes were themselves re-financed following the recovery from the 1989-92 recession, in 1993 at a lower rate.[27] Act III's judicious use of leverage in an industry historically financed with limited partnerships was considered a model of leveraged finance and resulted in a case study at the Darden School of Business at the University of Virginia.[28] The eventual exit at over a 600% return on investment marks one of the most successful Broadcast ventures in industry history. As of 1991 it was reported that Lear, through Act III Communications, controlled 35% of the common stock of Act III Broadcasting and 80% of the voting interests.[29] Prior to the sale in 1997/98 the company undertook various buyouts of minority interests which increased the Act III Communications/Lear stake to an undetermined, but higher level.[30]

Subsequent Disposition of Act III Broadcasting Stations

Television stations formerly owned by Act III

City of License / Market Station Channel
TV (RF)		 Years Owned Current Ownership Status
Buffalo WUTV 29 (14) 1990-1994 Fox affiliate owned by Sinclair Broadcast Group
WNYB 49 (49) 1988-1990 MyNetworkTV affiliate, WNYO-TV, owned by Sinclair Broadcast Group
New York City WNJU 47 (36) 1979-1986 Telemundo owned and operated (O&O)
Rochester WUHF 31 (28) 1989-1994 Fox affiliate owned by Sinclair Broadcast Group
High Point - Greensboro -
Winston-Salem, NC		 WNRW 45 (29) 1987-1994 ABC affiliate, WXLV-TV, owned by Sinclair Broadcast Group
Dayton WRGT-TV 45 (30) 1985-1994 Fox affiliate owned by Cunningham Broadcasting
(Operated through a LMA by Sinclair Broadcast Group)
Charleston, South Carolina WTAT-TV 24 (24) 1985-1994 Fox affiliate owned by Cunningham Broadcasting
(Operated through a LMA by Sinclair Broadcast Group)
Nashville WZTV 17 (15) 1988-1994 Fox affiliate owned by Sinclair Broadcast Group
Richmond WVRN 63 1986-1988 defunct off-air - FCC deleted license
WRLH-TV 35 (26) 1988-1994 Fox affiliate owned by Sinclair Broadcast Group
Charleston/Huntington, West Virginia WVAH-TV 11 (19) 1982-1994 Fox affiliate owned by Cunningham Broadcasting
(Operated through a LMA by Sinclair Broadcast Group)

Links

Footnotes

  1. ↑ Reliance Buys WNJU for $70 Million Broadcasting Magazine November 3, 1986
  2. ↑ Reliance Subsidiary to Acquire WNJU
  3. ↑ Broadcasting Magazine November 17, 1986
  4. ↑ Broadcasting Magazine November 16, 1987 p.95
  5. ↑ Broadcasting Magazine February 8, 1988 p.76
  6. ↑ Broadcasting Magazine October 12, 1987 p.97
  7. ↑ Broadcast Magazine September 28, 1987 p.78
  8. ↑ Broadcasting Magazine November 21, 1988
  9. ↑ WUHF Rochester Website
  10. ↑ Broadcasting Magazine July 4, 1988
  11. ↑ Broadcasting & Cable April 11, 1994 "McGrath Appointed President of Time Warner International"
  12. ↑ Broadcasting Magazine November 4, 1991
  13. ↑ Ellis Communications
  14. ↑ History of Broadcast Ownership Rules Sadler Chapter 5
  15. ↑ [Broadcasting Magazine September 9, 1991]
  16. ↑ "Getting in on Act III" Broadcasting Magazine October 14, 1991 p.6
  17. ↑ "Act III-Abry in Trouble" Broadcasting Magazine December 23, 1991 p.12
  18. ↑ Recession of 1990 Berkley.edu
  19. ↑ ACT III To Sell Stations to ABRY LA TImes
  20. ↑ Broadcast Executive
  21. ↑ "Even This I Get To Experience" by Norman Lear, Penguin Press 2014, p.378
  22. ↑ Lear Sells Station Group For $500 million to ABRY Chicago Tribune June 21, 1995
  23. ↑ Norman Lear's Act III Selling 8 TV Stations NY Times June 22, 1995
  24. ↑ Fox 8 Station Rule Act III Broadcasting Magazine September 9, 1991 p.6
  25. ↑ Sinclair Closes on Sullivan Broadcasting
  26. ↑ Broadcast Executive
  27. ↑ NY Times December 13, 1993
  28. ↑ Leveraged Acquisitions: Act III Broadcasting
  29. ↑ "Abry to Expand" Broadcasting Magazine September 9, 1991
  30. ↑ Broadcast Executive