KCAL-TV (Channel 9), the award-winning news and sports station that has struggled with low ratings and low profit margins, will be acquired by a New York-based television group for $385 million.
Young Broadcasting Inc., an ambitious owner of television stations in 10 mid-size markets, agreed Monday to buy the station from Walt Disney Co.
Burbank-based Disney, which has owned KCAL since 1988, had been ordered by federal regulators to shed the station after Disney picked up KABC-TV in its $19-billion acquisition of Capital Cities/ABC Inc., completed in February. Federal regulation forbids the ownership of more than one television station in a single market.
For KCAL, the deal would mean a top-to-bottom review of costs as the new owner tries to boost the station's profit margins. That is likely to include some layoffs, although KCAL employees were said to be happy Monday that a buyer had been announced, ending months of speculation.
The format at KCAL, the only VHF station in Los Angeles not affiliated with a network, is not expected to change, Young Broadcasting officials said.
The sale of KCAL is the latest in a series of television and radio station deals stemming in part from media mega-mergers, which were spawned by new telecommunications law reforms that allow for greater concentration of media ownership.
With KCAL, Young Broadcasting would more than double the size of its viewing audience, from 4.1% of U.S. households to 9.3%. The company expects its revenue to increase 40% to about $170 million.
Young Broadcasting owns 10 stations in markets including Nashville, Tenn.; Albany, N.Y.; Richmond, Va.; and Lansing, Mich. It will also acquire a station in Sioux Falls, S.D., in a deal expected to be completed by the end of the month. Cap Cities/ABC currently owns a 14% nonvoting interest in the company.
Vincent Young, chairman and chief executive of Young Broadcasting, called the purchase a "great opportunity." He said he plans to go through KCAL with a fine-toothed comb in search of savings to justify the sale price, which was higher than what some observers expected.
Young Broadcasting is well regarded in the broadcasting industry for boosting profit margins while maintaining high-quality news operations, analysts said.
"Young is a company whose signature products are high margins with top-flight news products," said Drew Marcus, managing director and broadcast analyst with Alex. Brown & Sons in New York.
"These guys run very, very lean stations in their markets," said Mark McFadden, a managing director with Bankers Trust in New York. "This company has a long track record of buying stations that are operating at low margins and bringing it up to the 40% range.
"The only difference is size," McFadden said. "But I believe their strategy will work in a market like this. The basic skills that are required to be successful in running a TV station are the same in large markets and small markets."
But some broadcasters were stunned at the price and the relatively unknown buyer. Some television executives had previously said they doubted KCAL would fetch more than $300 million.
"This isn't a major station group," said one television executive. "It's going to be tough to make the economics work." He said the station's current profit would just about cover the interest costs of financing the purchase if the new owners put up roughly a third of the price.
Young did not want to speculate on the number of jobs that might be cut from the Los Angeles station, which now employs approximately 350 people. He did not rule out the possibility of layoffs, but Chief Financial Officer Jim Morgan emphasized that most of the savings will come from other areas, such as reducing outside services.
"We will be developing a very specific game plan in the next few months," Young said. "If there are any personnel changes, that will be determined by what the head count is when we buy the station. But we could see an awful lot of attrition before then," which would keep the number of layoffs low, he said.
"The savings come from a tightening up all throughout the station," Young said. "We go through line by line, department by department, and it adds up."
At other Young-owned stations, "we have found a tremendous amount of savings in things like contracting for outside services," he said. "A lot of big stations feel they have to have a lot of outside consultants to do things. But we have very good management that is well equipped to do the job and we give them a lot of authority."
Viewers should not notice any difference as a result of the cost-cutting measures, Morgan said. In fact, coverage of local news and sports may even expand, he said.
Industry sources say the station will also have difficulty buying strong programming without sisters in other major markets to use as leverage. But if the new owners continue KCAL's emphasis on news and sports, they may not need to buy as many syndicated shows.