Are Sinclair’s News Market Closures Canaries In Local TV’s Coal Mine?

Hank Price

Sinclair Inc.’s decision to close news departments at five stations and reduce staff at an unknown number of others continues to shake news departments across the country. The question now is whether other broadcast groups will follow Sinclair’s lead.

Sinclair has never been a particularly news-centric company, showing far more interest in the development of new technology, such as NextGen TV, than the quality of local news.

The company does own some fine news stations, but they are primarily the ones in larger markets that were leaders when Sinclair bought them. So far, the company is continuing to fund those operations, but that does not change Sinclair’s core focus, which has always been expense control. This is especially evident in their smaller stations.

Sinclair also has a history of trying to nationalize local news. Past efforts, which have included centralizing weather departments, have not been particularly successful. Undaunted, Sinclair has now launched The National Desk, a program already slated to replace local news on the five stations that had their news departments axed.

Given their history and operating philosophy, we should not be shocked by Sinclair’s decision to no longer serve unprofitable markets with local news. We should also note that since none of this has been officially announced, there may be other shoes to drop.

Why is this happening? Could it be the result of Sinclair’s multi-billion-dollar Diamond Sports disaster, or is there a bigger problem that could affect other station groups?

Some of the answer lies in Sinclair’s first quarter financial report. Compared to one year ago, revenue and profits dropped across all platforms, including those related to the Bally Sports bankruptcy. Political revenue was of course down, but there was also bad news regarding core revenue and profit. Regular advertising sales and retransmission revenues, the bulk of any television company’s profitability, were both down.

Looking forward, a softening ad market, continued cord cutting and predictions of a second-half recession are caution lights not only for Sinclair, but for every other group owner.

Today’s mega groups, with multi-billion-dollar debt services, have business models built on the growth of spot sales and retransmission fees. In this kind of environment, every group hopes for the best but plans for the worst.  That means contingent expense control plans have been completed for some time. If needed, implementation will be swift.

To fully understand all of this, we must also consider the big picture context of local television.

I’ve written extensively about the over-supply of look-alike local newscasts, so I won’t go into that here other than to say that at some point a shakeout is inevitable.

During the last recession, many groups gutted their newsrooms, firing photographers, engineers, live truck operators, control room staff and others. This time around the only options left may be the ones Sinclair is taking.

I am not suggesting any other company is about to exit local news. No group is anxious to make such a drastic move. Many are aghast at the idea of canceling any newscasts and will do so only if they have no other options. Television station owners also take their public service roles seriously and are very aware of what could happen in a community without access to severe weather coverage and other emergency services.

There is also a strong financial argument against exiting local news. Advertising sales will drop. Lucrative political advertising, a major part of profitability, will go away. Viewers will abandon other dayparts because without news image, there is no station image.

Sinclair knows all these things yet closed five news departments despite them. That says how serious the situation must be.

What will happen now? It is unlikely other broadcast companies will rush to follow Sinclair’s lead. Those decisions will depend on how soft the ad market becomes this year, along with how cord cutting plays out.

If we have a soft economic landing, then the oversupply of local news will last a little longer. If not, we may look back and realize Sinclair was the canary in the coal mine.

Hank Price spent 30 years leading television stations for Hearst, CBS and Gannett while concurrently building a career in executive education. He is the author of Leading Local Television and two other books.