Sinclair Risks Include Financial & Political (not to mention they suck)

[complain jane]

Monday, October 18, 2004

RISKS SEEN FOR TV CHAIN SHOWING FILM ABOUT KERRY

By BILL CARTER; Geraldine Fabrikant, Jacques Steinberg and Stuart Elliott contributed reporting for, The New York Times, 10/18/2004, Pg.1

Senator John Kerry could find his presidential hopes damaged this week when the 62 television stations owned or managed by the Sinclair Broadcasting Group carry a documentary about his antiwar activities 30 years ago.

But the Democratic nominee for the White House may not be the only one adversely affected.

Sinclair -- the nation's largest owner of television stations, many of them in electoral swing states -- is itself running a significant financial and political risk by telling its stations to pre-empt regular programming and carry the film. Already, Sinclair's decision has alienated some advertisers; enraged consumer and media watchdog groups, who are vowing to challenge its station licenses when they come up for renewal; and given pause to some analysts and investors considering the company's financial outlook.

Representatives of Sinclair did not return repeated phone calls seeking comment. But the company, whose executives have been among the largest media contributors to President Bush, has said the documentary deserves to be seen because it is news, and as such does not fall under federally mandated equal-time provisions for political candidates.

In the film, ''Stolen Honor: Wounds That Never Heal,'' former prisoners of war in Vietnam call Mr. Kerry's 1971 Senate testimony a betrayal that prolonged their captivity. In that testimony, Mr. Kerry quoted other veterans talking about American atrocities.

The Kerry campaign has called the film a politically motivated attack that is unfair and inaccurate.

Last week, the Kerry campaign formally asked Sinclair for equal time to respond to the film, a move that could lead the Federal Communications Commission to consider whether to order the stations to allow a response.

Sinclair is no stranger to political controversy. In April, its eight ABC affiliates pre-empted the ''Nightline'' program in which Ted Koppel read aloud the names of American soldiers killed in Iraq. Sinclair declared the show ''unpatriotic'' and harmful to the war effort, adding that ''Nightline'' was motivated by an antiwar agenda; it instead offered its ABC affiliates a special that debated the issue.

Earlier this year, Mark Hyman, the vice president for corporate relations at Sinclair who doubles as a conservative commentator on the company's newscasts, took a crew to Iraq to find what he called the untold positive news of the war. And after the attacks of Sept. 11, 2001, Sinclair ordered newscasters at its Fox affiliate in Baltimore to read patriotic statements praising President Bush.

But the furor over ''Stolen Honor'' appears to be affecting Sinclair in ways these previous actions did not. In some cities -- among them, Portland, Me.; Madison, Wis.; Springfield, Ill.; and Minneapolis -- local advertisers, including car dealers, furniture makers, supermarkets and restaurants, have taken their commercials off the company's stations.

''I've decided I don't want to advertise on them,'' said Adam Lee, the president of Lee Auto Malls, which owns 10 auto dealerships in Portland Me., and has ordered its advertising off the CBS affiliate, WGME. ''It's a public trust. It seems they're abusing it. If it were a news show and they were really trying to do a fair and balanced story on both sides, that would be a different matter. I don't think they are. That's not their intention.''

Groups, including Common Cause, the Alliance for Better Campaigns, Media Access Project, Media for Democracy and the Office of Communication of the United Church of Christ, are putting together a database listing all Sinclair advertisers and will try to persuade others to withdraw their commercials. Among those on the list are chains like Applebee's International, Best Buy, Chili's, Circuit City, Domino's Pizza, Lowe's, Papa John's, Subway, Taco Bell and Wal-Mart Stores.

The groups are also vowing to find groups in cities with Sinclair stations who will challenge the broadcast licenses of every Sinclair-owned station over the next several years. Such challenges almost never result in lost licenses, but they often result in heavy legal costs for the station having to defend them.

In addition, some analysts said Sinclair might have hurt itself in the continuing battle over loosening media ownership rules, a fight in which Sinclair has been a leader. Efforts at further deregulation were stalled this year when the United States Court of Appeals for the Third Circuit, in Philadelphia, ordered the F.C.C. to reconsider its relaxation of such rules.

A report issued by the firm Legg Mason last week cited the controversy over the film and asked the question, ''Is this good for investors in terms of increasing the odds for favorable deregulation?'' The conclusion: ''We think not.''

Blair Levin, the managing director of Legg Mason and a former F.C.C. official, added in a telephone interview, ''Deregulation usually happens when you do it quietly.''

Leland Westerfield, a media analyst for Harris Nesbitt Gerard who has followed Sinclair since 1998, had already listed the company as an ''underperforming'' stock. Now, he said, the company seems to be more at risk.

''The recoil from Democrats at the F.C.C., and frankly moderate Republicans alike, suggests that Sinclair might be harming itself short term in revenues and long term in deregulation tactics,'' he said. ''If the company intends to curry favor with the Republican free marketers and swing the scales back toward the deregulation of media, Sinclair may have harmed its own cause by hardening the resolve of the consumer advocates.''

With the documentary becoming a point of contention in the presidential race, Mr. Levin said, Sinclair could face a no-win situation. If Mr. Bush is re-elected, Sinclair has created a circumstance where the deregulation it wants would be widely interpreted as what the Legg Mason report called ''the Sinclair payback provision.'' If Mr. Kerry wins, he might try to lead the F.C.C. to consider regulations that could hurt Sinclair's position.

It appears to have only reinforced the opinions of some F.C.C. commissioners. Michael J. Copps, a Democratic commissioner on the F.C.C., said last week that Sinclair's action was ''an abuse of the public trust.''

Other F.C.C. staff members said Sinclair might be more vulnerable than other companies because of the leading role it has played in exploiting certain loopholes allowing it to operate more stations in a market than regulations have allowed. Sinclair has a number of so-called L.M.A.'s, or local marketing agreements, that permit a company to program and run a second station in a market even though it does not own it.

But the F.C.C. officials said Sinclair had L.M.A.'s for five stations with the Cunningham Broadcasting Corporation; Carolyn Smith, the matriarch of the family that controls Sinclair, has an ownership position in Cunningham. The officials said the commission had been divided over the L.M.A's originally.

The controversy of the last week comes at a time when Sinclair's stock, like that of other local broadcasting companies, has already been hammered by a sluggish advertising environment and the dashing of deregulation hopes. It has fallen 53 percent this year. It dropped 7 cents, or 1 percent, on Friday to close at $7.04, near its 52-week low of $6.87. Before The Los Angeles Times first reported Sinclair's plans to show the documentary more than a week ago, the stock was at $7.50.

But several of the company's opponents predict that the comments of analysts and defections by advertisers are not likely to affect Sinclair's executives. ''They don't seem to mind being criticized or questioned,'' said Andrew Jay Schwartzman, the president of the Media Access Project, a group that advocates greater media regulation. He and other critics noted that Sinclair has always been an unusual company, run by a family that pays little heed to conventions in the business.

Sinclair was begun by Julian Sinclair Smith in 1971 with one UHF station in Baltimore. His four sons now oversee a company that operates in 39 markets, from Columbus, Ohio, to Tampa, Fla., and last year posted net income of $24 million on revenue of $739 million. The chief executive is David D. Smith.

Mr. Westerfield said Sinclair deserved credit for being innovative in areas like digital television and for its aggressive techniques in finding ways to expand despite F.C.C. hindrances, which have resulted in the company's owning or managing two stations in 21 of 39 markets (so-called duopolies).

''I fully credit them for that pioneering spirit,'' Mr. Westerfield said, ''but not for journalistic integrity.''

One journalistic flashpoint has been the centralized newscast operation that feeds many of Sinclair's stations, always including the conservative commentaries by Mr. Hyman. ''Fox News sells itself as a conservative contrast to the perceived liberal media,'' Mr. Westerfield said. But he added, ''The last time I checked, local weather and the unfortunate news events you see on local television don't conform with a left or right point of view.''

The company has defended its centralized newsgathering operation in the past, arguing it is an efficient way to cut the costs of local journalism and brings news to small stations that otherwise would go without and bolsters existing newscasts with material they could not afford.

Ultimately, however, most investors care little about the politics of a company, except when it interferes with making money. Barry Lucas, senior vice president for research at Gabelli & Company, a major Sinclair shareholder, summarized his philosophy as: ''Make money, not news.''

''My point of view is simple,'' he said. ''I am apolitical on this, but I don't like to see media companies above the fold on Page 1.''

''You are dealing in a business that people in public office have some influence over,'' he added. ''In this case, we are talking about a regulated business by parties in Washington, and in my estimation it does not make a lot of sense to take a sharp stick and punch it in the eye of potential regulators. Those guys at Sinclair better watch out if Kerry is elected.''

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