LIN Broadcasting Corp.
LIN Broadcasting Corp.
5295 Carillon Point
Kirkland, Washington 98033
Public Subsidiary of McCaw Cellular Communications, Inc.
Net Revenues: $774.23 million
Stock Exchanges: NASDAQ
SICs: 4812 Radiotelephone Communications; 4833 Television Broadcasting Stations; 2741 Miscellaneous Publishing
LIN Broadcasting Corp. is part of McCaw Cellular Communications, Inc., America’s leading cellular telephone group. LIN owns seven network-affiliated television stations in urban markets in Texas, Indiana, Michigan, Virginia, and Illinois. Although LIN was historically a broadcast communications company, cellular operations contributed almost 80 percent of the company’s revenues by the early 1990s. The 1990s promised more change at LIN. The company’s 1990 merger agreement with McCaw stipulated that, in 1995, the subsidiary’s assets would be put up for sale and sold to the highest bidder. And in 1993, American Telephone & Telegraph (AT&T) purchased McCaw Cellular for $12.6 billion in AT&T stock.
LIN Broadcasting Corp. was founded in Nashville, Tennessee in 1961 as a radio broadcasting company. During its first decade, LIN built up a relatively small communications conglomerate dominated by broadcast radio holdings. Under the leadership of Frederick Gregg, Jr., the company purchased WTVP-TV, of Decatur, Illinois, from Metromedia Inc. for $2 million in 1965. LIN went public the following year with its first over-the-counter stock offer. That same year, the company traded $3 million in stock for a controlling interest in Medallion Pictures Corp.’s 375 feature films and cartoons. The company expanded its radio holdings with the purchase of three Houston, Texas stations, KILT-AM and FM and KOST-FM, for $15 million in 1967. LIN also purchased sister radio and television stations WAVY and WAVY-TV, of Norfolk-Portsmouth, Virginia, that year. In 1968, the company acquired the Adonis Radio Corp., an advertising media buyer, to complement its broadcast holdings.
Although most of these early acquisitions focused on broadcast media, LIN also bought into several peripheral businesses during the 1960s, including a chain of national art galleries, a telephone answering and radio paging service, several direct marketing companies, an educational concern, and the Miss Teenage America Pageant. These wide-ranging operations contributed to over $1 million in combined losses in 1967 and 1968, which culminated in dramatic administrative changes at LIN.
The company’s leadership crisis began in January 1969, when Martin S. Ackerman’s Saturday Evening Post Co. purchased Frederick Gregg, Jr.’s four percent interest in LIN. Some shareholders later charged that the $3.5 million price tag (which topped the stock’s market value by $1.5 million) also bought LIN’s presidency, chief executive office, and several seats on LIN’s board of directors. Ackerman was a financier whose hostile takeover of the Curtis Publishing Co. and its subsidiary Saturday Evening Post Co. had previously sparked four lawsuits. His infamy definitely shortened his tenure at LIN; after five weeks as president and CEO, Ackerman was fired by the broadcast company’s board of directors. Joel M. Thrope, a LIN vice-president, became interim president. LIN’s leadership crisis had compounded the company’s financial troubles; it had operated under three leaders within less than two months, and lost $6.5 million in 1969.
Donald A. Pels was called in to evaluate the situation and make recommendations. He quickly won the board’s confidence and was appointed president and CEO in April, 1969. His prescription for LIN called first for the divestment of all the company’s non-broadcast business except the Page Boy Inc. radio paging business in metropolitan New York City. The proceeds from the sales were used to cover operating expenses. Second, Pels instituted strict cost controls governing everything from raises to programming. Although LIN would continue to be involved in broadcast radio until the mid-1980s, Pels shifted the company’s emphasis from radio to television.
Until 1973, television broadcasting accounted for only about 25 percent of LIN’s total broadcast revenues. But after two years of negotiations, LIN made a pivotal acquisition in 1974. The purchase of WBAP-TV, Dallas-Fort Worth from Carter Publications Inc. for $35 million altered LIN’s focus from radio to television and set it on a course for higher earnings. After LIN sold four radio stations to Multimedia Inc. for $8.7 million cash in 1975, television accounted for two-thirds of LIN’s broadcast revenues. Perhaps more important than the source of revenues, however, was the increased profitability LIN enjoyed after 1975.
LIN changed WBAP-TV’s call-letters to KXAS-TV. In 1975, KXAS-TV’s first full year with LIN, the parent’s revenues increased by half, from $20.85 million to $31.35 million, and earnings leaped 75 percent, from $2.18 million to $3.95 million. The higher profits were due, in part, to rising print ad rates that pushed many local retailers into television advertising. By the end of the decade, local spot advertising contributed about 44 percent of LIN’s television revenues. The above-average prosperity of the Dallas-Fort Worth area also boosted KXAS-TV’s performance.
Although radio broadcasting accounted for only one-third of LIN’s business, it was also profitable in the 1970s. The highlight of this division, KILT-AM/FM, located in Texas, accounted for about 40 percent of LIN’s radio revenues. When other stations in the Houston market shifted their programming, this FM outlet was left with only one primary competitor in its album-oriented rock format. The AM station had a good reputation for local news reporting, and both stations outperformed industry averages.
LIN also still held a remnant of its days as a diversified conglomerate: its two-way mobile radio-telephone services in southern Connecticut and Houston contributed almost ten percent of total revenue. Paging seemed promising, but competition from American Telephone & Telegraph Co.’s New York Telephone Co. and New Jersey Bell hurt this small division’s profits. In the 1980s, however, this foothold in telecommunications would help lead LIN into the cellular industry. Net income at LIN quadrupled from 1975 to 1980, from $3.95 million to $16.01 million. The company’s profits grew at an average rate of 34 percent annually from 1974 to 1979, ranking LIN highest in this category among the United States’ largest broadcasters.
LIN continued to concentrate on television broadcasting in the late 1970s and early 1980s. From 1979 to 1984, the company worked to build up its media holdings to Federal Communications Commission (FCC) limits. In 1979, LIN purchased KTVV-TV of Austin, Texas, for about $6 million. The next three years saw the addition of two Milwaukee radio stations (WEMP-AM and WNUW-FM), a Michigan television outlet (WOTV-TV, Grand Rapids), and Guestlnformant and Leisure-guides, hardcover magazines distributed in hotels and motels. In 1984, LIN acquired two Indiana television stations (WISH-TV, Indianapolis and WANE-TV, Fort Wayne), bringing its television group to seven. Television still contributed almost 75 percent of LIN’s annual revenues, and the company’s complement of ten AM/FM radio stations (in Philadelphia; Houston; St. Louis; Milwaukee; and Rochester, New York) contributed another 21 percent. Although radio paging contributed about four percent of LIN’s annual sales, the company had already planted the seeds of its transformation into a full-fledged communications company by mid-decade.
LIN entered the then-speculative field of cellular communication in 1982, when it applied for a license from the FCC to operate a cellular mobile radiotelephone system. Governmental regulation of this infant industry created a “duopoly”: two licenses were granted for each of the United States’ 733 markets. One license was routinely awarded to the local “wireline,” or Bell telephone company in each market. “Nonwire-line” licenses were awarded to independent entities through hearings and lotteries. The lag between the automatic awards to wireline companies and time-consuming hearings gave traditional phone companies a competitive edge over their independent competitors.
To help speed up the process, many independents made joint applications. In 1983, for example, LIN teamed up with Metromedia Inc. and Cellular Systems Inc. to compete for the New York cellular license. These cooperative ventures helped LIN become the second-largest player in this new industry, with substantial interests in licenses for Los Angeles, Philadelphia, Dallas-Fort Worth, and Houston. By 1984, LIN was the only company to have significant stakes in the two largest markets, New York and Los Angeles. By 1989, LIN had solidified its position in five important markets, giving it 18.1 million potential customers (“POPs” in cellular market jargon), and making it the seventh-largest cellular company.
Two primary bidders vied for control of LIN’s cellular potential: BellSouth Corp., the largest regional wireline company, and McCaw Cellular Communications Inc., the largest non-wireline cellular company. Under its namesake leader, Craig O. McCaw, the latter company had attained the leading position in cellular communications through smart acquisitions and heavy leveraging. McCaw hoped to repeat Theodore Vail’s early-twentieth-century consolidation of local telephone companies into American Telephone & Telegraph (AT&T) by merging the United States’ 733 independent cellular licensees into a consolidated, national network known as Cellular One. Despite their time advantage, the Bell companies would not be permitted to form a national cellular network, because it would too closely echo AT&T’s recently divided monopoly.
By the end of the decade, McCaw had come a long way toward accomplishing his goal: his company held 50 million POPs, 68 percent more than its next-largest competitor, Pacific Telesis Group. Craig McCaw hoped that the addition of LIN’s strong positions in the nation’s five most important cellular markets would be the company’s most significant step toward his goal. But McCaw had to pay a high price to outbid major telephone groups like BellSouth Corp., Pacific Telesis, U.S. West, and Southwestern Bell to acquire LIN. In June, 1989, McCaw bid $120 per share, or $5.9 billion, for the 90 percent of LIN it did not already own. The bid—$275 per POP—was based more on LIN’s potential value than its actual worth. In 1988, LIN’s actual revenues were only $226 million, and $100 million of that income had come from its broadcast television and publishing businesses. But BellSouth came back with a plan to sell LIN’s broadcasting operations and combine the two companies’ cellular businesses, thereby capturing the top spot in the cellular industry from McCaw.
After months of vacillating between BellSouth and McCaw, LIN reached an agreement with the latter in December 1989. The merger called for McCaw to pay $154 per share, or $3.4 billion, for a 40 percent share of LIN that raised its stake in the company to 50.1 percent. The agreement stipulated that, in 1995, LIN’s assets would be put up for sale and sold to the highest bidder. McCaw had an option to purchase an additional 23 percent of LIN’s stock on the open market before the auction, or put all of its interest on the block.
The agreement gave McCaw about five years to turn a profit on its purchase, which looked like quite a feat by the time the sale was settled. McCaw paid $350 per POP in LIN’s license areas; it would have had to capture eight percent of those potential customers within ten years just to justify a $200 per POP price. At the time, the cellular industry’s penetration rate was just two percent, and LIN had a wireline competitor in each of its markets. To help shift the odds to its favor, McCaw sold six million of LIN’s POPs to Contel Cellular for $1.3 billion, leaving it about $2.5 billion in debt. Even so, McCaw and LIN’s combined operating cash flow could not cover the parent’s debt service.
McCaw planned to upgrade LIN’s services and capture more customers in the early 1990s. The company began to upgrade the New York and Los Angeles cellular systems from analog to digital systems, dedicating $150 million to improvements in New York alone. Digital technology promised subscribers improved call quality, increased voice privacy, more portability, better data transmission capabilities, and other advanced features. The conversion to digital also instantly tripled LIN’s capacity. LIN hoped to activate digital service for all of its markets by the end of 1994. The addition of information services, like stock quotes, local weather, and traffic reports, also promised to attract more subscribers and extra income. LIN and its customers began to benefit from the corporate affiliation with McCaw by the end of 1992, when the parent’s North American Cellular Network (NACN), which linked cellular coverage areas on the United States’ two coasts and north to Canada into one system, grew to serve over 2.3 million customers. Craig McCaw’s vision was becoming reality.
LIN’s annual cellular revenues grew over 400 percent from 1988 to 1992, from $121 million to almost $609 million, completing the transition from a television broadcasting company to a cellular business. Although telecommunications clearly demanded more time, attention, and money, LIN had not abandoned its broadcasting roots. Cash flow for the company’s television group increased by 13 percent from 1991 to 1992 to $70 million, as many of LIN’s stations reduced their reliance on more costly outside programming to concentrate on local-interest series. By 1992, LIN’s longest-held station, KXAS-TV in Dallas-Fort Worth, occupied an important position in the United States’ eighth-largest television market.
Any threat that LIN’s television interests could be sold to help diminish McCaw’s colossal debt was eliminated when AT&T purchased McCaw. McCaw used the proceeds of the sale to pay down a significant portion of its debt. Although the upper-level merger may have been somewhat reassuring, LIN still faced the possibility of fundamental change in 1995, when the question of corporate ownership would again arise.
“Ackerman Ousted as LIN President,” Broadcasting, February 24, 1969, pp. 59–60.
“Back to Basics Spells Growing Profits for LIN,” Broadcasting, November 5, 1979, pp. 44, 48–49.
“Earnings at LIN Broadcasting Appear Solidly on the Beam,” Barron’s, August 16, 1976.
“Fall–out from the Curtis Deals,” Broadcasting, February 17, 1969.
Cannes, Stuart. “BellSouth Is on a Ringing Streak,” Fortune, October 9, 1989, pp. 66–76.
Hof, Robert D. “The Cellular Bidding War Will Get Even Hotter,” Business Week, June 19, 1989, pp. 39–40.
“LIN Broadcasting Corp.,” Advertising Age, June 27, 1985, p. 41.
“LIN Shifts Its Diversified Holdings,” Broadcasting, July 22, 1968, p. 50.
“LIN’s Script,” Barron’s, April 16, 1979.
Lopez, Julie Amparano. “McCaw Agrees to Acquire LIN for $3.4 Billion,” Wall Street Journal, December 12, 1989, p. C25.
Meeks, Fleming. “Winning Is Only the First Step,” Forbes, December 25, 1989, pp. 80–83.
“Two LIN Holders Sue Firm’s Former Chief over His Stock Sale,” Wall Street Journal, April 17, 1969.
—April S. Dougal