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 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

Prior to the formation of Act III, Lear had a history in television station ownership. Along with his longtime business partners Jerry Perenchio and Bud Yorkin, Lear acquired WNJU-TV, a UHF independent station in the New York City area. The station offered religious English-language 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 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, a religious-based independent station that had been on the air for a few years and had some entertainment programs, was 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 NetSpan. Blair Broadcasting, which had just 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 separately acquired Blair Broadcasting. Four of these stations were sold to a newly formed company called Telemundo later that year; NetSpan was renamed Telemundo, which is now owned by NBC/Universal. WCIU would be in that alliance for another year but retained by Weigel 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 1994.
Lear and Perenchio exited the station business in 1986 with the sale of WNJU to Reliance.
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.

History

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. Act III launched in early 1986; it made its debut by acquiring WTAT in Charleston, South Carolina from Terry Trousdale for $4.8 million. Later in 1986, when the Fox network was launched, Act III signed an affiliation deal with the fledgling network.
The next year, Act III acquired Fox affiliate WNRW in the Piedmont Triad from the TVX Broadcast Group, controlled by Gene Loving, for $11 million. TVX had signed an affiliation deal with Fox; a clause in this deal stipulated that if TVX sold one of its underperforming stations, Fox could disaffiliate from that station. This was not the case in the Piedmont Triad, because WNRW's rival station WGGT was in bankruptcy, but it still ran a comparatively low-budget schedule. This solidified Act III's strategy of acquiring stations in mid-tier DMAs, with the added spin of affiliating with the fast-growing Fox network which was rapidly emerging as a force in Broadcasting. In 1987, the company acquired WRGT and WVAH from Meridian Broadcasting for $22 million. The transaction also included a construction permit for channel 11 in Charleston, WV. In September of that same year, Act III acquired WVRN in Richmond, Virginia from Sundbrink Broadcasting, which had also filed for bankruptcy.
Act III bought Fox affiliate WNYB channel 49 in Buffalo, New York in 1988. Later that year, Act III decided that Richmond was not large enough to support two independent stations. It offered to buy WRLH's programming and move it over to WVRN. However, Gillett wanted to sell WRLH outright. Act III agreed to the deal, moved WVRN's programming to WRLH, and took channel 63 off the air.
The move was followed by two more acquisitions. Act III acquired WZTV in Nashville and WUHF in Rochester, New York, acquired from Malrite TV for $12 million. That same year, Act III mounted an ultimately unsuccessful attempt to acquire WBDB and WZDX from Media Central, Inc. formerly under the control of Mort Kent but then in Chapter 11 proceedings.
In 1989, Act III successfully petitioned the FCC to allow it to move WVAH from channel 23 to the last VHF frequency in the market, channel 11. WVAH's signal on channel 23 was not strong enough to reach the entire market—a 61-county behemoth occupying rugged terrain in three states. The FCC granted the request, and WVAH moved to channel 11 later in 1989.
This sort of deal-making characterized Act III into 1990, a year when it made several innovative deals in 1990 that positioned its stations the only general entertainment stations in their markets. In Nashville, WXMT, then the Fox affiliate, had been sold by TVX in 1988 to Michael Thompson. Fox was considering executing its policy that no broadcaster could control more than eight Fox affiliates by pulling the Fox affiliation from WXMT and moving it to WZTV. In January 1990, Act III cut a deal in which WZTV would take all of WXMT's shows, leaving WXMT with only religious and home shopping shows. However, Thompson backed out of the deal at the last minute. Fox then announced it was moving its affiliation to WZTV as of February. At the end of January, MT Communications and Act III made a revised deal, which allowed WXMT to keep barter cartoons and several low budget syndicated shows, giving WZTV all the cash programming, which included the better and more expensive shows, along with Fox programming. WXMT's daily schedule now featured home shopping for 15 hours, religion 3 hours, cartoons 3 hours, and low-budget shows 3 hours. While WXMT was not eliminated as a competitor, it was left with a much weaker schedule.
In Buffalo, Act III eliminated competition when it bought WUTV channel 29 in Buffalo from Citadel Broadcasting and sold WNYB to Tri-State Christian Television. WNYB's programming and Fox affiliation then moved to WUTV, whereas WNYB became an all-religious station.
McGrath stepped down as chairman of Act III Broadcasting in 1990 when he left to join Time Warner as President of International. Bert Ellis continued the company's strategy into 1991.
To obtain dominance in the Piedmont Triad, Act III embarked on another programming-buying deal in 1991. It bought the entire program inventory of WGGT, the other general entertainment station in the market, and merged it onto WNRW's schedule. WGGT's owner, Guilford Broadcasters, agreed to simulcast WNRW's signal on WGGT, making WGGT a full satellite of WNRW. This created a strong combined signal which became known as the "Piedmont Superstation." For all intents and purposes, Act III's stations were now the only general-entertainment stations in their markets, except for Nashville.
Bert Ellis left Act III in early 1992 to form Ellis Communications and continue to pursue station acquisitions eventually building a group of 13 TV stations, two radio stations and Raycom Sports.

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 of the 12-station cap on ownership that had existed for decades prior to Act III's initiatives.

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., 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 the company entered into an agreement to acquire Norman Lear's controlling interest in Act III Broadcasting in early September 1991. The remaining shareholders, including Prudential Insurance, agreed to roll over their shares into the new company. However, the deal fell apart shortly thereafter, with CEO Bert Ellis declaring the deal "dead as a doornail."
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; instead, he 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. 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. Lear sold Act III Broadcasting for over $500 million, despite receiving a far lower estimate of $15 million only a few years earlier from Boston Ventures, a group that had sought to acquire the stations during the height of the 1990 recession. This record-setting valuation came despite Fox's policy of not allowing acquisitions that resulted in one company controlling more than eight Fox affiliates, which acted as a deterrent on some potential bidders. Sinclair Broadcast Group then bought Abry's interest later that year; Sinclair had also implemented the LMA concept back in 1991.

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. 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. 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. The eventual exit at over a 600% return on investment marks one of the most successful broadcast ventures in industry history. In 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. 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.

Subsequent Disposition of Act III Broadcasting Stations

Stations are arranged alphabetically by state and by city of license.
City of License / MarketStationChannel
TV 		Years ownedCurrent ownership status
BuffaloWUTV29 1990–1994Fox affiliate owned by Sinclair Broadcast Group
BuffaloWNYB49 1988–1990MyNetworkTV affiliate, WNYO-TV, owned by Sinclair Broadcast Group
New York CityWNJU47 1979–1986Telemundo owned and operated
RochesterWUHF31 1989–1994Fox affiliate owned by Sinclair Broadcast Group
High Point - Greensboro -
Winston-Salem, NC		WNRW45 1987–1994ABC affiliate, WXLV-TV, owned by Sinclair Broadcast Group
DaytonWRGT-TV45 1985–1994Fox affiliate owned by Cunningham Broadcasting
Charleston, South CarolinaWTAT-TV24 1985–1994Fox affiliate owned by Cunningham Broadcasting
NashvilleWZTV17 1988–1994Fox affiliate owned by Sinclair Broadcast Group
RichmondWVRN631986–1988defunct off-air - FCC deleted license
RichmondWRLH-TV35 1988–1994Fox affiliate owned by Sinclair Broadcast Group
Charleston/Huntington, West VirginiaWVAH-TV11 1982–1994Fox affiliate owned by Cunningham Broadcasting

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