Warren Buffett, who has acquired 69 newspapers and related properties in 10 states, is the latest investor to take a shine to local television stations despite the industry's many challenges.
The Oracle of Omaha's Berkshire Hathaway (BRK.A) has agreed to acquire Miami's WPLG from Graham Holdings (WPO) as a part of a $1.1 billion swap with the company formerly known was the Washington Post Co. Under terms of the deal, Berkshire will hand 1.6 million shares of Graham Holdings back to the company.
The acquisition of WPLG, Buffett's first TV station, caught some observers by surprise.
"He tends to buy underdog companies at low prices, such as newspapers, betting on a 'comeback,' writes Gordon Borrell, chief executive of market researcher Borrell Associates, in an email. "I don't see TV in that category. Prices are fair or a bit high, and TV is more of a big dog than underdog."
WPLG is one of South Florida's top-rated TV stations. The deal requires approval by the Federal Communications Commission.Buffett's interest in local TV comes at a time of industry consolidation. Tribune, publisher of the Los Angeles Times, Baltimore Sun and Orlando Sentinel, last year spent $2.7 billion to acquire 19 stations,. while USA Today owner Gannett spent $2.2 billion on 20 stations.
Shares of Berkshire Hathaway, whose holdings include Geico insurance, the Pampered Chef and PR Newswire, last traded hands at $187,256. The stock has gained more than 20 percent over the past year. A company spokesperson couldn't immediately be reached for comment.
Buffett, considered by many to best the greatest investor of his generation, has previously expressed interest in the TV business. As Bloomberg News noted, in his 2008 letter to shareholders he chided himself for not buying an NBC affiliate in Dallas when he had the chance. One attraction, according to Buffett, is that stations require "virtually no capital investment."
Miami is the country's 16th largest media market. Borrell estimates that advertisers there spent about $170 million on TV advertising in 2013, a figure that is forecast to rise to $184 million this year. That doesn't include retransmission fees that stations charge cable and satellite companies to provide consumers their content.
"Maybe the station in Miami was a really good deal," Borrell said in an interview, adding that stations tend to stay profitable because, unlike newspapers, they don't require lots of employees. "They can rent out their tower space for quite a lot of money," he said, while noting that "the future is not certain for TV overall."
For instance, local TV stations earn about 35 percent of their revenue from the automotive sector. But stations face stiff competition from cable channels, which are offering dealers the ability to target their ads by zip codes.
Another threat exists in the form of Aereo, a company backed by billionaire Barry Diller that lets users access broadcast signals over a digital antenna. Although several media companies have taken Aereo to court, alleging that it is stealing their content, the service threatens to disrupt the TV industry's established business model. (Disclsoure: CBS is among the companies suing Aereo.)