Tribune Plans Original Content for WGN America Cable Network

New Series to Be Funded in Part by Higher Fees From Cable Companies

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Tribune Co. CEO Peter Liguori, with his $2.7 billion acquisition of 19 TV stations, is accelerating a wave of consolidation that strengthens the hand of broadcasters and network owners over cable providers in pay-TV negotiations.

WGN America mostly shows reruns of series like 'How I Met Your Mother,' but Tribune wants to change that.
WGN America mostly shows reruns of series like 'How I Met Your Mother,' but Tribune wants to change that. Credit: CBS

The all-cash deal with Local TV Holdings, announced yesterday, will extend Tribune's broadcast footprint into 50 million homes. A larger Tribune is in a better position to seek higher licensing fees from cable companies such as Comcast and Time Warner Cable, which purchase the rights to air local broadcasts as well as cable networks like HBO and ESPN.

Recent deals have left TV stations in the clutches of fewer media companies. Aside from helping boost fees, the added revenue will give Liguori more firepower to invest in original programming -- another way for Tribune to vie for more of the billions of dollars spent on paid content.

"Part of the investment thesis of the deal is marrying a larger distribution footprint with investment in content," Mr. Liguori said in an interview yesterday. "There's so much potential now with this deal."

Mr. Liguori's strategy hinges in part on Chicago-based Tribune's sole cable network, WGN America, which operates separately from the broadcast division, with distribution in 75 million homes. The channel now mostly airs reruns of popular network shows such as "How I Met Your Mother," "Law & Order," "Bones" and "Scrubs." With its own programming, it could become a must-have for cable and satellite providers, just as 21st Century Fox's FX and AMC Networks' AMC are today, Mr. Liguori said.

"Looking at the value of FX and AMC cable networks, we believe WGN America down the road presents the same opportunity," said Mr. Liguori. "We need to create new content and get better distribution for WGN America."

Original TV content garners more money than ever, Mr. Liguori said. Even beyond the fees from satellite and cable providers, online streaming distributors such as Netflix and Amazon are providing new sources of revenue, he said.

"The cable-network business is the best business in media," said Paul Sweeney, an analyst at Bloomberg Industries. "How do you convince a cable company to carry your cable network? You have to have leverage. One of the ways Tribune thinks they can leverage is by owning a lot of TV stations."

Fox is one of the pioneers of the strategy, with a package of local stations and cable channels that give it a leg up when discussing fees with cable carriers. Liguori was chairman of entertainment for Fox Broadcasting and CEO of the company's FX Networks, then went to Discovery Communications as chief operating officer before joining Tribune.

At Fox, which until last week was part of News Corp., broadcast revenues climbed 15% in the quarter ended in March from a year earlier, even with ratings down for shows such as "American Idol." The reason for the gain was pay-TV licensing fees, which almost doubled. Affiliate fees for New York-based Fox's cable channels, meanwhile, rose 11%.

Like Tribune, CBS Corp. is expanding into cable channels. It acquired 50% of TV Guide Network in March and plans to revamp it into a new entertainment channel. CBS's affiliate fees rose 14% in the first quarter from a year earlier.

Mr. Liguori's deal is part of a wave of acquisitions in the industry, coming two weeks after Gannett's agreement to buy local-TV company Belo Corp. for $1.5 billion. A month ago, Sinclair Broadcast Group agreed to buy four outlets fromTitan Broadcast Management for $115.4 million. That accord was followed on June 6 by the $870 million merger of Media General, backed by Warren Buffett and Mario Gabelli, with New Young Broadcasting.

~ Bloomberg News ~

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