Wednesday, June 15, 2016

Guest Blogger Stephan Sloan: Out of the Doldrums

I believe the Reverse Auction's relative doldrums of the past week will ease this week. As is the way with doldrums though, it's almost assured that the change will be incremental. Don't expect any thunder claps; I do not believe that's the way of this algorithm with my assumptions. Just as the preceding rounds were characterized by not much going on, the present rounds will have limited stimulus and that will place modest demands on the algorithm to freeze additional stations. The chart below presents potential data for the number of stations frozen in the auction for the rounds to be conducted this week. In this model approximately 80 stations are frozen for a value of slightly over $6 Billion. 

At the close of business on Monday, June 13th, with the completion of the 19th round of the auction, the current bids will have dropped just below 40% of the opening bids. For many network affiliates and stations with strong business plans the ride ends now as they are more valuable to their owners than the auction price. By the end of the week the bid prices will have decremented to approximately 25% of the opening bid. 

These rounds may be where the smart speculators get rewarded. If a speculator or station owner was not fortunate enough to be in the participation constrained first round of freezing activity, the next best prospect for them would be to hold a station keystoned among other stations with significantly higher reserves than their own. In this example the round a station is frozen results not from the reserve price of the station itself but rather the algorithm exhausting other options for repacking given the higher valued neighboring stations dropping out. So I suppose some owners are tuned in -- turned on -- and hoping everybody else will hurry up and drop out. 

Stephan Sloan
Director, Media Services Group