Guest Blogger Stephan Sloan: Bigger Than Big

$86,422,558,704

That looks like $2.71/MHz/Pop.

I didn't have the optimism to model that there would be reserve price discipline of the middle and smaller TV station owners to support this. The message I see in this information is that the TV broadcasters have participated fully in the FCC's plan and the spectrum is valuable to them. I also see an effect from the consolidation in the Television business as the larger broadcasters had the time and talent to determine optimal yield analysis and bidding strategies. While I remain surprised by the total I believe there is substantial data to support validation from the Forward Auction.

Before recoiling at that clearing cost please consider the quote below from Peter Compton in commenting on the results of the AWS3 Auction back in May of 2015.

"The nationwide average price for the paired blocks was $2.72/MHzPop, about three times higher than investment banking estimates before the auction began."

Stephan Sloan 
Director, Media Service Group
401.454.3130
ss@mediaservicesgroup.com

Guest Blogger Stephan Sloan: The Big Big Number

I tipped my hand with my LinkedIn post on June 1st "The $40 Billion Blink" as to what sort of capital I thought would be required to clear 126 MHz in the Reverse Auction.

George Box famously observed that all models are wrong but some are useful. In this spirit I accept that my models are wrong but none the less support and illustrate reality. Though many of the industry professionals I respect have opined at much lower Reverse Auction clearing costs, I expect $58 Billion or greater. The histogram below presents the data from 99 iterations modeling the Reverse Auction.

What this data means is that I can construct models that indicate a high probability that the clearing cost is more than $58 Billion and costs exceeding $60 Billion are a significant possibility. This represents a range of approximately $1.72 to $1.93 /MHz/Pop. If you accept the idea that the first round of the auction evidenced stations freezing based upon the requirement to meet the maximum possible clearing target, then we were bound from the moment the clearing target was announced, to end up here.

$58 Billion also has an additional significance to those of you following my LinkedIn postings. I’ve enjoyed very much the opportunity to post these thoughts and your responses. For my contacts who would like to take me up on it, I will wager a steak dinner– at the restaurant of your choosing- that the clearing cost will exceed $58 Billion. $57,999,999,999.99 or lower and it’s on me, just memorialize your interest in an email, tweet, LinkedIn Message or other dated communication before the FCC releases the data. I think a good reference should be the Incentive Auction dashboard.

I’ve been focused on this level of clearing cost since 126 MHZ was announced on April 29th. I look forward to discussing how this value is validated in the Forward Auction.

Stephan Sloan
Director, Media Services Group
401.454.3130
ss@mediaservicesgroup.com

Guest Blogger Stephan Sloan: Moving Day

This week's progress in the Reverse Auction includes the rounds in which stations will become frozen in much greater numbers than in the previous weeks' activity. I anticipate that somewhere around 300 television stations will be frozen in the auction in rounds 31 through 45. 

While the last week's rounds illustrated the price decrement in relation to opening bid, this week makes clear the diminished bids in terms of dollars. Round 31's activity is expected to yield an average of $68 million freeze price with a high of $108 million and a low of $16 million (a Class A station). At the week's expected ending round 45, the freeze prices are down to an average of $8 million with a high of $13 million and a low of $5 million. The following chart illustrates the declining freeze prices by stations and round. 

Considering the post-auction scarcity of television stations, especially UHF channels, it is hard to imagine many markets where this level of pricing is not a significant discount to what will be available to station owners post auction. 

Since the Round 21-22 delay, the bidding appears to have progressed smoothly. From what we have observed so far I do not anticipate additional delays and am impressed with the FCC staff's ability to conduct, process, report and repeat the bidding rounds. 

Finishing this week on schedule leaves short work for next week to conclude the Reverse Auction. Soon we will find out what will be required to validate this auction in the Forward Auction. 

Stephan Sloan
Director, Media Services Group
401.454.3130
ss@mediaservicesgroup.com

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
401.454.3130
ss@mediaservicesgroup.com 

Radio Ink: Bayliss To Host Online Auction

Here is a great "cause" for broadcasters (and a chance to pick up equipment at bargain prices).

PACIFIC GROVE, CA -- June 23, 2009: The Bayliss Foundation is looking at a new avenue to raise funds for its scholarship and internship programs, hosting its first online auction. The event will last several weeks, with hundreds of items of new and used radio and broadcast equipment on offer, including transmitters, remote and production equipment, and video and broadcast applications.

"Our top priority is to recruit and retain today's graduates and develop them into tomorrow's industry leaders," said foundation President Carl Butrum. "We believe this online auction and future ones will provide a new revenue stream for the Bayliss Foundation so we may continue its mission of guiding the next generation of broadcasters. Winning bids will provide critical funding for our students."

Bidding and registration is available here: http://rasmus.com/auction_detail.php?ID=401658

Applications for this year's Bayliss Radio Scholarships are now being reviewed, and the foundation's board will announce the 2009-2010 recipients next month. Since it was founded in 1985, Bayliss has awarded more than a million dollars in scholarship money to more than 330 college students nationwide and placed more than 90 students in paid internships with broadcasters.

George