Sinclair, Gray TV See Big Cost Cuts In '09

David Smith of SinclairTwo local station groups said Wednesday that the uncertain ad environment will bring notable cost-cutting next year, with one company indicating that commissions for sales executives will be lowered.

Among the list of targets the Sinclair group cited for reduction were salaries, staffing levels, travel, promotional expenses and sales incentive programs. The company said it is scanning its expenses going into next year, and expects to make final specific decisions over the next month.

Similarly, the smaller Gray Television said it would be cutting expenses significantly next year, although it offered fewer details. It also said that budgets are also being finalized over the next month.

The companies discussed the topics on conference calls that addressed third-quarter results.



At Sinclair, CEO David Smith said: "We're looking at technology as an opportunity to flatten the business out a little bit more."

Sinclair operates 58 stations in 35 markets, including the Fox affiliates in Pittsburgh and Baltimore, and the ABC outlet in St. Louis. Gray has 36 stations in 30 markets, with NBC affiliates in South Bend, Ind. and Omaha, Neb.

In the just-completed third quarter, even with an influx of political dollars, Sinclair posted only a .5% gain in net broadcast revenues to $150.1 million. Gray fared better, with political carrying it to a net revenue increase of 12% to $82.6 million.

Sinclair may find itself struggling, at least in the near term, with involvement in two tough businesses: local station operations and real estate. The group has broadened itself with consistent investments in real estate in the Washington/Baltimore area recently. It invested an additional $11.4 million in the third quarter, while it maintained prior commitments to spend $25 million in the October-December period. (It's unclear how much of that will target real estate).

The company did indicate that it will be scaling back its real estate forays next year due to the economy, but it would not hesitate to at least explore deals at attractive discounts.

Earlier this year, former Bear Stearns analyst Victor Miller questioned the diversification strategy, suggesting that investors had many other options beyond Sinclair if they wanted to place their money in real estate.

Going forward, Smith pegged much of Sinclair's fortunes (and the station business overall) on automakers' ad spending levels. They are projected to be down more than 25% in the fourth quarter at the company.

"When the automobile business starts to turn," he said, "my sense is everybody turns. And right now, the automobile business has got this gigantic overhang with Chrysler and General Motors, and the question of whether they're going to be in business or not."

In an extreme case, one or both carmakers could go out of business, or they could combine operations. How either scenario would affect total category ad spending would be unclear.

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