Sinclair Broadcast Group(SBGI) - 2023 Q4 - Annual Report

Broadcasting Operations and Networks - Sinclair operates 185 stations in 86 markets, broadcasting 640 channels, including 236 channels affiliated with primary networks such as FOX (55), ABC (40), CBS (30), NBC (25), CW (47), and MyNetworkTV (39)[30] - The company owns and operates networks such as Comet (science fiction), CHARGE! (adventure and action), and TBD (multiscreen TV network bringing internet-first content to TV homes)[33] - Sinclair operates a total of 640 television channels across various markets, with affiliations including ABC, FOX, CBS, NBC, CW, and MNT[39][40] - The company's local media segment serves 86 markets, with stations in major cities such as Washington, D.C., Seattle, Minneapolis, and Nashville, among others[38] - The company has approximately 455 multi-channels on its digital spectrum as of December 31, 2023[66] Local News and Content Production - The company produces over 2,400 hours of local news per week at 115 stations across 73 markets, earning 276 journalism awards in 2023, including 24 regional and one National RTDNA Edward R. Murrow awards, and 67 regional Emmy awards[32] - Local news is produced at 115 stations in 73 markets, with initiatives like "Connect to Congress" and "Full Measure with Sharyl Attkisson"[52][57] - The National Desk, a national news program, airs in 83 markets and is supported by a team of 15 national investigative journalists and over 30 local investigative reporters[58] - The company produced 188 Town Halls in 2023 and 198 in 2022, covering topics such as education, mental health, and artificial intelligence[59] - Sinclair's "Project Baltimore" has produced nearly 700 stories since its inception, focusing on public school challenges in Maryland[128] Digital Media and Technology - The company's digital media strategy includes selling digital advertisements on third-party platforms, providing content to non-linear devices, and offering digital marketing services[35] - The company is deploying DTC and OTT initiatives, cloud technologies, and content applications to expand digital distribution platforms[70] - The company is involved in the development of NextGen TV, which offers advanced features like dynamic ad insertion and enhanced emergency alerting[75] - NextGen TV is broadcasting in more than 60 markets, including 43 of the company's markets, with plans for nationwide implementation[76] - The company has developed several NextGen Broadcast-related patents through its ONE Media, LLC subsidiary, aiming to monetize them[77] - Technical services include subsidiaries like Dielectric and ONE Media 3.0, focusing on NextGen TV technologies and partnerships with companies like Saankhya Labs and CAST.ERA[47] Advertising and Revenue Streams - The local media segment generates revenue primarily from advertising sales on television stations and fees from distributors, including OTT platforms, for channel distribution[35] - Political advertising significantly impacts the local media segment, with higher spending in even-numbered years due to election cycles, and further spikes during presidential elections every four years[36] - Local sales accounted for 61% and 60% of Sinclair's net time sales in 2023 and 2022, respectively, with a goal to grow local revenues[64] - Advertising rates are influenced by market size, program popularity, demographic makeup, and competition for available time[109] - Political advertising represented 4% of local media segment advertising revenue for the year ended December 31, 2023, and 22% for the year ended December 31, 2022[183] Sports and Tennis Segment - Sinclair's local media segment provides live, local sporting events by acquiring broadcast rights or through relationships with national networks[31] - The tennis segment includes Tennis Channel, Tennis Channel International, Tennis Channel Plus, T2 FAST, Tennis.com, and Pickleballtv (PBTV), generating revenue from distributor fees and advertising[41][42] - Tennis segment operating results are cyclical, with higher performance in Q1 and Q4 due to significant tournaments during these periods[43] - Tennis Channel and T2 offer over 4,500 live and on-demand matches through Tennis Channel Plus, with exclusive rights to major tennis tournaments[61] Corporate Structure and Ownership - Sinclair's reorganization in 2023 resulted in the transfer of assets, including technical and software services companies, intellectual property, and media-related businesses, to Sinclair Ventures, LLC[27] - The Smith family holds approximately 82.6% of the common voting rights of the company as of December 31, 2023[86] - The company has approximately 7,300 employees as of December 31, 2023, with 590 represented by labor unions[116] - Approximately 590 of the company's employees and freelance employees are represented by labor unions under collective bargaining agreements[180] Regulatory and Legal Challenges - The FCC's 2018 Ownership Order extends the Top-Four Prohibition, effective March 18, 2024, impacting the company's ability to own multiple top-four rated stations in the same market[89] - The company has elected to exercise retransmission consent rights for all of its stations, allowing it to negotiate fees for signal carriage[94] - The FCC's syndicated exclusivity and network non-duplication rules may impact the company's viewership and revenue if distant signals are carried on the same cable system[96] - The company may face termination or modification of Local Marketing Agreements (LMAs) if the FCC eliminates the exemption for pre-1996 LMAs, potentially affecting its business operations[90] - The FCC's digital television rules require broadcasters to provide at least one free video channel and pay a 5% fee on gross revenues from subscription-based ancillary services[97] - The company is subject to FCC regulations on programming, including public interest obligations, political advertising, and closed captioning requirements[98] - The FCC's ongoing rulemaking proceedings, including those related to the UHF discount and national ownership rules, could impact the company's strategic operations and market reach[87][88] - FCC extended the sunset of the substantially similar rule for simulcast streams and the ATSC A/322 standard compliance requirement to July 17, 2027[100] - The company may face significant fines or penalties from the FCC, including a $48 million settlement in 2020 and a proposed $2.7 million forfeiture in 2022[191] - The company's FCC licenses are critical to its local media segment operations, and failure to renew or obtain new licenses could result in lost revenue[193] - The company's ability to acquire television stations in additional markets may be limited by changes to the UHF discount or National Ownership Rule[195] - FCC's 2018 Ownership Order may affect the company's ability to acquire programming or sell/acquire stations due to divestiture requirements[196] - 34 stations are involved in Joint Sales Agreements (JSAs) providing non-programming services like sales and operations[197] - 8 television stations are serviced under exempted Local Marketing Agreements (LMAs) as of December 31, 2021[198] - Potential loss of revenue and increased costs if FCC requires termination or modification of LMAs and JSAs[199][203] Financial and Debt Management - Total debt as of December 31, 2023, is $4,175 million, compared to shareholders' equity of $221 million[215] - Approximately $2,676 million of the company's debt is subject to variable interest rates as of December 31, 2023[222] - The company may face challenges in servicing debt if cash flows are inadequate, potentially leading to restructuring or asset sales[218] - High debt levels could limit cash flow available for joint ventures, working capital, capital expenditures, and dividends[216] - The company may be forced to reduce or delay investments and capital expenditures if cash flows are insufficient[219] - Variable rate debt exposes the company to interest rate risk, which could increase debt service obligations[222] - The company may be unable to refinance debt at favorable rates or terms, potentially increasing financing costs[216] - Debt restrictions may limit the company's ability to dispose of assets or raise additional capital[219] - The company could face default and potential bankruptcy if it fails to meet scheduled debt payments[220] - Additional debt incurred in the future could exacerbate existing financial risks[221] Cybersecurity and Data Privacy - The company experienced a cybersecurity breach in October 2021, resulting in a loss of approximately $63 million in advertising revenue and $7 million in costs and expenses related to mitigation efforts[170] - The cybersecurity incident resulted in an estimated $20 million of unrecoverable net loss, with $30 million in reimbursement proceeds from insurance policies, but future reimbursements and additional costs remain uncertain[171] - The company is vulnerable to future cybersecurity breaches, data privacy issues, and information technology failures, which could have a material adverse effect on its financial performance and operating results[172][175] - The company is subject to evolving privacy, security, and data protection laws, which may require significant resources to implement additional data protection measures[177] - The company relies on third-party cloud computing services, and any disruption could have a materially negative impact on its business and operations[178] - Sinclair's cybersecurity investments in 2023 resulted in no material incidents, with plans for further enhancements in the upcoming year[141] Environmental, Social, and Governance (ESG) - Sinclair installed 131 energy-efficient TV transmitters since 2017, which are 25% more efficient, and plans to install 24 more by 2025[138] - Sinclair's environmental efforts include transitioning to rechargeable batteries and reducing paper use, with a battery recycling operation implemented in 2023[138] - The company published its 2022 ESG report in May 2023, highlighting achievements in sustainability, diversity, and inclusion[116] - Sinclair's Diversity Scholarship Fund awarded $60,000 to 15 students in 2023, with over $315,000 distributed since 2013[136] - Sinclair partnered with over 400 nonprofit and civic organizations in 2023, raising nearly $30 million and collecting over 2.3 million pounds of food, 642,000 diapers, 100,000 toys, and 3,700 units of blood[134] - Sinclair's Sinclair Cares program raised funds and awareness for humanitarian relief, mental health, and diaper needs in 2023[135] - Increased ESG compliance costs and risks due to new regulations and stakeholder expectations[208] Competition and Market Challenges - The company competes with Google, Facebook, social media, OTT offerings, and other digital platforms for advertising revenue[108] - The company faces competition from OTT services, which bundle products and offer on-demand programming without a subscription[112] - The company faces intense competition from various sources including OTT, DTC, mobile media, and emerging technologies, which could impact its viewership and advertising revenues[158][159] - Technological advancements and changes in consumer behavior, such as the shift towards subscription video on demand and free advertising supported video on demand services, could adversely affect the company's advertising revenues[160] - The company's advertising revenues are significantly impacted by new technologies and changes in audience measurement techniques, which could reduce the attractiveness of its audiences to advertisers[162] - The company's programming costs and viewership are unpredictable, and any increase in costs or decrease in viewership could materially negatively affect its business and results of operations[163] - The company relies on third parties for broadcast, entertainment, news, and sports programming, and failure to obtain such programming on reasonable terms could have a material negative effect on its results of operations[164] - Theft or misappropriation of the company's intellectual property could have a material negative effect on its business and results of operations, potentially reducing revenue and undermining lawful distribution channels[165][166] Employee Benefits and Corporate Culture - The company provides employees with a comprehensive benefits package, including a 401(k) plan, stock purchase plan, and paid parental leave[127] - The company maintains an Innovation & Strategy team to drive revenue, reduce waste, and engage employees in developing new ideas[125] - The company sponsors an employee assistance program to enhance physical, financial, and mental well-being[126] - The company actively promotes internal job announcements to support employee growth and career development[124] Risks and Uncertainties - COVID-19 pandemic has adversely impacted advertising sales, content production, and workforce availability[207] - Potential future impairment of goodwill and intangible assets due to economic environment and subscriber erosion[210] - Risks associated with Generative AI (GAI) use, including ethical, regulatory, and operational challenges[211] - Significant investment in NextGen TV platform development, with uncertain outcomes and potential loss of investment[204] - Continued investment in non-broadcast businesses, despite limited management experience in these areas[206] - The company's distribution agreements face risks from declining subscribers and potential unfavorable renegotiation terms, impacting revenue[151] - The FCC's proposed rulemaking on retransmission consent negotiations could impact the company's distribution revenues and future growth, potentially affecting its business and financial condition[156][157]