UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K/A
No. 1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF
1934
For the fiscal year ended September 30, 1997
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _______________
Commission File No. 333-02302
ALLBRITTON COMMUNICATIONS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 78-1803105
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
808 Seventeenth Street, N.W., Suite 300
Washington, DC 20006-3903
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (202) 789-2130
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark if the disclosure of delinquent filers pursuant to item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge,in definitive proxy of information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[X]
Indicate by check mark whether this registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates is zero.
As of December 22, 1997, there were 20,000 shares of Common Stock, par value
$.05 per share outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I, Item 1 of the Registrant's Form 10-K is hereby amended to read as
follows:
ITEM 1. BUSINESS
(Dollars in thousands)
The Company
Allbritton Communications Company ("ACC" or the "Company") itself and through
subsidiaries owns and operates ABC network-affiliated television
stations serving seven diverse geographic markets: WJLA in Washington, D.C.;
WHTM in Harrisburg, Pennsylvania; KATV in Little Rock, Arkansas; KTUL in
Tulsa, Oklahoma; WSET in Lynchburg, Virginia; WCIV in Charleston, South
Carolina and WCFT in Tuscaloosa, Alabama. The Company's owned and operated
stations broadcast to the 7th, 45th, 56th, 58th, 68th, 117th and 187th largest
national media markets in the United States, respectively, as defined by the
A.C. Nielsen Co. ("Nielsen"). The Company also owns a low power television
station (WBMA-LP) licensed to Birmingham, Alabama, the 51st largest national
media market.
WJLA is owned and operated by ACC, while the Company's remaining owned and
operated stations are owned by Harrisburg Television, Inc. (WHTM), KATV, LLC
(KATV), KTUL, LLC (KTUL), WSET, Incorporated (WSET), WCIV, LLC (WCIV) and
TV Alabama, Inc. (WCFT and WBMA-LP). Each of these is a wholly-owned
subsidiary of ACC, except Harrisburg TV and TV Alabama, each of which is an
indirect 80%-owned subsidiary of ACC. TV Alabama began operating a television
station in Anniston, Alabama, east of Birmingham, under a Local Marketing
Agreement ("LMA") effective December 29, 1995. Pursuant to merger agreements
effective September 30, 1997, KATV Television, Inc. became KATV, LLC; KTUL
Television, Inc. became
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KTUL, LLC and First Charleston Corp. became WCIV, LLC. Each of
these new entities is a Delaware limited liability company, wholly-owned by
ACC. The Company also engages in other activities relating to the production
and distribution of television programming through Allbritton Television
Productions, Inc., ("ATP"), a wholly-owned subsidiary of ACC. ACC was founded
in 1974 and is a subsidiary of Allbritton Group, Inc. ("AGI"), which is
wholly-owned by Perpetual Corporation, which in turn is controlled by Joe L.
Allbritton, ACC's Chairman. ACC and its subsidiaries are Delaware corporations
or limited liability companies. ACC's corporate headquarters is located at 808
Seventeenth Street, N.W., Suite 300, Washington, D.C. 20006-3903, and its
telephone number at that address is (202) 789-2130.
Television Industry Background
Commercial television broadcasting began in the United States on a regular
basis in the 1940s. Currently, there are a limited number of channels
available for broadcasting in any one geographic area, and the license to
operate a broadcast television station is granted by the FCC. Television
stations that broadcast over the VHF band (channels 2-13) of the spectrum
generally have some competitive advantage over television stations that
broadcast over the UHF band (channels 14-69) of the spectrum because VHF
channels usually have better signal coverage and operate at a lower
transmission cost. However, the improvement of UHF transmitters and receivers,
the complete elimination from the marketplace of VHF-only receivers and the
expansion of cable television systems have reduced the competitive advantage
of television stations broadcasting over the VHF band.
Television station revenues are primarily derived from local, regional and
national advertising and, to a much lesser extent, from network compensation,
revenues from studio rental and commercial production activities. Advertising
rates are set based upon a variety of factors, including a program's
popularity among viewers whom an advertiser wishes to attract, the number of
advertisers competing for the available time, the size and demographic makeup
of the market served by the station and the availability of alternative
advertising media in the market area. Advertising rates are also determined by
a station's overall ability to attract viewers in its market area, as well as
the station's ability to attract viewers among particular demographic groups
that an advertiser may be targeting. Because broadcast television stations
rely on advertising revenues, they are sensitive to cyclical changes in the
economy. The size of advertisers' budgets, which are affected by broad
economic trends, affect both the broadcast industry in general and the
revenues of individual broadcast television stations.
United States television stations are grouped by Nielsen into 211 generally
recognized television market areas that are ranked in size according to
various formulae based upon actual or potential audience. Each market area is
designated as an exclusive geographic area consisting of all counties in which
the home-market commercial stations receive the greatest percentage of total
viewing hours. The specific geographic markets are called Designated Market
Areas or DMAs.
Nielsen, which provides audience-measuring services, periodically publishes
data on estimated audiences for television stations in the various DMAs
throughout the country. These estimates are expressed in terms of both the
percentage of the total potential audience in the DMA viewing a
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station (the station's "rating") and the percentage of the audience actually
watching television (the station's "share"). Nielsen provides such data on the
basis of total television households and selected demographic groupings in the
DMA. Nielsen uses two methods of determining a station's ratings and share. In
larger DMAs, ratings are determined by a combination of meters connected
directly to selected household television sets and weekly viewer-completed
diaries of television viewing, while in smaller markets ratings are determined
by weekly diaries only. Of the market areas in which the Company conducts
business, Washington, D.C. is a metered market while the remaining markets are
weekly diary markets. Nielsen has indicated, however, that the Birmingham
market will become metered in the Fall of 1998.
Historically, three major broadcast networks--ABC, NBC and CBS--dominated
broadcast television. In recent years, FOX has effectively evolved into the
fourth major network, although the hours of network programming produced by
FOX for its affiliates are fewer than those produced by the other three major
networks. In addition, UPN and WB recently have been launched as new
television networks.
The affiliation by a station with one of the four major networks has a
significant impact on the composition of the station's programming, revenues,
expenses and operations. A typical affiliate station receives approximately 9
to 13 hours of each day's programming from the network. This programming,
along with cash payments ("network compensation"), is provided to the
affiliate by the network in exchange for a substantial majority of the
advertising time sold during the airing of network programs. The network then
sells this advertising time for its own account. The affiliate retains the
revenues from time sold during breaks in and between network programs and
during programs produced by the affiliate or purchased from non-network
sources. In acquiring programming to supplement network programming, network
affiliates compete primarily with affiliates of other networks and independent
stations in their market areas. Cable systems generally do not compete with
local stations for programming, although various national cable networks from
time to time have acquired programs that would have otherwise been offered to
local television stations. In addition, a television station may acquire
programming through barter arrangements. Under barter arrangements, which are
becoming increasingly popular with both network affiliates and independents, a
national program distributor can receive advertising time in exchange for the
programming it supplies, with the station paying no fee or a reduced fee for
such programming.
An affiliate of UPN or WB receives a smaller portion of each day's programming
from its network compared to an affiliate of ABC, CBS, NBC or FOX. As a
result, affiliates of UPN or WB must purchase or produce a greater amount of
their programming, resulting in generally higher programming costs. These
stations, however, retain a larger portion of the inventory of advertising
time and the revenues obtained therefrom compared to stations affiliated with
the major networks, which may partially offset their higher programming costs.
In contrast to a network affiliated station, an independent station purchases
or produces all of the programming that it broadcasts, generally resulting in
higher programming costs, although the independent station is, in theory, able
to retain its entire inventory of advertising time and all of the revenue
obtained from the sale of such time. Barter and cash-plus-barter arrangements,
however, have become increasingly popular among all stations.
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Public broadcasting outlets in most communities compete with commercial
broadcasters for viewers but not for advertising dollars.
Broadcast television stations compete for advertising revenues primarily with
other broadcast television stations and, to a lesser extent, with radio
stations, cable system operators and programmers and newspapers serving the
same market. Traditional network programming, and recently FOX programming,
generally achieves higher audience levels than syndicated programs aired by
independent stations. However, as greater amounts of advertising time become
available for sale by independent stations and FOX affiliates in syndicated
programs, those stations typically achieve a share of the television market
advertising revenues greater than their share of the market area's audience.
Through the 1970s, network television broadcasting enjoyed virtual dominance
in viewership and television advertising revenues because network-affiliated
stations only competed with each other in local markets. Beginning in the
1980s, this level of dominance began to change as the FCC authorized more
local stations and marketplace choices expanded with the growth of independent
stations and cable television services.
Cable television systems were first constructed in significant numbers in the
1970s and were initially used to retransmit broadcast television programming
to paying subscribers in areas with poor broadcast signal reception. In the
aggregate, cable-originated programming has emerged as a significant
competitor for viewers of broadcast television programming, although no single
cable programming network regularly attains audience levels amounting to more
than a small fraction of any of the major broadcast networks. The advertising
share of cable networks increased during the 1970s and 1980s as a result of
the growth in cable penetration (the percentage of television households that
are connected to a cable system). Notwithstanding such increases in cable
viewership and advertising, over-the-air broadcasting remains the dominant
distribution system for mass market television advertising.
Direct Broadcast Satellite ("DBS") service has recently been introduced as a
new competitive distribution method. Home users purchase or lease satellite
dish receiving equipment and subscribe to a monthly service of programming
options. At present, the nature of DBS service permits primarily national
programming but in selected markets, including Washington, D.C., a satellite
company is retransmitting locally originated programs and advertising back to
the originating local markets.
The Company believes that the market shares of television stations affiliated
with ABC, NBC and CBS declined during the 1980s primarily because of the
emergence of FOX and certain strong independent stations and secondarily
because of increased cable penetration. Independent stations have emerged as
viable competitors for television viewership share, particularly as a result
of the availability of first-run network-quality programming. In addition,
there has been substantial growth in the number of home satellite dish
receivers and video cassette recorders, which has further expanded the number
of programming alternatives available to household audiences.
Terrestrially-distributed television broadcast stations use analog
transmission technology. Recent advances in digital transmission technology
formats will enable broadcasters to migrate from
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analog to digital broadcasting. Digital technologies provide cleaner video
and audio signals as well as the ability to transmit "high definition
television" with theatre screen aspect ratios, higher resolution video and
"noise-free" sound. Digital transmission also permits dividing the
transmission frequency into multiple discrete channels of standard definition
television. The FCC recently authorized a transition plan to convert existing
analog stations to digital by temporarily authorizing a second channel to
transmit programming digitally with the return of the analog channel after the
transition period.
Station Information
The following table sets forth general information for each of the Company's
owned and/or operated stations as of November 1997 :
<TABLE>
<CAPTION>
Total
Market Commercial Station Rank
Designated Network Channel Rank or Competitors Audience in Acquisition
Market Area Station Affiliation Frequency DMA<F1> in Market<F2> Share<F3> Market<F4> Date
</CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Washington, D.C. <F5> WJLA ABC 7/VHF 7 6 24% 1 01/29/76
Harrisburg-Lancaster-York-Lebanon,
PA <F5> WHTM ABC 27/UHF 45 5 26% 2 03/01/96
Little Rock, AR<F5> KATV ABC 7/VHF 56 5 34% 1 04/06/83
Tulsa, OK<F5> KTUL ABC 8/VHF 58 5 30% 2 04/06/83
Lynchburg-Roanoke,VA<F5> WSET ABC 13/VHF 68 4 25% 2 01/29/76<F6>
Charleston, SC<F5> WCIV ABC<F7> 4/VHF 117 5 20% 3 01/29/76<F6>
Birmingham<F5><F8> WBMA-LP ABC 58/UHF 51 5 - - 08/01/97
Tuscaloosa <F5> WCFT ABC 33/UHF 187 2 68% 2 03/15/96
Anniston <F9> WJSU ABC 40/UHF 201 2 67% 1 -
<FN>
<F1> Represents market rank based on the Nielsen Station Index for November
1997.
<F2> Represents the total number of commercial broadcast television stations
in the DMA with an audience rating of at least 1% in the 7:00 a.m. to
1:00 a.m., Sunday through Saturday, time period.
<F3> Represents the station's share of total viewing of commercial broadcast
television stations in the DMA for the time periods referenced or, if no
time period is indicated, 7:00 a.m. to 1:00 a.m., Sunday through Saturday.
<F4> Represents the station's rank in the DMA based on its share of total
viewing of commercial broadcast television stations in the DMA for the
time periods referenced or, if no time period is indicated, 7:00 a.m. to
1:00 a.m., Sunday through Saturday.
<F5> Owned Station.
<F6> WSET and WCIV have been indirectly owned and operated by Joe L.
Allbritton since 1976. On March 1, 1996, WSET and WCIV became wholly-
owned subsidiaries of ACC.
<F7> WCIV became affiliated with ABC in August 1996.
<F8> TV Alabama serves the Birmingham market by simultaneously broadcasting
identical programming over WBMA-LP, WCFT and WJSU (which TV Alabama
programs pursuant to an LMA). The market rank figures reflect only the
Birmingham market. The total commercial competitors in market figures exclude
WBMA-LP, because it is a low power television station. The combined station
audience share of commercial television viewership of WBMA-LP, WCFT and
WJSU in the Birmingham DMA is 19%. This calculation is based on an 11% share for the
combination of WBMA-LP, WCFT and WJSU divided by the 59% commercial television
viewership share within the DMA at November 1997.
<F9> Programmed Station.
</FN>
</TABLE>
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Business and Operating Strategy
The Company's business strategy is to focus on building net operating revenues
and net cash provided by operating activities. During Fiscal 1996, the
Company and its subsidiaries consummated several transactions that expanded
their broadcast holdings. The Company acquired an 80% interest in the assets
and certain liabilities of WHTM and WCFT (the "Acquisitions"). The Company,
through an 80%-owned subsidiary, also entered into a LMA to program, for a
period of ten years, WJSU, licensed to Anniston, Alabama (the "Anniston LMA").
In addition, WSET and WCIV became wholly-owned subsidiaries of ACC through a
contribution of capital stock (the "Contribution") from an affiliate wholly-
owned by Joe L. Allbritton.
The Company intends to pursue selective acquisition opportunities as they
arise. The Company's acquisition strategy is to target network-affiliated
television stations where it believes it can successfully apply its operating
strategy and where such stations can be acquired on attractive terms. Targets
include midsized growth markets with what the Company believes to be
advantageous business climates. Although the Company continues to review
strategic investment and acquisition opportunities, no agreements or
understandings are currently in place regarding any material investments or
acquisitions.
In addition, the Company constantly seeks to enhance net operating revenues at
a marginal incremental cost through its use of existing personnel and
programming capabilities. For example, KATV operates the Arkansas Razorback
Sports Network ("ARSN"), which provides University of Arkansas sports
programming to a network of 66 radio stations in four states.
The Company's operating strategy focuses on four key elements:
Local News and Community Leadership. The Company's stations are local news
leaders and exploit the revenue potential associated with local news
leadership. Since the acquisition of each station, the Company has focused on
building that station's local news programming franchise as the foundation for
building significant audience share. In each of its market areas, the Company
develops additional information-oriented programming designed to expand the
stations' hours of commercially valuable local news and other programming with
relatively small incremental increases in operating expenses. Local news
programming is commercially valuable because of its high viewership level, the
attractiveness to advertisers of the demographic characteristics of the
typical news audience (allowing stations to charge higher rates for
advertising time) and the enhanced ratings of other programming in time
periods adjacent to the news. In addition, management believes strong local
news product has helped differentiate local broadcast stations from the
increasing number of cable programming competitors that generally do not
provide this material.
High Quality Non-Network Programming. The Company's stations are committed
to attracting viewers through an array of syndicated and locally-produced
programming to fill those periods of the broadcast day not programmed by the
network. This programming is selected by the Company on its ability to
attract audiences highly valued in terms of demographic makeup on a
cost-effective basis and reflects a focused strategy to migrate and hold
audiences from program to program
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throughout dayparts. Audiences highly valued in terms of demographic
makeup include women aged 18-49 and all adults aged 25-54. These
demographic groups are perceived by advertisers as the groups
with the majority of buying authority and decision-making in product
selection.
Local Sales Development Efforts. The Company believes that television
stations with a strong local presence and active community relations can
realize additional revenue from advertisers through the development and
promotion of special programming and marketing events. Each of the Company's
stations has developed such additional products, including high quality
programming of local interest (such as University of Arkansas football and
basketball games, Washington Redskins pre-season football games and related
shows) and sponsored community events. These sponsored events have included
health fairs, contests, job fairs, parades and athletic events and have
provided advertisers, who are offered participation in such events, an
opportunity to direct a marketing program to targeted audiences. These
additional products have proven successful in attracting incremental
advertising revenues. The stations also seek to maximize their local sales
efforts through the use of extensive research and targeted demographic
studies.
Cost Control. Management believes that controlling costs is an essential
factor in achieving and maintaining the profitability of its stations. The
Company believes that by delivering highly targeted audience levels and
controlling programming and operating costs, the Company's stations can
achieve increased levels of revenue and operating cash flow. As the provider
of ABC network programming in each of its market areas, the Company has
entered into long-term stable affiliation agreements. Further, each station
rigorously manages its expenses through project accounting, a budgetary
control process which includes daypart revenue analysis and expense analysis.
Moreover, each of the stations closely monitors its staffing levels. As part
of the planned development of the Birmingham station during Fiscal 1996 and
1997, the Company has made a continuing investment in the start-up operations,
including staffing, programming, marketing and promotional activities.
Owned and/or Operated Stations
WJLA: Washington, D.C.
Acquired by the Company in 1976, WJLA is an ABC network affiliate pursuant to
an affiliation agreement that expires on October 1, 2005. The Station's FCC
license expires on October 1, 2004. Washington, D.C. is the seventh largest
DMA, with approximately 1,928,000 television households. The Company believes
that this position historically permitted stations in this market to earn
higher advertising rates than its other owned and operated stations because
many national advertising campaigns concentrate their spending in the top ten
media markets and on issue-oriented advertising in Washington, D.C. The
Washington market is served by six commercial television stations.
Approximately 46% of WJLA's 24-hours of daily broadcasting time consists of
programming that is either locally produced or purchased from non-network
sources.
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WHTM: Harrisburg-Lancaster-York-Lebanon, Pennsylvania
Acquired by the Company in 1996, WHTM is an ABC network affiliate pursuant to
an affiliation agreement that expires on January 1, 2005. The Station's FCC
License expires August 1, 1999. Harrisburg, Pennsylvania, which consists of
nine contiguous counties located in central Pennsylvania, is the 45th largest
DMA, reaching approximately 588,000 television households. Harrisburg is the
capital of Pennsylvania, and the government represents the area's largest
employer. The Harrisburg market is served by five commercial television
stations, one of which is a VHF station. Approximately 42% of WHTM's 24-hours
of daily broadcasting time consists of programming that is either locally
produced or purchased from non-network sources.
KATV: Little Rock, Arkansas
Acquired by the Company in 1983, KATV is an ABC network affiliate pursuant to
an affiliation agreement that expires on July 31, 2005. The Station's FCC
license expires on June 1, 2005. The Little Rock market is the 56th largest
DMA, with approximately 481,000 television households. The Little Rock market
has a diversified economy, both serving as the seat of state and local
government and housing a significant concentration of businesses in the
medical services, transportation and insurance industries. The Little Rock
market is served by five commercial television stations. Approximately 40% of
KATV's 24-hours of daily broadcasting time consists of programming that is
either locally produced or purchased from non-network sources.
Capitalizing on its exclusive rights to the University of Arkansas basketball
and football schedules through the year 2000, KATV launched ARSN in Fiscal
1994 by entering into programming sublicense agreements with a network of 66
radio stations in four states. Pay-per-view and home video rights are also
controlled by ARSN.
KTUL: Tulsa, Oklahoma
Acquired by the Company in 1983, KTUL is an ABC network affiliate pursuant to
an affiliation agreement that expires on July 31, 2005. The Station's FCC
license expires on June 1, 1998. The application for renewal of the FCC
license will be submitted by February 1, 1998. Tulsa, Oklahoma is the 58th
largest DMA, with approximately 468,000 television households. Because of the
demographic characteristics of the Tulsa DMA, the Company believes many
advertisers consider it an excellent national test market. Consequently, it
believes KTUL derives incremental advertising revenues from advertisers
seeking to test-market new products. The Tulsa market is served by six
commercial television stations. Approximately 50% of KTUL's 24-hours of daily
broadcasting time consists of programming that is either locally produced or
purchased from non-network sources.
WSET: Roanoke-Lynchburg, Virginia
Acquired by the Company in 1996 through the Contribution, WSET is an ABC
network affiliate pursuant to an affiliation agreement that expires on July
31, 2005. The Station's FCC license expires on October 1, 2004. The
hyphenated central Virginia market comprised of Lynchburg,
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Roanoke and Danville is the 68th largest DMA, with approximately 402,000
television households. Lynchburg's economy includes high-tech manufacturing,
cellular communications, nuclear energy and machinery. Danville's chief
industries include textiles, tobacco processing, wood products and tire
manufacturing. Roanoke is one of Virginia's largest metropolitan regions
and a hub of transportation, finance and industry for the southwestern part
of the state. The Lynchburg DMA is served by four commercial television
stations. Approximately 52% of WSET's 24 hours of daily broadcasting time
consists of programming that is either locally produced or purchased from
non-network sources.
WCIV: Charleston, South Carolina
Acquired by the Company in 1996 through the Contribution, WCIV is an ABC
affiliate pursuant to an affiliation agreement that expires on August 20,
2006. The Station's FCC license expires on December 1, 2004. Charleston,
South Carolina is the 117th largest DMA, with approximately 215,000 television
households. Charleston's resurgent port economy has undergone significant
change during the past five years, achieving economic diversification.
Spending by the Department of Defense, however, is expected to continue to
represent a significant portion of the local economy. Tourism has stabilized
as the largest nonmilitary related industry, with about 7.5 million visitors
annually and 40,000 related jobs, followed by medical services and government.
The Charleston DMA is served by five commercial television stations.
Approximately 56% of WCIV's 24 hours of daily broadcasting time consists of
programming that is either locally produced or purchased from non-network
sources.
WBMA-LP/WCFT/WJSU: Birmingham/Tuscaloosa/Anniston, Alabama
The Company acquired WCFT in March 1996 and commenced programming of WJSU
pursuant to the Anniston LMA in December 1995. The Anniston LMA expires on
December 29, 2005. Both stations are ABC affiliates pursuant to an affiliation
agreement that expires on September 1, 2006. The FCC licenses for both
stations expire on April 1, 2005. The Company also owns a low power
television station licensed to Birmingham, Alabama (WBMA-LP). Birmingham,
Alabama is the 51st largest DMA, encompassing approximately 546,000 television
households. Nielsen has given preliminary indications that it will collapse
the Tuscaloosa DMA (187th largest with approximately 58,000 television
households) and the Anniston DMA (201st largest with approximately 43,000
television households) into the Birmingham DMA in the Fall of 1998. The
resulting DMA would be the 39th largest with approximately 627,000 television
households. The combined markets of Birmingham, Tuscaloosa and Anniston are
served by eight commercial television stations, accounting for the Company's
stations as one station.
In connection with the Anniston LMA, the Company entered into an option to
purchase the assets of WJSU (the "Anniston Option"). The cost of the Anniston
Option was $15,348, and it is exercisable for additional consideration of
$3,337. Exercise of the Anniston Option is subject to certain conditions,
including a change in FCC rules or a waiver permitting common ownership of
WCFT and WJSU (see Legislation and Regulation).
The Company serves the combined Birmingham/Tuscaloosa/Anniston market by
simultaneously transmitting identical programming from its studio in
Birmingham over both WCFT and WJSU.
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The stations are listed on a combined basis by Nielsen as WBMA. TV Alabama
has constructed new studio facilities in Birmingham for the programming of
both stations. The Company has retained a news and sales presence in both
Tuscaloosa and Anniston, while at the same time maintaining its primary news
and sales presence in Birmingham. Approximately 35% of TV Alabama's 24 hours
of daily broadcasting time consists of programming that is either locally
produced or purchased from non-network sources.
Competition
Competition in the television industry, including each of the market areas in
which the Company's stations compete, takes place on several levels:
competition for audience, competition for programming (including news) and
competition for advertisers. Additional factors material to a television
station's competitive position include signal coverage and assigned frequency.
The television broadcasting industry is continually faced with technological
change and innovation, the possible rise or fall in popularity of competing
entertainment and communications media and actions of federal regulatory
bodies, including the FCC, any of which could possibly have a material adverse
effect on the Company's operations.
Audience: Stations compete for audience on the basis of program popularity,
which has a direct effect on advertising rates. A majority of the Company's
daily programming is supplied by ABC. In those periods, the stations are
totally dependent upon the performance of the ABC network programs in
attracting viewers. Non-network time periods are programmed by the station
with a combination of self-produced news, public affairs and other
entertainment programming, including news and syndicated programs purchased
for cash, cash and barter or barter-only. Independent stations, the number of
which has increased significantly over the past decade, have also emerged as
viable competitors for television viewership share, particularly as the result
of the availability of first-run network-quality programming from FOX.
The development of methods of television transmission other than over-the-air
broadcasting and, in particular, the growth of cable television has
significantly altered competition for audience share in the television
industry. These alternative transmission methods can increase competition for
a broadcasting station both by bringing into its market area distant
broadcasting signals not otherwise available to the station's audience and by
serving as a distribution system for programming originated on the cable
system. Historically, cable operators have not sought to compete with
broadcast stations for a share of the local news audience. To the extent cable
operators elect to do so, their increased competition for local news audiences
could have an adverse effect on the Company's advertising revenues.
Other sources of competition include home entertainment systems (including
video cassette recorder and playback systems, videodiscs and television game
devices), multipoint distribution systems, multichannel multipoint
distribution systems, wireless cable, satellite master antenna television
systems and some low-power and in-home satellite services. The Company's
television stations also face competition from high-powered direct broadcast
satellite services, such as DIRECT-TV, which transmit programming directly to
homes equipped with special receiving
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antennas or to cable television systems for transmission to their subscribers.
Further advances in technology may increase competition for household
audiences and advertisers. Video compression techniques, now under development
for use with current cable channels, or direct broadcast satellites are
expected to reduce the bandwidth required for television signal transmission.
These compression techniques, as well as other technological developments, are
applicable to all video delivery systems, including over-the-air broadcasting,
and have the potential to provide vastly expanded programming to highly
targeted audiences. Reduction in the cost of creating additional channel
capacity could lower entry barriers for new channels and encourage the
development of increasingly specialized niche programming. This ability to
reach very defined audiences is expected to alter the competitive dynamics for
advertising expenditures. The Company is unable to predict the effect that
technological changes will have on the broadcast television industry or the
future results of the Company's operations.
Programming: Competition for programming involves negotiating with national
program distributors or syndicators which sell first-run and rerun packages of
programming. The Company's stations compete against in-market broadcast
station competitors for off-network reruns (such as "Home Improvement") and
first-run product (such as "The Oprah Winfrey Show") for exclusive access to
those programs. Cable systems generally do not compete with local stations for
programming, although various national cable networks from time to time have
acquired programs that would have otherwise been offered to local television
stations. Competition for exclusive news stories and features is also endemic
to the television industry.
Advertising: Advertising rates are based upon the size of the market area in
which a station operates, the program's popularity among the viewers an
advertiser wishes to attract, the number of advertisers competing for the
available time, the demographic makeup of the market area served by the
station, the availability of alternative advertising media in the market area,
an aggressive and knowledgeable sales forces and the development of projects,
features and programs that tie advertiser messages to programming. The
Company's television stations compete for advertising revenues with other
television stations in their respective markets as well as with other
advertising media, such as newspapers, radio, magazines, outdoor advertising,
transit advertising, yellow page directories, direct mail and local cable
systems. Competition for advertising dollars in the broadcasting industry
occurs primarily in individual market areas. Generally, a television
broadcasting station in the market does not compete with stations in other
market areas. The Company's television stations are located in highly
competitive market areas.
Legislation and Regulation
The ownership, operation and sale of television stations are subject to the
jurisdiction of the FCC under the Communications Act of 1934 (the
"Communications Act"). Matters subject to FCC oversight include, but are not
limited to, the assignment of frequency bands for broadcast television; the
approval of a television station's frequency, location and operating power;
the issuance, renewal, revocation or modification of a television station's
FCC license; the approval of changes in the ownership or control of a
television station's licensee; the regulation of equipment used by television
stations and the adoption and implementation of regulations and policies
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concerning the ownership, operation, programming and employment practices of
television stations. The FCC has the power to impose penalties, including
fines or license revocations, upon a licensee of a television station for
violations of the FCC's rules and regulations.
The following is a brief summary of certain provisions of the Communications
Act and of specific FCC regulations and policies affecting broadcast
television. Reference should be made to the Communications Act, FCC rules and
the public notices and rulings of the FCC for further information concerning
the nature and extent of FCC regulation of broadcast television stations.
License Renewal: Broadcast television licenses generally had been granted for
maximum terms of five years until the Telecommunications Act of 1996 (the
"Telecommunications Act") extended license terms to eight years. License
terms are subject to renewal upon application to the FCC, but they may be
renewed for a shorter period upon a finding by the FCC that the "public
interest, convenience and necessity" would be served thereby. Under the
Telecommunications Act, the FCC must grant a renewal application if it finds
that the station has served the public interest, there have been no serious
violations of the Communications Act or FCC rules, and there have been no
other violations of the Communications Act or FCC rules by the licensee that,
taken together, would constitute a pattern of abuse. If the licensee fails to
meet these requirements, the FCC may either deny the license or grant it on
terms and conditions as are appropriate after notice and opportunity for
hearing.
In the vast majority of cases, television broadcast licenses are renewed by
the FCC even when petitions to deny or competing applications are filed
against broadcast license renewal applications. However, there can be no
assurance that each of the Company's broadcast licenses will be renewed in the
future. All of the stations' existing licenses were renewed for full five or
eight-year terms and are currently in effect.
Programming and Operation: The Communications Act requires broadcasters to
serve the "public interest." Since the late 1970s, the FCC gradually has
relaxed or eliminated many of the more formalized procedures it had developed
to promote the broadcast of certain types of programming responsive to the
needs of a station's community of license. However, broadcast station
licensees must continue to present programming that is responsive to local
community problems, needs and interests and to maintain certain records
demonstrating such responsiveness. Complaints from viewers concerning a
station's programming often will be considered by the FCC when it evaluates
license renewal applications, although such complaints may be filed at any
time and generally may be considered by the FCC at any time. Stations also
must follow various FCC rules that regulate, among other things, political
advertising, sponsorship identifications, the advertisements of contests and
lotteries, obscene and indecent broadcasts and technical operations, including
limits on radio frequency radiation. In addition, most broadcast licensees,
including the Company's licensees, must develop and implement equal employment
opportunity programs and must submit reports to the FCC with respect to these
matters on an annual basis and in connection with a license renewal
application. The FCC also has adopted rules that place additional obligations
on television station operators for maximum amounts of advertising and minimum
amounts of programming specifically targeted for children as well as
additional public information and reporting requirements.
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Digital Television: The FCC has adopted rules for implementing digital
(including high-definition) television ("DTV") service in the United States.
Implementation of DTV is intended to improve the technical quality of
television. Under certain circumstances, however, conversion to DTV operations
may reduce a station's geographical coverage area. The FCC has allotted a
second broadcast channel to each full-power commercial television station for
DTV operation. Under the proposal, stations will be required to phase in their
DTV operations on the second channel over a transition period and to surrender
their non-DTV channel later. Implementation of advanced television service may
impose additional costs on television stations providing the new service, due
to increased equipment costs, and may affect the competitive nature of the
market areas in which the Company operates if competing stations adopt and
implement the new technology before the Company's stations. The FCC has
adopted standards for the transmission of advanced television signals. These
standards will serve as the basis for the phased conversion to digital
transmission.
Ownership Matters: The Communications Act contains a number of restrictions on
the ownership and control of broadcast licenses. Together with the FCC's
rules, it places limitations on alien ownership; common ownership of
broadcast, cable and newspaper properties; and ownership by those persons not
having the requisite "character" qualifications and those persons holding
"attributable" interests in the license.
The FCC's television national multiple ownership rules limit the audience
reach of television stations in which any entity may hold an attributable
interest to 35 percent of total United States audience reach. The FCC's
television multiple ownership local contour overlap rule, the "Duopoly" rule,
generally prohibits ownership of attributable interests by a single entity in
two or more television stations which serve the same geographic market area.
The Telecommunications Act directs the FCC to reevaluate its local ownership
rules to consider potential modifications permitting ownership of more than
one station in a market area. The FCC has proposed to redefine the market
area for purposes of the Duopoly rule from a station's "Grade B" contour to
its DMA so long as there is no "Grade A" overlap in signals of the two
stations. The FCC also seeks comment on whether ownership of two UHF stations
or a UHF/VHF combination should be permissible.
The FCC generally applies its ownership limits to "attributable" interests
held by an individual, corporation, partnership or other association. When
applying its multiple ownership or cross-ownership rules, the FCC generally
attributes the interests of corporate licensees to the holders of corporate
interests as follows: (i) any voting interest amounting to five percent or
more of the outstanding voting power of the corporate broadcast licensee
generally will be attributable; (ii) in general, no minority voting stock
interests will be attributable if there is a single holder of more than fifty
percent of the outstanding voting power of a corporate broadcast licensee and
(iii) in general, certain investment companies, insurance companies and banks
holding stock through their trust departments in trust accounts will be
considered to have an attributable interest only if they hold ten percent or
more of the outstanding voting power of a corporate broadcast licensee.
Furthermore, corporate officers and directors and general partners and
uninsulated limited partners of partnerships are personally attributed with
the media interests of the corporations or partnerships of which they are
officers, directors or partners. In the case of corporations controlling
broadcast licenses through one or more intermediate entities, similar
attribution standards generally apply to
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stockholders, officers and directors of such corporations.
The FCC is conducting rulemaking proceedings to determine whether it should
relax its rules to facilitate greater minority and female ownership of
broadcasting facilities and whether it should modify its rules by (i)
restricting the availability of the single majority shareholder exemption,
(ii) attributing certain interests such as non-voting stock, debt and holdings
in limited liability companies and (iii) changing the attribution benchmarks.
The Company cannot predict the outcome of these proceedings or how they will
affect the Company's business. In light of the FCC's multiple ownership and
cross-ownership rules, an individual or entity that acquires an attributable
interest in the Company may violate the FCC's rules if that acquirer also has
an attributable interest in other television or radio stations, or in cable
television systems or daily newspapers, depending on the number and location
of those radio or television stations, cable television systems or daily
newspapers. Such an acquirer also may be restricted in the companies in which
it may invest, to the extent that those investments give rise to an
attributable interest. If an individual or entity with an attributable
interest in the Company violates any of these ownership rules, the Company may
be unable to obtain from the FCC the authorizations needed to conduct its
television station business, may be unable to obtain FCC consents for certain
future acquisitions, may be unable to obtain renewals of its licenses and may
be subject to other material adverse consequences.
Under its "cross-interest policy," the FCC considers certain "meaningful"
relationships among competing media outlets in the same market, even if the
FCC's ownership rules do not specifically prohibit these relationships. Under
this policy, the FCC may consider significant equity interests combined with
an attributable interest in a media outlet in the same market, joint ventures
and common key employees among competitors. The cross-interest policy does not
necessarily prohibit all of these interests but requires that the FCC consider
whether, in a particular market, the "meaningful" relationships among
competitors could have a significant adverse effect upon economic competition
or program diversity. Neither the Company nor, to the best of the Company's
knowledge, any officer, director or shareholder of the Company holds an
interest in another radio or television station, cable television system or
daily newspaper that is inconsistent with the FCC's ownership rules and
policies.
Related to the Duopoly rule, the FCC has proposed the adoption of rules that
would modify the current treatment of the control and ownership attribution
with respect to LMAs entered into by television stations. The FCC proposes
that time brokerage of any other television station in the same market for
more than fifteen percent of the brokered station's weekly broadcast hours
would result in counting the brokered station toward the brokering licensee's
national and local multiple ownership limits. The FCC has proposed that LMAs
in existence prior to November 6, 1996 be grandfathered for the length of
their terms so as not to place owners of stations in violation of the rules if
such owners also program another station pursuant to such LMAs. Although the
Company cannot predict the outcome of this proceeding, if the local multiple
ownership rules are not relaxed as proposed, attribution could preclude
television LMAs in any market where the time broker owns or has an
attributable interest in another television station. Changes by the FCC in its
current policy regarding LMAs for television stations could potentially have a
material adverse effect on the Anniston LMA, which, in turn, could jeopardize
the Company's ABC affiliation in the Birmingham, Tuscaloosa and Anniston
markets.
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Additional Competition in the Video Services Industry: The Telecommunications
Act also eliminates the overall ban on telephone companies offering video
services and permits the ownership of cable television companies by telephone
companies in their service areas (or vice versa) in certain circumstances.
Telephone companies providing such video services will be regulated according
to the transmission technology they use. The Telecommunications Act also
permits telephone companies to hold an ownership interest in the programming
carried over such systems. Although the Company cannot predict the effect of
the removal of these barriers to telephone company participation in the video
services industry, it may have the effect of increasing competition in the
television broadcast industry in which the Company operates.
Other Legislation: Finally, Congress and the FCC have under consideration, and
in the future may consider and adopt, (i) other changes to existing laws,
regulations and policies or (ii) new laws, regulations and policies regarding
a wide variety of matters that could affect, directly or indirectly, the
operation, ownership and profitability of the Company's broadcast stations,
result in the loss or gain of audience share and advertising revenues for the
Company's stations and/or affect the ability of the Company to acquire or
finance additional broadcast stations.
Employees
As of September 30, 1997, the Company employed in full-time positions 814
persons, including 197 at WJLA, 109 at KATV, 106 at KTUL, 101 at WHTM, 123 at
WCFT/WJSU/WBMA, 93 at WSET, 72 at WCIV and 13 in its corporate office. Of the
employees at WJLA, 94 are represented by three unions: the American Federation
of Television and Radio Artists ("AFTRA"), the Directors Guild of America
("DGA") or the National Association of Broadcast Employees and
Technicians/Communications Workers of America ("NABET/CWA"). The AFTRA
contract was renegotiated effective June 1, 1996 through September 30, 1999.
The DGA contract was renegotiated effective July 16, 1996 through January 16,
2000. The NABET/CWA contract expired June 1, 1995. Members of this union have
been working without a contract since that time. WJLA management is in the
process of negotiating a new contract and anticipates resolving the outstanding
issues without any material adverse impact to the station. No employees of the
Company's other owned and/or operated stations are represented by unions. The
Company believes its relations with its employees are satisfactory.
Environmental Matters
The Company is subject to changing federal, state and local environmental
standards, including those governing the handling and disposal of solid and
hazardous wastes, discharges to the air and water and the remediation of
contamination associated with releases of hazardous substances.
In particular, the Company is subject to liability under the Comprehensive
Environmental Response, Compensation and Liability Act, the Resource
Conservation and Recovery Act and analogous state laws for the investigation
and remediation of environmental contamination at properties owned and/or
operated by it and at off-site locations where it has arranged for the
disposal of hazardous substances. Courts have determined that liability under
these laws is, in most cases, joint and several, meaning that any responsible
party could be held liable for all costs
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necessary for investigating and remediating a release or threatened
release of hazardous substances.
WCIV is currently involved in remediating contamination associated with
releases of hazardous substances at its transmitter site. In September 1994,
approximately 2,000 gallons of electric generator fuel spilled from an
above-ground tank on the premises of WCIV. With the assistance of
environmental consultants and under supervision of the South Carolina
Department of Health and Environmental Control ("SCDHEC"), WCIV has undertaken
remediation of the contamination by installing wells for recovery of free
product and monitoring wells. Based upon the scope of the remediation required
as determined by the environmental consultants, the Company has estimated that
any remaining costs associated with the monitoring wells and related testing
are nominal. However, there can be no assurance that SCDHEC will not require
further remedial activities.
In October 1994, the Pennsylvania Department of Environmental Resources (the
"Pennsylvania Department") notified WHTM that it should remediate soils and
groundwater believed to be adversely affected by contamination associated with
an underground tank. The station's environmental consultant has advised the
Pennsylvania Department that it appears that contamination remaining on WHTM's
property did not emanate from its underground tank, which has been removed,
but is from an offsite source and that there is no threat to human health or
the environment which requires remediation. The matter remains unresolved.
In August 1995, concentrations of certain metals including arsenic, barium,
chromium and lead in the soil of a septic leach field were discovered on the
property of WCFT. The Company has been advised that these concentrations are
in the range of background concentrations for the area. The State of Alabama
is in the process of developing cleanup standards relating to such
concentrations of metal, and it is therefore uncertain what, if any,
remediation will be necessary.
Although there can be no assurance of the final resolution of these matters,
the Company does not believe that the amount of its liability at these
properties individually, or in the aggregate, will have a material adverse
effect on the Company's consolidated financial condition, results of
operations or cash flows.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ALLBRITTON COMMUNICATIONS COMPANY
By: /s/ Lawrence I. Hebert
-----------------------
Lawrence I. Hebert
President
Date: February 9, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and as of the dates indicated.
/s/ Joe L. Allbritton Chairman, Principal February 9, 1998
- --------------------------
Joe L. Allbritton * Executive Officer and
Director
/s/ Barbara B. Allbritton Vice President and February 9, 1998
- --------------------------
Barbara B. Allbritton * Director
/s/ Robert L. Allbritton Executive Vice President, February 9, 1998
- --------------------------
Robert L. Allbritton * Chief Operating Officer
and Director
/s/ Lawrence I. Hebert Vice Chairman, President February 9, 1998
- --------------------------
Lawrence I. Hebert and Director
/s/ Frederick J. Ryan, Jr. Vice Chairman, Senior February 9, 1998
- --------------------------
Frederick J. Ryan, Jr. * Vice President and
Director
/s/ Henry D. Morneault Vice President and February 9, 1998
- --------------------------
Henry D. Morneault Chief Financial Officer
/s/ Stephen P. Gibson Vice President and February 9, 1998
- --------------------------
Stephen P. Gibson Controller
*By Attorney-in-Fact
/s/ Jerald N. Fritz
- -------------------
Jerald N. Fritz
