Paxson Communications Corporation History

Company Perspectives:

PAX TV has made a promise to deliver family entertainment television that's free of senseless violence, free of explicit sex, and free of foul language. In the network's first ten months on the air, viewers have responded to that PAX promise--and to its programs. America's families have made PAX TV the fastest growing broadcast television network in history. Key Dates:

Key Dates:

1991:

Lowell Paxson establishes Paxson Communications Corporation in Clearwater, Florida, as a private company to acquire Florida radio stations.

1994:

Paxson acquires American Network Group and becomes a public company; company acquires its first television station, WPBF-TV serving West Palm Beach, Florida.

1995:

Paxson relocates company headquarters to West Palm Beach.

1996:

Telecommunications Act of 1996 changes ownership rules governing radio and television stations.

1997:

Paxson sells its radio stations to Clear Channel Communications for $693 million.

1998:

Paxson launches the United States' seventh broadcast network, Pax TV.

1999:

National Broadcasting Company, Inc. (NBC) invests $415 million in Paxson for a 32 percent interest in the company.

Company History:

Paxson Communications Corporation was founded in 1991 by Lowell 'Bud' Paxson, the man who cofounded the Home Shopping Network in the early 1980s. After building a Florida radio station empire in the early 1990s, Paxson sold that business in 1997 to Clear Channel Communications for $693 million. The company had acquired its first television station in 1994. Following passage of the Telecommunications Act of 1996, Paxson began aggressively acquiring UHF stations throughout the United States. At first the stations were part of Paxson's Infomall TV Network (inTV), which broadcast infomercials and other types of long-form paid programming. Then in 1998 Paxson launched Pax TV, the United States' seventh broadcast network, and replaced much of its infomercial programming. Toward the end of 1999 NBC purchased a 32 percent interest in the company, with an option to acquire up to 49 percent ownership in 2002 if the Federal Communications Commission (FCC) increased its limits regarding ownership of television stations.

Background and Early History to 1993

Lowell 'Bud' Paxson bought his first radio station in 1956. In 1978 he sold electric can openers on his Pinellas County, Florida, radio station, paving the way for the St. Petersburg-based Home Shopping Network (HSN), which Paxson cofounded with attorney and real estate investor Roy Speer in the early 1980s. Paxson became president of HSN, which went public in 1986. He resigned in 1990 and founded Paxson Communications, selling 12.8 million shares of his HSN stock for $68.9 million. In 1991, Paxson's first year of operation, the company had revenue of $650,000. By 1992 revenues were $17 million and, just a year later, $32 million.

Paxson built a Florida radio empire in just a few years, starting in 1991 with the acquisition of WHPT-FM and WHNZ-AM, serving the Tampa Bay market, for $6.4 million. In 1992 Paxson acquired an AM-FM station in Miami for $14.6 million, an AM station in Orlando, and an FM station in Jacksonville. In late 1992 Paxson started the Christian Network, a nonprofit charity that aired gospel-oriented music videos, Bible discussions, and other religious programming. He continued to support the network financially, but was not active in its management.

In 1993 the company acquired another FM station in Miami for $10.9 million, an AM-FM combination in Orlando for $5.6 million, and one AM and one FM station in Jacksonville for a total of $7.2 million. It also acquired a second FM station in Tampa, another FM station in Orlando, and another AM-FM combination in Jacksonville. In 1993 Paxson held a 12.3 percent share of Florida's $260 million radio market.

Going Public, Acquiring Television Stations: 1994

In 1994 Paxson transformed itself into a public company by acquiring 55 percent of the publicly held American Network Group (ANG) for $2.5 million. At the time Paxson was valued at $107 million and owned 13 radio stations, all in Florida, and the Florida Radio Network. Paxson wanted to become a public company without having to incur costs associated with an initial public offering (IPO). Becoming a public company gave Paxson access to public capital to fuel the company's growth through acquisitions.

By April 1994 Paxson had acquired 4.4 million shares of American Network's common stock, or about 68 percent. Following approval of the merger by American Network Group's shareholders, who would receive one share of Paxson stock for nearly four shares of ANG stock, Paxson's shares began trading on the NASDAQ small-cap market and the Boston Stock Exchange in November 1994.

Paxson also acquired its first television station in 1994 when it purchased WPBF-TV, the ABC network affiliate in West Palm Beach, Florida. Other television stations acquired in 1994 included WTLK-TV, an independent station serving Atlanta and Rome, Georgia, and WYVN-TV in Martinsburg, West Virginia, for $1.9 million. Before the end of 1994 Paxson had also committed to buy a television station in San Bernardino, California, for $18 million, that served the Los Angeles area; a religious television station in San Jose, California; and a television station in New London, Connecticut, for $25.8 million.

At the end of 1994 Paxson declared a 50 percent stock dividend, which increased the company's shareholder equity by $33 million. For 1994 the company had revenues of $62 million, with 80 percent coming from radio. It reported a net loss of $8.1 million and had yet to turn a profit.

Developed Infomall TV Network: 1995-96

In 1995 Paxson relocated its company headquarters from Clearwater to West Palm Beach. Paxson planned to own television stations in 18 of the top 20 markets by the end of 1995. The company created a new television division, Paxson Communications TV, naming Dean Goodman, former general manager of three Miami radio stations and a television station, as president. The company's strategy was to acquire independent television stations, most of them UHF stations on the fringes of major markets, and create a television infomercial network called the Infomall TV Network, or inTV.

Paxson hoped that 'must-carry' rules, which required cable systems to carry local broadcast signals, would extend the reach of the company's stations. However, the cable industry was preparing to fight the must-carry rules in court, especially regarding having to carry stations with infomercial programming. Paxson's infomercial clients included Apple Computer, Toyota, Fidelity Investments, Estée Lauder, and Time-Life. To meet public interest requirements, Paxson's stations also carried children's programming during the day as well as local public affairs, news, and event programming, with advertising coming from local merchants and professionals.

During 1995 Paxson paid $40 million to ValueVision International Inc. for two stations, WHAI-TV in Bridgeport, Connecticut, and ABC affiliate WAKC-TV in Akron, Ohio. When the deal closed in March, Paxson owned ten television stations. For fiscal 1995 Paxson reported a net loss of $46.8 million. Its long-term debt had risen 179 percent to $240 million.

The Telecommunications Act of 1996, passed in February 1996, changed the rules governing ownership of radio and television stations. Under the old rules, companies could not own more than two AM and two FM stations in a single market without special waivers. The new law allowed companies to own eight overlapping radio stations in a local market. The legislation also removed the 12-station cap affecting ownership of television stations.

Following passage of the Telecommunications Act, Paxson became more aggressive in acquiring radio and television stations. The company was attempting to assemble a UHF station group covering 20 of the top 30 U.S. markets for its Infomall TV Network, known as inTV. It had already bought 17 UHF stations in the past two years, some of which were run under management agreements. With the television stations acquired in 1996, Paxson's Infomall TV Network (inTV) would reach nearly 50 million households.

Paxson's strategy was to acquire underperforming television stations and replace existing programming with inTV. During 1996 it bought a station serving Burlington, North Carolina, for $5 million from TV Communications; signed a local marketing agreement to operate a television station in Athens, Georgia; and entered into a joint venture with Offshore Broadcasting Corp. to co-own a television station in Providence, Rhode Island. It acquired television stations in Minneapolis/St. Paul; Albany, New York; Gadsden/Birmingham, Alabama; Ogden/Salt Lake City, Utah; and Sacramento, California. It added another television station in a top 15 market with the purchase of KBCB in Bellingham/Seattle, Washington, giving Paxson television stations in 13 of the top 15 markets.

The company also expanded its holdings of Florida radio stations during 1996. It bought two local stations in Miami, then purchased nine radio stations in the Florida Panhandle from Southern Broadcasting Cos.--including five in Tallahassee, two in Pensacola, and two in Panama City--and WDIZ-FM in Orlando from Shamrock Communications for a total of $43.5 million. Paxson also acquired WIOD-AM, the leading English-language news/talk radio station in Miami, for $13 million from Cox Broadcasting Inc. and announced plans to acquire three Panama City stations from B. Radio and Boss Radio Group, bringing the number of radio stations Paxson would own to 38. Later in the year Paxson acquired its sixth Orlando radio station and a sixth radio station in Jacksonville.

The company also owned numerous billboard locations, which were used to promote Paxson's radio and television stations. In June 1996 Paxson acquired Cashi Signs of Orlando, which owned 72 local billboards with 169 advertising faces, for $4 million. At the time Paxson reportedly owned 333 billboards in Florida.

During fiscal 1996 Paxson registered with the Securities and Exchange Commission (SEC) to sell 150,000 shares of nonvoting stock to raise $150 million for use in acquiring more radio and television stations or entering into time brokerage agreements with them. The company's television division brought in $60.9 million in revenues, a 105 percent increase from $29.7 million in 1995. Overall, the company had $144.5 million in revenues, a 67 percent increase from 1995. It reported a net loss of $48 million, due mainly to acquisition expenses and debt repayments.

Acquiring More TV Stations, Divesting Radio Stations: 1997

Paxson had begun expanding inTV programming to include a variety of news, sports, and entertainment. Analysts speculated that Paxson and other infomercial broadcasters were diversifying their programming in anticipation of a Supreme Court review of must-carry rules, which gave local stations access to an estimated 40 million cable subscribers. When the Supreme Court upheld the must-carry rules, which were part of the Cable Act of 1992, Paxson's stock rose more than 20 percent in one day. The news was good for independent station owners, whose programming would be carried on cable systems, but bad for cable networks such as C-Span and The Golf Channel that were struggling to find a place on those systems. Following the Supreme Court ruling, Paxson received offers from at least ten major television companies--including the top four broadcast networks--interested in buying airtime on Paxson's network of stations.

In order to raise funds to acquire more Florida radio properties and independent television stations for inTV, Paxson divested its two West Palm Beach television stations, selling its ABC affiliate, WPBF-TV, to The Hearst Corporation for $85 million, and its UPN affiliate WTVX-TV to the Paramount Television Group for $34.3 million. At the time Paxson owned 43 radio stations--39 of them in Florida--and had 47 television stations affiliated with inTV that reached 54 percent of U.S. households. It also owned more than 500 Florida billboard locations.

Television acquisitions in 1997 included its fourth California station, KKAG-TV in Porterville/Fresno, for $7.96 million in cash. The company entered the Pittsburgh market with the $35 million acquisition of WPCB-TV from Cornerstone TeleVision. The company also purchased television stations in St. Petersburg and Miami. However, its biggest acquisition was WINS-TV in New York, which it bought from ITT and Dow Jones for $257.5 million. Paxson changed the station's call letters to WPXN and made it the company's flagship station. It planned to replace the station's business and sports format with network programming. In June Paxson and Bloomberg Television signed an agreement for Bloomberg to provide WPXN with news and information programming from 6 a.m. to 6 p.m. for five days a week. Paxson also made its first announcement regarding a broadcast network, which it planned to launch in September 1998.

The acquisition of WINS-TV gave Paxson its 50th television station, with national coverage growing to 57 percent. The legal limit for UHF stations was 70 percent of the country, which Paxson planned to reach by the end of 1998. In other 1997 transactions Paxson acquired inactive television stations in Cedar Rapids/Dubuque, Iowa, and Batavia/Buffalo, New York. It also acquired WVVI-TV in Washington, D.C., and television stations in Raleigh, North Carolina; Charleston, West Virginia; and Tucson, Arizona. The deals gave Paxson 62 stations and coverage of more than 60 percent of all U.S. television households.

Paxson acquired The Travel Channel for $75 million in June from Landmark Communications, including $20 million in cash and $55 million in stock. In September Paxson sold a controlling 70 percent interest in The Travel Channel to The Discovery Channel for $20 million.

After 44 years in the radio industry, Lowell Paxson announced that Paxson Communications would sell its radio division for $693 million in cash to Texas-based Clear Channel Communications. The sale involved 46 radio stations, including 42 in Florida, as well as Paxson's six sports and news networks and expansion Arena Football League and American Hockey League teams. It also included Paxson's billboards. The sale left Paxson free to concentrate on its television business, and the company began announcing plans to create a seventh broadcast network.

For fiscal 1997 Paxson's revenues exceeded $88 million, a 41 percent increase over 1996 revenues of $62 million. However, operating losses grew to nearly $22 million compared to $4 million in 1996.

Launching a New Broadcast Network: 1998

Details of Paxson's proposed broadcast network began to emerge in November 1997. Originally to be called Pax Net, the network would be focused on 'family values.' Unable to sell Hollywood on the idea of buying airtime and assuming the risk of getting advertisers, Paxson began making offers to buy network programming.

Pax Net announced its flagship show would be 'Touched by an Angel,' for which it paid a reported $950,000 per episode. Scheduled to debut August 31, 1998, the network's other prime-time shows included 'Promised Land'; 'Dr. Quinn, Medicine Woman'; 'Dave's World'; and three original shows, including a late night talk show. Infomercials were expected to occupy morning-to-afternoon slots on weekends. Religious programming would be shown after midnight. The network's target audience was women between the ages of 25 and 54.

In January 1998 Paxson bought the off-network rights at the industry convention of the National Association of Television Program Executives (NATPE) for 'Diagnosis Murder' and 'The Father Dowling Mysteries,' and exclusively produced shows of the World Wrestling Federation (WWF). Later in the year Paxson reached an agreement with DIC Entertainment, a Walt Disney subsidiary, to provide weekend children's programming for Pax Net.

In addition to obtaining off-network and original programming for its new broadcast network, Paxson was making carriage deals with major cable operators. It sealed a nationwide cable distribution pact with Tele-Communications Inc. (TCI). Comcast Corp., the fourth largest cable company with more than 4.3 million subscribers, signed an agreement to carry Pax Net in areas where Paxson did not own a station or have an affiliate. As the August 31 launch day approached, Paxson signed carriage deals with other cable operators, including 15th-ranked TCA Cable TV and 10th-ranked Intermedia Partners, which added nearly two million cable subscribers to Pax Net's potential audience.

Paxson continued to purchase television stations in 1998, including WCFC-TV in Chicago for $120 million, which made Paxson the first television group to own stations in all top 20 markets in the United States. Other acquisitions included WFHL-TV of Champaign/Decatur, Illinois; three low-power stations in Seattle, Indianapolis, and Portland, Oregon, from ValueVision for $25 million; a second low-power station in Seattle for $10 million from ValueVision; and KBSP-TV, a full-power station serving Portland, Oregon, from Blackstar LLC. To raise funds Paxson sold WOAC-TV, a full-power station serving the Cleveland market, to Shop At Home for $23 million. It also sold its interest in Atlanta station WNGM-TV to USA Broadcasting Inc. and exercised its right to acquire WPXP-TV of West Palm Beach from Hispanic Broadcasting Inc. The company gained permits to construct full power stations in seven other markets.

The company planned to hire 600 new employees, including about 500 ad sales representatives at local stations and up to 100 new employees for the corporate headquarters in West Palm Beach. Jeff Sagansky, former president of CBS Entertainment and more recently co-president of Sony Pictures Entertainment, was named president and CEO of Paxson Communications and would oversee the launch of Pax Net. Sagansky would report to Chairman Lowell Paxson.

When Pax TV (the 'Net' was quietly dropped) launched on August 31, 1998, its weekday prime-time schedule featured daily reruns of 'Touched by an Angel,' 'Dr. Quinn, Medicine Woman,' and 'Diagnosis Murder.' The lineup was considered fairly tame in comparison to those of two other newly launched networks, UPN and WB, which offered original prime-time shows. Unlike WB and UPN, Pax TV would broadcast 24 hours a day.

Wall Street was also not confident of Pax TV's chances for success, driving down Paxson's stock from a 52-week high in April 1998 of $13.81 to $10.18. Citing 'high financial risk,' Standard & Poor's had downgraded Paxson's debt rating to B from B+ just prior to the launch.

The network's audience potential was 76 percent of all U.S. television households. Paxson owned 78 of its 95 affiliates and had carriage arrangements with several cable operators. Some of Pax TV's affiliates were owned by D.P. Media Inc., which was owned by Lowell Paxson's son Devon Paxson, and his wife, Roslyck Paxson.

Paxson expected that start-up costs for the new network would result in a $90 million net loss for 1998, but it expected to break even in 1999 with a 1.0 national household rating, or about one percent of the approximately 100 million U.S. television households. That target would put Pax on a par with such cable networks as USA Network, ESPN, and TBS. Overnight ratings following the launch indicated that local ratings varied from a 3.3 household rating in New Orleans and Sacramento to no measurable viewing activity in Columbus, Ohio, and Jacksonville, Florida. In its second week on the air Pax TV's prime-time lineup drew a 1.0 household rating in 33 of 40 markets measured by Nielsen Media Research.

For fiscal 1998 Paxson reported that its working capital had shrunk to $1.8 million. Its net loss was $137.9 million, while total revenues rose 52 percent to $134.2 million.

A Partner in NBC: 1999 and Beyond

During the first half of 1999 Paxson sold three stations (located in Dayton, Ohio; Green Bay, Wisconsin; and Champaign, Illinois) to Acme Television for $40 million. In addition Paxson acquired an independent Pittsburgh station from Cornerstone Television for an estimated $30 million and agreed to assume operations of the WB affiliate in Louisville, Kentucky. The company was also searching for a larger corporate headquarters.

In August 1999 the FCC approved new rules that allowed companies to own more than one television station in the same market. The ruling was expected to increase the value of Paxson's 'fringe' stations and helped Paxson's stock hit a 52-week high before closing at around $14 a share. The company also hired investment banker Salomon Smith Barney to explore the possibility of merging or selling its assets to another party. Paxson hinted that it would be interested in selling up to 32 percent of its stock to one of the big four networks in exchange for a programming alliance. At the time Paxson owned or operated 72 stations reaching 76 percent of U.S. television households.

By September Paxson had found its suitor in NBC, which invested $415 million in new Paxson stock, giving it 32 percent of Paxson's common stock. NBC's investment had to be less than 33 percent to meet existing FCC ownership rules. After February 1, 2002, NBC would have the option to acquire up to 49 percent of Paxson for $1.2 billion, but only if the FCC raised its current ownership limit. NBC saw Paxson as giving it a second path of distribution for its entertainment programming.

Prior to NBC's investment Paxson was struggling financially. Through June 1999 it had reported a negative net operating cash flow of $102.6 million and was carrying long-term debt of $382 million. It was also behind in its licensing payments for Pax TV programming. Paxson said it would use the $415 million to complete about $120 million worth of station acquisitions as well as to meet working capital needs and to expedite digital conversion of Paxson's 72 stations.

It was expected that NBC's investment in Paxson, together with Viacom's $35.9 billion purchase of CBS, would put pressure on federal regulators to change the rules affecting ownership of television stations. The rules in effect prohibited companies from owning VHF stations that reached more than 35 percent of the national audience or UHF stations that reached more than 70 percent, since UHF stations counted as half a market. The major networks were lobbying for a 50 percent cap. Those opposed to raising the limit were the National Association of Broadcasters (NAB), some individual station owners, and station groups, who feared that it would put too much power in the hands of the large networks.

When the terms of NBC's agreement with Paxson were revealed, it became clear that NBC was more of an equal partner than a minority shareholder. According to documents filed with the Securities and Exchange Commission (SEC), NBC would have approval authority over Paxson's budgets, program acquisitions, and development, and even the hiring of employees. NBC would also determine Paxson's marketing and sales strategy. For the next ten years NBC would have the right to convert any Pax TV stations in the top 50 markets to NBC affiliates. Paxson would need NBC's approval to sell any of its stations in the top 20 markets, or to sell any stations that would result in Pax TV's national coverage falling below 70 percent. NBC also had the right of first refusal to acquire any Paxson station in the top 50 markets. In return, Pax TV might be able to broadcast episodes of popular NBC shows. Paxson was also considering asking CNBC to develop financial programming targeted to its core audience of women between 25 and 54 years of age.

Following NBC's investment, Paxson acquired nine stations, including eight Pax TV affiliates, from D.P. Media for about $135 million. In January 2000 Standard & Poor's raised Paxson's debt rating from B to B+, citing the positive implications following NBC's investment in the company.

Principal Competitors: American Broadcasting Co., Inc. (ABC); Columbia Broadcasting System, Inc. (CBS); FOX Broadcasting Co.; United Paramount Network (UPN); Warner Bros. Television Network.

Further Reading:

• Beall, Pat, 'Partner's Public Status Key to Paxson Merger,' Orlando Business Journal, June 24, 1994, p. 16.
• Boliek, Brooks, 'Paxson-NBC Heats up Ownership Debate,' Back Stage, September 24, 1999, p. 55.
• Brown, Sara, 'Paxson Goes 20 for 20,' Broadcasting & Cable, February 2, 1998, p. 9.
• ------, 'Paxson Makes Cable Connections,' Broadcasting & Cable, August 3, 1998, p. 17.
• Deggans, Eric, 'Infomercial King Paxson Buying Two Florida TV Stations,' Knight-Ridder/Tribune Business News, May 6, 1997.
• Freeman, Michael, 'Paxson: Beyond Infomercials,' Mediaweek, March 3, 1997, p. 8.
• ------, 'Paxson Pacts for Programs,' Mediaweek, November 10, 1997, p. 5.
• Goldsmith, Jill, 'Paxson on Block After FCC Ruling,' Variety, August 16, 1999, p. 22.
• Gunther, Marc, 'Will Uncle Bud Sell Hollywood?,' Fortune, August 18, 1997, p. 185.
• Larson, Megan, 'It's Wright Time at Pax,' Mediaweek, September 20, 1999, p. 5.
• Levine, Felicia, 'Radio, TV Giant Picks West Palm,' South Florida Business Journal, December 16, 1994, p. 1A.
• ------, 'TV's Next Frontier: Paxson Plans Infomercial Network,' South Florida Business Journal, January 20, 1995, p. 1A.
• Littleton, Cynthia, and John Dempsey, 'Paxson Eyes Seventh Heaven,' Variety, November 10, 1997, p. 21.
• Lunsford, Darcie, 'Network Drama: Finding a Home,' South Florida Business Journal, May 28, 1999, p. 1A.
• McClellan, Steve, 'Bud Paxson Sets His Sights to Be Lucky Number 7,' Broadcasting & Cable, June 30, 1997, p. 42.
• ------, 'The Peacocking of Pax,' Broadcasting & Cable, October 11, 1999, p. 68.
• McClellan, Steve, and Joe Schlosser, 'Paxson Goes for 7th,' Broadcasting & Cable, October 27, 1997, p. 4.
• ------, 'Paxson in a Family Way,' Broadcasting & Cable, November 10, 1997, p. 10.
• 'New Pax Net Plans `Wholesome' Shows,' Television Digest, November 24, 1997, p. 2.
• Ostrowski, Jeff, 'Paxson Sorts Through Suitors for TV Time,' South Florida Business Journal, May 2, 1997, p. 1.
• Peers, Martin, 'Paxson's Maxin' His Station Empire,' Variety, June 23, 1997, p. 25.
• Petrozzello, Donna, 'Paxson Buys Travel Channel,' Broadcasting & Cable, June 23, 1997, p. 56.
• ------, 'Paxson Goes Public,' Broadcasting & Cable, November 14, 1994, p. 54.
• Piotrowski, Michael A., 'From the Public Airwaves to the Public Markets,' Tampa Bay Business Journal, April 29, 1994, p. 1.
• Pursell, Chris, 'Pax in State of Flux,' Variety, November 1, 1999, p. M19.
• Spiegel, Peter, 'Thanks, Partner,' Forbes, May 19, 1997, p. 146.
• Torpey-Kemph, Anne, 'Paxson Juggles Stations,' Mediaweek, March 29, 1999, p. 24.
• Whitefield, Mimi, 'Paxson Communications' TV Stations May Be Network,' Knight-Ridder/Tribune Business News, July 1, 1997.
• Zbar, Jeff, 'The Bud Paxson Show,' Florida Trend, June 1995, p. 54.
• Zier, Julie A., 'Paxson Building Infomercial Net: HSN Co-Founder Purchasing UHF Fringe Stations, Seeking Affiliates at NATPE,' Broadcasting & Cable, January 16, 1995, p. 102.

Source: International Directory of Company Histories, Vol. 33. St. James Press, 2000.

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