The Hyperscale Sweepstakes

We are willing to bet that you likely aren’t using the word hyperscaling in everyday conversations. At least, not yet. We sure aren’t, but we have seen the word pop up more and more as we read about the continuing growth — and fear — around the technology collectively known as artificial intelligence.

Hyperscaling, as you might guess, is the verb applied to what is known as hyperscale computing. In the IT world, hyperscale computing is “the ability of an IT architecture to seamlessly scale (grow) computing, storage, and networking resources to meet massive demand.” Hyperscaling is at the foundation of modern cloud computing and, in turn, AI. Put more directly, it is the idea where, instead of building or upgrading a single machine, providers add thousands of servers to a distributed network.

Hyperscaling is really just the tech world’s term for what civilians might mean by something going from the proverbial “zero to one hundred” in no time at all. The tech management philosophy that springs from this (also known as the Bari Weiss school of management) is encapsulated in the pithy phrase: “Move fast and break things.”

Speaking of the broadcasting business, which is what we do here, we think of the current poster boy for hyperscaling, Nexstar Chairman and CEO Perry Sook. As you surely know by now, his argument for the future of local television is that, to survive the battle for the future of media against tech giants like Google, Amazon, and Apple, it has to get bigger.

It has to hyperscale.

Mr. Sook has taken to various outlets lately to make his case for growth and, in turn, to get the approval needed to basically end-run any current federal regulations that would require him to limit his company’s growth by acquiring more local television stations. That’s the current legal purgatory he finds himself in with the acquisition of rival group owner TEGNA. And it appears that the fight is headed for a federal courtroom in roughly a year from now.

In other words, Nexstar tried to move fast, and it broke things.

Now, TEGNA is operating as a separate, but wholly owned subsidiary of Nexstar Media Group. It has a new CEO and C-suite of officers as it continues to operate a portfolio of 64 local TV stations in 51 markets across the country. The acquisition of TEGNA by Nexstar was approved by both the FCC and the Department of Justice. But it turned out that a group of state Attorneys General had filed a motion to block the already-closed deal.

So now, the whole mess will likely be sorted out in a federal courtroom, and that won’t happen until sometime in the summer of 2027.

Meanwhile, Perry Sook isn’t showing any signs of worry. He made a bit of news this week when it was reported that he bought nearly 2 million dollars worth of Nexstar stock with his own money. The purchase puts Sook’s holdings in the company he founded at just shy of 900,000 shares, worth roughly $160 million. He and his wife “indirectly control” roughly another 976,000 shares through a holding company (“PS Sook Ltd.”), which would be valued at an additional $174 million.

In other words, he definitely can afford the purchase.

The buy did help move the stock off its recent 52-week lows; it gained nearly 5% in trading after Sook’s purchase was reported and closed on the last day of June at $178.59. Given that, over the last year, NXST shares traded above $250 per share at their peak, industry analysts would note that it was a bargain to buy.

(We will take a moment to remind you, dear reader, that this reporting should not be taken as financial advice of any kind. Based on our current 401(k) investments, we are the last people you should look to for any financial wisdom.)

Speaking of wealthy folks making investments in media, allow us to direct your attention to a purchase on the radio side of the broadcast industry. David Hoffmann, who controls the Hoffmann family of companies and last year bought a controlling interest in Lee Enterprises, a major newspaper publisher that owns the St. Louis Post-Dispatch, has purchased the six St. Louis radio stations owned by Audacy, Inc. That group includes the heritage 50kw AM station, KMOX.

It’s a purchase of local interest for Mr. Hoffmann. The billionaire founder of DHR Global, the world's largest privately held executive search firm, Hoffmann grew up in Washington, Missouri, just 50 miles west of St. Louis. Among the “family of companies,” Hoffmann Commercial Real Estate has considerable holdings near its current home, in nearby Augusta, Missouri. He stepped down as CEO of the Hoffmann family of companies in 2022, because “my wife and I wanted more time to spend on our investments in Augusta.”

Whatever Hoffmann’s motivation is to grow his media holdings in St. Louis, the transaction removes Audacy, the nation’s second-largest radio company, from the country’s 25th-largest market. Audacy, like most major players in the radio business, has had a tough financial time since its 2017 merger with CBS’s radio stations division. (It was known as Entercom back then; it changed its name to Audacy in 2021.) Now the company is privately owned, with Soros Fund Management having a controlling interest.

Audacy isn’t alone in struggling with the business of owning and operating a lot of radio stations. Its portfolio of 220 stations (before the St. Louis sale) was built beginning in the “go-go” years of the 1990’s, following FCC deregulation on how many radio stations a single company could own. At that time, the company followed the rush to acquire as many radio stations as possible, following the lead of Clear Channel Communications. Clear Channel became iHeartMedia in 2014, now the nation’s largest radio station owner with more than 850 stations in its roster,

It was the hyperscaling era for radio, long before the term was coined.

So the question we’re pondering is this: Does the purchase of an entire local market of radio stations from a large group owner like Audacy by a well-funded local owner like David Hoffmann represent the beginning of a sea change in the broadcasting industry — or is it just a “one off” type transaction that brings in some quick cash to a large owner like Audacy who could use the cash, especially if the buyer was willing to pay a decent price for the properties to go along with its ownership of the major local newspaper? (As of this writing, we haven’t seen the price that Hoffmann paid for the radio stations.)

All that brings us to the week’s other big media news, the announced spin-off of NBCUniversal by owner Comcast. The new NBCUniversal will include ownership of the NBC television network and the NBC-owned stations. And while, at first glance, it might appear that Comcast's move supports the view that this is another example of an anti-hyperscaling trend developing, there is strong belief amongst the financial community that separating the two companies makes the new NBCU a target for acquisition.

Or the split could free up NBCU to be an acquirer. Maybe bringing its just-spun-off cable networks, now known as Versant, back under the same company-owned roof (though not necessarily under the same physical roof at 30 Rock in NYC). Then there is the not-entirely-crazy scenario that NBCU could consider going on its own local station-acquiring spree, and buy up any number of current local NBC affiliates.

After all, if Perry Sook is successful in his quest to hyperscale his company’s ownership of local TV stations beyond whatever toothless regulatory limitations may be on the books, why couldn’t a TV network owner do the same?

Because when it comes to hyperscaling, maybe those 1990s Pringles commercials put it best:

“Once you pop, you can’t stop.”

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