FCC Turns Sights To Local Station Ownership

The FCC is expected to clear the way as soon as this summer for broadcasters to own up to two or more TV stations in most if not all markets — even if two of the stations are Big Four network affiliates, broadcast industry sources say. 

Ajit Pai, the Trump administration’s FCC chairman, and his fellow GOP commissioner Michael O’Rielly, who now constitute the FCC’s majority, have already made clear their support for deregulation.

Both dissented last year when the commission, then led by Obama-appointed Democrat Tom Wheeler, refused to loosen the local ownership rule. “The regulations … are as timely as rabbit ears, and it’s about time they go the way of those relics of the broadcast world,” Pai said in his dissent.

Although sanguine the FCC will deliver the relief, industry sources are unsure how and when.

Pai’s office declined to comment for this story.

The current TV station ownership rule bars broadcasters from combining two of the top-four-ranked stations in a market, which are usually the ABC, CBS, Fox and NBC affiliates, and prohibits them from acquiring second stations regardless of rank in markets with fewer than eight independently owned stations.

Broadcasters have become adept at circumventing the rule through the use of joint sales and shared services agreements (JSAs and SSAs) that allow broadcasters to operate, but not own, second stations in markets and enjoy the resulting efficiencies.

Perhaps encouraged by last year’s dissents of Pai and O’Rielly, the NAB and Nexstar petitioned the FCC in December to reconsider the Wheeler FCC order affirming the local ownership rule as well as the ruling that stations operated through JSAs should be attributed — that is, counted as owned stations under the ownership rule.

NAB argued that the FCC should allow broadcasters to own more than one station in all markets “subject to the limits of antitrust law.” Nexstar simply asked to be allowed to own two stations in all markets.

Both also called on the FCC to reverse the decision making JSA stations attributable.

Broadcasters and their Washington reps have high hopes that the FCC will grant the wishes of NAB and Nexstar. Some that it might go even further.

“It would not surprise me at all if they just threw out the local ownership rules,” an industry executive said. “Just let the antitrust rules control, and leave it at that.”

A source close to the issue said that DOJ guidelines currently bar common ownership of TV stations where a broadcaster would get more than about a 40% combined share of the local broadcast TV advertising market revenue. The Justice Department has required station spinoffs in markets where that threshold would have been passed.

But broadcasters have urged the DOJ to expand its definition of the local advertising market to include radio, cable and internet ads, not just broadcast TV ads. The effect would be to permit broadcasters to buy more stations in a market.

The FCC essentially has three ways it can proceed in easing its local ownership rule, agency watchers say.

The slowest, and least favored route for industry execs, would be for the FCC to put off action on local ownership until after it launches its congressionally mandated quadrennial review of all ownership rules sometime next year.

The fastest would be to simply rule on the Nexstar and NAB petitions for reconsideration without seeking further public comment.

However, the consensus among insiders appears to be that the FCC, in the interest of building the best possible legal case for the courts, will put out the proposals for a fresh round of comments, either in a public notice or a notice of proposed rulemaking. By doing so, the FCC could address court concerns about the impact the ownership rules have on viewpoint diversity.

“There will be court challenges, and the better record you build the more likely you are to weather a court of appeals challenge,” said Elliot Evers, a managing director for the investment banking firm MVP Capital. “They need a further record on everything,” Evers continued. “If he [Pai] finds support in the record and in the facts, which is pretty easy to find, I do think he will eliminate lots and lots of things.”

Broadcasters and the FCC should expect resistance from groups opposed to media consolidation.

“Our view is that the Third Circuit [federal court of appeals in Philadelphia] has told the FCC that it can’t repeal or modify the local ownership rules without looking at the impact that could have on minorities and women,” said long-time advocacy group leader Andrew Schwartzman.

Assuming the FCC Republicans deliver, the local media market deregulation will come on the heels of another major move by the Trump administration FCC to relax the national TV ownership cap by restoring the so-called UHF discount.

The discount, which was eliminated by the Obama administration FCC, says broadcasters have to count only half of a UHF TV station’s reach toward the 39% cap on U.S. coverage set by the FCC’s national TV ownership rule. With the discount back in place, a single broadcaster can own UHF TV stations reaching 78% of TV households.

In the wake of the Trump FCC’s action, Sinclair Broadcast Group has already proposed to up its coverage from just below 39% to 72% through a $3.9 billion acquisition of Tribune Media.

Sinclair, which is hoping to file its Tribune deal application at the FCC later this month, has a major stake in the agency’s resolution of the duopoly issue because the group broadcaster and Tribune have about 14 overlapping markets and Sinclair wants to keep all the stations the rules will allow, a source close to the issue said.

Industry critics are challenging the Trump FCC’s UHF discount decision in the Court of Appeals in Washington, which on June 1 stayed the FCC decision “to give the court sufficient opportunity” to review the request for stay.

The effect of easing the local rule would be immediate. It would facilitate the merger of large groups with overlapping stations and it could touch off a round of deals and swaps among groups trying to double up in markets.

One industry executive told TVNewsCheck that if the duopoly restrictions are eliminated, controlling parties to many existing JSAs may be able to exercise boilerplate options to acquire the JSA stations.

This source also noted that if the duopoly rule is eliminated or significantly relaxed, there will be less of a need for JSAs in the future.

Regardless of the deregulation’s timing, Patrick Communications’ broker Greg Guy said that some broadcasters are planning deals in anticipation and have already been enhancing their market positions through JSAs and other mechanisms. “You’ll see many of these deals triggered immediately because they’re all teed up and ready,” he said.

NAB has also asked the FCC to eliminate the newspaper-broadcast crossownership rule, which bars broadcasters from buying daily newspapers in their markets. Many industry observers think the rule should be an easy target for deregulation.

“Frankly nobody cares about that,” said MVP’s Evers. “The only reason I believe NAB pounds on that is it doesn’t offend anybody in their constituency. So that’s an easy win for them.”

“If this had been done 10 years ago, the impact would have been much more significant,” added Guy. The relevance of newspapers to the local media marketplace has been on the wane. “Too little, too late.”