Wheeler’s Just Wrong On Duopolies

The FCC rule barring common ownership of two TV stations in the same market turns 40 this year.

Although the rule was liberalized in 1998 to allow some so-called duopolies in large and medium markets, it continues to outlaw them in small markets and in markets of any size if they involve two of the four top-rated stations.

Now, disregarding all the extraordinary changes that have roiled the television industry over those four decades, from HBO to Netflix, FCC Chairman Tom Wheeler believes that it is absolutely imperative that the FCC buck up the old local ownership rule by closing loopholes that broadcasters have been using to get around it.

In essence, he is saying that the ban against duopolies in small markets is as vital to the nation today as it was in 1974 when most Americans had a choice of just four or five channels. That’s quite a position for a man who is supposed to be focused on the future of telecommunications in this country.

As he made clear in several ways this week, Wheeler wants to curtail the use of joint sales and shared services agreements by which one station effectively operates a second station in markets where the local ownership rule says they cannot own a second station outright.

Wheeler intends to bring his proposal to a vote on March 31 and he apparently has the two other Democratic votes lined up to win approval.

The vote will be a real blow to broadcasters who have been building businesses around the sharing agreements. Just the prospect of the FCC action has battered broadcast stocks. Since the beginning of the year, Nexstar is down 26%, Sinclair is down 21% and LIN is down 19%.

In his blog this week, Wheeler explains that he is offended by broadcasters’ use of JSAs and SSAs to circumvent the rule, even though the FCC has tacitly approved the use of them in deal after deal for the past decade or so.

“At a time of unprecedented change in the video business, the FCC should deal with facts, not reality-obscuring legal fictions,” Wheeler says. “Making JSAs attributable is simply recognizing reality. “

I understand Wheeler’s desire to tidy up FCC’s rules and regulations. But in this case he could just as easily do that by getting rid of the underlying 40-year-old ownership rule. That makes just as much sense as closing the loopholes and bolstering the rule. In fact, I bet he could find two Republican votes for elimination.

The sharing agreements have been a boon to the broadcasters that have taken advantage of them. The efficiencies of running two stations in a market are obvious. But I cannot sit here and tell you whether they have been a net positive or net negative for the American public.

And neither can the FCC. It hasn’t done its homework. It hasn’t investigated the sidecar deals to see if they, on the whole, have increased the level of service to the public and advertisers or diminished it.

It once tried. During Obama’s first term, FCC Chairman Julius Genachowski dispatched one-time journalist Steve Waldman to assess the state of local news. In 2011, he produced a massive 465-page study, The Information Needs of Communities: The Changing Media Landscape in A Broadband Age, but he still couldn’t decide whether ownership rules helped or hindered local media.

Many believe that deregulation “would allow media companies more flexibility to create mul­tiplatform business models that might help sustain local journalism in the long run,” the report said. “However, others argue that excessive deregulation in the 1980s and 1990s led to a reduction in news on the radio side, and that previous mergers have led to media layoffs, not staff increases.

“It is possible that both of these assessments can be true: savings and efficiencies produced by mergers could well lead the merged company to invest ‘significantly in newsroom operations’ — or the money saved could flow to the bottom line, and lead to a decline in journalistic resources.”

In a capitalistic country, I believe that the burden of proof falls on those that would disrupt the workings of the marketplace to show that a regulation is absolutely needed.

Despite any such proof, Wheeler is bulling ahead in tightening up the ownership rule. That’s simply bad government.

There has been much speculation of Wheeler’s true motives.

In a statement this week, NAB President Gordon Smith said: “Coincidentally, two industries would benefit from today’s proposal: Big cable companies who want less competition for advertising in local markets, and wireless companies who support punitive FCC actions that drive more TV stations into spectrum auctions.”

For the uninitiated, the coincidence to which Smith refers is that Wheeler used to run the principal lobbies of the cable and wireless industries.

Right now, I’m inclined to believe that Wheeler is working primarily for the wireless companies by devaluing TV stations. As Smith suggests, the tougher the broadcasting business becomes, the more likely broadcasters will be to participate in the incentive auction, by which the FCC intends to buy broadcast spectrum and sell it to wireless companies.

Wheeler’s tenure as FCC chairman will be judged in large part by his ability to conduct a successful auction.

Another way of devaluing TV stations and driving them to auction is to make it tougher for them to negotiate for retransmission consent fees. Wheeler is all over that, too. Among other things, he says, he wants to take review the network nonduplication and syndicated exclusivity rules, which together help insure every station’s right to the local exclusivity of their programming. Without the rules, cable systems that can’t cut a retrans deal with a local network affiliate would have an easier time importing an affiliate of the same network from a distant market.

The beauty of attacking broadcasters’ retrans rights is that it helps wireless and cable simultaneously.

The one thing that I hope the Wheeler initiatives are not is payback for Sinclair Broadcast Group, which makes heavy use of sharing agreements. But SNL Kagan’s count, it has 29 JSA/SSAs. Sinclair’s arch-conservative views are well know and it has a long history of using its airwaves to attack Democrats, including President Obama during the 2012 election.

Using regulations to chill speech would be ugly, an affront to all broadcasters’ First Amendment freedoms.

If Wheeler goes ahead with the JSA/SSA proposal, you can bet affected broadcasters will march straight to court. Litigation would be another burden on those broadcasters, but it might be interesting to watch the FCC attempt to defend a 40-year-old relic.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or [email protected]. You can read earlier columns here.