Even if the FCC relaxes its ownership rules, Sinclair and other broadcasters would still be blocked from owning two network affiliates in many cases by Justice Department antitrust regulators who have a cap of their own. It limits a broadcaster to controlling no more than 40% of the market’s broadcast TV revenue. So, Sinclair is waging a campaign to increase that percentage by changing the way regulators define the local market.
If Sinclair Broadcast Group gets its wish, the Department of Justice will not only greenlight the broadcaster’s $3.9 billion pending merger with Tribune Media, but also clear the way for the Baltimore-based media giant to keep some TV station combos from that deal — and perhaps form new ones — that current department policy would not allow.
That’s the case because, along with seeking DOJ’s blessing for the Tribune merger, Sinclair is also urging the agency to expand the department’s local advertising market competition guidelines to increase the number of TV stations that broadcasters can buy in a market.
“We’ve obviously presented a very strong case that, at the very least, cable should be included in the market definition,” said Sinclair CEO Chris Ripley, during the company’s Nov. 1 third-quarter earnings call.
What Sinclair essentially wants the DOJ to do is expand its definition of the local advertising market — which now focuses solely on broadcast TV ad revenue — to include local radio, cable and internet ads.
The effect of the industry-backed change would be to permit broadcasters to buy more stations in a market.
If the DOJ agrees to make the changes Sinclair is seeking, the Baltimore-based broadcaster also may be able to avoid some of the station divestitures that otherwise might be required in the Tribune deal.
In addition, Sinclair, and all other TV broadcasters, would be able to form additional new combos that the existing DOJ guidelines would not currently allow.
The DOJ merger guidelines are an issue for broadcast industry mergers because they currently bar common ownership of TV stations where a broadcaster would get more than about a 40% combined share of the local broadcast TV market ad revenue.
The Justice Department has required station spinoffs in markets where that threshold would have been passed.
In the Sinclair conference call, Ripley said that Sinclair believes that “it’s sort of un-defendable” for DOJ “not to at least look at” cable TV’s share in the local TV advertising mix.
Added Sinclair COO Steven Marks: “Sooner or later, the Justice Department, it seems to us, is going to have to get aligned with the reality of the marketplace.”
During the conference call, Ripley also said Sinclair’s average broadcast TV market share is currently in the “low” 20s, which suggests that the company already has room to grow.
Sinclair believes that its growth opportunity will be “significant” after the FCC acts on its pending proposals to relax its own ownership rules and the DOJ adopts a “more flexible” market definition, Ripley said.
Ripley also said the company’s Tribune-related divestitures would be “driven by the DOJ’s result,” not the FCC’s pending deregulatory proposals.
“At the end of the day, the FCC rules are helpful, and certainly we’re very pleased but that’s more of a long-term — a longer-term impact in terms of what we can do subsequent to Tribune,” Ripley said.
Sinclair representatives declined to provide additional details about its pitch for DOJ relief, including on how it was presented.
DOJ also declined comment.
The National Association of Broadcasters, and other broadcast station groups, though not participants in DOJ’s ongoing review of Sinclair’s Tribune deal, support relaxation of the department’s guidelines.
“NAB has long been on record asking the DOJ to expand the local advertising definition,” said Dennis Wharton, an NAB spokesman. “Broadcasters don’t just compete with broadcasters. In the real world, it’s fairly obvious local TV and radio stations compete for advertising dollars with cable, satellite and multiple other content delivery platforms.”
Industry research firm BIA/Kelsey divides the local $147.8 billion local advertising pie as so: broadcast TV, 13.4%, cable, 4.5%; digital and mobile’s 22.2%; radio, 9.6%; print newspaper, 8.3%; direct mail, 25.5%; and other, 16.5%
Industry sources said that if DOJ grants Sinclair’s wish, how much broadcasters will be able to grow will vary from market to market and depend on how large of a share of local advertising the TV station, cable, and any other competitors whose market shares are included in an expanded definition, have in a particular market.
Key broadcast industry attorneys said DOJ staffers have long supported focusing reviews of TV station mergers on reviews of broadcast TV’s local ad share alone, so it’s far from clear that Sinclair will get its way.
One media industry attorney with DOJ expertise said it was possible that the DOJ staffers could change their minds about the issue or that Trump administration DOJ appointees, including Makan Delrahim, the department’s new antitrust chief, might be persuaded to revise the longtime policy in the broadcast industry’s favor from the top down.
The FCC’s proposed ownership rule changes, which have been slated for a Nov. 16 agency vote, would permit a broadcaster to own two stations in every market, regardless of size, by eliminating the so-called eight-voice test.
In addition, the changes would ease the prohibition against owning two top-four stations in a market.
The FCC said it will consider allowing the combinations on a case-by-case basis.
The FCC’s changes also would affirm the ability of broadcasters to use joint sales agreements, often in combination with shared services agreements, to operate more stations in a market than they can own under the rules.
Broadcasters have been using JSAs to get around the FCC’s local ownership rule limits for many years.