Sinclair is telling the FCC that its coverage after spinoffs from its merger with Tribune will be just 58.7%. But that's for regulatory purposes. In the real world, where it matters, Sinclair’s national reach will be 66.3% — a full two-thirds of TV homes. And, by the way, the spinoffs that Fox is buying from Sinclair will push its national reach to 45.9%.
Sinclair To Reach 58% Of TVHHs. Or Is It 66%?
So, what will be the TV household reach of Sinclair when and if it closes on its merger with Tribune?
Well, if the Justice Department and FCC approve the divestiture plan that Sinclair submitted Wednesday, I would say it will be 66.3%, or two-thirds of U.S. TV homes.
But that’s not what Sinclair is telling the FCC. It’s saying that the coverage of the group will be just 58.7% and, with the UHF discount, below the statutory 39% cap. But those percentages are for regulatory consumption, not the real world.
Before we delve into that 7.6-point disparity, let’s go over the national ownership rule for the uninitiated.
The law caps the coverage of station groups at 39% of the 112.2 million TV homes. The implementing rule calculates reach by adding up the percentages of TV homes in each of the market in which the group operates.
If the market is served only by UHF stations, its percentage is discounted by half. So, for instance, New York has 6.3% of TV homes. But with the UHF discount, the market only counts as 3.15% against the cap.
This UHF discount, which matters only for purposes of complying with the 39% cap, is the subject of much controversy.
Critics contend that it is an artifact of an earlier time when the actual over-the-air coverage of UHF stations was inferior to that of VHF stations. They say the discount now serves only to allow groups to circumvent the intent of Congress, which was to limit groups to 39%.
The foes of station consolidation have challenged the perpetuation of the UHF discount in court and seem to have made some headway in their oral arguments last week.
Now, back to Sinclair.
The group is claiming 58% because it is not counting stations in three big markets — WGN Chicago, KDAF Dallas, KIAH Houston — that it is spinning off to closely affiliated companies. Without those markets and the discount in effect, Sinclair’s reach will be just 37.39%, safely below the 39% cap.
WGN is being sold to Steven Fader, a business associate of Sinclair Executive Chairman David Smith. The other two are going to Cunningham Broadcasting, a company that is owned by Smith’s family and was set up years ago to get around the FCC ownership rules.
The best you can say about Fader as an independent party is that at least he is not a blood relative of Smith’s. You should presume that Sinclair will be running WGN as if Smith had the FCC license tucked into his back pocket.
How much control Smith & Co. with have over the Dallas and Houston stations is not entirely clear.
For the most part, Cunningham is closely tied to Sinclair, so much so that its financials are consolidated with Sinclair’s in its SEC filings and earnings reports.
But in the case of Dallas and Houston, I’m told, Sinclair has put additional distance between itself and Cunningham as it has in a couple of small markets to appease the regulators. The finances of the stations will be kept separate from Sinclair’s and Sinclair is pledging to stay completely out of their operations. It will, however, have an option to buy the stations should the FCC ever ease the rules to allow it.
Sinclair haters — and there are more than a few — and those anti-media consolidation folks call entities like Cunningham shell companies, shams or worse.
But such arrangements have been around in one form or another for years through both Democratic and Republican administrations. And I presume that FCC staffers have already signaled that the extra separation Sinclair has put between itself and the stations in Dallas and Houston is acceptable.
So, again, for regulatory purposes, Sinclair’s reach will be 58.7% without the discount and 37.39% with it.
But I don’t think that is reality. Those are not the numbers that Sinclair will be showing national advertisers, MVPDs, vendors and others with which it does business.
In the real world, Sinclair will have a lot of control over Chicago and some control over Dallas and Houston, and its effective national reach will be 66.3%. (For the record, its reach with the UHF discount will be 41.1%, two points over the cap, but that will not matter because regulators will not be counting the three markets.)
By the way, Sinclair’s reach would have been even higher if Sinclair wasn’t selling the Tribune stations in Miami, Cleveland, Sacramento and San Diego to a indisputable third party. Sinclair will end up with no stations in those market so none of them will count against its cap.
Had Sinclair hung on to those stations by, say, selling to a related third party, its real-world reach would have swollen to more than 71%.
P.S. Since I’ve got my calculator out, I thought we might take a look at the Fox Owned Television Stations, which is the prospective buyer of the Tribune stations in Miami, Cleveland, Sacramento as well as Seattle, Denver, Salt Lake City and possibly San Diego.
Today, Fox reaches 36.8% of homes, but, with the UHF discount, the figure shrinks to only 24.3%, leaving the group plenty of room to grow under the cap.
If it picks up all seven of the Tribune stations, its reach will grow by 9.1 points to 45.9% but, with the discount, it will still be at just 30.4%, well below the cap.