The FCC is clearly inclined to further relax the national TV ownership cap. But how far will it go? Signs now point to 50%. That seems to work for most broadcasters, but not all. In fact, if the FCC does settle on 50%, it could mean big trouble for Sinclair and its languishing Tribune merger.
As you should know by now, I am a confirmed 100 percenter.
I believe that a TV station should be allowed to own a station or two in every market in the country — from New York to Glendive.
It’s not because I am against government regulation as a matter of principle; it’s because I’m convinced that scale and national footprints are needed if broadcasting is to survive the internet onslaught, the full force of which we have yet to see.
So, I had hoped that the FCC would conclude its current review of the national ownership cap by deciding to scrap it. But now I am doubting it will go that far, and part of the reason is that a lot of broadcasters don’t want it to.
The cap now limits the reach of a group to anywhere from 39% to 78%, depending on its mix of UHF and VHF stations. Because most groups have a mix of such stations, the effective cap is between 50% and 70%.
For all practical purposes, the cap had been 39% until last fall when the Pai FCC restored the so-called UHF discount and, in so doing, created the unwieldy group-specific variable cap.
Chairman Ajit Pai and his Republican majority at the FCC are clearly inclined to further relax the cap. But how far it should go has once again divided the broadcasting house against itself along two lines — networks versus affiliates, and the biggest affiliates (Sinclair and Nexstar) versus most of the lesser affiliates.
The networks and Sinclair want to raise the cap to 78% or eliminate it all together.
But, as I wrote here in March, affiliates other than Sinclair and Nexstar see the ownership cap as a needed restraint on the networks, on their ability to squeeze affiliates on reverse comp and push affiliates out of markets where the networks want to own and operate their own stations.
And a lot of those same affiliates are equally concerned with Sinclair and Nexstar. They worry that their relative bigness will give them an undue advantage when they compete at the local level.
This disagreement put NAB in a bad spot. A similar dispute over the ownership cap 15 years ago caused the networks to quit the association for several years and severely weakened it as a lobby.
After some intense deliberations this time around, the networks and Sinclair and Nexstar prevailed at the NAB. It told the FCC in formal comments in March to set the cap at 78%. That was something of a compromise as Sinclair and Nexstar favor complete elimination.
But the affiliates couldn’t let it go at that. In a move that both surprised and angered the networks, the boards of the Big Four affiliate groups filed separate comments calling for a two-tiered cap.
The affiliates argued that 78% was fine for them, but not for the networks. They should be capped at the old 39% level, they said.
But then a funny thing happened three weeks ago. Eight leading affiliate groups, all of which are represented by one or more of the affiliate boards, submitted a proposal to the FCC that softens their position toward the networks, but would keep a tight lid on Sinclair and Nexstar.
Forget the affiliate boards’ 78%/39% plan, they said. Set the cap at 50% for all and grandfather groups whose “existing” reach exceeds 50%.
The Gang of Eight includes groups big and small: Hearst, Scripps, Raycom, Gray, Graham, Quincy, Dispatch and Morgan Murphy.
Now here’s the really funny thing: 50% may end up being the new cap simply because it best serves the needs of most broadcasters, and, quite possibly, Chairman Pai.
For Pai, 50% would be a significant regulatory step on the long road to complete elimination, which he and the administration could ballyhoo and which would minimize the Democratic blowback.
Not incidentally, 50% would be easier to defend in court, especially when some, including fellow GOP Commissioner Michael O’Rielly, don’t believe the agency has the authority to mess with the cap in the first place.
One other thing with regard to the FCC. According to sources, 50% is the only viable cap on the table right now. The FCC poked at the original NAB and the affiliate board proposals and found them both wanting. It’s one of the reasons the affiliate Gang of Eight ran in with the more modest 50% proposal.
Of course, 50% is not going to do it for everybody. Unhappy will be any broadcast group with ambitions that exceed 50%. Most notably, that includes Sinclair whose long-pending merger with Tribune would push it to 66.3% if you include its sidecar stations or 58% if you don’t.
The industry’s other big consolidator, Nexstar, also dreams of blowing way past 50% either through acquisitions or mergers.
Tegna, now at 32%, was conspicuous by its absence from the Gang of Eight. Tegna CEO Dave Lougee declined comment. I am left to speculate that he favors a much higher cap that would allow him to either buy a lot more stations or to sell out to the likes of Sinclair and Nexstar.
Of the networks, only Fox will squawk much about a 50% cap. New Fox, the Fox that remains after the Murdochs sell off most international and production assets, will be chiefly a broadcasting company, which means it may need more stations to grow. But if it closes on the seven spin-offs it is buying out of the Sinclair-Tribune merger, its reach will stand at 46%. It’s buying opportunities would be limited.
CBS may also want more stations, but it’s not nearly as acquisitive as Fox. It’s now at 39%. Lifting the cap to 50% will give it ample headroom in the near term to buy more. NBC (37%) and ABC (22%) have shown no signs of wanting to get anywhere near 50%.
Let’s backup to Sinclair and let me amend what I said. It will be more than unhappy with a 50% cap; it will be extremely unhappy — devastated maybe.
For the first time, I can see how the Sinclair-Tribune deal might not happen.
There is a possibility that the FCC could adopt the 50% cap before it approves the Sinclair-Tribune merger. Both are on schedule to come to a head in August.
Now the Gang of Eight’s 50% plan calls for grandfathering “existing” groups that exceed 50%, but from what I gather that exemption is for established groups like Ion Media. The Gang does not intend the grandfathering to extend to pending deals like Sinclair-Tribune.
The Gang does not write the rules, of course; the FCC does. But, given the harsh criticism Pai has faced for favoring Sinclair (wrongly, I think), he would have a hard time adopting a 50% cap with a grandfathering provision that would exempt only Sinclair (and Ion) from the cap, whether the Tribune merger is closed or not.
Look, I do not have a wire into Pai’s brain. He could decide to tap his inner radical deregulator, cast caution aside and go for 78% or complete elimination. But that’s not the consensus on what he will do among the broadcasters and their Washington reps with whom I have spoken.
I am a 100 percenter, but I’m also OK with an incremental approach to deregulation. I can wait for the next rulemaking to take another step. Sinclair can’t.