JESSELL AT LARGE

FCC Moving The Wrong Way On JSAs

The word I'm getting out of the Washington is that the FCC may prohibit the formation of new virtual duopolies through joint sales agreements and give broadcasters two years to unwind existing ones. That's the wrong way to go. It should be relaxing the rules to allow more combos or at the very least grandfathering the existing ones.

I may have been wrong.

A year ago, I encouraged TV broadcasters who intended to set up virtual duopolies through via management contracts not to delay. In its review of its media ownership limits, I said, the FCC was considering closing that loophole in its duopoly rule, but not to worry. If it did, it would likely grandfather those already in existence.

Now, the word I’m getting out of the Washington is that the FCC may not grandfather those combos after all. Instead, I’m told, it is considering giving broadcasters just two years to unwind them. A vote is expected early in the new year.

This is bad news for the many broadcasters who have forged virtual duopolies as a means of maintaining margins while under incessant assault from cable and the proliferating digital media.

If the FCC follows through, broadcasters will have to figure out some way to restructure the duopoly deals to make them palatable to the FCC or simply abandon them. That’s the last thing they need as head into a non-political, non-Olympic year in which their revenue could drop as much as 10%.

For a long time, the FCC duopoly rule prohibited a broadcaster from owning two stations in a market. But in 1999, as the Clinton administration began to wind down, the FCC relaxed the rule to permit ownership of two stations in a market as long as neither of the stations was top-four rated and the market had eight or more different owners.

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In other words, you could own a CBS and CW affiliate in a large market, but not in small and many medium-size markets. And you couldn’t own a CBS and ABC affiliate (or any combination of top-rated stations) in a market of any size.

To get around that rule, broadcasters and their clever lawyers cooked up the joint sales agreement (JSA) and shared services agreement (SSA) that, in essence, gives one station operational control over another without assuming ultimate control. That last phrase — ultimate control — is key. The FCC has routinely approved these deals when they came before it as long as the station owner, at least on paper, retains the ability to override any decision the managing broadcaster makes.

JSAs allow the managing station to sell all the time of the managed station. They are usually coupled with SSAs, under which the managing station typically provides facilities, back-office functions and news programming. To the dismay of cable and satellite operators, they often also represent the managed stations in retrans negotiations.

Together, the JSA and SSA amount to one station running the other.

It’s a bona fide loophole that many broadcasters have happily exploited to the dismay of liberal groups opposed to media consolidation that, they believe, diminishes diversity of viewpoints and ownership.

You would think that if the FCC were so concerned about virtual duopolies, it would know how many there are and where they are. It doesn’t. It relies on outside sources, as do I.

One of those sources is the American Cable Association, which opposes virtual duopolies on the ground that owners representing two network affiliates in the market have undue leverage in retrans negotiations.

To make its case, ACA started counting virtual duopolies involving combinations of Big Four network affiliates and found 65 in 58 markets. All but six are in markets 75 and above. (The ACA numbers are a little old. With the recent flurry of stations deals, I suspect that there are many more of them now.)

The ACA count does not include virtual duopolies in small markets involving Big Four affiliates matched with independents and secondary networks like the CW, Univision or MNT. I haven’t found a good count on them yet.

According to my sources, the FCC is proposing to close the virtual duopoly loophole by making the JSAs “attributable” — that is, by making them count as actual ownership under the duopoly rule. And rather than grandfathering the existing JSAs, the FCC is apparently going to give stations two years to come into compliance.

I don’t see how the FCC can justify doing so.

The foes of media consolidation are correct in saying the duopolies reduce the number of independent voices, but those voices are fading away anyway.

In markets 75-plus, stations ranked No. 3 or No. 4 in news are having a tough time of it, even though many have a major network affiliation. They would be not combining with their stronger rivals if they didn’t feel they had to.

With some exceptions, the combinations created through JSAs and SSAs preserve newscasts or in some cases result in new ones — more hours of news every day, in English and Spanish. In an attempt to save the virtual duopolies, NAB lawyers visited FCC officials and left behind a long list of duopolies that yielded more, not less, news. It’s impressive.

Part of the FCC’s interest in curtailing JSA’s and virtual duopolies is to preserve opportunities in broadcasting for new entrants, particularly minorities. The minority record is truly dismal. I can’t name a single African-American station owner of a Big Four affiliate except DuJuan McCoy, and he just announced he was selling.

But I don’t believe that in setting up duopolies broadcasters are standing in the way of minorities. Standalone small-market network affiliates are out there right now for anybody to buy at historically low multiples. They just aren’t particularly good businesses anymore — for black, Hispanics, women or anybody else. By their absence, it’s clear that minority entrepreneurs have better places to put their money.

By the way, if the FCC were truly concerned about diversity in broadcasting, it would shut down its incentive auction rulemaking, which aims to buy out marginal stations in big markets so they can be auctioned to wireless carriers. Those marginal stations are entry-level opportunities for anybody determined to get into broadcasting.

What’s odd about the FCC’s JSA proposal is that it is at odds with the deregulatory thrust of the larger rulemaking of which it is a part. That rulemaking also proposes to modestly loosen the newspaper-TV crossownership rule and jettison the local newspaper-radio and TV-radio restrictions. It’s not much, but for an agency with a Democratic majority, it ain’t bad.

Rather than tightening its duopoly rule, the FCC ought to relax it to permit common ownership of any two stations in any market. But I realize that’s asking for too much with liberal groups upset about the newspaper-broadcast provision and demanding some kind of blood and the FCC Democrats looking to placate them.

But the FCCC could leave JSAs and the virtual duopolies as they are or could take the advice that Sinclair General Counsel Barry Faber gave when he visited the FCC this week: just punt. In a new and separate proceeding, the FCC could build its own database of duopolies and virtual duopolies and do a serious analysis of their impact on broadcasters and their viewers.

But if the FCC is determined to crack down on the virtual duopolies, it should at the very least grandfather the existing combos and avoid a major disruption in the industry and the likely devaluation of publicly traded, duopoly-heavy groups like Nexstar and Sinclair.

It should also grandfather them because I predicted it would.

And I hate to be wrong.

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


Comments (4)

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Ellen Samrock says:

December 7, 2012 at 6:12 pm

Harry, you are so right about small market TV not being a good business anymore (made worse by over-regulation and the VIA). JSA’s are generally entered into as a matter of economic survival–nothing more. For the FCC to obsess over an imagined lack of diversity or “voices” that could possibly, maybe, just as a remote chance happen is to betray a grievous lack of understanding for an industry they regulate. As the man said; “it’s all about the money, stupid.” Sadly, the commission doesn’t want to hear from the broadcast industry. Instead, they give ear to a menagerie of frustrated media watchdog groups who have their own agenda; namely, the take down of commercial broadcasting. For any industry that is licensed and regulated by the government, the most chilling phrase is, “We’re from the government and we’re here to help.”

    Angie McClimon says:

    March 6, 2013 at 1:21 pm

    I get frustrated when a company comes in, like American Spirit Media, buys a station and without blinking or taking one breath, sends control to another station. What is the point of buying the station if you aren’t going to operate the thing?

Doug Halonen says:

December 7, 2012 at 6:29 pm

Harry, in principle there is nothing wrong with the JSA and the SSA. I’d be far more concerned with the genuine duopolies and oligopolies (in radio). In TV, a good rule would be one TV, one AM, one FM, and one newspaper in a market in the to 50. Properly marketed, there is significant economy of scale in selling “cross-platform” opportunities to local advertisers. There is also significant economy of scale in selling time across multiple markets.

Did you know that Clear Channel is buying WOR radio in New York? As I see it, Clear Channel’s management and programming of its multiple stations in different formats in multiple markets is a disservice and a mistake. Radio, like local cable, is an effective medium for medium sized business. One needs a connection to the community to sell medium sized businesses.

The JMA and the SSA are basically emergency measures created to help broadcasters through tough times. I’d not get rid of them now. Times are still tough. The real duopolies may have been successful in cutting costs, but they have not succeeded in large measure in raising revenues. The exception is Spanish-language, which is a growing market where Univision had success in buying the Silver King stations from Barry Diller and creating TeleFutura.

The argument that cable TV should be a programmer has long annoyed me. Cable gets public franchises to lay its wires. It’s lobbyists have been astonishingly successful in getting laws passed favorable to its own business. The competition from satellite and FiOS has been a boon to the consumer.

In return, the cable ops have gotten permission to compete with the telcos on high speed internet and telephone service. What is sauce for the goose is sauce for the gander.

Now, if only we could get rid of Chuck Dolan’s cherished cable network “tiers” the consumer would be a lot better off.

I may sound like a dinosaur, but I still think that competition is better than consolidation. I’d like to see more independent voices. I’d like to see more minority voices. Perhaps we should revive the tax certificate.

We have swung from over-regulation in the 1970s to insufficient regulation today. We need to strike a balance.

Dale Godfrey says:

December 7, 2012 at 7:56 pm

Harry, dammit, I’ve addressed this issue several times, and while I agree with where you are coming from, the REAL way to achieve diversity of ownership is to simply go back to the rules that were in effect a few decades ago. Remember 7-7-7? OK, so maybe with all the drop in TV channels and FM frequencies and lessening of the restrictions on hi powered AM’s, you know, we USED to call ’em Class I’s and Class II’s?? Remember those days when if you were on one of the many Class III’s, say 570AM, you never DREAMED of getting a CP for an umpteen-tower directional array that would allow you to be 50Ks DA-D, and maybe 21 WATTS DA-N! OK, so leave the AM technical rules in place and allow the FM drop-ins, but RESTRICT licensee ownership to 12-12-12, and do NOT allow obvious shams to get around the rules. Plus, with markets like Alexandria, LA having ONE station that is affiliated with CBS and NBC via a sub channel, place in effect a law that would relate to these ‘subchannel affiliations’ as well as satellite TV stations rules allowing same ONLY if there are no applicants for a stand alone station serving that same market! I owned and operated a VHF ABC satellite station, and was fully aware that should another applicant emerge for that channel, the FCC was practically REQUIRED to hold a comparative hearing to select a licensee going forward! It was free enterprise and plain old economics that didn’t permit this to happen. Simply put, no successful applicant ever emerged and ‘won’ his/her case to take over the frequency of an existing 100% satellite, built it and operate it as a free standing station! The marketplace, like sales, solves a lot of problems. The FCC seldom does.


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