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.
FCC Moving The Wrong Way On JSAs
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.
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.