JESSELL AT LARGE

Wheeler’s Just Wrong On Duopolies

Disregarding all the changes that have roiled the television industry over the four decades since the FCC adopted its ban on owning two TV stations in the same market, FCC Chairman Tom Wheeler now believes that it is absolutely imperative that the FCC buck up the old rule by closing loopholes that broadcasters have been using to get around it.

The FCC rule barring common ownership of two TV stations in the same market turns 40 this year.

Although the rule was liberalized in 1998 to allow some so-called duopolies in large and medium markets, it continues to outlaw them in small markets and in markets of any size if they involve two of the four top-rated stations.

Now, disregarding all the extraordinary changes that have roiled the television industry over those four decades, from HBO to Netflix, FCC Chairman Tom Wheeler believes that it is absolutely imperative that the FCC buck up the old local ownership rule by closing loopholes that broadcasters have been using to get around it.

In essence, he is saying that the ban against duopolies in small markets is as vital to the nation today as it was in 1974 when most Americans had a choice of just four or five channels. That’s quite a position for a man who is supposed to be focused on the future of telecommunications in this country.

As he made clear in several ways this week, Wheeler wants to curtail the use of joint sales and shared services agreements by which one station effectively operates a second station in markets where the local ownership rule says they cannot own a second station outright.

Wheeler intends to bring his proposal to a vote on March 31 and he apparently has the two other Democratic votes lined up to win approval.

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The vote will be a real blow to broadcasters who have been building businesses around the sharing agreements. Just the prospect of the FCC action has battered broadcast stocks. Since the beginning of the year, Nexstar is down 26%, Sinclair is down 21% and LIN is down 19%.

In his blog this week, Wheeler explains that he is offended by broadcasters’ use of JSAs and SSAs to circumvent the rule, even though the FCC has tacitly approved the use of them in deal after deal for the past decade or so.

“At a time of unprecedented change in the video business, the FCC should deal with facts, not reality-obscuring legal fictions,” Wheeler says. “Making JSAs attributable is simply recognizing reality. “

I understand Wheeler’s desire to tidy up FCC’s rules and regulations. But in this case he could just as easily do that by getting rid of the underlying 40-year-old ownership rule. That makes just as much sense as closing the loopholes and bolstering the rule. In fact, I bet he could find two Republican votes for elimination.

The sharing agreements have been a boon to the broadcasters that have taken advantage of them. The efficiencies of running two stations in a market are obvious. But I cannot sit here and tell you whether they have been a net positive or net negative for the American public.

And neither can the FCC. It hasn’t done its homework. It hasn’t investigated the sidecar deals to see if they, on the whole, have increased the level of service to the public and advertisers or diminished it.

It once tried. During Obama’s first term, FCC Chairman Julius Genachowski dispatched one-time journalist Steve Waldman to assess the state of local news. In 2011, he produced a massive 465-page study, The Information Needs of Communities: The Changing Media Landscape in A Broadband Age, but he still couldn’t decide whether ownership rules helped or hindered local media.

Many believe that deregulation “would allow media companies more flexibility to create mul­tiplatform business models that might help sustain local journalism in the long run,” the report said. “However, others argue that excessive deregulation in the 1980s and 1990s led to a reduction in news on the radio side, and that previous mergers have led to media layoffs, not staff increases.

“It is possible that both of these assessments can be true: savings and efficiencies produced by mergers could well lead the merged company to invest ‘significantly in newsroom operations’ — or the money saved could flow to the bottom line, and lead to a decline in journalistic resources.”

In a capitalistic country, I believe that the burden of proof falls on those that would disrupt the workings of the marketplace to show that a regulation is absolutely needed.

Despite any such proof, Wheeler is bulling ahead in tightening up the ownership rule. That’s simply bad government.

There has been much speculation of Wheeler’s true motives.

In a statement this week, NAB President Gordon Smith said: “Coincidentally, two industries would benefit from today’s proposal: Big cable companies who want less competition for advertising in local markets, and wireless companies who support punitive FCC actions that drive more TV stations into spectrum auctions.”

For the uninitiated, the coincidence to which Smith refers is that Wheeler used to run the principal lobbies of the cable and wireless industries.

Right now, I’m inclined to believe that Wheeler is working primarily for the wireless companies by devaluing TV stations. As Smith suggests, the tougher the broadcasting business becomes, the more likely broadcasters will be to participate in the incentive auction, by which the FCC intends to buy broadcast spectrum and sell it to wireless companies.

Wheeler’s tenure as FCC chairman will be judged in large part by his ability to conduct a successful auction.

Another way of devaluing TV stations and driving them to auction is to make it tougher for them to negotiate for retransmission consent fees. Wheeler is all over that, too. Among other things, he says, he wants to take review the network nonduplication and syndicated exclusivity rules, which together help insure every station’s right to the local exclusivity of their programming. Without the rules, cable systems that can’t cut a retrans deal with a local network affiliate would have an easier time importing an affiliate of the same network from a distant market.

The beauty of attacking broadcasters’ retrans rights is that it helps wireless and cable simultaneously.

The one thing that I hope the Wheeler initiatives are not is payback for Sinclair Broadcast Group, which makes heavy use of sharing agreements. But SNL Kagan’s count, it has 29 JSA/SSAs. Sinclair’s arch-conservative views are well know and it has a long history of using its airwaves to attack Democrats, including President Obama during the 2012 election.

Using regulations to chill speech would be ugly, an affront to all broadcasters’ First Amendment freedoms.

If Wheeler goes ahead with the JSA/SSA proposal, you can bet affected broadcasters will march straight to court. Litigation would be another burden on those broadcasters, but it might be interesting to watch the FCC attempt to defend a 40-year-old relic.

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 (19)

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Matthew Castonguay says:

March 7, 2014 at 4:20 pm

Just the latest step in a long-term FCC strategy & campaign to marginalize broadcasting, as laid out some time back by Reed Hundt.

Brad Dann says:

March 7, 2014 at 4:30 pm

The Law of Unintended Consequences, if this goes forward, the courts have not sided with the FCC on ownership restrictions for twenty years. This step will probably result in all FCC restrictions on ownership being thrown out as unjustifiable in today’s marketplace. Congrats to Free Press and others for accelerating the elimination of the rules they espouse and think should be tightened. You’ll get exactly the opposite at the end of the day. You’re far more concerned about your salary nod fund raising than you are about your actual cause. Love it.

    Stephen Bernard & David K. Randall says:

    March 7, 2014 at 4:51 pm

    You are far more optimistic about this than I can manage to be. I hope you’re right, but I spent most of yesterday updating and polishing my resume (I work for a station saved by a JSA that could not manage on its own).

Kelsey Sharkey says:

March 7, 2014 at 4:32 pm

It’s going to be hard to put the JSA/SSA genie back in the bottle. Stations can simply make all or most of their signals digital subchannels on one transmitter. Then they can sell off the remaining transmitter and license. That could be good, though, if someone buys the second station and tries something new.

Stephen Bernard & David K. Randall says:

March 7, 2014 at 4:49 pm

Great piece, Harry– I’ve been looking forward to this inevitable editorial since Wednesday and you nailed it.
I think anyone who thinks this is NOT about getting more spectrum to auction (and little else) should have their head examined. The FCC is supposed to be a non-political entity, run by non-elected officials that work for the good of the American public but as we have seen, they follow the money to other agendas just like the lawmakers do.
And the political will is there because anything that hurts local journalism (especially investigative reporting, something that is costly and time-consuming and doesn’t always pay off, and is therefore usually relegated to the most successful or principled of news operations) amounts to less scrutiny of our elected officials and more opportunities for them to get away with fleecing the people they are supposed to serve. Newspapers are waning fast, and TV news is next. Who’s going to watch the Watchmen? Bloggers? Ha!

Mark Annas says:

March 7, 2014 at 5:10 pm

Devil’s advocate thought: why have these mega- broadcasters gobbled up stations through sidecar companies, JSAs and SSAs? To have more spectrum to sell at the auction and make more money – certainly not for the betterment of a market or broadcasting as a industry. Just a thought…

    Stephen Bernard & David K. Randall says:

    March 7, 2014 at 5:21 pm

    I think that has happened to some degree, but it’s little more than the big groups hedging their bets. I have some knowledge of at least one of those big station groups, and I can say that they run ’em for all their worth and don’t leave any asset underutilized– one would think that if they knew they would be selling them then they wouldn’t be interested in putting any money or committing any resources to them, but I haven’t seen much of that from underneath one of those 800-pound gorillas.

Wanda LaCroix says:

March 7, 2014 at 5:12 pm

I agree- great piece Harry. After over 30+ years in the rep business I’d be concerned with how many of the 5th and 6th ranked stations particularly in smaller markets would survive without JSAs. The potential loss of those stations does not help the viewers, advertisers or broadcasters.

    Teri Green says:

    March 8, 2014 at 1:46 am

    wrong, if a station can’t make it on its own, then let it die. In fact they all can do this. They will simply employ people paid less and that will allow MORE talent into the stream. With computerization you need less to operate more. Funny how no one wants to do away with the MARKET SYSTEM which is really the problem. TV stations have virtually no local programs save the news, which is the same stories on all station. The FCC needs to move toward network TV with one TV station in NYC and let it just run repeaters throughout the land. Then have one or two independent stations per market.

    Kristine Melser says:

    March 10, 2014 at 12:31 am

    NYC is only 6-7% of the country. There is a great big world representing 90% of the country outside of NY and LA. I am pretty sure the locals in Oklahoma care more about local weather and if a storm is coming that could brew tornadoes than can affect their livelihood watching content from NYC . Can we stop trying to make every city New York. Ever been to Texas that has 2 top ten markets?

    Maria Black says:

    March 11, 2014 at 10:31 am

    We already have that, with Diane Sawyer, Brian Williams and that other guy on CBS. And the morning stuff, GMA and whatever else. And since that doesn’t run the entire day and there are local newscasts with local information that do just fine. What good is talent if you are unable to find work in your field? The market system isn’t the issue, its Nielsen and how they are a company of averages and guessing that somehow magically hold sway over an entire industry.

Jim Robinson says:

March 7, 2014 at 7:10 pm

This alarms me coming from the Wheeler FCC, since I work in the trenches for a SSA/JSE station. Currently we house four stations (2 full power Fox, 1 full power NBC and a low-power MY NET). Of the Fox stations (base transmitter 90 miles apart) we simulcast news during two day parts (morning and evening) that come out of our NBC station’s newsroom. If it were not for this sharing of resources, our Fox audience would not be served since the Fox station is unable to provide the service independently. Our NBC station also provides news for two other Fox stations inside our corp umbrella in two different markets (again they too are unable to provide service on their own). If this is carried out, our local viewers will be highly under served in regards to News, E/I programming, Entertainment programming not to mention commercial advertisements aimed at their respective market(s). I fear the backlash, not from broadcasters, from the people they serve. Who if I am mistaken still have some ownership over the airwaves, since they are still labeled as “public airwaves”. Maybe that is the key element, take the public away from it and they can have free rein over what we are told we can watch.

Ellen Samrock says:

March 7, 2014 at 8:33 pm

Another well thought out and researched commentary, Harry. Claiming that these agreements are a way for stations to circumvent the duopoly rules is pure fiction and a pretext to do mischief and harm to broadcasters. And, you’re right, this is not over. Lawsuits will surely follow if briefs are not now already being written up as the issue is being debated. As to the suspicion that this may be a way to strike back at Sinclair, making that connection is by no means a stretch. After all, if the Obama administration thought nothing of using the IRS to punish conservative groups, what’s to prevent them from “unleashing” the FCC on conservative Sinclair (with the rest of the broadcast industry suffering collateral damage) , especially with Tom acting as Obama’s official water carrier and Gigi Sohn and Public Knowledge official cheerleaders. It’s already having a negative effect on the company’s stocks. We’re dealing with a craven, corrupt and dangerous government who will stop at nothing to achieve its goals. And while all of us in the industry need to be careful with how we deal with a Wheeler/Obama FCC that doesn’t mean we can’t or shouldn’t stand up for our rights.

Don Thompson says:

March 8, 2014 at 8:38 am

I know people are upset about change that has a bottom-line impact. That seems only natural. Nevertheless, I’m surprised broadcasters who entered JSAs and SSAs failed to realize that they were taking a risk banking on a strategy of consolidation by stealth. TV station groups that were aggressive in this area seem to have received very poor legal advice that a bad result at the FCC was a low-probability event. On the issue of jointly negotiating retransmission consent among non-commonly owned, same-market local TV stations, TV stations busy on this front had to know that collusion among direct competitors would eventually raise a red flag. The Department of Justice sent a strong signal about this in, I think, 1994, regarding joint broadcaster retrans negotiating with MVPDs in Corpus Christi, Texas. TV station collusion, in combination with soaring retrans fees and TV signal blackouts of MVPD consumers on a scale never seen in the United States, got to a point where it seems the FCC felt it needed to act. Broadcasters “shocked” the FCC decided to step in were naïve about the legal risks.

Julie Hirschfeld Davis & David Espo says:

March 8, 2014 at 11:15 am

Ted, what an extraordinarily myopic view. You, of all people, know that this is all about leverage. If Chairman Wheeler and his embed at DOJ were really all that concerned with the effect on competition imposed by joint sales agreements, why has there not been a peep about interconnects selling spots for direct competitors? As you well know, Comcast in Washington, for example, sells spots for itself — and the Cox system — and Verizon — and DirecTV. Tell us why that’s not a joint sales agreement. And as to joint retrans negotiations, tell us why Time Warner negotiating on behalf of BrightHouse is acceptable when broadcasters combining two stations in a tiny market against these behemoth cable giants is wrong. Some healthy skepticism is in order here.

Marlene Woo-Lun says:

March 9, 2014 at 3:21 pm

Even with aereo and stricter JSA rules, the broadcasters still will generate a lot of free cash flow and sit on spectrum that the market is putting zero value on.

Don Thompson says:

March 9, 2014 at 5:44 pm

Please follow me on Twitter: @TedatACA

Kristine Melser says:

March 10, 2014 at 12:37 am

Ironic, sell the broadcast spectrum now and where are the US Senators going to advertise for reach to get the voters that their local stations can provide. If that Democratic Senator wants in the Congress, he is going to have to buy spots on his local Maury/court station because that particular voter is probably not watching the local news boomer. Just a thought for DC politicians.

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