Media General has incurred the wrath of the FCC for continuing to operate Gray's WAGT Augusta, Ga., under joint sales and shared services agreements. It's one the wackier cases I've seen in a long time. Media General, it seems to me, is taking a big gamble, given it's pending $4.6 billion merger with Nexstar, and I'm not sure why.
What To Make Of The Strange Case Of WAGT?
Did Media General steal WAGT Augusta, Ga., from Gray Television?
The FCC apparently thinks so. Yesterday, the agency threatened to launch a license revocation proceeding against Media General for allegedly taking control of the NBC affiliate and refusing to give it up. You read it here first.
Of course, Media General doesn’t believe it is stealing the station, far from it. It believes its actions are fully in accord with the joint sales and shared services agreements under which it has more or less operated WAGT since 2009, and the laws of the state of Georgia.
It’s one the wackier cases I’ve seen in a long time, made more so by the absence of the motive behind Media General’s actions. (I’ve got a theory on that I will share in a minute.)
And even more so in that Media General, rather than antagonizing the FCC, should be doing all it can to build some goodwill there.
Pending before the agency now is its $4.6 billion merger with Nexstar Broadcasting. In addition to needing approval of the entire deal, the parties need the FCC to rule favorably on several waiver requests.
That approval process is on a slow track because of the incentive auction so maybe Media General believes it can settle the WAGT matter before the agency gets down to the nitty-gritty of the merger.
Before we get the possible whys of Media General’s actions, let’s briefly recap.
Media General is the owner of Augusta’s dominant station, ABC affiliate WJBF, and, from all outward appearances, its stewardship of WAGT under the SSA and JSA has been profitable and commendable. WAGT provides a solid news service to the community that is different from the one that airs on WJBF.
Gray agreed last September to buy all of Schurz Communications’ stations, WAGT included. And, as expected, the FCC conditioned its Feb. 12 approval of the deal on Gray’s terminating the WAGT JSA.
The FCC doesn’t like JSAs, not one bit, believing they are circumventions of its local ownership limits. In April 2014, it banned them, giving broadcasters until early 2016 (later amended to late 2016) to unwind existing ones. It has also steadfastly refused to permit the transfer of JSAs.
Congress took some of the sting out of the FCC crackdown by grandfathering JSAs that were in place prior to April 2014 until 2025.
In reviewing station transfers since 2014 the FCC has consistently required the termination of JSAs. As I said, it made no exception for the Gray-Schurz deal, which it approved Feb. 12. The WAGT JSA had to go, it told Gray.
But Gray never formally terminated the JSA. Gray contends in a letter to the FCC that it tried “countless times” to do so, but that Media General wasn’t interested in talking. On the contrary, Media General told the FCC, “Gray categorically refused to even discuss” the matter.
Media General charged that “Gray’s plan was never to negotiate a termination of these agreements, but to defraud Media General through a scheme aimed at using the FCC and the sale of the station to allow both Schurz and Gray to walk away from the agreements without any liability.”
The way Media General sees it, Gray’s plan all along was to wiggle out of the JSA with the help of the FCC, sell WAGT in the incentive auction and continue broadcasting as an NBC affiliate on a Class A station it had set up in the market for that purpose. It would have its cake and eat it, too.
So, Media General went to court. First, it tried a federal court in Washington, seeking a restraining order to save the JSA. When that failed, it turned to a state court in Georgia. There, it won an injunction upholding its contractual rights under the JSA.
The ruling not only allows it to continue operating WAGT, but also to prevent Gray from selling the station in the upcoming auction as it promised the FCC it would.
That didn’t sit well with the FCC. From the beginning of time, the FCC has required the licensee — the station owner — to maintain at all times ultimate control of what goes out over the air.
To its way of thinking, Media General’s refusal to give up operating WAGT amounts to an unauthorized transfer of control, which is strictly verboten.
In a letter that has been entered into the court record, FCC General Counsel David Gossett wrote Wednesday that the FCC has launched an investigation of Media General that could lead to a license revocation hearing. That’s as loud and as clear an admonition as the FCC can deliver.
However, Gossett did allow that Media General could be entitled to damages, but that would be up to the courts to decide.
So, why is Media General taking such a hard line on WAGT? Why is it risking the wrath of the FCC?
I have to speculate because Media General is not talking to me.
It can’t be the money it’s making from the station. It’s the weakest one in the market with 2014 revenue of less than $3 million, according to BIA/Kelsey. I’d bet that Media General is spending more for attorneys in this case than it is making from the station.
One theory is that Media General is hanging on to WAGT simply to keep it out of the incentive auction this spring. By doing so, it would increase the value of its own WJBF in the auction.
I understand that the FCC will be looking to clear two stations in Augusta during the auction and, based on the opening bids it has assigned to stations, it is most interested in WJBF and WAGT.
Another is that Media General is acting on principle — that a licensee’s rights and obligation to maintain control of a station do not trump all contracts that the station enters into with the FCC acting as the enforcer.
It’s an important principle when you think about it, especially in light of all the channel sharing agreements being written ahead of the incentive auction. When those agreements go sour, as some inevitably will, will the party leasing space on another station be undermined by the FCC?
Even the FCC is not completely above suspicion in this case. Its prime directive these days is to make the incentive auction a success. One small way to do that would be to make sure that WAGT is available in the auction. It accomplishes that by forcing Media General out of the picture.
It’s quite a mess, and difficult to handicap. Media General is clearly winning in the courts, but Gray has the FCC on its side.
Without making judgment on the facts of the case, which are hotly disputed, I have to think Gray prevails. Media General made a strong argument for why the FCC should butt out, but as the Gossett letter attests, it failed to persuade.
Given the stakes involved in the Nexstar merger, Media General simply cannot hold out against the FCC.
N.B. In a related development today, 12 senators wrote the FCC to say they were “extremely disturbed” to learn that the FCC is requiring broadcasters to unwind JSAs as a condition of approving station sales, even those JSAs grandfathered by law until 2025. Coincidence?