Jessell | FCC Duop Inaction Hurting Station Owners

I think Washington regulators sometimes miss the little picture.

The decisions they make — or don’t make — not only affect mighty corporations, but also small concerns — not just Wall Street, but Main Street.

The FCC regulators have been considering whether to allow Gray Television to own two network affiliated TV stations in Sioux Falls, S.D. Action is long overdue.

Gray already owns ABC affiliate KSFY there, but wants the economies that would come from owning a second affiliate. To that end, it cut a deal to buy NBC affiliate KDLT from Red River Broadcast for $32.5 million. In May 2018, it submitted the paperwork seeking FCC approval.

Technically, the deal violates the FCC’s local ownership rules banning common ownership of two affiliates in the same market. But, in easing the rules in 2017, the agency said it would consider such combinations on a case-by-case basis.

Gray was first in line with a case, and, 15 months later, it is still waiting.

And it is annoyed. It has responded promptly to FCC requests for more information, it has repeatedly pressed its case in meetings and calls with FCC officials, and it has even gotten friendly and powerful pols to write Chairman Ajit Pai on its behalf.

But, so far, nada. For reasons known only to himself and his lieutenants, Pai is refusing to move on the case.

Last February, I suggested that it was because the Justice Department was taking a look at the antitrust implications of the deal and the FCC didn’t want to get ahead of Justice. But as we reported, Justice cleared the deal a month ago.

My guess now is that the FCC is hung up on the big picture.

Admittedly, the case is important as it will set a precedent for other broadcasters seeking to double up with affiliates. It will set the terms and market conditions under which the FCC will grant affiliate combos from here on out. It will go far in reshaping the business.

Plus, the buyer is Gray. It’s one of the big, publicly traded station consolidators. It’s not Nexstar or Sinclair, but, like them, its appetite for stations seems to have no bounds. Anything it does is a big deal, even in DMA 115.

What Pai is missing is how his inaction is impacting small station owners and the people who work for them.

Let me tell you something about Red River, the seller of KDLT. It’s owned by the Kunin family of Minneapolis, which is also the licensee of two other small-market Fox affiliates, KVRR Fargo, N.D., and KQDS Duluth, Minn. It had a string of small-market radio stations in Minnesota and Wisconsin, but sold them over the past few years.

The Kunin family is not hurting. Starting around the same time as radio in the 1920s, it made a fortune by building a hair salon empire that grew into the publicly traded Regis Corp. with thousands of storefronts across America.

But the Kunins are small players in broadcasting. They have no ambitions to bulk up, to own a station or two in every market like the bog consolidators do if only the FCC would allow them.

In fact, with the selling of their radio stations and KDLT, they appear to be easing out of the business, waiting for the right offers like the one it got from Gray in Sioux Falls.

Despite their low broadcasting profile, the Kunins deserve prompt regulatory action and so do the managers, anchors, reporters, account executives and techs who work at the KDLT. Their jobs have been in limbo for 15 months.

“Morale has been tough,” says John Exline, who manages the Kunin business interests. “I have to tip my cap to the station leadership there because they have tried to keep a stiff upper lip through all of this unknown period of time, not only as they are concerned about what may happen as being of a part of a new organization, but also just how long things are taking. They have held it together remarkably well.”

According to BIA Advisory, Nexstar’s CBS affiliate KELO is, by far, the dominant station in Sioux Falls with 55% of the ad revenue. Gray’s KSFY and KDLT are a distant No. 2 and No. 3 in ad share, respectively. Together, their share amounts to just 33.7%. (Fox affiliate KTTW, which has no news, is a non-factor as the No. 4.)

In broadcasting today, you don’t want to find yourself in third or fourth place, especially in small markets and especially if you are part of a small group without much leverage in MVPD and network negotiations. And as every GM and ND knows, it’s nearly impossible to move up in the rankings without a massive investment in news, and even then there is no guarantee.

At some point, the only real play for the No. 3 and the No. 4 owners is to sell, to get out while the getting is good. But here’s the catch: The only buyers are broadcasters who have another station in the market. Nobody wants a standalone market laggard. But combining a No. 1 or a No. 2 with a No. 3 or a No. 4 makes economic sense.

That is why it is imperative for the FCC to think small and set simple, clear-cut criteria for affiliate duopolies in the context of its KDLT approval so that sellers and buyers can find each other to their mutual benefit and, I would argue, to the public’s. Fewer stronger stations are better than a lot of weak ones.

For the past 40 years, through Democratic and Republican administrations, the FCC has been gradually loosening its ownership restrictions on TV stations, recognizing that their margins are shrinking in the face of competition from cable, satellite and, of late, the internet.

Permitting certain combinations like a No. 1 and No. 4 or a No. 2 and a No. 3 when there is a dominant No. 1 as there is in Sioux Falls is the modest next step that will help station owners, big and small.

The FCC should take it without further ado.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or here.