Jessell: Winners And Losers Abound in Sinclair’s Fiasco
When people are making comparisons between your station group and RKO General, you know you have screwed up.
And, readers, more than one of the lawyers and broadcasters I regularly speak with have made that connection in speaking of Sinclair and its fumbled bid to acquire Tribune media for $3.9 billion.
After a decades-long legal and regulatory battle, the FCC found that RKO and its parent General Tire guilty of all kinds of wrongdoing and ethical misconduct, revoked its license for WNAC Boston (now WHDH) and forced it to sell all of its other stations at below market value.
Now, I’m not saying that Sinclair is in that much hot water, but its mishandling of its merger application has badly stained its permanent FCC record in a way that could greatly complicate its future regulatory dealings.
It might surprise some to learn than you cannot be a scoundrel and hold a broadcast license. More specifically, you cannot be a drug dealer or a liar.
And a liar is what the FCC has accused Sinclair of being by obfuscating the fact it would continue to control three major market stations that it told the FCC it would spin off to other broadcasters to comply with ownership limits.
You see, the FCC acts on the honor system. It presumes that you are obeying all the rules and expects you to confess any infractions. It’s the principal way the FCC polices those it regulates. That’s why lying – the ever-polite FCC calls it “misrepresentation” or “lack of candor” – is taken seriously and is the FCC equivalent of a capital crime.
As the lawyers pointed out to me this week, once indicted for misrepresentation as Sinclair has now been, it sticks because it goes to the broadcaster’s basic character qualifications to be a licensee. It cannot buy or sell a station or even renew a license until it resolves the character question.
Sinclair’s best move now is to walk away from the merger and promise, no, swear on a stack of Bibles, that it will never, ever mislead the FCC again.
If Sinclair boss David Smith is sufficiently contrite, Chairman Ajit Pai just might let Sinclair off the hook with a stiff warning (or fine) and allow Sinclair to go about its business without the overhang of the character issue.
Sinclair is damn fortunate that Reed Hundt or Tom Wheeler is not running the agency right now or it could well be the next RKO. Either one, I think, would have liked to stick it Smith & Co.
As I have written here before, Sinclair has no one but itself to blame for this fiasco. It pushed too hard to keep as many of the Tribune stations as it could and somewhere along the line lost sight of the larger goal – get the transfer through the FCC and get to closing.
Perhaps because he had some political stroke among Republicans in Washington, Smith thought he stretch the bounds of what was acceptable in structuring sidecar deals and that FCC Chairman Ajit Pai would roll over for whatever he put before him. He kept going back to the FCC (and the Justice Department) demanding more and more. Ironically, he will likely end up with nothing, except maybe a new set of regulatory hassles.
And it’s too bad. When the merger was announced, I agreed with Sinclair that it could be a transformative and positive development not only for Sinclair, but for all of TV broadcasting.
The combination would have created a fifth national broadcasting platform, almost the equal of a Big Four network with all its affiliates. And Sinclair would have used that platform to reinvent the broadcasting medium with the help of ATSC 3.0. If successful, every broadcaster would have benefitted from its pioneering effort.
But, as things now stand this Friday afternoon, Sinclair is simply a loser.
So, who are the other losers in the affair and who are the winners?
I’m glad you asked.
Ajit Pai. By calling Sinclair for misrepresentation, Pai let it be known that his FCC is no pushover, and that, although he is a confirmed deregulator, he is not going to tolerate disrespect for the agency rules and processes and that he is not going to be jerked around. Other broadcasters and other industries on the FCC watch should take note.
The Old Guard. For nearly four decades, liberals opposed to Big Media have been fighting a rear guard action. At the FCC, on the Hill and in the courts, they have resisted just about every move to allow broadcasters to own more stations since the Reagan administration. They have failed to stop the deregulation and the massive consolidation of broadcasting that followed, but they have certainty slowed it down. That there are still some two dozen substantial TV station groups is testimony to their effectiveness. The Old Guard led by Gigi Sohn, Gene Kimmelman and Andy Schwartzman rallied much of the opposition to Sinclair-Tribune. Give them their due.
Sinclair haters. They are legion. These are Democrats, liberals and hardcore members of the Trump resistance who opposed Sinclair because of David Smith’s far-right, pro-Trump political views that get aired regularly on Sinclair stations by surrogates Boris Epshteyn and Mark Hyman. They feared magnifying his voice by extending his reach from 39% to 66% of U.S. TV homes as the Tribune merger would have done.
Chris Ruddy. Like the Sinclair haters, this friend of the Donald was worried that, with the Tribune stations, Sinclair would establish itself as the next big conservative voice in television – a real challenger to Fox News. But that is his ambition. If there is to be an alternative to Fox, it was going to be his Newsmax, not Smith’s Sinclair. So, he joined with the Old Guard and the Sinclair haters is vigorously opposing the merger in conservative circles. Unlike his bedfellows, Ruddy’s interest was totally self serving. But so what? I would guess that he gave Pai the cover he needed among conservatives, and perhaps the White House, to punish Sinclair for its impertinence.
Acquisitive broadcasters. Tribune has some nice stations in mid-sized market that several broadcasters and perhaps even some outside money would like to own. Now they will get their chance. Tribune is still a seller and sellers need buyers. What’s more, Sinclair will be sidelined from buying any stations until it cleans up its mess at the FCC. So, groups frustrated by their inability to bid against Sinclair now have an opportunity.
LOSERS (IN ADDITION TO SINCLAIR)
Broadcasters with sidecars. Sinclair, of course, is not alone in using sidecars – stations operating though joint sales and shared services agreements – to circumvent mostly local ownership limits. To one degree or another, they are all frauds, although none to the degree that some of Sinclair’s are. Expect heightened scrutiny of proposed sidecars. Those proposing new ones would be wise to structure them safely within precedent and not push the envelope as Sinclair stupidly did. Fortunately, with Pai’s easing of the actual ownership limits, the need for sidecars is waning.
Soo Kim and Deb McDermott. Broadcast investor Kim and veteran station operator McDermott had been among the prospective winners of the Sinclair-Tribune merger. With a big pile of money from a Canadian bank, Kim agreed to buy nine stations in seven markets that Sinclair was spinning off from the merger for $442 million. The stations would form the foundation of a large new station group – Standard Media – that McDermott would run. Along with everything else, Kim’s deal has been dashed. But based on my interview with him last May, I don’t think he is done with broadcasting. He still has his bankroll and a McDermott-led core of broadcast executives. My bet is that he goes ahead and builds his group, perhaps by buying some of the Tribune stations directly from Tribune. “We are here,” he told me in that interview. “If anybody is interested in selling, come see us.”
Tribune station employees. Call me old fashioned, but I think people like to know who they are working for. And from general manager on down, Tribune staffers have not really known for years as the group has struggled through disruptive ownership changes, bankruptcy and a merger gone bad. The problem has been particularly bad at the stations in the merger overlap markets. There, staffers have had to keep guessing whether they be would be sold and to whom. Uncertainty is not good for morale, unit cohesion or hiring and retaining good talent.
A WORD ABOUT FOX
I couldn’t quite fit Fox into either the winner or loser category. Yes, if the merger collapses, so will its deal to buy seven station stations from Sinclair for $910 million However, as you may recall, Fox had made a bid to buy Tribune out from underneath Sinclair, but came in a little too late with too little. Now more sharply focused in broadcasting in light of its Disney deal, Fox might step up again to buy all or part of Tribune or least the stations in the largest markets. So, in a way, the cratering of the Sinclair merger positions Fox to buy the stations it wants from Tribune without having the deal with a middle man.