Advocacy Groups, Cable Target Virtual Duops

The FCC’s duopoly rules prohibit one broadcaster from owning two stations in markets with fewer than eight total stations or two top-four rated stations (in most cases the Big Four affiliates) in markets of any size.

But over the years, many broadcasters have gotten around the rules through shared services agreements and other contractual arrangements that stop short of ownership, but allow them to operate two or even three stations in a market.

Station groups like Sinclair and Nexstar have gone so far as to set up shell companies or licensees for the purpose of acquiring stations that they can operate in tandem with ones they own.

In multiple filings this week in the FCC’s review of its ownership rules, a coalition of advocacy groups long opposed to media consolidation and cable operators are saying “enough.”

The coalition, along with Free Press, argues that the so-called virtual duopolies reduce competition, cause news duplication and diminish ownership opportunities for women and minorities, while the cable operators say they give broadcasters undue advantage in retransmission consent negotiations.

The coalition comprises the Office of Communication of the United Church of Christ, the Media Alliance, the National Organization for Women Foundation, the Communications Workers of America, Common Cause, the Benton Foundation and the Media Council Hawaii.

The cable industry is represented by individual and joint company filings and trade groups like the American Cable Association.

Ironically, the assault on broadcasters’ virtual duopolies is coming in a congressionally mandated proceeding that was meant to determine whether the FCC’s existing media ownership restrictions on broadcasting and newspapers still make sense in the face of proliferating new media.

But the FCC signaled that it may be willing to crack down on virtual duopolies in the proceeding when it approved a sharing arrangement in Honolulu under FCC precedent. In that deal, Raycom Media’s NBC affiliate ended up with control of the CBS affiliate and touched off local protests that were heard in Washington.

Noting that the FCC doesn’t track sharing arrangements, the coalition says their number seem to be growing substantially. To support that assertion, it cites a study by Free Press that found 98 markets with sharing arrangements involving 81 owners.

The ACA attached to its comments a list of 62 markets from Columbus, Ohio (DMA 32), to Victoria, Texas (DMA 204), where, they say, two or three network affiliates are operated by one broadcaster under some kind of sharing arrangement.

The advocacy coalition wants the FCC to make all sharing arrangement attributable — that is, they want them to count under the existing duopoly rule and be subject to the eight-station/top-four test.

“It would be arbitrary and capricious to keep the current rule and yet allow the rule to be circumvented by allowing sharing arrangements that effectively give one station control or substantial influence over another station in the same DMA,” the coalition says.

The coalition proposes two “bright line” tests that the FCC could use to ascertain whether a sharing arrangement should be prohibited in the same markets where actual duopolies are prohibited.

Under the first of the tests, control of a second station would be deemed attributable if:

• The first station provides all or substantially all local news programming for the second station.

• The first station sells 15% or more of the second station’s weekly advertising time.

• The stations share management personnel.

• The second station maintains no separate facilities.

• The first station reports to the Securities and Exchange Commission that it owns or operates the second station.

• Fifty percent or more of the second station’s total revenues go to the first station.

• The second station outsources its retransmission consent negotiations to the first station.

Under the second test, the second station would be attributable if any three of the following eight conditions were met:

• The first station provides between 8% and 15% of the second station’s programming.

• The number of employees at the first station significantly outnumbers those at the second station.

• The stations share some physical facilities.

• The stations engage in joint promotional activities.

• The stations share financial risk and reward.

• The stations are involved in local news sharing agreements.

• The first station has sharing arrangements with more than one other station in the market.

• The first station has an option to purchase the second station.

The coalition suggests giving any broadcasters that fail either of the tests temporary waivers to allow them to come into compliance. Plus, they say, the FCC should serve notice that any newly created sharing arrangements that fail will not be grandfathered.

Although the Free Press comments do not endorse a specific plan for regulating the sharing arrangements, it makes many of the same arguments. “The FCC can no longer tacitly approve such practices through inaction. If it walks like a duopoly and talks like a duopoly, then the commission should treat an arrangement as a duopoly for the purpose of the local television ownership rule,” it says.

Free Press is particularly concerned about the effect “covert consolidation” is having on local TV news. “In many communities, the end result is a TV dial where most of the news on one channel is essentially a duplicate — or even an exact copy — of what airs on a putatively competing station.

“The corrosive effects that these practices have on editorial independence and journalistic integrity should concern the public, regulators and industry professionals.”

Cable’s complaint is that the sharing arrangements significantly and unfairly increase a broadcaster’s leverage in retransmission consent negotiations with cable operators, which are already yielding increasingly larger sums for broadcasters.

“The aggregation of market power by local television stations through actual or virtual control of multiple stations (particularly Big Four affiliates) can and does encourage and enable those stations to make unreasonable retransmission consent demands and use coercive negotiating tactics,” Mediacom and Suddenlink say in their joint comments.

Such “collusion” is driving up the retrans fees that cable operators pay, and ultimately the fees that cable subscribers must pay, ACA says.

Based on what it’s hearing from its members, ACA says, the ability of multiple Big Four affiliates to negotiate jointly under sharing arrangements has driven up retrans payments between 21.6% and 161%. And according to SNL Kagan, it notes, broadcasters’ industry-wide retrans take is expected more than double from $1.4 billion in 2010 to $3.9 billion in 2015.

In the 62 instances where multiple Big Four affiliates in the same DMA are known to operate under a sharing agreement, ACA says it has members who were able to confirm 46 instances, involving 41 DMAs, where retransmission consent negotiations were conducted by a single representative for two stations. That’s up from 36 instances in 33 markets just two years ago, according to ACA.

“The time has come for the commission to act decisively to end these practices, end the gaming of its broadcast ownership rules, and return some semblance of competition to local markets where broadcaster collusion remains open, notorious and unchecked,” the ACA says.

Like the advocacy coalition, the ACA would, in effect, ban two or more Big Four affiliates in a small market from negotiating jointly for retrans payments or even from “any discussion or exchanges of information” pertaining to retrans negotiations.

And Suddenlink and Mediacom would apply the ban retroactively. Broadcasters who cut deals under sharing arrangements “should be required to reform or terminate such arrangements prior to the expiration of any existing retransmission consent agreements involving the stations.”

What’s more, they say, “duopolies created by an affiliate swap should be dissolved within one year unless the station owner agrees to limit its election of retransmission consent to no more than one Big Four station in a market.

“Virtual multicast duopolies should also be subject to divestiture absent an agreement by the station to stagger the expiration dates of its Big Four affiliate retransmission consent agreements so that there is at least six months separation between them.”

They also say the FCC should require full disclosure of any sharing agreements between stations as well as retransmission consent agreements.