Are Dual Affiliations A Good Idea? Maybe Not

At the FCC’s March 31 meeting, the big deal was the ruling to ban joint sales agreements that broadcasters had been using to get around the archaic local ownership rules that limit the number of stations they may own in a market.

The ruling created considerable havoc in the station trading marketplace. Broadcasters like Gray and Sinclair had to restructure pending deals to bring them into compliance with the stricter new rules and there is no telling how many deals fell through because of it.

The ruling has contributed to what’s been a bad year for broadcast investors.

But the JSA crackdown was not the only significant ruling the agency issued that day.

It also launched its 2014 Quadrennial Regulatory Review of the broadcast ownership rules. It might be better titled the Perpetual Regulatory Review since the FCC never seems to finish one four-year proceeding before beginning the next. It’s been on this merry-go-round since 1996 on orders from Congress.

The review contains a couple of other “tentative” findings pertaining to the local ownership rules and Big Four affiliations that could go a long way in shaping the industry and even determining how much broadcasters have to pay in reverse comp.

The first would bar broadcasters from acquiring a second Big Four affiliate in a market via an affiliation swap.

For instance, if a broadcaster owns a Big Four affiliate and an independent (or Little Two [CW or MNT] affiliate) in a market, the FCC is proposing that it cannot steal away the Big Four affiliation of another station in the market, put it on the independent and operate two Big Four affiliates. The FCC tentatively decided that such a switch would be an evasion of its rules.

This is precisely what is happening in Indianapolis where Tribune owns Fox affiliate WXIN and CW affiliate WTTV. Come Jan. 1, the CBS affiliation will migrate from LIN Media’s WISH to WTTV and Tribune will have two full-power top 4 network affiliates in the market.

I don’t know how much Tribune has to worry about. The FCC proposal is not yet an enforceable rule and it may never become one. The FCC rulemaking process is a labyrinth with many dead ends. Perhaps Tribune is figuring that even if the FCC adopts the proposal, it will be able to get a waiver or a grandfather exemption.

Tribune may also be figuring if worse comes to worst, it could use multicast channels to put both affiliates on the same station. Read on.

Elsewhere in the Perpetual Review, the FCC “tentatively declined” to regulate — that is, ban — dual Big Four affiliations in a market through the use of multicasting channels. In other words, the FCC said a single station may operate two affiliates by putting, say, CBS on one multicast channel and Fox on another.

In making that determination, the FCC said “marketplace incentives” seem to limit dual affiliations via multicasting to smaller markets where there are not enough stations to go around. Citing BIA/Kelsey, it noted that there are apparently 40 such dual affiliations and that three-quarters of them are in DMA 100 or smaller.

Whether the FCC would allow Big Four dual affiliations via multicasting in medium and large markets is an open question. However, doing so would seem to advance the FCC’s more urgent agenda to free up spectrum in larger markets for wireless broadband.

The FCC, by the way, said it had no problem with dual affiliations via multicasting involving a Big Four and Little Two networks in markets of any size, noting that there are already around 150 of them.

Each of two findings deals with a broadcaster’s ability to circumvent the ownership rule’s prohibition against owning two Big Four networks in a market. The FCC is tentatively opposed to one approach (swaps), but tentatively in favor of the other (multicast), at least in small markets. But neither is yet the law of the land.

So, what’s in the best interest of broadcasters?

I tend to oppose government regulation of the marketplace. So, part of me would argue that that the FCC should allow dual Big Four affiliations through via multicasting as well as via swaps.

However, here’s the danger. If broadcasters can double up on Big Four affiliations in a market by any means, the networks can use that ability to squeeze their existing affiliates in reverse comp negotiations: “Oh, you don’t want to pay what we are asking. That’s OK. I know someone else in the market who will.”

Over the years, rival broadcasters have shown little solidarity in this regard. If one station can grab an affiliation from another, it will do it. It’s just business. Look what Tribune just did in Indianapolis. No qualms.

I should point out that Sinclair has already argued at the FCC that it would be “illogical”  to prohibit broadcasters in larger, more competitive markets from affiliating with multiple Big Four networks via multicasting while permitting stations in smaller markets to do so.

Networks know how to play one affiliate against another and they will do it to the extent the FCC rules allow.

In our TVNewsCheck revenue webinar yesterday (I hope you tuned in — check it out here), Wells Fargo analyst Marci Ryvicker calculated that affiliates will end up turning over 65% of their retrans dollars to the networks in the form of reverse comp.

If things fall the right way for the networks at the FCC, that percentage could be low.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or [email protected]. You can read earlier columns here.