Battle Over Virtual Duopolies Heats Up At FCC

As pressure mounts on the FCC to crack down on so-called “virtual duopolies,” the NAB is mobilizing to convince regulators that agreements among television stations to consolidate core operations should not be banned or subject to the duopoly rules.

Underscoring the sense of urgency, an NAB delegation led by General Counsel Jane Mago met last week with key advisers to all four FCC commissioners and Media Bureau Chief William Lake to press the association’s case.

“The agreements allow broadcast licensees to benefit from some economies of scale and scope while maintaining separate ownership and control of their respective stations,” they told the FCC officials, according to NAB’s official account of the meeting.

“Depriving stations, especially smaller ones, of the ability to engage in joint agreements could have a significant impact on both the production of local news and the stations’ ultimate financial viability.”

Much of the pressure to do something about the virtual duopolies is coming from longtime adversaries who have set aside their differences. Free Press and the cable industry have teamed with labor unions and satellite TV providers to urge the commission to end the local TV combinations, which they say undermine competition among broadcasters, or at least establish clear rules delineating when they are permissible.

The American Television Alliance, whose members include Time Warner Cable, American Cable Association, Dish Network, DirecTV and the U.S. Telecom Association, held five meetings in mid-November with FCC officials to complain about station agreements.

Increasing the heat was fresh criticism from Congress. In a letter yesterday to FCC Chairman Julius Genachowski, 10 prominent House Democrats — including Rep. Anna Eshoo of California, the ranking member on House Communications Subcommittee — complained that consolidation among newsrooms “in some cases has led to layoffs, increased debt held by media companies and caused a decline in the diversity of viewpoints necessary to sustain a functioning democracy.”

The focus of the regulatory tussle is a congressionally mandated quadrennial review of the FCC’s media ownership rules. A new proposal from FCC Chairman Julius Genachowski to update the rules seeks feedback on whether the contractual mergers amount to outright ownership, whether they should be restricted and, if so, whether existing alliances should be grandfathered, sources close to the developments told TVNewsCheck.

The proposed rulemaking — which is subject to change — also would eliminate a rule that limits common ownership of radio and TV stations in the same market and seeks comment on elimination of the radio-TV crossownership rule, insiders said. In addition, it proposes to relax broadcast-newspaper crossownership along the lines of the FCC’s controversial 2007 decision that allowed combos in the top 20 markets, but that was overturned by a federal appeals court.

A vote to proceed with the rulemaking could come in the next couple of weeks.

Raising alarms among broadcasters that the rulemaking may be headed in a direction they would prefer it not was a Nov. 25 FCC staff order involving a flurry of contracts that resulted in Raycom Media’s running three stations in Honolulu, including the CBS and NBC affiliates.

Although the FCC rejected a petition to undo the deal, it cautioned that it shared the petitioners’ concerns about local broadcast concentration and said it would address them in the rulemaking. The combination is “clearly at odds with the purpose and intent of the duopoly rule,” the FCC said.

As amended last in 1999, the FCC’s duopoly rule permits common ownership of two TV stations in a market if eight, independently-owned stations remain — and only one merging party is among the top four. The agency estimates there are 175 duopolies nationwide.

But in dozens of markets, stations have formed virtual duopolies through contractual agreements that allow them to share resources and even facilities without triggering the rule.

“It is an outright evasion of the TV duopoly rule,” said Andrew Schwartzman, senior VP and policy director of the Media Access Project, a public-interest law firm. The goal of these agreements “is to do what the duopoly rules prohibit.”

For example, in 2009, Granite Broadcasting and Barrington Broadcasting reached an agreement to merge the operations of their stations in two markets. In Syracuse, N.Y., Barrington’s NBC affiliate WSTM would run Granite’s CBS affiliates WTVH, while in Peoria, Ill., Granite’s NBC affiliate WEEK would take over Barrington’s ABC affiliate WHOI.

Yet, the arrangement didn’t cause a stir at the FCC because there were no changes in ownership — no “real” consolidation.

“You thought that NBC and CBS were competitors, right,” quipped Carrie Biggs-Adams, staff representative for NABET-CWA, labor unions concerned about layoffs that often follow such consolidation. “This is just sweeping through the industry,” she said.

A University of Delaware study issued in October concludes there are 83 markets in which TV stations collaborate in this manner.

There is no official count. “Many such agreements probably exist, but they are not required to be filed with the FCC and we have no way of determining how many there are,” an FCC official said in an email.

Station alliances come in several flavors. Under a shared service agreement, one broadcaster controls the news operation of another, while local marketing agreements — which are sometimes counted as duopolies — allow collaboration on programming. Some joint agreements are designed to streamline ad sales. The partnerships often take the form of legally binding contracts, though some are informal. 

Broadcasters insist the alliances are necessary to prevent financially strapped stations from going under, eliminating a free alternative to costly pay TV service.

“It’s taken weak stations and made them more viable competitors,” said Jack Goodman, a broadcast attorney who has engineered about a half-dozen of the deals and predicts the FCC will tread carefully. “In the past, the commission has been reticent to take steps that would be widely disruptive to a regulated industry.”

“If the FCC is not going to provide some modest relief to ownership rules” to permit more consolidation in small and mid-size markets, then these agreements “are a good substitute,” NAB spokesman Dennis Wharton said.

TV partnerships are popular in those markets because it’s tougher for stations to meet the threshold for duopolies. “When you’re an advertiser-supported medium, to stay in business sometimes you have to make some hard decisions,” he added, noting that stations are coming out of the worst ad recession “in the history of broadcasting.”

TV stations insist FCC permission should not be required for these agreements, and many don’t bother to notify the agency in advance of their deals.

The FCC only reviews TV partnerships that involve the sale of a station to a third party or if a petitioner seeks to block an agreement. In addition to Granite, Barrington and Raycom, LIN TV, Nexstar Broadcasting and the Sinclair Broadcast Group have been especially active in forging alliances that circumvent the duopoly restrictions.

Detractors say the agreements only benefit broadcasters, and not the public.

“If you can eliminate your competition and lower costs at the same time, you’re going to make more money,” said Angela Campbell, a Georgetown law professor opposed to media concentration who fought against the Raycom deal in Hawaii.

Campbell argues that virtual duopolies are unnecessary because a struggling broadcaster can seek a “failing station waiver” to merge with another TV outlet. “These stations are not struggling that much,” and given the reduction in competition, viewers “suffer” from the consolidation, she said.

“This doesn’t really pass the duck test for me,” echoed Corie Wright, policy counsel for Free Press. “If it walks like a duck and it talks like a duck, it’s consolidation as far as I’m concerned.”

Free Press posts videos on its website of identical newscasts on partnered stations.

The ACA, whose members are small and mid-size cable providers, doesn’t oppose the agreements per se, but complains they give broadcasters an edge in retransmission consent bargaining.

“Don’t, in essence, give any one station any more leverage than it already has,” ACA President and CEO Matt Polka urged. When major stations jointly negotiate station carriage with cable operators, they can extract higher compensation than they could individually, he contended. In FCC filings, association members claim that retransmission fees have skyrocketed as much as 161% as a result of broadcaster alliances.

The NAB’s Wharton noted that cable companies also sometimes partner to strengthen their negotiating hand, and argued that broadcasters deserve fair compensation for marquee programming that helps drive cable viewership. “Our message to the FCC is: you only encourage a breakdown in negotiations by suggesting that government ought to get involved in a free-market negotiation process.”

An agency proposal adopted in March to update retransmission consent rules seeks comment on whether one station should be permitted to negotiate on behalf of another.

FCC Commissioner Michael Copps, a staunch critic of media consolidation since he arrived at the agency in 2001, announced Tuesday that he’ll retire from the FCC on Jan. 1, 2012, or earlier if the Senate confirms his replacement or adjourns before then.

While the development is good news for broadcasters, the NAB may still have to contend with Copps one last time if the vote on Genachowski’s proposed updates to the ownership rules is held before he leaves.

“Some broadcasters are doing end-runs around our media ownership limits by way of so-called ‘shared services agreements’ — a fancy term for covert consolidation that lets one company control another without actually formally owning it,” Copps said Dec. 1 at an FCC forum in Atlanta. “It’s something we should not tolerate.”

His departure will leave three regulators: Genachowski and Mignon Clyburn, both Democrats, and Robert McDowell, a Republican.

The confirmation hearing for Copps’ replacement, Jessica Rosenwercel, a top aide to Senate Commerce Chairman John Rockefeller, and Ajit Pai, a former attorney with the Justice Department’s antitrust division, Senate Judiciary Committee and FCC, tapped to fill a GOP vacancy, was held Nov. 30.

Neither has indicated with any specificity where they stand on TV sharing arrangements, sources said. But generally speaking, the Democrats have been far more leery of media consolidation than McDowell, who supported the controversial relaxation of the newspaper-TV crossownership rule in 2007, spearheaded by then-GOP Chairman Kevin Martin. Pai served as deputy general counsel under Martin.

If any senators succeed at blocking the nominations of Rosenwercel and Pai for a prolonged period, the FCC might have to vote on the final ownership rules next spring or summer with only three commissioners — Genachowski, Clyburn and McDowell.

The wild card is the Supreme Court. On Monday, the NAB asked the court to step into the fray, square conflicting appeals court rulings and, in essence, strike down the local ownership caps.

For now, even veteran FCC watchers agree it is tough to handicap the commission’s next move, especially with changes at the helm, making for the perfect television cliffhanger.