Over the past few weeks, we have begun to see how the FCC's decision in March to curtail the use of joint sales and shared services agreements is impacting the business.Three groups have proposal three different plans to come into compliance with the new rules. Of them, Nexstar's arrangement with Pluria Marshall is the potential win-win.
Encouraging Signs In The JSA-SSA Mess
One of the lessons that I have learned along the way is that you never really know what’s going to happen when Congress or the FCC begins fiddling around with the laws and regulations that govern the TV business.
My favorite example is retransmission consent. Congress created the right in 1992 to strengthen local broadcasting. But what retrans did was strengthen cable as multimedia companies like NBC, Fox, Hearst and Scripps used it to secure cable carriage for cable networks that siphoned off broadcast viewers in ever larger numbers. It wasn’t until pure-play broadcasters like Nexstar and Sinclair began demanding payments in the mid-2000s that retrans began fulfilling its original purpose.
Over the past few weeks, we have begun to see how the FCC’s decision in March to curtail the use of joint sales and shared services agreements is impacting the business. Broadcasters had been using such agreements to set up so-called sidecar companies and in effect operate more stations in markets than the rules explicitly allow.
In adapting to the new reality, Sinclair took the simple approach. It’s deal to acquire Allbritton Communications for nearly $1 billion had gotten hung up on the sidecar deals it had set up in three markets — Harrisburg, Pa.; Birmingham, Ala., and Charleston, S.C.
Instead of trying to restructure the sidecars, it decided to strip the ABC programming from the stations it was getting from Allbritton in the three markets and double up on stations it already owned in the markets. As part of the plan, it said it would relinquish the licenses for the Allbritton stations in Birmingham and Charleston.
Meanwhile, to clear the way for its acquisition of Hoak Media, Gray last week sort of followed Sinclair’s lead, shifting Big Four network programming off of six stations in five markets — Lincoln, Neb.; Fargo, N.D.; Monroe, La.; Minot, S.D.; and Grand Junction, Colo. — and onto the other stations it owns in the same markets through channel sharing.
But instead of turning the licenses back into the FCC, it hired David Honig of the Minority Media and Telecommunications Council to see if he could find buyers. Gray is asking only for the costs it expects to incur in the selling.
Gray is essentially giving the stations away with just a couple of stipulations. The buyer must be a “socially disadvantaged” or nonprofit entity and it must operate the stations completely independently of any other in-market stations.
To move along its applications to buy the CCA stations and Grant stations, Nexstar took an entirely different tack. It proposed selling three Fox affiliates — KMSS Shreveport, La.; KPEJ Odessa-Midland, Texas; and KLJB Quad Cities, Iowa — to the Marshall Broadcasting Group for $58.5 million.
With its proposal, Nexstar declared that it isn’t giving up on its JSAs and sidecars. It is testing whether the FCC will grant waivers for a sidecar deal if the owner of the sidecar is a bona fide minority with plenty of autonomy.
From all appearance, Marshall is bona fide. It is owned by a publisher of African-American and minority newspapers, Pluria Marshall Jr. That name is familiar to longtime broadcast lobbyists and attorneys in Washington. Marshall’s father, Pluria Sr., did battle with the industry there in the 1970s and 1980s. Depending on your point of view, Marshall the elder was either a dedicated civil rights activist trying to increase minority employment and ownership in broadcasting or a hustler who used threats to challenge station applications at the FCC to extort money from broadcasters. I’ll just say he was a force to be reckoned with.
Under the Nexstar proposal, Marshall will get the licenses, real estate and facilities of the three stations, but Nexstar will guarantee the loans that Marshall will need to buy and stations and it will provide sales and other “non-programming services” to Marshall through its other stations in the markets. Marshall will get 70% of the sales revenue.
To sweeten the deal, Nexstar and Marshall said Marshall will produce an additional two dozen hours of news and a public affairs program for the three stations.
Of the three deals, Sinclair’s is the most surprising. Who turns in TV licenses? Even sticks in Birmingham and Charleston have to be worth something, right?
Not enough apparently for Sinclair to bother about. It might have been making the point that small-market stations without major network affiliations are practically worthless, that their only real value is as sidecars to other stations in the market. It is a point that Sinclair and many other broadcasters tried to make as the FCC was getting ready to drive a spike through SSAs and JSAs last spring.
It made an impression with the Republican minority at the FCC. On the news of Sinclair license abandonments, Commissioners Ajit Pai and Michael O’Reilly issued a joint I-told-you-so statement intended for the Democratic majority at the FCC.
“This will mean job losses, less service to South Carolinians and Alabamians, and less ownership diversity,” they said. “We do not see how such an outcome possibly serves the public interest, and we hope that the commission will take action immediately to correct its misguided restrictions on JSAs.”
Armstrong Williams, an African-American political commentator who has been involved in some of Sinclair’s other sidecar deals, had hoped to acquire the Sinclair stations in the three troublesome markets under an arrangement similar to what Nexstar and Marshall had worked out. But Sinclair doesn’t have to time to struggle through the untried FCC waiver process. There’s a clock on the Allbritton deal that expires at the end of July.
I suspect that Sinclair also felt it could not get a fair hearing at the FCC. Many believe the impetus for the FCC JSA/SSA crackdown was its desire to punish Sinclair CEO David Smith for his attacks on Democratic pols and policies over the years.
And as an arch-conservative, Williams is not exactly a sympathetic character among the Democrats running the agency these days.
Even though the stations Gray is spinning off come without their Big Four network programming, broker David Honig is somewhat optimistic he can find takers for them. “All of these markets could be of interest to minorities or other underserved groups — certainly women, religious institutions, educational institutions,” he says.
The stations may no longer have Big Four networks, but there are many “secondary” networks that may work on them, he says. “There is something you could do with every one of these.”
If Sinclair’s response is the most surprising, Nexstar’s is the most significant. Its deal with Marshall could set a precedent under which other minorities could team up with established broadcasters and actually bring some new voices into local TV. In announcing the deal, Marshall talked about a “new paradigm.”
The Nexstar-Marshall deal is basically something I had proposed early last year when it seemed likely that the FCC would move against JSAs and SSAs. It’s a potential win-win. The broadcasters get to amortize costs and enjoy extra revenue from close partnerships with other stations in markets and the FCC gets want it has long claimed it has wanted — diversity of ownership.
The FCC will closely scrutinize the deal and it should. Even the National Association of Black Owned Broadcasters has raised serious questions this week aimed at making sure that Marshall maintains its editorial independence.
“I think the FCC has a chance to do something right and do something that will make a difference,” Marshall told our reporter Doug Halonen this week.
So do I.