FCC OKs Gannett-Belo And Tribune-Local

At the end of a year filled by big-ticket TV station mergers and acquisitions, the FCC today cleared the way for two of the year’s bigger deals.

It approved Gannett Co.’s $1.5 billion acquisition of Belo Corp. that was announced in June. The original deal was for Belo’s 20 stations in 15 markets (Gannett’s current portfolio contains 23 stations), but on Monday that 20 was reduced to 19 when Gannett agreed to address Justice Department concerns by agreeing to completely spin off Belo’s CBS affiliate KMOV St. Louis (Gannett already owns KSDK, the market’s NBC affiliate), rather than sell it to a “sidecar” company, Sander Media, headed by a former Belo executive.

“Gannett’s KSDK and Belo’s KMOV compete head to head in the sale of broadcast television spot advertising in the St. Louis area, and this rivalry constrains advertising rates,” William J. Baer, Justice’s antitrust chief, said in a statement.

Gannett said it expects the deal to close early next week.

The commission also OK’d Tribune Co.’s purchase of 16 stations in 14 markets from Local TV LLC for $2.7 billion. That deal was announced in July and when it closes, Tribune says, it will be “the largest combined independent broadcast group and content creator in the country.”

Peter Liguori, Tribune’s president-CEO, said in a statement: “The logic and investment thesis underlining our acquisition of Local TV is as powerful as it is simple—in a fragmenting media landscape, there is value in scale, for our viewers, advertisers, networks, cable and satellite partners and, most important, the communities we serve.”

In granting the Gannett-Belo merger, the FCC tossed out petitions to deny from two groups — one representing foes of media consolidation, the other from cable and satellite interests, including Time Warner Cable and DirecTV.

The target of the petitioners were two companies that Gannett set up to own seven of the Belo stations in five markets where it could not own them outright because of two FCC rules — the local ownership rule limiting the number of stations a broadcaster may own in a single market and the newspaper-broadcast crossownership rule banning the common ownership of a daily newspapers and a TV station in the same market.

One of the so-called sidecar companies, Tucker Operating Co., ends up owning one of the stations, while the other, Sander Operating Co., ends up with five. Tucker is owned by former broadcasting executive Ben Tucker; Sander, by former Belo executive, Jack Sander.

However, in each case, Gannett remains heavily involved in the operation of the Tucker and Sander stations through shared services agreements, joint sales agreements or both.

Sander acquires one station in Phoenix, where Gannett owns the Arizona Republic and KPNX; two stations in St. Louis, where Gannett owns KSDK; one station in Portland, Ore., where Gannett owns the Statesman Journal; one station in Louisville, Ky.; where Gannett owns The Courier Journal; and one station in Tucson, Ariz.; where Gannett owns the Tucson Citizen and the Arizona Daily Star.

As noted above, Gannett and Sander have agreed to spin off one of the St. Louis stations, KMOV, to appease antitrust regulators at the Justice Department. So, Sander nets just five stations rather than six as originally planned.

Tucker’s one station is also in Tucson, where Belo had two. Sander gets KMSB, while Tucker gets KTTU.

Although the anti-consolidation petitioners  objected to the contractual arrangements between Gannett and Sander and Tucker, the FCC found no fault with them.

“The commission has approved applications for consent to television station transactions involving a combination of joint sales agreements, other types of shared services agreements,options and similar contingent interests, and guarantees of third-party debt financing, and has found these cooperative arrangements not to rise to the level of an attributable interest,” the FCC said.

“We find the combination of interests presented here falls within those combinations previously approved.”

The FCC was no more sympathetic to Time Warner Cable and DirecTV, which complained that Gannett and its sidecar companies would jointly negotiate for retransmission consent fees and reduce the operators bargaining power.

The FCC said that the retrans issue is the focus of another rulemaking. “We decline to address in this licensing order an issue posed in that proceeding, at the behest of parties that petitioned to commence it.

“Aside from the issue of joint negotiation of retransmission consent agreements, [they] fail to demonstrate that the proposed assignments and related cooperative agreements violate our rules or our policies as embodied in precedent.”

In giving its blessing to the Tribune-Local TV LLC deal, the FCC Media Bureau rejected a petition to deny a side deal under which Tribune  is spinning off three stations to Dreamcatcher Broadcasting to comply with the newspaper-broadcast crossownership rule.

The petition was filed by Free Press and other groups that believe the FCC has allowed far too much consolidation in the broadcasting ranks.

However, the FCC agreed to condition the entire transaction on Tribune coming into compliance with any changes to the national ownership cap. The FCC is currently considering tightening that cap in a separate proceeding.

The Local TV group includes WNEP Scranton, Pa., and WTKR-WGNT Norfolk-Portsmouth-Newport News, Va.

Because Tribune owns the Allentown [Pa.] Morning Call and the Norfolk Daily Press, Tribune’s outright ownership of WNEP and WTKR-WGNT in the same markets would put it in violation of the crossownership rule.

To comply with the rule, Tribune proposed spinning off the three stations to Dreamcatcher, a company owned by former Tribune executive Ed Wilson.

In opposing the deal, the Free Press petitioners argued the spin off was a sham, that Tribune would operate the stations as if it owned them outright under a shared services agreement.

Under that SSA, Tribune will provide technical, promotional, payroll and other back-offices services; assist in the negotiating retransmission consent fees; and program no more than 15% of the station’s air time.

After sizing up the SSA, the FCC found no cause to interfere with the sale.

“We disagree with petitioners that the facts here show that Tribune will be operating the Dreamcatcher stations as though it owned them outright. Dreamcatcher will be run by a highly experienced broadcaster, with established independence from Tribune.

“We do not find anything suspect in the fact that, several years ago, he [Wilson] was associated with the company. Tribune is only one of several broadcasters with whom he has held senior positions and he has not been employed by Tribune for three years.

“When looking at the terms of the SSAs themselves, we find them consistent with our precedent. The programming limits in the SSAs are consistent with those that have been approved in similar arrangements for over a decade.”

The FCC was not as accommodating on the question of the national cap that limits the coverage of groups to no more than 39% of all TV homes.

Under the current method of calculating the reach of groups, in which the coverage of UHF stations is reduced by half, the reach of Tribune and Local TV combined is 27%.

But the petitioners pointed out that that FCC has a rulemaking aimed at eliminating the UHF discount, and that without the discount, the Tribune-Local TV reach would swell to 44%, well over the cap.

The FCC was not prepared to block the deal because of the 44%, but said that Tribune would have to comply eventually with the outcome of the UHF discount rulemaking.

Free Press President Craig Aaron was not happy with the FCC actions. “The FCC has ignored runaway media consolidation for too long,” he said. “There was no good reason to let that trend continue with these mega-mergers. These kinds of deals shutter newsrooms and silence competing viewpoints, harming local service, diversity and competition in media markets across the country.

“Gannett and Tribune use shell companies, shady arrangements and accounting tricks to keep total control over broadcast licenses they can’t hold in their own names.  They brag to investors and Wall Street analysts about how they can dodge the FCC’s cross-ownership limits and get away with it.

“This fiction hasn’t fooled other government agencies. The DOJ recognized that Gannett and other big broadcasters are really in control of their so-called sidecar companies, and the Securities and Exchange Commission sees that the big station groups control the shells’ finances and day-to-day operations.

“The FCC needs to scrutinize the use of shell companies and sharing agreements in general, and should reconsider and review these deals too.  It needs to fix its rules now, and throw out the rubber stamp that’s making America’s media system less local, less diverse and less accountable to the people in hundreds of communities.

“It’s time for the agency to tighten its rules, close these loopholes and start promoting local journalism and real news.”