Pai’s Got Strong Hand On Ownership Dereg

I don’t know how far FCC Chairman Ajit Pai wants to go in relaxing the national TV ownership cap. But it’s clear he wants to go a long way, possibly eliminating it altogether so that a station groups can reach 100% of TV homes just as Pai’s predecessor and ideological doppelganger Mark Fowler wanted (but failed) to do during in the early years of the Reagan Administration.

To that end, Pai and the other two members of the FCC Republican majority will launch a rulemaking on Dec. 14 to consider whether to “retain, modify or eliminate” the national ownership cap.

You can forget “retain” right now. We are really only talking about “modify” as in gut and “eliminate.”

The rulemaking, which take at least a year, may turn into a many-sided negotiation — FCC officials, lawmakers, broadcast networks, affiliates, media consolation foes — on what the new cap should be.

If it comes to that, Pai will be a in strong position. And that’s no accident. He put himself there earlier this year when he reversed the Wheeler FCC and restored the UHF discount, which, in effect, doubled the current cap from 39% of TV homes to 78%.

So, instead trying to convince others to raise the cap up from a measly 39%, he sits at the table with the cap at 78%. A very strong hand, indeed.

Let me remind you that, with the exception of Ion Media, no station group can actually hit 78%. That’s because, to one extent or another, every other group owns VHF stations that are fully counted in calculating household reach, and that has the effect of reducing its cap.

The VHF variable also has the effect of giving each group a unique cap. By my calculations, Cox is capped at 77.4%; Univision, at 75.8%; Scripps, at 73.4%; Gray at 73.2%; Raycom, at 72.1%; Hearst, at 70.3%; and CBS at 66.5%

These percentages all presume that the groups buy nothing but UHF stations with their discounted coverages going forward. But even with some VHF stations in the mix, many could easily push their coverage into the high 60s.

I know this is confusing to those who don’t follow the regulatory end of broadcasting. For a fuller explanation, I refer you to my column of March 31.. It may help.

Pai’s hand will also be strengthened by the fact that by the time the parties get down to business on negotiating a new cap the FCC will have approved Sinclair’s acquisition of Tribune, which will increase its reach to somewhere between 60% and 70%.

(Right now, the merger would put Sinclair at nearly 72%, but even Sinclair has recognized that it may have to spin off some stations and reduce coverage to comply with the current rules that, because of its VHF stations, say it can’t get bigger than 68%.)

Wherever Sinclair ends up, it will set a powerful precedent. If Sinclair can reach 68%, Nexstar, Gray and other acquisitive groups should be able to extend their reach to that level, too.

Despite Pai’s strong hand, liberals and Democratic policymakers opposed to media consolidation will do their best to put the cap back where Wheeler left it (39%) or, with a slight bow to the new media reality, agree to lift it modestly to, say, 45%.

And they may find allies within the ranks of broadcasters. Not all station groups share Sinclair’s and Nexstar’s ambition to get as big as they possibly can.

Some would rather not compete with behemoths and some fear that the broadcast networks might start buying stations again, creating new O&Os and taking away their valuable affiliations.

A nasty dispute at the NAB between the networks and affiliates over raising the cap in 2003 led to the networks quitting the trade association for several years and to a turnover in its leadership. It was ugly.

The rulemaking draft circulated last week says that in the past part of the rationale for the cap was to maintain “the appropriate balance of power” between the networks and their affiliates.

If anything causes Pai to pull back on dismantling the cap, it will be because of appeals from wary broadcasters.

But it won’t be an easy call for those broadcasters. In limiting the consolidators and networks from getting bigger, they will also be limiting their own ability to get bigger and to find buyers when they decide it’s time to sell out.

The rulemaking draft suggests a way out for broadcasters who are unsure what to do. Instead of a one-size-fits-all cap, the draft asks, in essence, whether it would make sense to have two caps, one for the networks and one for affiliate groups.

That’s worth thinking about. Affiliate groups could preserve their freedom to grow or sell, while keeping the lid on the networks.

A big question overshadowing the rulemaking is whether the FCC has the authority to modify the cap at all. The rulemaking draft asks for comment on this question.

FCC Democrats Jessica Rosenworcel and Mignon Clyburn don’t believe the agency does. But it hardly matters what they think. Pai needs only the other two Republicans to go along to get the job done and they seem to be in the bag.

One of those two, Michael O’Rielly, has said that the FCC does not have the authority.

But under pointed questioning at the House FCC oversight hearing on Oct. 31, Mike Doyle (D-Pa.) cornered O’Rielly into saying he would vote for modifying the cap despite his legal misgivings and even though he believes a court would agree that the FCC is overstepping its authority.

So, on Dec. 14, the FCC is going to launch the rulemaking and, over the course of the next several months, it will receive heaps of comments on what it should do. As things heat up, the FCC officials will meet with interested parties to hear their entreaties and start the horse trading.

But Pai, who believes that it time to take the shackles off of broadcasters, has already won.

By restoring the discount earlier this year, Pai has for all practical purposes substantially increased the cap. Approving Sinclair-Tribune early next year will reaffirm that fact. The rulemaking may turn out simply to be a codification.

A reasonable man, Pai may be willing to compromise to accommodate the interests of some broadcasters and other affected group. But I don’t see him giving up too much ground.

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