Station Zombies Afoot In Post-Auction World

With the FCC’s incentive auction slated to close once and for all on March 30, broadcasters are trying to adapt to the new post-auction environment — and make some money in the process.

Some who sold spectrum, but still have their broadcast licenses — so-called zombie stations — are looking to sell off remaining assets including goodwill, must-carry rights, network affiliation agreements and syndication programming contracts.

Other zombies are looking for new channels so they can continue in the business.

Broadcasters who didn’t sell spectrum have options, too. They can enter into channel-sharing or leasing arrangements with the zombies or buy their assets and launch new channels of their own with full must-carry rights.

The deal making opened on Feb. 6 when the FCC relaxed anti-collusion restrictions that had prohibited broadcasters from discussing bid strategies and other auction-related issues.

“Ever since the prohibited communications rules were relaxed, it’s been like the Wild West out there,” says Greg Guy, managing director of Patrick Communications, a broadcast brokerage and investment banking firm. “There’s a lot of pent-up demand.”

Bert Ellis, who manages and owns stations, including independent KDOC Los Angeles, says the newly constituted FCC under Chairman Ajit Pai appears more flexible than the previous one. “They are going to be willing to let broadcasters wheel and deal.”

Ellis, who speculated in the auction, declined to comment on his own wheeling and dealing.

So far, only one zombie deal has become public. Last week, independent WBIN Boston said that it had sold its spectrum for $68.1 million.

In so doing, it also said that it had “entered into a sale of its remaining television license rights to a major television group for an undisclosed amount but estimated by insiders to be an additional $10 million-$30 million.”

The peculiar release did not say what rights it had sold, to whom or, for that matter, who the “insiders” are. WBIN owner Bill Binnie and others in his camp decline repeated requests for more information.

There are “lots of discussions and talk about exactly that type of deal, but … there are not likely to be any announced for a few weeks,” says Elliot Evers, managing director of MVP Capital, in an email.

Sales of programming agreements and tangible station assets aren’t really a concern of the FCC. The selling of a broadcast license, including must-carry rights, without any spectrum to go with it, however, is a novel one that has not been explicitly approved by the commission.

But proponents of the concept say the right to sell a spectrum-less license has been implied by the agency.

“The FCC has rightfully recognized the public interest benefits of applying a flexible approach to post-auction channel sharing, which allows the commission to repurpose spectrum while still preserving diversity and competition on the airwaves — a win-win,” says Ari Meltzer, an attorney for law firm Wiley Rein, who has been monitoring auction-related issues closely.

“It would be illogical and inconsistent with this principle to say that a station can hold a license with no spectrum rights, but cannot transfer it,” he adds

“With the added flexibility of channel-sharing agreements, there are a number of creative structures we are seeing employed to allow a broadcaster who relinquished their license to continue broadcasting with little to any noticeable impact to their viewers,” says Patrick Communications’ Guy.

Under a plain-vanilla channel share, a broadcaster who sold his spectrum in the auction would pay another broadcaster in his market to split the host broadcaster’s channel, a move that would allow the spectrum-less broadcaster to continue broadcasting.

Under the FCC’s rules, the spectrum-less broadcast would continue to get full must-carry rights, assuring the broadcaster’s carriage by local cable systems, as long as the station is full power.

Under a variation on the theme, a broadcaster who sold one of the two stations he owned in a market may be able to double up on the one channel and operate both as full-power stations with full must-carry rights.

To actually take advantage of a post-auction channel-sharing deal, broadcasters who sold out during the auction are supposed to have checked a box on their pre-auction FCC application forms indicating that they intended to channel share. But that’s something most broadcasters are expected to have done.

Broadcasters who didn’t sell spectrum in the auction, either because they didn’t participate or because they dropped out of the bidding, also can participate in the new wave of dealmaking by offering to host spectrum-less broadcasters, for a fee.

“With so many disappointed licensees [from the auction], we have received a number of calls from owners looking to serve as hosts,” says MVP Capital’s Evers.

“The market for those types of arrangements is still sorting itself out, and it is still too early to get a precise bead on pricing,” Evers added, in an email. “But, in general, it looks like a buyer’s market will be forming up” where the hosts are the sellers, Evers said.

Public broadcasters are also expected to try to get a piece of the post-auction action, perhaps by serving as hosts for other commercial and noncommercial stations that sold their spectrum during the auction.

“We’re engaged in early-stage conversations about potential deals between public stations and commercial companies in several markets,” says Marc Hand, CEO of Public Media Co., a Boulder, Colo.-based nonprofit consulting firm that has offered to broker channel-sharing deals for noncommercial TV stations.

One of the key challenges is how to price channel shares, because there’s no precedent for them, says Wiley Rein’s Meltzer. “The players are still trying to figure out what the proper price is.”

Under the FCC’s rule, broadcasters were previously able to negotiate channel-sharing deals and file them with the agency before the auction began last March.

In a June 12, 2015, decision, the FCC agreed to open a second window to allow the broadcasters to also file the deals after the auction is over on March 30.

Once broadcasters receive their auction payments from the FCC, starting as soon as July, they will have as few as 120 days to file the post-auction channel sharing deals with the FCC, according to Wiley Rein’s Meltzer.

The deadline to file applications could be set by the FCC for November, but broadcasters may be able to get two three-month extensions, Meltzer says.

Exactly how many stations sold all of their spectrum during the auction — and how much they got for it — won’t be known for sure until the FCC officially unveils the details in mid-April.

The FCC has already announced that auction grossed $19.6 billion and that $10 billion of that total will go to the broadcasters who sold spectrum, but it didn’t detail which broadcasters will be divvying up that money.

Some broadcasters have voluntarily announced how much they made in the auction. WBIN was among them. But most of the money committed to broadcasters is still unaccounted for.