TV Station Ownership’s 45% Solution

Granted: the UHF discount makes no sense.

The FCC should have tossed it out in 2009 immediately after the industry completed its shift from analog to digital and figured out that the UHF band was far better for broadcasting the new digital signals.

That discovery turned 60 years of broadcasting orthodoxy on its head. In the old analog world, VHF was where everyone wanted to be. It delivered the best pictures to the most places with the least power. To match the reach of VHF signals in the UHF band, you had to crank up the transmitter power to extraordinary levels. Nobody wanted UHF channels. You got stuck with them.

The UHF discount dates back nearly 30 years. In 1984, you could only own seven TV stations. But that year, the Reagan FCC increased the limit to 12, with the proviso that the aggregate coverage of the group could not exceed 25% of all TV homes. Because of UHF’s inherent analog limitations, the FCC invented the UHF discount. In calculating your coverage, you could cut in half the coverage in any market where you had a UHF station.

The UHF discount stayed in place even when Congress dropped the numerical cap and went to a coverage-only limit of 35% in 1996 and then increased it to 39% in 2004. And it has remained in place even though everybody in broadcasting has known for four years that there is no technical justification for it and even though many O&Os and affiliates moved from V to U in the digital transition. Today, three-quarters of all full-power stations operate in the UHF band.

Yes, in a digital world where UHF rules, the UHF discount makes no sense.

Yet, having kept the discount on the books for four years, the FCC ought to keep it there until Congress can raise the 39% cap to a level that recognizes that the mediascape and broadcasting’s place in it has changed radically, even from a decade ago.

Broadcast viewership continues to be eroded not only by cable, but also by the Internet. The latter has evolved into a full-blown TV medium. What it lacks in picture quality, it more than makes up for in its interactivity.

Stations groups are in a running battle for survival. None should be held back from accumulating more stations and benefitting from the economies and negotiating clout that come from size. If a group fails, it should not be because of outdated and questionable regulations.

Unfortunately, the FCC suddenly seems determined to jettison the discount without regard to whether the cap itself makes sense. “We made a commitment to look at this [discount] at the appropriate time, and the appropriate time is now,” FCC Chairwoman Mignon Clyburn told reporters a couple of weeks ago.

Of course, Clyburn didn’t explain why this is the appropriate time or why she also said she wanted to expedite the proceeding.

Fortunately, from what our reporter Doug Halonen can gather, the FCC is likely to propose grandfathering station groups that exceeded the cap long ago thanks to the discount, notably Ion Media (64.8% coverage), Univision (44.1%) and Trinity (40.1%).

Somewhat less likely is grandfathering pending acquisitions that would send a group over the cap. Right now, that would benefit only Tribune, whose pending deal for Local TV LLC would jump its coverage to 42.7%. Without the grandfathering, Tribune would have to spin off stations to get under the cap.

Another beneficiary of grandfathering pending acquisitions could be Fox, which is at 37.3%, but is said to be eyeing stations in Seattle, St. Louis and San Francisco, where it could better capitalize on the TV rights it holds for the National Football League teams in those markets. San Francisco alone would put Fox over the cap; Seattle and St. Louis, together, right up against it.

The big loser in Clyburn’s push to banish the discount would be the Sinclair Broadcast Group. Assuming it closes on all pending acquisitions, Sinclair stands at 38.2%. With the discount, it can continue buying stations and extend its reach into many more markets. Without it, it would be limited to a couple more mid-size markets.

Given that Sinclair suffers most, I can’t help thinking that there might more to Clyburn’s initiative than simply cleaning up old regulations as she suggested.

Democrats and liberals have it in for Sinclair and not just because it is a station consolidator that has aggressively pushed the limits of FCC rules to control more stations in more markets than any group in history. They also don’t like the group because CEO David Smith is a conservative who from time to time has used (or tried to use) his airwaves to push his political agenda.

It may be a coincidence that a Democratic FCC chairwoman has decided that it’s “appropriate” to go after the UHF discount at the same time it becomes critical to Sinclair’s business  strategy. Or maybe it isn’t.

Right now, NAB is sitting on the fence, uncertain whether it should use its considerable resources to oppose elimination of the discount. I get it. Few groups are immediately affected, and the issue naturally divides the membership. Whether a group wants to stifle Sinclair’s acquisitiveness pretty much depends on whether it is a buyer or a seller. If it is a seller, it wants Sinclair out there bidding up prices. If it is a buyer, it doesn’t want to compete with Sinclair for the next group that goes on the block.

But it is in the long-term interest of the industry, pressed by cable and the Internet, to keep the discount in place until the cap it raised. So, the NAB should work to preserve the discount and begin lobbying Congress to raise the cap. (Since Congress imposed the cap; only it can change it.)

What should the new cap be? I’m going to propose 45%. That’s where the Michael Powell FCC set it in 2003 and that’s where it would be today if not for network affiliates. At that time, they were scared that the networks wanted to dramatically increase their station portfolios by forcing them to sell and or by reducing them to affiliates of minor networks like UPN (remember it?) or, god forbid, to independents.

Dragging the NAB along with it, the networks made an unholy alliance with liberal groups opposed to media consolidation and lobbied Congress to overrule the FCC and keep the cap at 35%. The networks pushed back and Congress adopted a compromise — 39%, just enough to accommodate CBS and Fox, which were just shy of that percentage.

The history of the FCC’s national station ownership cap, much of which I have purposefully recounted here, seems a model of rational regulation. (And you always thought that phrase was an oxymoron.) Over the past three decades, as broadcasting’s grip of TV has weakened, the FCC and Congress have incrementally loosened the rules, giving station groups the opportunity to bulk up to meet the challenges of the marketplace. Somehow, it has worked.

It’s time to take the next step: 45%.

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