Bloomberg News

TV-Station Owners Lose Clout Against Cable in FCC Proposal (2)

March 06, 2014

Television-station owners including Sinclair Broadcast Group Inc. (SBGI:US) couldn’t control multiple outlets in small markets and would lose some power to negotiate fees with cable providers under changes set for a vote March 31 by U.S. regulators.

Federal Communications Commission Chairman Tom Wheeler said he also will suggest retaining the ban on a company owning a daily newspaper and TV station in the same local market. The changes are part of “an open evaluation” of media-ownership rules, Wheeler said in a blog post today.

Broadcasters say that sharing agreements, in which one TV station provides advertising for another in the same market, help small stations thrive; some public-interest groups say they’re an evasion of FCC ownership limits. The FCC proposal to quell such relationships sent Sinclair, Lin Media LLC (LIN:US) and Nexstar Broadcasting Group Inc. (NXST:US) lower in trading today.

“This proposal will kill jobs, chill investment in broadcasting and reduce meaningful minority programming and ownership opportunities,” Gordon Smith, president of the National Association of Broadcasters, said in an e-mail. “Coincidentally, two industries would benefit from today’s proposal: Big cable companies who want less competition for advertising in local markets, and wireless companies.”

Wheeler is the former head of wireless and cable trade groups.

Today’s announcement inserts the FCC anew into a long-running battle over whether bigger media companies serve or run roughshod over communities’ needs for news and information from diverse sources, and whether rules changes are needed to protect consumers from the escalating cost of cable-TV service.

‘Legal Fiction’

Under the proposed rule, leading stations in a market couldn’t join together to negotiate with cable providers and satellite-TV companies. The practice has become more common and led to higher cable bills, with fees growing from $28 million in 2005 to $2.4 billion in 2012, Wheeler said.

Larger stations selling advertising are “de facto” owners of smaller stations, which are independent only as a “legal fiction,” Wheeler said. His proposal needs to win a vote at the five-member FCC, where he leads a Democratic majority.

Ajit Pai, a Republican FCC commissioner, said in an e-mailed statement that the proposal is “a dagger aimed at the heart of small-town broadcasters” and “a job-killer that would result in less news programming, less diversity, and more stations going dark.”

Sinclair fell (SBGI:US) 4.5 percent to $28.73 at 4 p.m. New York time. Nexstar lost 3.8 percent to $41.94, while Lin Media declined 3 percent to $22.57.

Common Ownership

Lin Media was disappointed by the FCC’s announcement, Chief Executive Officer Vincent Sadusky said in an e-mailed statement. “Lin Media has followed the FCC’s rules, received the FCC’s approval, and played by the book,” he said.

Sinclair General Counsel Barry Faber and Nexstar Chief Financial Officer Thomas Carter didn’t immediately return telephone calls.

On shared advertising, the FCC would assume a TV station that provides 15 percent or more of the ads for another station in the same market controls that other property, according to a fact sheet the agency distributed.

The commission would consider those stations commonly owned, meaning the relationship would violate rules that forbid ownership of multiple stations in a market.

Station Sales

The proposal “deserves high praise” because it moves against “the collusion practiced by dozens of TV stations owners, who are supposed to be competing with one another,” Matthew Polka, president of the Pittsburgh-based American Cable Association that represents nearly 850 smaller and medium-sized, independent cable companies, Polka said in an e-mailed statement.

Companies would have two years to come into compliance, which they could do by selling a station or altering or abandoning the sharing arrangement. The FCC would consider waivers, Wheeler said.

The changes could force station sales upon companies such as Sinclair, one of the largest U.S. television-station owners. Sinclair gets about 20 percent of its revenue from sharing arrangements, David Amy, the company’s chief financial officer, said on an earnings conference call Feb. 12.

About 70 percent of Irving, Texas-based Nexstar’s revenue comes from markets where the company derives economic benefits from more than one station, Chief Executive Officer Perry Sook said on a Feb. 26 earnings call. Nexstar owns or is involved with 74 stations reaching 44 markets, according to its website.

Not Fair

It’s not fair to require companies to unwind sharing arrangements previously approved by the agency, Rebecca Hanson, a Sinclair senior vice president, said at a Feb. 24 meeting with FCC staff, according to a filing.

In the arrangements Wheeler is targeting, a broadcaster owns one station and sells advertising for another in the same city. Defenders say small-market stations would go out of business without such arrangements.

The FCC in 2004 said it allowed the arrangements known as sidecars because control isn’t as complete as ownership.

U.S. Assistant Attorney General William Baer, in a Feb. 20 filing at the FCC, said it’s appropriate to treat stations participating in sharing agreements as being under common ownership. Even where sharing doesn’t cross “bright-line rules,” the FCC should scrutinize arrangements on a case-by-case basis, said Baer, President Barack Obama’s top antitrust official.

Shares Decline

At times the arrangements are used “to patently circumvent the ownership rules” the FCC puts in place to prevent a corporation from dominating local broadcasting, Democratic Commissioner Mignon Clyburn said in a Feb. 25 speech.

Clyburn said the issue leaves her in “a quandary” because the arrangements can help pay for news and other local programming in small and medium markets.

Uncertainty caused by Wheeler’s proposal has caused a decline of 25 percent to 30 percent in the share values of pure-play TV companies active in sharing arrangements in small and mid-sized markets, Sook told FCC officials on Feb. 24, according to a filing.

Sinclair owns, operates or provides services to 149 stations in 71 markets. It provides non-programming services such as sales and management to 20 stations in 17 markets, and would create shared arrangements in three more markets through an acquisition of stations owned by the Allbritton family. That deal is awaiting FCC approval.

The Baer filing provides “valuable political and substantive support for any restrictions the FCC wants to impose on sidecars,” Paul Gallant, a Washington-based managing director for Guggenheim Securities, said in a Feb. 21 note.

Gallant said it’s not clear how many stations would qualify, “but our working assumption is that a majority of sidecars exist because FCC rules would not permit common ownership of the stations (and thus a majority of sidecars would need to be eliminated),” Gallant said in the note.

To contact the reporter on this story: Todd Shields in Washington at tshields3@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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Companies Mentioned

  • SBGI
    (Sinclair Broadcast Group Inc)
    • $27.1 USD
    • -0.04
    • -0.15%
  • LIN
    (LIN Media LLC)
    • $23.44 USD
    • -0.26
    • -1.11%
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