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SINCLAIR UNDER SIEGE

Station chief takes a stand, incites fight over Big Media

By Bill McConnell and John Higgins -- Broadcasting & Cable, 10/24/2004 8:00:00 PM

David Smith makes no apologies. The CEO of Sinclair Broadcast Group sparked a firestorm with a plan to air a controversial documentary knocking presidential hopeful John Kerry in the 39 markets where the 11th-largest TV station owner operates. Investors howled. The stock dipped. Democratic lawmakers urged the FCC to investigate the "improper use of public airwaves." Burger King pulled its ads. And activists promised to block its future purchases of TV stations. Now, despite an apparent retreat–Sinclair scheduled a news program about the documentary, rather than simply airing it–Smith remains defiant. "Politics is nothing new in the news business," he said last week, sitting in the penthouse boardroom of Sinclair's suburban Baltimore headquarters. "In spite of what people might say to the contrary. It's a fact of life. It's reality. I have no objections to politics in news as long as it's disclosed. It's when news attempts to present itself as fair and balanced and in fact isn't."

More than anything, the debate raging over Sinclair's rationale reflects a larger truth in broadcasting: The public believes the airwaves are just that—public. The intensity of the outcry from investors, advertisers and Sinclair's own viewers underscores the reality that no one owner truly "owns" its station. And for a company whose fortunes are so dependent on greater regulatory freedom, Sinclair has handed a fresh round of ammunition to critics of deregulation.

"It hardens the resolve of the foes more than it eases the conscience of the supporters," says Harris Nesbitt broadcasting analyst Lee Westerfield.

Since assuming control of his family's company in 1990, the 53-year-old Smith has earned a reputation as a take-no-prisoners leader with little patience for opposing views. He expanded the company at a breakneck pace from three TV stations to 29 in five years, eventually expanding to 62. He's openly challenged federal ownership restrictions by controlling two stations in a single market. He has brawled with Hollywood studios selling syndicated shows to his stations. At one point, he even declared war on Rupert Murdoch, threatening to drop Fox from his station in Baltimore if the News Corp. chairman moved Fox from two of Sinclair's UHF stations in Raleigh, N.C., and Norfolk, Va.

All the while, he has subtly tailored news coverage on his stations to his conservative views. Smith isn't contrite that his political beliefs have sometimes slid into his stations' reporting. In fact, he argues that too few reporters disclose their political leanings—which would help viewers to judge the veracity of any news report. "I have no issue with whether you're on the right or the left; just tell me what side you're on," he says.

Smith expresses no regrets for the frequent battles with regulators over the years, and expresses contempt for fellow broadcasters who deign to disagree with him. Unlike most station group owners, who nearly reflexively sign up for the industry's largest trade groups, he refuses to support either the National Association of Broadcasters or the digital television-focused Association for Maximum Service Television. (One Sinclair station is an NAB member, entitling

Smith to lobbying and to the other information that the trade association distributes, but at a much lower cost than were he to sign up all 62 stations.)

"I have no interest in joining their club," he says. "NAB and MSTV have no interest to me. If I need to lobby in Washington I'm not going to ask somebody else to fight my battles."

Sinclair recently sparked an intra-industry fight by loudly criticizing the quality of digital TV reception. Though fellow broadcasters grumbled that Smith was needlessly scaring consumers away from digital set purchases, broadcast industry engineers were shamed into fixing many of the glitches plaguing DTV reception.

In particular, he believes that Washington regulators have made it harder to compete by allowing cable greater latitude in prime time programming. "Cable gets a free pass on anything they put on," he says. "Fifty years from now, when WABC in New York has a 1.0 share of audience and HBO is putting on soft-core pornography and has a 20 share, Washington will still be saying, 'Those damn broadcasters, there they go again trying to corrupt our society.' That's really the larger, long-term issue we as an industry must solve."

The real question, Smith says, is why more broadcasters aren't speaking out to defend their rights—either to free speech or to larger, more efficient operations. Most broadcasters, in his view, are "a bunch of passive businessmen without any regard for their own industry."

Even though Sinclair's operations are in a slump, few are surprised that Smith would take such a political risk. TV executives who negotiate with Smith find him endlessly combative, taking to arbitration myriad deal disputes that might otherwise be resolved through negotiations. "He's a warrior," says the CEO of another TV station group. "If he doesn't have a fight, he'll find one."

Though he is frequently brusque, Smith doesn't carry the starched, self-important demeanor of many chief executives. His dress on many days is casual; last week, in Sinclair's Hunt Valley, Md., headquarters, he sported casual slacks, a denim shirt and scuffed black loafers

He denies that he seeks out controversy, but this time he found a big one. Kerry supporters became alarmed when Sinclair scheduled the documentary Stolen Honor: Wounds That Never Heal to air in all its markets less than two weeks before the election. Preempting network shows like CBS'Joan of Arcadia and WB's What I Like About You, Sinclair would offer viewers former Vietnam War prisoners slamming Democratic presidential candidate John Kerry. The news program was slated to air Oct. 22.

Smith's critics point out that between 1996 and mid-2004, Sinclair and its executives have steered 89 percent of their $2.3 million in political contributions to Republicans. Clear Channel, by comparison, has donated 65 percent of its $10 million in contributions to Republicans, according to a Center for Public Integrity analysis. Smith and his brothers have donated more than $50,000 to the Bush campaign. And Sinclair's own vice president and lobbyist, Mark Hyman, delivers conservative editorials on Sinclair stations.

The Stolen Honor scheduling followed a smaller politically charged dispute in April, when Sinclair ABC affiliates were ordered not to air a Nightline episode in which Ted Koppel read the names of soldiers killed in Iraq. Smith says Koppel was proffering propaganda masquerading as news. That, of course, is precisely the charge that critics make about Stolen Honor.

When Sinclair's Washington, D.C. bureau chief, Jon Lieberman, protested publicly about Stolen Honor, Smith fired him. (See page 48.) "There are good journalists inside of Sinclair," Lieberman says today. "They're being overridden by other powers."

Goaded by political bloggers, critics turned their ire not just on Sinclair, but on its advertisers. They deluged giant manufacturers and local car dealers alike with protests. Big advertiser Burger King, for one, pulled advertising for a day to avoid the controversy. And Adam Lee, president of of Portland, Maine's Lee Auto Mall, says he pulled his car dealership's ads from a Sinclair station because the one-sided approach "seemed an abuse of the public airwaves." He'll evaluate the substitute news special before deciding whether to return.

Legg Mason broadcasting analyst Sean Buston estimated last Wednesday that Sinclair would lose $5 million in sales from the controversy. Some of that would come from Kerry and his 527 group allies; that loss might be partly offset by conservative businessmen starting to steer business Sinclair's way. "Regardless of the merits of the boycott, we believe it is having an impact on Sinclair's bottom line," Buston said.

That kind of fear, in turn, spooked investors, who initially cut Sinclair's stock price 19% from the day before the documentary news broke. (The stock had mostly rebounded by Friday.) Even before the Kerry controversy, the company was being battered by a weak economy and a heavy reliance on affiliates of The WB, whose national ratings have been lackluster all year. Analysts had expected Sinclair's revenues would grow just 4% for the year to $770 million—low for a year when the TV ad market gets a kick from political and Olympic ad spending. Next year doesn't look better for many other broadcasters. The largest local TV advertisers—car makers and dealers—are sagging this fall, and Wall Street isn't seeing a big rebound for stations next year.

The Sinclair drama began with Smith's late father, Julian. In 1952, the Sinclair patriarch bought a radio school, Commercial Radio Institute, which owned what is now WPOC-FM in Baltimore. In 1971 Julian Smith moved into UHF television. He handed the reins over to his four sons in 1986, but it was David Smith who took charge. In 1991, Sinclair embarked on a massive shopping spree, believing that only national scale would give Sinclair enough clout to secure strong syndicated talk shows and sitcoms at good prices.

To increase his power, Smith helped aggressively pioneer "LMAs"—local market agreements. It was illegal to own two TV stations in the same market. But Sinclair skirted the rule by cutting an operating agreement with another station in the market: Sinclair would run the show, but not officially own it.

The arrangement enraged program suppliers, who loathed hardball negotiations with Smith. And the tactic has not always worked flawlessly. Only three years ago, Sinclair was fined $40,000 for circumventing FCC rules restricting ownership of two TV stations in a market. Sinclair is now waiting approval of a deal to create duopolies in five markets, buying stations it already runs under marketing agreements with Cunningham Broadcasting—a company owned, not coincidentally, by Smith's mother.

Three times the FCC has rejected Sinclair's bid to buy Cunningham, because Sinclair owns other stations in the five markets—Columbus and Dayton, Ohio, Baltimore, Charleston, S.C., and Charleston, W.Va.—and the communities are too small to permit duopolies. Media Access Project President Andrew Schwartzman says Sinclair has a reputation for slashing news staffs at its duopoly stations and supplying large chunks of local newscasts with reports prepared at its Baltimore headquarters, depriving viewers of hometown news. "Sinclair has adopted a business model of significantly squeezing costs and cutting service," Schwartzman says.

Undaunted, Smith plans to push ahead, taking the same advice he gives to broadcasters: "Don't you believe enough in your own business to stand up and fight for it?"

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  I NOTICE ON THE CHANNEL 8 HUNTINGTON & CHARLESTON WCHS STATION MORNING NEWS SPORTS STATION THEY OMIT SCORES OF LOCAL TEAMS (CAPITAL HIGH) 16 JAN 07 IF THEY LOSE . I THOUGHT THEY GAVE SPORTS RESULTS NO MATTER IF THE LOCAL TEAM WAS UPSET OR NOT. THE SPORTMAN THAT GIVES THE SCORES AND SPORTS IN THE MORNING SHOULD BE TOLD ITS ALRIGHT TO GIVE THE CAPITAL HIGH SCORE ON THE NEXT DAY. WHAT KIND OF REPORTING IS THIS?

  
  

  
  MICHAEL J. NEDEFF - 1/17/2007 10:19:00 AM EST
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