Duopolies: The pair necessities

LIN Television and Media General were the envy of the broadcast industry last week when they won government approval to own two TV stations in markets too small to pass regulators' general test for station combos.

Exemptions to FCC limits allowed the companies to convert local marketing agreements in New Haven, Conn., and Asheville, N.C., to owned stations. They were the first to win waivers from rules limiting duopolies to markets where eight or more independent owners would remain.

Since the FCC first permitted TV duopolies in 1999, broadcasters have tried to relax the eight-voice threshold. They argue that combinations provide one of the few options for the cost savings and efficiencies needed to fund the digital transition and to compete with the multiple channels of other programming providers.

So far, however, the FCC hasn't budge. Winning softer duopoly rules has become the top priority of the struggling Association of Local Television Stations, which represents independent stations and affiliates of second-tier networks—the very stations likely to struggle most in small markets. Duopoly relief is also a goal of the National Association of Broadcasters.

"You can achieve savings that make all the difference," says Tim Lynch, chief operating officer of Communications Corp. of America, which operates local marketing agreements (LMAs) in several Texas and Louisiana towns. CCA, however, might have to divest most of those in 2004.

When TV operators began establishing LMAs in the early '90s, the partnerships were considered the next best thing to duopolies, which were then illegal.

The practice angered public advocates, and the FCC started examining the practice.

The only comprehensive study of LMAs found that roughly 70 had been established. In 1999, during a round of deregulation, the FCC allowed duopolies in larger markets but insisted that operating an LMA would be considered the same as owning a station and forbade them in markets not meeting the eight-voice test. The FCC also forbade two stations rated among a market's top four from pairing up.

Noncompliant agreements established after Nov. 5, 1996, would be given until Aug. 6, 2001, to unwind. Deals set before that date would be reconsidered in the 2004 biennial review of broadcast restrictions.

A handful of small-market exemptions were permitted for operators buying:

• Failed stations dark for at least four months or in bankruptcy.
• Struggling outlets with total-day audience shares below a 4 and proof that no out-of-market buyers are willing to step in.
• Construction permits issued to others but not built.

Today, at least 95 combos are operating, 75 of which are duopolies.

But few buyers have tried to take advantage of waivers besides LIN, which received permission to buy WCTX(TV) New Haven, Conn.—because it had funded the construction of a fallow permit in 1995—and Media General, which bought dark WASV-TV Asheville, N.C. Only two similar requests are pending: Pegasus Broadcasting wants to pair failing WFXU(TV) with its Tallahassee, Fla., station WTLH(TV), and Waterman Broadcasting wants to do the same in Fort Myers, Fla., with its WBBH-TV and WZVN-TV, even though their LMA won't face a divestiture threat until 2004.

One of the most aggressive combo operators has been the only one to fight the FCC head on. Sinclair Broadcasting, which operates pairs in 19 cities, has challenged the voice test in federal court. Oral argument in that case took place last week in Washington. Sinclair's only open ally in the fight is Paxson, which has filed a "friend of the court" brief.

Of Sinclair's combos, seven are LMAs the company will have to divest immediately if the FCC voice test is upheld. Sinclair attorney Barry Gottfried told a panel of appeals judges that the limit was "plucked out of the air" and "makes no sense."

Sinclair officials suspect that many noncompliant LMAs operate below the FCC's radar and are afraid that joining the fight would expose them to a divestiture order. But scofflaw partnerships are hard to find. Of the 70 LMAs registered with the FCC in 1997, nearly all have legally converted to duopolies, disbanded or remain grandfathered until 2004. Only Sunbelt Communications' Twin Falls, Idaho, combo and a Pegasus partnership in Wilkes-Barre, Pa., have applied for relief from their 2001 cutoff, and FCC officials say they know of no other deals that violate the law.

But, with only a few broadcasters evading the law, the lack of general industry support baffles Sinclair. "A win for us," says Sinclair lobbyist Mark Hyman, "would give broadcasters exactly what they want."

Actually, it's not that hard to fathom, counters another lobbyist, who asked not to be named: "Sinclair is radioactive." Behind the scenes, "we want them to win."

Sinclair repeatedly has drawn the ire of public advocates and the FCC for pushing the envelope on LMAs. Just last month, after a three-year investigation, Sinclair was fined $40,000 for exercising illegal control of LMA partner Glencairn Ltd.

Democratic Commissioner Michael Copps has called for the FCC to investigate another Sinclair deal. He wonders whether a plan to control all non-programming operations of WTXL-TV Tallahassee improperly skirts the limits. Tallahassee, where Sinclair already owns WTWC-TV, is home to seven stations and has no room for a non-waivered duopoly. But Sinclair says the Tallahassee deal does not count as an LMA because Sinclair is not involved in programming the second station.

In the Bloomington-Peoria, Ill., market, Sinclair is on the opposite side of a similar deal. It has a seven-year deal that puts Nexstar Broadcasting in charge of WYZZ-TV Bloomington. Nexstar, which already owns Peoria's WMBD-TV, plans to produce a 9 p.m. newscast that WYZZ will add this spring; they'll share proceeds.

Other groups skirt the intent, if not the letter, of FCC rules (see table, page 58).

The desire to line up duopoly partners has even sparked accusations of backstabbing. Last month, Paxson asked the FCC to reject NBC's plan to buy Telemundo. Company chief Lowell "Bud" Paxson charged that the deal would create illegal "triopolies" in New York, Los Angeles, Chicago, Miami and Dallas. Even though NBC's 32% ownership stake in Paxson was designed to avoid breaking the ownership rules, Paxson said heavy-handed influence by NBC members of his board turned his stations into de facto NBC stations. NBC calls the accusations absurd, and its employees resigned three Paxson board seats.

Paxson acknowledges that his motive for the fight is that the Telemundo deal would eliminate NBC as a buyer for his stations.

The industry will continue to test the rules unless the FCC agrees to relax them. How much sympathy the industry argument carries at the FCC is unclear. So far, it appears to be awaiting a decision in the Sinclair case and a ruling on the 35% national ownership cap.

Federal judges hearing Sinclair's case showed some sympathy toward Sinclair's complaint that the eight-voice limit had no rational basis. But they seemed not to accept the argument that any voice count would be improper because it could not ensure programming diversity.

A Sinclair decision is months away; a ruling on the cap is believed imminent.