D.C. Braces for Super Deals

Broadcaster agreements draw fire, but appear to draw a ‘no harm, no foul’ from current FCC regulations

jeggerton@nbmedia.com | @eggerton

The FCC will be very busy over the next few months, what with billions in station transfers to consider, including last week’s mega-deal between Sinclair and Allbritton (which clocked in just south of $1 billion). But despite complaints about heavying up from consolidation critics, the deals appear likely to go through.

 Why This Matters
Creating so-called "supergroups" gives  broadcasters a chance to expand their retrans  second-revenue stream.

Advocacy group Free Press made some noise last week about Sinclair getting too big; it was also one of the groups that petitioned to deny or condition Gannett’s $2.2 billion deal to buy Belo stations.

“We will definitely be looking closely and considering [a petition to deny or condition the deal],” said Free Press president Craig Aaron, “especially in markets where they would operate multiple stations.” The FCC is clearly anticipating public input on the super-group phenomenon, just last week opening public dockets on the Gannett/Belo and Media General/ Young Broadcasting deals.

But the Sinclair deal still keeps them well below the FCC’s 39% limit on total national coverage of the U.S.; the same goes for Gannett.

Both those deals involve spinning off stations to square with the commission’s local ownership caps, but in both cases the buyers say they plan to continue to provide sales and other services to the stations, and in Gannett’s case it is making no bones about counting their financial performance as Gannett’s.

Feeling Super

The FCC has not changed its UHF discount on its national ownership cap, or started counting joint sales agreements (JSAs) or shared services agreements (SSAs) toward local caps, so the path appears to be clear for the so-called super groups. Only last week, federal antitrust officials signaled they had no problems with the Tribune/Local TV Holdings $2.725 billion deal, though the FCC has yet to weigh in.

Some Washington communications attorneys suggested one reason for the recent flurry of super-group deals was the possibility that the FCC could change the rules on JSAs and SSAs among stations in the same market. Those currently allow for joint retrans negotiations, although cable operators say that should run afoul of FCC rules, and growing retrans revenues are one big driver of the super group phenomenon.

Last fall, the FCC under then-chairman Julius Genachowski wanted to make sales agreements where a station sells more than 15% of another same-market station’s ad inventory count toward local ownership caps, which would prevent such agreements between the top two stations in a market or stations in smaller markets.

Such rules already apply to radio, and even Republicans opposed to the move had suggested they were surprised the FCC had not already acted. But the FCC’s media ownership rule changes have been delayed due to concerns about the impact of proposals to loosen the TV/newspaper cross-ownership ban. “[Broadcasters] are betting on no changes in JSAs, SSAs or retrans,” said one attorney speaking on background, “or grandfathering their deals if there are changes.”

That delay has provided the opportunity for Sinclair and others to “make hay while the sun shines,” another attorney said.

Broadcasters argue that they need the scale to remain competitive. And for the FCC to crack down now on mergers that don’t exceed its station limits might appear to be kneecapping broadcasters even as it pushes them to give up spectrum to wireless.

Sinclair, notably, asked the FCC for permission to test a new TV transmission standard that could allow broadcasters to deliver a range of advanced services. The FCC said yes.

Broadcasters are also benefitting from the fact that the FCC has not changed the way it counts UHF stations. Those count only half as much toward the national 39% ownership cap, left over from the days when VHF's were the beachfront property. In the digital age, it is the other way around. As Sinclair pointed out itself last week, its TV group post merger will reach approximately 38.2% of the TV households, but only 21.9% "for purposes of the 39% FCC ownership cap." That leaves it plenty of room to get bigger.

Even if the FCC does decide to count TV JSA's or change the UHF rule-it has been asked to do both-that could take years to resolve, and if they tried to apply it retroactively or only grandfathered stations temporarily as Genachowski had been pondering, broadcasters would almost certainly take the commission to court.