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