Editorial: New Rules of Media Ownership

FCC chairman Ajit Pai seems inclined to expand the national ownership cap, if not eliminate it altogether

Sometime soon, the FCC will finalize its mandatory review of the media ownership rules. Current law prohibits a single company from owning commercial TV stations that reach more than 39% of U.S. TV households. The national “ownership cap,” as it is called, dates to 1941 and was imposed to protect localism, diversity and competition in the market, but market changes suggest it may have outlived its original intent. The cap has been updated a few times over the years — in 1985, 1996 and 2004, when Congress established the current limit and mandated the FCC to review the rule every four years.

FCC chairman Ajit Pai seems inclined to expand the national ownership cap, if not eliminate it altogether. Doing so would follow up on the FCC’s earlier decision to reinstate the UHF discount, and would deal broadcasters a big break. Taken together, these actions would spark a new round of TV industry deals and could change the media landscape for the foreseeable future, at a time when the Trump administration is smiling more favorably on mergers. Although questions remain as to whether the FCC has the legal authority to raise the cap, Congress will play a key role, and Pai’s warm relationship with Commerce Committee leaders will be key.

To the outside world, this may not be such a big deal. But to an industry facing change and competition, it is monumental. Broadcasters are in a fierce battle not only for audiences, but also for advertising dollars, both of which are waning. Beyond over-the-air television, today’s video market now includes cable and internet video providers that have bigger budgets and deeper pockets. Of the $148 billion spent on local advertising in 2017, only 13% has gone to local television, reflecting a steady decline since the glory days of broadcasting.

Competition has expanded well beyond the five major networks. It includes the likes of Amazon, Apple, Google, Netflix and other over-the-top (OTT) internet services, in addition to pay TV providers such as Comcast, AT&T, Charter Communications and Dish Network. None of these entities, however, are subject to rules that limit how many TV homes they can reach, and all have a national footprint. Broadcasters also must meet numerous public-interest obligations that do not apply to other video providers. They complain these disparities favor new entrants to the market and put them at a competitive disadvantage.

In this context, the stakes on media ownership could not be higher for independent broadcast groups, including Nexstar Media Group (130 stations), Sinclair Broadcast Group (118 stations), Gray Television (75 stations), ION Media (60 stations), Raycom Media (47 stations), Tegna (45 stations), Tribune Media (41 stations), Univision (38 stations), Hearst Television (32 stations) and Scripps (27 stations). With an expanded or lifted national ownership cap, these companies would be free to pursue significant growth through mergers and sales. Throughout, there are opportunities for more minority ownership — an elusive but notable policy goal.

Sinclair is poised to become the largest independent station owner group if its acquisition of Tribune is approved. Last year, Nexstar completed the largest merger in its 20-year history with the purchase of Media General. Given the opportunity to grow, these companies have committed to expand their local news coverage and public interest commitments. Despite their assurances, opposition from competitors and advocacy groups has been registered at the FCC and Department of Justice. But a comparative analysis tells another story.

While large by traditional broadcast standards, these mergers pale when compared to consolidation among other media players.

The other disadvantage broadcasters face is size. Consider the market capitalization for the top non-broadcast media players: Apple ($670B); Alphabet ($598B); Amazon ($396B); Comcast ($235B) and Netflix ($59B). By contrast, the total value of all broadcast groups barely approaches $40 billion, which is less than the smallest (and newest) non-broadcast video provider, Netflix.

So, what does all this mean?

Broadcasters need scale if they are going to survive in an evolving media market, where their share of advertisers and audiences continues to wane. For this, they need a level regulatory playing field and a realignment of the rules, all of which would comfort investors. Finally, during natural disasters and emergencies, no other medium provides news and information like broadcast. Any decision by government that helps broadcasters to do more for Americans, not less, should be commended, not condemned.

Adonis Hoffman is founder and chairman of Business in the Public Interest and author of Doing Good — the New Rules of Corporate Responsibility, Conscience and Character. He served in senior Legal roles in Congress and at the FCC.