The FCC may say it wants stations to participate in the coming spectrum incentive auction, but it has a mighty strange way of showing it.
That is the takeaway from broadcasters on last week’s moves by the commission to limit joint sales agreements (JSAs) and potentially shared services agreements (SSAs) and other sharing arrangements.
In an interview with B&C two weeks ago, National Association of Broadcasters president Gordon Smith asserted that if the FCC was trying to push broadcasters toward the auction by further limiting their options, the plan would have the opposite effect.
Broadcasters’ logic goes like this: If the FCC suddenly disallows station sharing arrangements it has been approving, what assurances do they have that the commission will not have a change of heart about the channel sharing it has been promoting as a way for broadcasters to cash in on the spectrum auction and stay in the broadcasting business?
Last month, the FCC was touting the results of a channel-sharing test in Los Angeles; commission chairman Tom Wheeler said the test provided true “real world evidence.”
But according to various broadcasters, the FCC vote last week to make TV JSAs over 15% attributable as ownership interests has made them think twice about that promise.
According to a source familiar with the presentation, a station group owner told a Wall Street audience that while his group had considered putting some of its spectrum up for auction, the risk is now too great after the crackdown on JSAs and the threat to other sharing agreements. As if to add insult to injury in broadcasters’ view, the FCC also voted to open an inquiry into the impact of SSAs on competition, localism and diversity.
Broadcasters argue that to channel share, they would need to strike a shared services agreement, but that they can’t take the risk in case the FCC decides to unwind those down the road; the FCC is not grandfathering existing JSAs that would violate ownership limits, and is instead giving broadcasters two years to unwind them or otherwise come under ownership caps.
The bigger issue with JSAs and SSAs, therefore, goes beyond the limits themselves to the uncertainty now introduced into the process. And broadcasters got no hope that that uncertainty would be resolved through a quadrennial rule review, which the commission’s Media Bureau has signaled may not be ready until June 2016.
Advise and Dissent
Republican commissioner Ajit Pai appeared to be speaking for broadcasters at the FCC’s open meeting vote to approve the JSA limits—the two Republicans were strong dissents in the party line, 3-2 vote.
“For broadcasters to participate in the incentive auction, they must have confidence that we will follow through on our commitments,” he said. “But after today’s item, our promises regarding the incentive auction may prove as illusory as our prior approvals of JSAs.
“A deficit of trust is especially problematic for the many broadcasters that may consider channel sharing. On one hand, the commission wants our nation’s broadcasters to embrace channel sharing. But on the other, we are cracking down on stations sharing an advertising sales force and we are signaling that the sharing of other services might soon be on the chopping block.”
NAB spectrum auction point man Rick Kaplan was speaking for many broadcasters when he blogged about the issue on the association’s site.
Kaplan said that, given the action on JSAs, “can broadcasters have any certainty that channel sharing rules won’t be altered too? ‘You were promised must-carry rights if you channel shared? Oh, we’re sorry, it’s now 2017 and we’ve changed our minds.’
“And let’s be clear,” he added, “on the heels of the pending JSA order, broadcasters’ concerns with the auction will extend far beyond channel sharing. They will wonder about the costs of participating in the auction in the first place. For the auction to be a success, it is essential that broadcasters who are would-be participants have complete trust in the agency overseeing the process, and that the rules won’t change on the fly.”
Wheeler last week had a single-word response to the question of whether the FCC was “putting the screws to broadcasters” to get them into the incentive auction: “Baloney.”
But Kaplan had a warning about any more reregulatory moves aimed at broadcasters. “If the commission takes more actions like the one on JSAs…I fear the auction will be an unfortunate waste of everyone’s time.”
MOFFETT ON TWC DEAL: NOT SO COMCASTIC
Analyst Craig Moffett argues that one of the reasons Comcast stock has been underperforming the market since the company’s proposed deal to buy Time Warner Cable was announced is that Wall Street is “skeptical” about whether the conditions imposed on the deal by the Justice Department and the FCC—there will almost certainly be conditions if it is approved—will be sufficiently modest to make the benefits outweigh the costs.
Comcast has already promised to spin off three million subscribers to keep the sub total of the combined companies below the old 30% cap. The federal appeals court in Washingon remanded that cap back to the FCC, which effectively sunset it, but Comcast can argue that this puts it at a number the commission has already said is allowable, and before the ramp-up of satellite, telco and online competition. Comcast has also pledged to boost its Internet Essentials program, supplying low-cost broadband to low-income homes with children. And it will abide by network neutrality rules, even though the FCC’s rules are currently in limbo.
In a note to investor clients last week, Moffett said that this was already understood to be the price of entry. What investors were unsure of was “what else”—emphasis his—Comcast may have to agree to.