FCC Proposes to Eliminate UHF Discount

Will make effective date as of release of NPRM; Commissioner Pai dissents
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As expected, the FCC voted Thursday to eliminate the UHF discount, which
allowed TV station owners to count only 50% of a UHF's audience toward the
FCC's 39% cap on a station group's total audience reach.

The item was
approved 2-1, with Republican Commissioner Ajit Pai dissenting. The item
proposes grandfathering deals currently in the pipeline, but not those struck
after the FCC releases the NPRM approved Thursday. It also proposes that when
grandfathered UHF's are sold, the discount will not transfer with them.

While existing groups' UHF stations are grandfathered, the FCC left it self some wiggle room in the NPRM, which asks: "Are there other strategies we should consider or employ to address existing broadcast station ownership groups that would exceed the 39 percent limit if the UHF discount were eliminated?"

Acting FCC chair
Mignon Clyburn has billed the change as noncontroversial--given that UHF
stations are no longer the red-headed spectrum stepchildren in digital that
they were in analog, which has been the case since the 2009 DTV transition. In
her statement, she pointed out that there was no longer any technical
justification for the discount and that its elimination has been anticipated
for years--as far back as 1998. The TV industry has anticipated elimination of
discount for over a decade, she said, and no market participant should be
surprised.

Pai said he agreed
that it was probably time to get rid of the discount, but it was the way the
commission was doing it that drew his dissent.

"[B]ecause the
NPRM we adopt this morning proposes to dramatically tighten our national
television ownership cap and to essentially make that rule change effective
immediately, I must respectfully dissent," he said.

He said the FCC
should have at the same time reviewed that 39% cap and whether it should be
raised. "Eliminating the UHF discount would substantially tighten the
national ownership limit," he said. "But while today's item proposes
to tighten the national cap, it does not seek comment on whether doing so would
be a good idea."

Pai is also
concerned that deals struck between Thursday's relaese of the NPRM and the final order would
also be subject to the change.

He points out that the item "only proposes
to eliminate the UHF discount. It does not actually end the UHF discount. [Media Bureau Chief Bill Lake appeared to make
that point himself in introducing the item as the start of a proceeding to
consider elimination]. The UHF discount will be the law of the land tomorrow and every day after that unless the Commission
votes to repeal it," he said. "Through its grandfathering proposal,
however, today's NPRM effectively tells the private marketplace to behave as if
the UHF discount has already been eliminated, treating the rest of the
rulemaking process like an empty formality. The practical results of this
"sentence first, verdict afterward" approach will be to dampen the market for
broadcast transactions and depress station values. Perhaps that's the point,
but it won't serve either private or public interests well."

The last reference
to that "perhaps" being the point appears to be a reference to the
price the FCC will have to pay to move broadcasters off their spectrum for the
incentive auction.

Some broadcasters
also see the FCC move as a way to further limit them and depress the station
sales market as the FCC encourages broadcasters to give up their UHF spectrum
in the upcoming incentive auctions.

Industry players saw
the timing of the UHF item under Clyburn's watch as a shot across the bow at
Super Groups like Sinclair. In fact, Sinclair struck a deal Wednesday to buy some more stations on the eve
of the vote that limits its further growth--it was just under the 39%
cap--without the discount--before that most recent announced purchase.

Consolidation critic Free Press was pleased by the FCC decision.

"Whatever the original justification was for this discount, it's now obsolete," said policy director Matt Wood. "Broadcasters have known for the last nine years that the discount was under review. The rule lost its technical justification long ago and became nothing more than a gift for large conglomerates. Unfortunately, the item today would grandfather any broadcasters with deals currently pending. But the broadcasters cutting these deals had no right to expect the continuation of this outdated loophole."

Wood said he was disappointed that Pai "has sided with broadcasters in arguing against the congressionally mandated limit."

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