After an unprecedented series of meetings with FCC Commissioners, Kevin Adell and his Adell Broadcasting Corp. are celebrating.
The FCC, after careful consideration of the proposed sale of his Detroit UHF TV station to Mission Broadcasting, has granted approval to the $75 million transaction announced in May 2023.
However, six key provisions outlined by the Commission are required to get the deal done — without any involvement from Nexstar Media Group.
The FCC’s decision, released Tuesday in a Memorandum Opinion and Order, comes after two parties — the pro-MVPD American Television Alliance (ATVA) and NCTA—The Internet and Television Association (NCTA) — filed informal objections against the deal.
As the ATVA and NCTA see it, the Perry Sook-led Nexstar “is either the real party in interest in this transaction or else will exercise control of the retransmission consent rights” for WADL-38, licensed to Mount Clemens, Mich., “to the detriment of video programming distributors and consumers.”
The MO&O also takes note that the WADL transaction, if completed as spelled out in the May 2023 agreement submitted for regulatory approval, would create a second instance where a Mission-owned TV station would be operated by Nexstar in a market where Nexstar itself did not own a property. In other words, WADL ownership would mimic that of WPIX-11 in New York, deal detractors said.
Key to reaching its conclusion on how to proceed with the WADL application, however, is the fact that what could transpire following its sale to Mission differs from what had transpired when WPIX was acquired by Mission and then entered into its shared services agreement with Mission. That led the Commissioners to work hard to reach a decision that would allow the deal to close, benefit the African American community while also providing WADL with the resources to further grow and serve the Detroit market.
The Commissioners’ decision may not make Nexstar or Mission happy, but Adell is, and believes the deal will move forward as planned — even “several significant conditions” regarding Nexstar’s involvement have been put in place.
Noting its investigation of Mission’s relationship with Nexstar at WPIX-11, the Commission said, “Our concerns here go to how WADL could be operated after Mission’s acquisition and the likelihood that Mission would abdicate control.”
Explaining that the MO&O allowing the WADL-38 sale to proceed without the need for a hearing designation order and an Administrative Law Judge — something seen of late as a death sentence for deals — the FCC says the decision is specific to this application.
The Commission continues, “The prospective conditions we adopt today seek to guard
against future infractions of the Commission’s rules and future harms to the public interest, including those potentially arising from the initial financing and acquisition of the station. The conditions are tailored to the specific facts of the proposed, as-yet unfinanced transaction and the posture of the pending application. Thus, the measures we adopt today would not be appropriate, or have the same impact, if imposed following a station acquisition.”
FINANCIAL SCRUTINY
How the FCC determined its six conditions first requires a review of the originally drafted deal.
The WADL-TV transaction as filed in May 2023 included a Transaction Description that simply states: “Nexstar guarantees repayment of Mission’s bank financing. Mission may utilize its bank financing to pay for some or all of the purchase price for WADL.”
A 70%/30% sales representation agreement pre-authorized between Mission and Nexstar was also included in the application, along with a services agreement and — importantly — delegated retransmission consent authority. This would make Nexstar the negotiating party.
Under the terms of the services agreement, Mission would pay Nexstar a set monthly fee of
$155,500 for the provision of these services, as well as, potentially, an undefined “performance bonus.”
Equally important is a statement that says senior management personnel and any programming services will not be shared between Mission and Nexstar.
A third agreement includes an option for Nexstar to buy WADL from Mission at a future date; such agreements have become commonplace in recent years as the broadcast TV industry has called for regulatory relief as it pertains to the national ownership cap.
With Mission operating as a Variable Interest Equity of Nexstar, which for financial reporting purposes includes independently owned Mission in its statements, the FCC nevertheless treats Mission as its own entity, one with 29 television properties of its own.
The ATVA feels differently, and argued to the Commission that Nexstar is using Mission to acquire the station and is intentionally avoiding acquiring WADL in its own name because doing so would violate the Commission’s 39% National Ownership Cap.
NCTA asserts that while WADL is currently a “must-carry station” in Detroit, it “appears highly
likely – indeed, nearly certain” that Mission and Nexstar will include WADL with Nexstar’s other retransmission consent contracts as an after-acquired station in its future negotiations with MVPDs. Naturally, the pro-MVPD group claims “such a step would lead to a non-competitive increase in retransmission consent fees to the detriment of consumers, and thus would constitute a public interest harm.”
How did the Dennis Thatcher-led and Nancie Smith-owned Mission legal team respond?
“Mission asserts that the proposed transaction complies with all Commission rules and policies because the commercial sales agreement, sharing agreement, Option Agreement, the proposed delegation of retransmission consent authority, and the Nexstar loan guarantee have been expressly disclosed in the Application, are industry standard, and have been approved by the Commission in the past.”
Adell also responded to the NCTA and ATVA by noting that their claims are inconsistent with Commission precedent.
Meanwhile, on September 21, 2023, a “must-carry” election for the next three-year period was made on behalf of WADL, reducing the weight of NCTA’s argument. Yet, NCTA called it a “band-aid” that fails to eliminate the future possibility of retransmission consent negotiations led by Nexstar.
When it came time for the Commission to decide on how to proceed with the WADL sale, it ruled that “the collective totality of the combination of agreements” are of utmost concern, as this created the conundrum tied to WPIX-11; repeating that scenario in Detroit needs to be prevented.
THE FCC’S CONDITIONS
To get the WADL deal done, the following must transpire:
- Mission is prohibited from relying on Nexstar’s assistance with financing. “Mission’s financial dependence on Nexstar, and the potential for misuse and influence resulting from that dependence,” are key concerns. As such, financial separation is an absolute must.
- Mission must receive no less than 70% of the advertising revenue, essentially codifying the agreement struck with Nexstar when Mission agreed to purchase WADL
- The “performance bonus” is negated. “The existence of such an undefined workaround to the proposed 70/30 split of advertising revenue in the agreement for the
sale of time and the absolute dollar figures elsewhere in the services agreements presents an unacceptable risk of an end run around our safeguards,” the FCC says. - An exercise option to allow Nexstar to purchase WADL-38 at a later date is erased. As such, Nexstar does not have a right of first refusal to purchase WADL when it would be able to do so at a future date
- Nexstar may not handle retransmission consent negotiations on behalf of WADL-38. This means Mission Broadcasting must handle this directly.
- The CW Network will not be coming to WADL-38. “No more than 15% of the total
programming time aired on the station, including through any affiliation with The CW Network, NewsNation, or any other programming source that is majority-owned or controlled by Nexstar or its affiliates,” is permitted.
More from RBR+TVBR:
KEVIN ADELL COMMENTS ON THE PATH TO COMPLETION OF A DEAL COMPLETED ONE YEAR AGO.
