On Tuesday, Sept. 24, just one day after the Third Circuit Court of Appeals squashed the FCC’s attempt to “modernize” its media cross-ownership rules, the Commission’s Media Bureau moved forward with its approval of a deal allowing Gray Television to own two stations in Sioux Falls, S.D.
The decision came 10 weeks after the Department of Justice said yes to the sale.
Now, it seems the two top Democrats on the House Energy & Commerce Committee are peeved. They say the FCC ignored the Third Circuit in giving the green light to the deal.
House Energy and Commerce Committee Chairman Frank Pallone Jr. (D-N.J.) and Communications and Technology Subcommittee Chairman Mike Doyle (D-Pa.) on Tuesday sent a letter to FCC Chairman Ajit Pai that raises concerns about whether the Media Bureau’s decision “to allow television consolidation” in Sioux Falls, S.D. violated the Third Circuit’s recent decision “striking down the FCC’s roll back of media ownership protections.”
At issue is the “Top Four” rule, which prohibits one entity from owning two of the top four stations in a given market. As Pallone and Doyle see it, “The Court made clear the FCC had not adequately considered the effects that the elimination of those necessary protections would have on ownership diversity.”
Despite “the clear rebuke,” they assert that the Media Bureau “disregarded the Court’s decision the very next day.”
“In allowing this transaction to go forward, the FCC undermines the rule of law and the decision of the Third Circuit,” Pallone and Doyle wrote. “The FCC’s technical arguments about why it doesn’t have to comply with the Court’s decision seem highly suspect, at best, and an intentional flouting of the rule of law at worst.”
As first reported by RBR+TVBR, Gray in May 2018 agreed to purchase KDLT-46 in Sioux Falls, S.D. from Kathy Lau and John Exline‘s Red River Broadcast Co. for $32.5 million.
However, the deal required regulatory approval, as KDLT would have become a sister station to the ABC affiliate in Sioux Falls, KSFY-13.
In mid-July 2019, DOJ said yes to the transaction, brokered by Kalil & Co.
However, that was before the Third Circuit ruling, which vacated and remand the FCC’s cross-ownership rule rewrite. What it did not do, one top D.C. attorney told RBR+TVBR in late September, is exactly what Pallone and Doyle believed it did do.
“The Court did not overturn all of the FCC’s rules,” said Peter Tannenwald, of Fletcher, Heald & Hildreth. “For example, It did not overturn the policy for waiver of the rule barring common ownership of two Top Four TV stations in a market.”
Indeed, the Third Circuit Court of Appeals rejected the FCC’s cross-ownership rules and its incubator program. It also would have removed the “Eight Voices Test” from the local television ownership rule. Instead, the Commission was poised to use a potentially Media Bureau-clogging “case-by-case review option in the Top-Four Prohibition to better reflect the competitive conditions in local markets.”
Enter Gray Television and Sioux Falls, and the argument represented by Pallone and Doyle. They insist the FCC ignored the Court’s decision, even though the Top-Four Prohibition was open to a waiver. As such, they demand Chairman Pai provide answers to the following questions by Nov. 12:
- Will the FCC reconsider the acquisition of KDLT-TV once the Court’s mandate has been issued?
- Did the FCC seek the opinion of the Court, or the Office of General Counsel, regarding the legality of relying on the FCC rules that have been struck down by the Prometheus Radio Project v. FCC Decision?
- Is the FCC currently reviewing transactions that are seeking waivers of the broadcast ownership rules?
- Is the FCC currently reviewing transactions that would require a waiver to comply with the broadcast ownership rules in place either prior to or after the Prometheus Radio Project v. FCC Decision?
While this deal formally creates a duopoly, it actually creates a three-network cluster, as KSFY-13.2 is Sioux Falls’ home for The CW Network.
As expected, pro-MVPD lobbyists are irate. In July 2018, The American Television Alliance (ATVA) filed comments with the FCC blasting the deal, arguing that Gray failed to make an adequate public interest showing in its desire to own the market’s NBC affiliate.
These concerns were ultimately overweighed by the benefits of Gray ownership of KDLT and its full-time satellite partner, KDLV-5 in Mitchell, S.D.
Now, Pallone and Doyle are taking aim at a decision made not by Pai, but by Michelle Carey, the Media Bureau’s Chief.
It also puts into question whether the Commission may not consider, on a case-by-case basis, whether the public interest would be served by permitting a top-four combination based on the specific circumstances in the local market.
Even if a case-by-case review stands, the magnified level of focus on such deals may put a freeze on an already uncertain deal-making market. Speaking last week at the TV2020 conference in New York, Nexstar Media Group founder and CEO Perry Sook was asked if trading had hit a plateau.
Sook’s response? “It’s hard to say. In 2011 there were 36 companies in local television that had a national reach of 2% or greater. That number now is down to about a dozen. There are fewer companies left to buy perhaps. M&A is not as easy as hitting a button and buying a stock. It takes social issues, a lot of diligence, a lot of dealing with regulatory concerns.”
Also on the panel: Gray President/co-CEO Pat LaPlatney. Asked specifically about the Sioux Falls waiver and if it sets a precedent, LaPlatney said no. But, he believes, “There are a number of markets out there where it makes sense, particularly in smaller markets. I hope that the FCC, as they have done with Sioux Falls, will look at those and evaluate them on their merits. There are a number of them out there that would make sense.”
How the Commission evaluates Top-Four waivers moving forward may now be in question.
It could be up to Chairman Pai to provide the answers all, including Reps. Pallone and Doyle, seek.
