As many thought was coming, the broadcast industry plans to sue the FCC over its decision to crack down on resource-sharing deals between broadcasters. On 5/30, the NAB said it will ask the D.C. Circuit Court of Appeals to overturn a March FCC vote that requires broadcasters to unwind many of their advertising sales resource sharing arrangements, according to The Hill.
Said NAB in a release: “NAB announced today it intends to file a petition at the U.S. Court of Appeals for the D.C. Circuit challenging the Federal Communications Commission’s 3-2 decision on March 31 prohibiting joint sales agreements between two television stations, while failing to complete a required review of its broadcast ownership restrictions.
Congress requires the FCC every four years to review its ownership rules to “determine whether any of [them] are necessary in the public interest as the result of competition,” and “repeal or modify any regulation” no longer in the public interest. In its petition, NAB will explain that the FCC violated this congressional mandate by failing to complete its 2010 review.
NAB’s petition will also challenge the FCC’s decision to treat agreements between two television stations for the sale of advertising time as an ownership interest prohibited in most markets under its local television ownership rule – a rule that the FCC failed to determine is “in the public interest as the result of competition.”
“NAB believes that a fact-based examination of today’s marketplace would show that FCC ownership restrictions against free and local broadcasters are outdated in a world of national pay TV giants,” said NAB Executive Vice President of Communications Dennis Wharton. “These rules – some of which have not been altered since 1975 – place broadcasters at a competitive disadvantage as we strive to continue delivering news, entertainment and lifeline programming to local communities across America. “We salute Commissioners Pai and O’Rielly for their strong dissent in this split FCC decision and look forward to swift judicial review.” NAB understands that at least two other broadcast companies – Nexstar Broadcasting Group and Howard Stirk Holdings – will also challenge the FCC’s JSA ban.”
The petition NAB filed with the U.S. Court of Appeals for the D.C. Circuit regarding the FCC’s order prohibiting joint sales agreements is available here.
On 3/31, the FCC voted 3-2 to consider any two broadcasters that share more than 15% of their ad sales resources to be owned by the same company.
When the FCC voted to restrict broadcasters’ use of JSAs, many said it would be destructive to the local television broadcasting business. It didn’t take long, as three TV stations are likely to go dark. On 5/29, Sinclair said it plans to surrender the three television station licenses to the Commission for cancellation in Charleston, SC and Birmingham, AL. Sinclair was unable to find a viable buyer for them. The three stations, WCIV Charleston (ABC) and WCFT-WJSU (ABC) Birmingham, are now owned by Allbritton. Sinclair had planned operate the three stations through sidecar companies and JSAs/SSAs before the 3/31 FCC vote.
Sinclair needs quick approval from the Commission for its deal to buy Allbritton Communications, which could fall apart if approval isn’t granted by 7/28.
Said Commissioners Ajit Pai and Michael O’Rielly on 5/29: “When the Commission voted to restrict television broadcasters’ use of joint sales agreements (JSAs), we warned that this decision would lead to “less ownership diversity” and “more television stations going out of business.” Unfortunately, just two months later, this is coming to pass.
Today, Sinclair Television Group announced its intent to surrender to the Commission for cancellation three television station licenses in the Charleston, South Carolina and Birmingham, Alabama markets. Sinclair reported that it was unable to find a viable buyer for any of these stations. As a result, it appears that these three stations will soon be going dark.
It didn’t have to be this way. Prior to the Commission’s decision to restrict the use of JSAs, Sinclair had a viable buyer for stations in Charleston and Birmingham: Howard Stirk Holdings (HSH), an African-American owned broadcaster. That deal, however, fell through because of the Commission’s decision to stop Sinclair from entering into JSAs with HSH.
So what has the Commission’s decision wrought? Instead of increasing the number of African-American-owned television stations, we are driving stations off the air. This will mean job losses, less service to South Carolinians and Alabamians, and less ownership diversity. We do not see how such an outcome possibly serves the public interest, and we hope that the Commission will take action immediately to correct its misguided restrictions on JSAs.”
RBR-TVBR sources say other broadcast groups may be filing suit as well.
Larry Patrick, Managing Partner, Patrick Communications, tells RBR-TVBR: “This is a sad day for minority ownership. Stations that could have become profitable through ownership by a minority with a JSA/SSA in place are being turned in by the seller because of a lack of interest in them absent these mechanisms. The Commission does not seem to understand the economics of running these netlet stations. Twenty-five years of case approvals were thrown out without any real analysis or allowance for owner comments. The appellate court will now decide if the FCC followed the proper steps or not. But, the loser here is minority station ownership.”
Noted Francisco Montero, Managing Partner, Fletcher, Heald & Hildreth, P.L.C.: “This latest law suit is the second punch by the NAB against the FCC’s March 31st vote to make TV JSA’s attributable under the FCC’s multiple ownership rules, and therefore count against the limits those rules place on TV ownership in a given market. Under TV JSAs the second station is not owned or even programmed, but the advertising time is sold jointly with another station in the market. Under the new rules, such arrangements involving more than 15% of the advertising time would be treated as if the dominant station also owned the “side-car” station. As follow-up to the FCC’s JSA order, the Commission separately issued a public notice that JSAs and shared services agreements (involving a sharing by stations of resources and other administrative functions) with contingent interests, like options to purchase, would be given heightened scrutiny. The NAB, earlier this month, filed a petition in the US Court of Appeals to challenge the FCC’s public notice under the Administrative Procedure Act (APA) claiming that the FCC overstepped its bounds by issuing the public notice, because it effectively constituted additional regulation of SSAs and went beyond the scope of the original March 31st JSA order. Accusing the FCC’s actions of being “arbitrary and capricious” is a very specific standard under the APA that appeals courts apply in reviewing the actions of independent regulatory agencies like the FCC. There have been claims that the FCC did not adequately study the impact of JSAs and, among other things, arbitrarily concluded that they were harmful. This conclusion that is vehemently challenged by the dissenting Republican commissioners Pai and O’Rielly who have stated “this decision would lead to ‘less ownership diversity’ and ‘more television stations going out of business.'” Now the NAB is going after the JSA Order itself, claiming that it is also arbitrary and capricious.”
Bill Fanning, CFA, Managing Director, Media Venture Partners tells RBR-TVBR: “This latest turn of events shouldn’t come as a surprise to anyone, including the Commission. This is an early step in what is likely going to be a protracted legal battle with additional parties, that have or would be harmed by the Commission’s March 31st vote, eventually filing suit. Included in this group could be all of the ownership groups (including public shareholders) that would be economically harmed if companies are forced to unwind these previously FCC-permitted JSA structures. As we see with the Sinclair announcement, many of these stations, particularly in smaller and mid-sized markets simply aren’t viable as standalone operations without the benefit of the JSAs or SSAs. Further, for the ones that are viable and are able to be unwound, the seller is clearly not going to get equivalent value from the market because the economics in operating them going forward have been changed so dramatically.
From the FCC perspective, it seems difficult to imagine that an adequate level of research and analysis on JSA’s was conducted prior to the March 31st vote, given the Commission failed to formally complete its 2010 quadrennial review of media ownership rules. What is clear with the Sinclair announcement, as well as a reasonable study of the market, is that the March 31st vote is not achieving one of its publicly-stated goals of promoting more local and minority ownership of television stations. In fact, the opposite has started to happen with the actual forfeiture of television licenses. One does have to wonder if somewhere in the FCC’s thinking, that may have been an intended consequence all along, with it’s clear priority being the Incentive Auction and repurposing of television spectrum.”
NABOB says it continues to support the new FCC JSA rule: “On March 31, 2014, the National Association of Black Owned Broadcasters announced its support of the Federal Communications Commission’s new rule, which treats Joint Sales Agreements (“JSAs”) as attributable. NABOB reiterates is support for that rule today. In a statement issued yesterday, the two Commissioners who dissented to the adoption of the rule cited the decision by Sinclair Television Group to turn in three television station licenses as evidence that the new JSA rule is injuring the television industry. Jim Winston, Executive Director of NABOB stated, “The unique circumstances in which Sinclair finds itself do not support any conclusion regarding the overall important benefits of the new JSA rule.”
Winston continued, “The Sinclair decision, as described in Sinclair’s letter to the Commission yesterday, indicates that the decision to turn in the licenses was driven primarily by Sinclair’s desire to conclude its $985 million acquisition of Allbritton Communications, which has a closing deadline that is coming up soon.”
Winston continued, “In addition, although Sinclair provides no additional details on its decision to turn in the licenses, at least two possibilities may have influenced Sinclair’s decision. Sinclair may have concluded that it can obtain a tax deduction from turning in the licenses greater that the value that an independent buyer would be willing to pay for the licenses. Alternatively, Sinclair may have determined that the elimination of competition in the markets resulting from turning in the licenses is more valuable than the purchase prices it could obtain for the licenses.”
Winston concluded, “Therefore, while Sinclair may have unique business reasons for turning in the licenses, it is clear that this single instance does not refute the potential benefit that can result from other broadcasters who may choose over the next two years: (1) to seek a waiver of the JSA rule, by joining with a minority owner to develop a truly independent station operation, or (2) to sell stations outright to minority purchasers.”
RBR-TVBR observation: The move to basically eliminate JSAs and SSAs has now caused standing/injury and therefore grounds for legal action. Enough is enough. As we’ve said, Commissioners Pai and O’Rielly have laid bare the remarkable hypocrisy of Tom the Cable Guy’s jihad against broadcasting. The FCC Chair professes a crying need for more diversity of ownership in the media. Yet when a broadcast group offers to bring a minority into the ownership rank via the JSA route, Wheeler slams the door. And oh by the way, now there will likely be more broadcasters participating in the FCC incentive auction, courtesy of Tom the CTIA Guy. How convenient.
