For all intents and purposes, the completion of Nexstar Media Group‘s $6.2 million merger with TEGNA was completed in the late afternoon hours of March 19, just moments after the FCC and the Department of Justice each approved the industry-shifting transaction — with the Commission’s Media Bureau on delegated authority granting waivers of the deal.
That morning, DirecTV and eight state Attorneys General had already moved to put a stop to the deal, which they — and most Democrats in Congress — call illegal, as it was approved despite a law that prevents it and thus requires Capitol Hill approval.
Late Friday (3/27), a Sacramento federal district judge sided with the direct broadcast satellite provider — putting a pause on the full integration of TEGNA into Nexstar, for now.
What’s next for Chief Judge Troy Nunley comes on April 7, as a Temporary Restraining Order was placed in effect.
Nexstar had prepared for a possible ruling such as this by not fully integrating TEGNA into the nearly 30-year-old broadcast media company founded in July 1996 by Perry Sook with the purchase of a Wilkes Barre TV station. TEGNA is effectively a subsidiary unit of Nexstar. This allows the legal process to play out without any need for a major unwind — should that come to pass.
‘ALLEGEDLY UNLAWFUL’
The instant action, Nunley wrote in a 24-page order released late Friday, Pacific Time, isn’t so much a win for DirecTV but an opportunity for their arguments to be fully vetted by the court.
Key to the plaintiff’s argument is their assertion that Nexstar’s proposed merger with TEGNA will drive up the cost of television service to tens of millions of Americans, shutter local newsrooms around the country, substantially reduce competition in dozens of local markets, and harm consumers.
That’s an argument echoed by the eight state AGs in a separate case filed with the Sacramento-based federal district court and Congressional Democrats, who used a Thursday hearing focused on the 30th anniversary of the Telecommunications Act of 1996 to blast the FCC for allowing the Nexstar-TEGNA merger to transpire on delegated authority. Furthermore, it is a point belabored by the MVPD industry and by both Dish and DirecTV in nearly every retransmission consent impasse, with instant fingerpointing at a broadcast TV company desiring fair compensation for what are arguably the most-viewed channels a MVPD distributes to its paying subscribers.
For DirecTV, it told the court that Nexstar’s purpose in acquiring TEGNA is to drive up the price it can extract from the broadcast TV station owner and other distributors, which will force them to raise prices on their subscribers.
Perhaps what persuaded Nunley to issue the TRO is Nexstar’s response: “Nexstar admits the merger will greatly increase its already huge ‘scale’ and its ‘leverage,’ i.e., the ability to force its TV distribution customers, including Plaintiff, to pay even higher fees for local news, live sports, and other content they distribute to their subscribers.”
Nunley, in his Order, acknowledges the importance of broadcast TV to MVPDs and the two DBS service providers. “Despite the proliferation of video streaming services, Americans continue to depend heavily on local broadcast television for access to news about their communities, sporting events, and other local content,” Nunley said. “Because broadcast content remains very valuable, the local broadcast television business collects more revenue from its broadcast rights than ever before.”
With DirecTV painting a portrait of “a massive concentration of market power,” it contends the result is ominous for the MVPD industry. “The enormous increase in market power will enable Nexstar to raise prices and reduce the amount, variety, and quality of local news without having to worry about losing business to competition,” DirecTV argued to the court.
That argument has merit, and with the TRO preserving the status quo pending a fuller hearing has been granted. “Nexstar must permit TEGNA to continue operating as a separate and distinct, independently managed business unit from Nexstar, and Nexstar must put measures in place to maintain TEGNA as an ongoing, economically viable, and active competitor,” Nunley declared. “TEGNA shall have separate management that operates TEGNA in the ordinary course consistent with pre-closing practices.”
DirecTV’s legal counsel is led by Arthur Benjamin Schoen and seven colleagues at King & Spalding; Morrison & Foerster LLP attorneys are representing Nexstar and TEGNA.
