The FCC late Thursday handed Nexstar Media Group a Notice of Apparent Liability for Forfeiture for what the Commission believes is the company’s de facto control of Mission Broadcasting-owned WPIX-11 in New York.
Nexstar Chairman/CEO Perry Sook immediately responded by noting that the company is “extremely disappointed” in the Commission’s action and that the company intends to dispute it “vigorously.”
The 42-page NALF sees the Commission finding that Mission and Nexstar “apparently willfully and repeatedly violated” several of the FCC’s rules in a series of transactions through which Mission acquired WPIX, a former Tribune Broadcasting property.
“To be specific, the parties’ actions before, during and after Mission’s acquisition of WPIX
apparently resulted in Nexstar taking de facto control of the New York home for The CW Network,” the notice reads. The result, the Commission believes, is that Nexstar “apparently violated the ownership restrictions in section 73.3555(e) of the Rules by obtaining undisclosed cognizable attributable interests in WPIX without Commission authorization.”
That’s a problem for the Commission as it would place Nexstar in violation of the national television multiple ownership limit of 39%.
Sook couldn’t be in greater disagreement with the Commission, saying in a statement, “We believe the FCC has been misled by the often distracting noise in the media ecosphere and that it has completely misjudged the facts. The facts are that Nexstar has always complied with FCC regulations and that its relationship with WPIX-TV under a Local Marketing Agreement (LMA) was approved by the FCC in 2020, when WPIX-TV was purchased by Mission Broadcasting.”
Sook continued, “Nexstar believes that joint operating, shared service, and local marketing agreements like those in which it is engaged are vitally important to maintain a competitive
media marketplace and to enable broadcasters to continue investing in local news, investigative journalism, and other services that they uniquely provide to the communities in which they are located.”
A ‘VARIABLE INTEREST ENTITY’ GETS PROBED
The NALF offers details into how, as the Commission views it, Nexstar and Mission have had “a long-standing and deeply interwoven relationship.”
Specifically, the FCC says, “While Mission is not a subsidiary of Nexstar, it operates as a Variable Interest Entity (VIE) of the larger company, meaning that Nexstar is considered to have a controlling financial interest in Mission for financial reporting purposes.”
Indeed, Nexstar includes Mission’s assets, revenue, and financial information as part of its own financial calculations and reporting, as seen in its quarterly earnings reports.
The Commission then goes on to note that Mission, “a company with fewer than 60 employees,” is the licensee of 29 full power broadcast TV stations — all of which are operated by Nexstar via shared services agreements of varying types (JSAs, LMAs and SSAs).
Perhaps pertinent to the NALF is the fact that Nexstar owns a station in 25 of the 26 markets in which Mission has a station. The exception: New York. And, with the purchase of WADL-TV in Detroit to Mission creating a situation similar to that of WPIX, chances are that pending transaction will not move forward.
And, while retransmission consent is not the focal point of this NALF, DirecTV nevertheless took the opportunity to comment, telling RBR+TVBR, “We applaud the FCC’s efforts to enforce the media ownership rules on relationships Nexstar has with sidecars like Mission Broadcasting.”
Other ways Mission and Nexstar are financially intertwined were also disclosed in the NALF, again based on the FCC’s assessments. It says, “Specifically, Nexstar guarantees full payment of all obligations incurred under Mission’s senior secured credit facility. Mission is also a guarantor of Nexstar’s senior secured credit facility and several of its outstanding debt instruments, despite the fact that Mission is a fraction of the size of the publicly traded Nexstar and is largely dependent on Nexstar for the provision of programming and business services.”
Then, there are the options permitting Nexstar to acquire Mission stations it operates via services agreements — something that until now has not come under FCC scrutiny. At least two Washington insiders have told RBR+TVBR that such options are not uncommon, even if they may signal a future opportunity to convert a shared services agreement to outright ownership pending any thaw in the FCC’s local broadcast ownership cap.
The WPIX acquisition by Mission is also being scrutinized by the FCC because Nexstar agreed to spin three stations to The E.W. Scripps Co. in order to keep within its 39% ownership cap: WSFL-39 in Miami-Fort Lauderdale, KASW-61 in Phoenix and … WPIX. Here’s where the situation gets thorny. Nexstar retained an option to purchase WPIX from Scripps at a future date. The option was exercisable through Dec. 31, 2020. In July 2020, Nexstar assigned its option to purchase WPIX to Mission. And, according to the Commission, Mission on August 28, 2020 exercised that purchase option.
The FCC’s information gathering shows Mission used a line of credit guaranteed and cross-collateralized by Nexstar to exercise the purchase option.
The Mission acquisition of WPIX from Scripps was valued at $82.6 million, and closed on December 30, 2020.
That same day, Mission gave Nexstar the green light to operate WPIX.
For the Commission, financing for Mission’s purchase of WPIX is the biggest concern. “While Mission was the borrower obligated to repay the Revolver loan, Nexstar’s assets were at risk as collateral should Mission default,” it said.
The topic of retransmission consent — central to the dispute between DirecTV and Nexstar that saw a New York federal judge earlier this week rule in favor of Nexstar — also comes up in the FCC’s NALF. The Commission notes that it was “understood” between Nexstar and Mission that Nexstar would negotiate for retransmission consent once Mission bought WPIX.
Initial letters of inquiry were sent to the Nexstar and Mission C-Suites, respectively, on Nov. 9, 2021.
