When the FCC voted 3/31 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. 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.
Said Commissioners Ajit Pai and Michael O’Rielly: “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.”
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.
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.
Elliot Evers, Managing Director, Media Venture Partners, tells RBR-TVBR: “MVP feels this announcement highlights how important the Albritton deal is to Sinclair. Surrendering these three stations, along with the previously-announced spins in Harrisburg and elsewhere, will hopefully clear the way for a grant of the Albritton assignment application. We feel the circumstances here are unique— given the fact that Sinclair’s JSA partner is a minority-owned entity, we think Sinclair might have been able to obtain a grant. But the clock is ticking. However, whatever Sinclair’s motivation vis a vis Albritton, and as per the comments from Commissioners Pai and O’Rielly, the FCC’s March 31 move to ban JSA’s has resulted in a loss of both ownership diversity and local television service. This is most regrettable. We look forward to seeing what the FCC does with an application that proposes a JSA with a minority-owned partner, in a setting that does not involve the sword of Damocles hanging over the applicant’s head.”
Glenn Serafin, Director, Serafin Bros. Broadcast Brokerage & Finance and President/National Association of Media Brokers (NAMB), tells RBR-TVBR: “As for the JSAs, that was bound to happen and there will be other similar circumstances. Competition, voices, diversity and the economics of broadcasting, especially in smaller markets, are all interconnected. No one should expect any prospective owner, minorities and women included, to buy into a competitive landscape and a business plan that does not show a real chance for success. Local alliances like JSAs contribute to the plan and promote entry.”
Noted Francisco Montero, Managing Partner, Fletcher, Heald & Hildreth, P.L.C.: “There is no doubt that Chairman Wheeler has been looking at JSAs through two-dimensional lenses that do not see the way they help small and minority broadcasters. The Chairman has painted them as an abused loophole for rich large broadcasters to sidestep the FCC’s multiple ownership rules. …a “cottage industry” for K Street lawyers, he called them. I heard something like that once before in the mid-1990s when a new Congress under Newt Gingrich went after minority tax certificates because they were just a tax break for rich companies. Forget the fact that the ancillary benefit of giving those larger companies the tax deferral was to steer broadcast properties and cherished deal–flow into the hands of minority broadcasters. The Congress only saw the tax break with their two-dimensional glasses. And in the wake of the tax certificate’s repeal, minority ownership in broadcasting went flat and now has greatly declined. So again, industry has a vehicle by which minority broadcasters can reap ancillary benefit that brings down market entry barriers (interestingly, a mandate for the FCC under its media ownership review), but instead all Chairman Wheeler sees through his two dimensional lenses is the cottage industry he distains. Twenty years later, people still talk about the tragic mistake Congress made in repealing the minority tax certificate. I wonder how they’ll remember Chairman Wheeler in twenty years?”
Noted Marci Ryvicker, Wells Fargo Securities Senior Analyst: “Last night (5/29), SBGI announced that it is surrendering the licenses for 3 ABC stations, which include: WCIV-TV in Charleston, S.C. (ABC; DMA: 98), as well as WCFT-TV and WJSU-TV in Birmingham, AL (ABC; DMA: 42). Recall that on 3/20, SBGI had originally proposed to sell its legacy MY stations in those markets. We would note that while SBGI garnered some interest for them, it became clear that they were not buyable as standalone MY stations without a JSA/SSA. Additionally, SBGI will still market either its legacy CBS or ABC station from Allbritton in Harrisburg, PA (DMA: 43), as was previously announced in its 3/20 proposal. The company continues to expect Allbritton to close sometime in Q3.
The restructuring does not materially affect the economics of Allbritton. SBGI has decided to run primary/D-2 combinations for both ABC and MY network signals in Birmingham and Charleston, thus retaining their EBITDA.
Commissioners Pai and O’Reilly believe the new rules are not aligned with the FCC’s mandate of promoting diversity, localism, or competition. The proposed third-party partner to operate the stations was African-American owned, but without the licenses, their programming will simply be driven off the air. Further, given that spectrum is most scarce in the bigger DMAs, we don’t think that these licenses will be very marketable in the auction.
BOTTOM LINE: While the restructuring will not impact Sinclair’s economics, we highlight Pai and O’Reilly’s statements that in this case, the new rules may have done more harm than good.”
Here are some others that told FCC Chairman Tom Wheeler this would happen after the vote:
NAB EVP Dennis Wharton: “For a decade, Republican and Democratically-controlled FCCs have approved JSAs, which allow free and local TV stations to survive in a hyper-competitive world dominated by pay TV giants. That model is now declared illegal, based on the arguments of pay TV companies whose collaborative interconnect advertising sales practices make JSAs seem pale by comparison. It’s disappointing the FCC would take this action without first completing its 2010 statutorily mandated media ownership review. As the record before the Commission clearly shows, the public interest will not be served by this arbitrary and capricious decision.”
Bill Fanning, CFA, Managing Director Media Venture Partners:
“The FCC is correct – JSA’s have historically been creative ways around the current ownership rules. However, the core problem is that these are antiquated rules being enforced in a very different media environment than when they were first instituted. The number of options that consumers have today to receive news, information and video entertainment is enormous and growing every day. Therefore, to say that having one entity controlling multiple Big 4 affiliates in a given market is a real harm to the consumer, is a stretch.
Additionally, the JSA is a structure that the FCC has approved for years. From an economic perspective, one of the key points is that acquirers of television stations built their business models and justified purchase prices based on these structures, with the reasonable expectation that the regulatory approvals (explicit or implicit) they received provided assurance that these structures would be allowed to continue indefinitely. To now have to go back and unwind these will greatly harm broadcasters who previously transacted on this basis.
It will be interesting to see how the JSA unwind actually plays out. The two year window will take us into 2016 and we may just see broadcasters try to delay and push things out past that two year window in the hopes of getting relief on this ruling from a future administration.”
David Oxenford, Partner, Wilkinson, Barker, Knauer, LLP: “The FCC said that they would entertain waiver requests to allow existing JSAs to remain in place if a proponent can show that they further the public interest – the interests of diversity, competition, and localism. While Commissioner Pai said that the waiver standards were not well articulated, were in fact “mush”, the Media Bureau did commit to move quickly on such requests, resolving them in 90 days of the completion of the record on the request (which I assume means after the request has been filed and public comment has been received). It will be very interesting to see how these waiver requests are processed, and if any real relief is in fact granted. On all of the other issues, including small market TV duopoly and newspaper-broadcast cross-ownership, the FCC has effectively punted, pushing all those issues two years down the road. I’ve heard many suggest that the newspaper-broadcast cross-ownership rules may well outlive the newspaper, and that certainly may be the case. In fact, Commissioner O’Rielly showed some charts that seemed to back up that view. Will broadcasters be able to wait a full two years before there is any potential for relief on these issues?”
RBR-TVBR observation: 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.
