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Cable Technology Feature Article

March 11, 2014

FCC Prepares to Eliminate Local TV Ownership Loopholes, Joint Retransmission Negotiations

By Tara Seals, TMCnet Contributor

The last time the Federal Communications Commission took a look at media ownership rules was about six years ago. Since then, the rise of digital distribution and streaming, along with massive consolidations of local TV affiliates, has significantly impacted the broadcast landscape. So, the FCC (News - Alert) has once again decided to take up a competitive review of the video marketplace, and it’s very likely that the existing joint sales agreement (JSA) loopholes for owning multiple TV stations in a market will be closed.

Joint retransmission negotiations are also on the chopping block.

Starting with JSAs, in small- and medium-sized TV markets, to protect competition and consumers, the FCC's duopoly rules prohibit common ownership of more than one of the top-rated TV stations in a local market. But large broadcast conglomerates like Hearst and Sinclair, which have been steadily aggregating more and more local TV affiliates across the nation, have worked around those rules by establishing “sidecar” companies. These are companies that they almost exclusively control and fund via advertising sales, but which may technically operate as independent entities.

In most cases, a larger TV affiliate will sell all of the advertising for one of the smaller sidecars under a JSA arrangement, thus setting up a shell company situation.

“The SEC (News - Alert) filings show beyond a doubt that the dependent station is ‘owned’ in every respect except for formalities,” said Tom Wheeler, FCC Chairman, in explaining the pending review.  “In other words, the independence of the controlled station is a legal fiction.” 

He added, “The attribution rules are supposed to identify these circumstances and apparently have not.”

Later this month, the Commission will begin in earnest its 2014 quadrennial review, an open evaluation to understand how evolving market structures and competition should influence competition, localism, and the diversity of voices in local media. It’s very likely that JSA attribution rules will be amended to end the shell company practice.

Wheeler wants to make JSAs attributable in the television business just as they have been for many years in the radio business. In radio, where 15 percent or more of a station’s advertising sales are generated by another station, that party is considered to have effective control for media ownership purposes.

“Many stations selling the advertising are the de facto owners of smaller stations – owning all of the assets, retaining a significant amount of profits and programming all of the news hour,” Wheeler said. “Hence, these SEC filings make clear that, by any reasonable standard, these smaller stations in the JSAs are not independent.”

Meanwhile, must-carry regulation dictates that broadcasters can demand that cable and direct broadcast satellite operators compensate them to carry their station feeds. According to SNL Kagan, the cost of these retransmission consent agreements has skyrocketed from $28 million in 2005 to $2.4 billion in 2012, a nearly 8,600 percent increase in seven years. The FCC will likely move to restrict how those fees are negotiated.

“Congress intended for retransmission consent agreements to be hammered out through one-on-one negotiations,” said Wheeler. “But increasingly, we’ve seen the largest stations in a local market negotiate retransmission fees jointly – even though they are competitors. This tends to put upward pressure on cable prices.”

Wheeler is thus proposing that the FCC prohibit two or more of the big four local broadcasters (ABC, FOX, CBS and NBC) from banding together in local cable carriage negotiations. The action is meant to return retransmission consent to one-on-one negotiations.

During the review, the FCC is also expected to propose retention of the current ban on mergers between the four major TV networks, along with existing local radio and television ownership rules; recommend maintenance of a prohibition on the cross-ownership of newspapers and television stations, seeking comment on whether and how to modify the existing rule; and inquire about improving the current waiver standards for broadcast ownership.

Edited by Blaise McNamee

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