FCC to vote today on ownership rules, including the Sinclair-Tribune merger
The Federal Communications Commission will vote today on whether to relax decades-old rules that prevent the same company from owning a newspaper and TV station in the same market and limit the number of stations a company may own.
The rules come from a pre-cable and pre-internet era when newspapers and broadcast stations could dominate news and advertising in a community. Media companies say they need the scale of large ownership to reduce costs and increase a larger customer base.
Center-stage in the vote is Sinclair Broadcast Group which wants to add Tribune Media to its portfolio in a $3.9 billion acquisition. Democratic Commissioner Jessica Rosenworcel contends the vote is tailored to help GOP-friendly Sinclair. "I think it has reached a point where all our media-policy decisions seem to be custom built for this one company, and I think it merits investigation."
Sinclair owns or operates 173 TV stations in 81 markets and hopes to add Tribune's 42 properties in 33 markets to the list.
Sinclair and Tribune both have affiliations with all major networks. Even without the merger, Sinclair is the largest local news provider in the country. But more importantly, Tribune owns and operates broadcast television stations in the top three markets in the country, seven stations in the top 10 markets, and 34 stations in the top 50 markets. With the big market Tribune stations in Los Angeles, New York and Chicago, Sinclair says it would be able to land big advertising deals that would play nationally. Tribune also owns cable network WGN America, digital multicast network Antenna TV and WGN-Radio. No other owner would come close to the new Sinclair group in size or reach.
Republicans control the FCC and the measures are likely to pass, but not without a stiff blowback. Common Cause, for example, says the Sinclair-Tribune merger would, "Give the company control of 233 stations – including in many of the country’s largest media markets – reaching 72 percent of U.S. households. If approved, the merger will lead to job losses, less competition and higher costs for consumers."
As the rules currently stand, broadcast companies are limited to owning stations that, added together, may only reach 39 percent of U.S. homes. If Sinclair and Tribune merged, Sinclair would have six percent more audience reach than current law allows.
But there are all sorts of parenthetical notes you add to that number. For example, if the station is a UHF station (channels 14 and above), the reach only counts as half of what it would if it was a VHF station (channels 13 and below), despite the fact most stations reach their viewers on cable or satellite delivery. The over-the-air reach is far less significant as it once was.
And, the FCC says, "The National TV Ownership rule does not limit the number of TV stations a single entity may own nationwide so long as the station group collectively reaches no more than 39 percent of all U.S. TV households."
Another significant change in FCC rules includes how many stations a company may own in a single market. Under the so-called "duopoly rule" no company may currently own two of the top four stations in a market. But the proposed new rule would allow the company to own two stations in the top four if there is only a tiny difference between the fourth- and fifth-place station in a market, which is not uncommon.
The FCC says, "FCC rules effectively prohibit a merger between any two of these networks: ABC, CBS, Fox, and NBC," because those stations are nearly always in the top four ratings positions in a market.
Without the changes, Sinclair would have to sell off 10 stations if it bought the Tribune group, but if the FCC relaxes the duopoly and ownership rules, it would be able to keep more stations. Without the change, and if the sales goes through, the new Sinclair group would have to sell stations in Seattle, St. Louis, Salt Lake City, Oklahoma City, Des Moines and Portland, Oregon, among others. Sinclair has told the FCC in legal filings that in places like San Antonio and Grand Rapids, it expanded news operations and "increased the quantity and quality of local programming" after it owned more than one station in a market and ran them as duopolies.
Sinclair does say that if it is allowed to own multiple stations in a market, it would operate them out of a single newsroom and "Sinclair does not expect this process to reduce the number of employees substantially, but does expect to realize an overall saving in costs."
Sinclair, in its pleadings to the FCC, points to an important future that broadcasters are just beginning to consider, a technology called ATSC 3.0. That is widely considered to be "the next generation standard for television broadcasting" that will enable broadcasters to compete more directly with cable companies and digital providers.
ATSC 3.0 includes ultra-high definition video and multi-channel audio and in-car TV. But stations will need big bucks to make another significant technological change like when they moved from analog to digital high-definition (HD) broadcasting. ATSC 3.0 promises to give broadcasters the ability to micro-target viewers with specialized "skinny bundles" of content and advertising that is similar to the way online and social media deliver advertising to defined demographics.
Sinclair is trying to make the case that the only way to adapt to the new technology is to be financially robust enough to afford the investment that new technology demands. Sinclair, by the way, holds a dozen patents related to ATSC 3.0 technology.
The vote follows an FCC ruling last month that allows stations to operate without even having an office in the town it is licensed to serve. That ruling allows big broadcast companies to operate stations remotely from a central hub. Critics have said that vote, backed by the National Association of Broadcasters, was also aimed at Sinclair's needs. Dana Floberg, an analyst at the media advocacy group Free Press, said, “With today’s vote Chairman (Ajit) Pai has given another massive handout to his friends and political allies at Sinclair. By eliminating this rule, the commission has blasted open a path for conglomerates like Sinclair to move even more resources — including broadcast facilities and staff — away from underserved communities. The main studio rule was a vital way to preserve broadcast media’s local roots and to hold local stations accountable when they fail to serve the people they’re licensed to cover."
NAB countered by saying the "main studio rule" was written when the majority of Americans didn't even have telephones and the only way they could contact a local station was to go to the studio, so the studios had to be nearby.
The cross-ownership rule
The FCC will also consider lifting a more than 40-year-old rule that prohibits a company from owning both a newspaper and a full-power TV station in the same market. Existing cross-ownerships were allowed to continue operating but in recent years big ownership groups like Gannett split their newspaper and TV groups apart to shield the broadcast side from the downturn in print circulation and advertising and allow print operations to find economies of scale by growing their footprint. It would be a rarity to find an owner these days that wanted to operate in both media worlds.
The FCC still has rules on cross-ownership between radio and TV stations. Currently, the FCC says, "In markets with at least 20 independently owned 'media voices' (defined as full-power TV stations and radio stations, major newspapers, and the cable system in the market) an entity can own up to two TV stations and six radio stations (or one TV station and seven radio stations)." In smaller markets, there are more limits. In the biggest media markets, a single company can still own up to eight radio stations.
Accusations of political favoritism
The Thursday vote won't close the books on the Sinclair-Tribune merger. Monday, House Democrats called for an investigation into what they see as a chummy relationship between the FCC Chairman Pai and Sinclair. And groups opposing the Sinclair purchase of Tribune say they will sue if the FCC allows the deal to move forward.
Sinclair chief executive Christopher Ripley said Thursday's vote is a “landmark development for our industry as a whole, and we applaud the FCC for recognizing the competitive inequities levied upon TV broadcasters for several decades.”
And, Sinclair says, even if it is allowed to become even larger, it will stay rooted in local markets. In the latest filing with the FCC before the Thursday vote, Sinclair said, "Sinclair employs 3,850 station level employees to independently produce local news across numerous markets."
The company says 99 percent of its employees are working at local stations, not a centrally located corporate office. And the station says that while it does require stations to run some editorial content (that often leans pro-Republican), that content represents about 2.5 percent of the total news content the stations air each week. Sinclair said that the "conservative" commentaries add "diversity" to the media landscape.
Late Wednesday, former FCC Commissioner Michael Copps, who is a senior advisor to Common Cause, told reporters in a conference call, "We are on the eve of media madness at the FCC. The first of the fruits of the vote will be Sinclair and Tribune." And, he said, "There will be lots of other mergers to follow.
"This will be a flash of the green light to encourage more consolidation, encourage more big media." Copps said, "I am not just opposed to this, I am really angry about what the FCC is going to do."