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Who Owns Your TV (Station)?

Submitted on August 1, 2013

Politico’s Brooks Boliek wrote an article this week that really caught our eye. In “Broadcast TV landscape is shifting under FCC” Boliek notes there’s been a string of broadcast television station deals announced of late. We’ve seen the headlines, too, obviously:

The value of merger and acquisition deals among pure-play broadcasters—companies devoted entirely to television and not owned by major networks—will likely range from $3.5 billion to more than $6 billion in 2013-2014. Just what the heck is going on in TV? And what, if anything, is the Federal Communications Commission doing about it? Boliek writes, “Taken together, the deals signal a reshaping of the broadcast business as it consolidates into larger station groups that provide more leverage as they buy programming and sell it to pay-TV operators. As the industry shifts, the FCC has been slow to act with its media ownership rules in flux.”

Television station owners have several strategic reasons for wanting to grow. Along with obvious efficiencies, bigger companies tend to have more leverage when they negotiate with cable and satellite distributors over retransmission fees — the broadcast equivalent of the per-subscriber fees that cable channels receive. These fees, although a relatively new revenue source, have become vitally important to stations as they try to offset audience and advertising declines. Being bigger is also better when stations negotiate with the networks that provide them with programming. Networks like CBS have been aggressive about receiving a slice of retransmission fees, something known in the industry as reverse compensation.

Having a presence in more markets across the country can also help on the advertising front. Local stations in states with competitive elections have looked particularly valuable to investors as a result of the tremendous surge in political advertising every two years. In 2012, local broadcasters reaped nearly $3 billion in political advertising. In fact, according to a report by Moody’s Investor Service, “the 2012 political-ad cash windfall gave potential acquirers cash for spending or repaying debt balances, while making targets more attractive”—thus driving the current wave of acquisitions.

FCC media ownership rules, currently under review by the Commission, dictate who can own broadcast TV and radio stations. In general, the rules prevent the same company from owning a local newspaper and TV station in the same market – and the rules cap the number of television stations an owner can control locally as well as nationally. Media ownership rules are meant to promote localism, competition and diversity. From the earliest days of broadcasting, federal regulation has sought to foster the provision of programming that meets local communities' needs and interests. Thus, the FCC has licensed stations to serve local communities and it has obligated them to serve the needs and interests of their communities. One of the FCC’s purposes in retaining the national TV ownership rule has been “to preserve the power of affiliates in bargaining with their networks and thereby allow the affiliates to serve their local communities better.”

The FCC has relied on the principle that competitive markets best serve the public because such markets generally result in lower prices, higher output, more choices for buyers, and more technological progress than markets that are less competitive. In general, the intensity of competition in a given market is directly related to the number of independent firms that compete for the patronage of consumers.

Diversity advances the values of the First Amendment, which, as the Supreme Court stated, “rests on the assumption that the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public.” The FCC has elaborated on the Supreme Court’s view, positing that “the greater the diversity of ownership in a particular area, the less chance there is that a single person or group can have an inordinate effect, in a political, editorial, or similar programming sense, on public opinion at the regional level.”

The FCC has considered four aspects of diversity:

  • Viewpoint diversity ensures that the public has access to “a wide range of diverse and antagonistic opinions and interpretations.” The FCC attempts to increase the diversity of viewpoints ultimately received by the public by providing opportunities for varied groups, entities and individuals to participate in the different phases of the broadcast industry.
  • Outlet diversity is the control of media outlets by a variety of independent owners.
  • Source diversity ensures that the public has access to information and programming from multiple content providers.
  • Program diversity refers to a variety of programming formats and content.

It is important to keep in mind that television remains the main place Americans say they turn to for news about current events (55%), leading the Internet, at 21%, reports Gallup. Americans have an abundance of sources at their disposal for acquiring news, and accordingly, Gallup received various answers when asking respondents what they consider to be their main source. Still, the television medium leads all others, and by a wide margin over the Internet, while print and radio lag well behind. This does not mean Americans get no news from print, radio, or to a lesser degree the Internet; just that relatively few see these as their main source.

In February, then-FCC Chairman Julius Genachowski attempted to change the media rules in reaction to a court order — but that was held up over objections by fellow FCC commissioners who thought the changes went too far. Acting FCC Chairwoman Mignon Clyburn has shown an interest in broadcast ownership issues, especially as they affect minorities, but she may not be able to move forward on such a controversial proceeding. But the FCC’s media ownership rules may not be the only way for opponents to challenge the recently-announced TV deals.

Both the pay-TV industry (cable and satellite TV operators) are raising objections – especially to Gannett’s proposed purchase of Belo announced back in mid-June. The deal, if approved by the FCC, will nearly double Gannett’s number of stations -- from 23 to 43. And Gannett will have 21 stations in the nation’s top 25 markets when the Belo deal closes. In several cities, the combined company will own multiple television stations; in St. Louis, it will own the top two, KSDK and KMOV, which usually would violate government rules. It will avoid that by using a tactic that has become common in local television: a shared services arrangement. The affected stations formerly owned by Belo will be structured so that they will not technically count as part of Gannett, but they will share resources like satellite trucks with the Gannett stations. [Here’s a look at the combined Gannett-Belo Portfolio]

The pay-TV industry and some public interest groups want the FCC to block the Gannett deal. “They both want to stop it, but they are coming at it from different sides,” explained a commission source to Politico’s Boliek.

Time Warner Cable, DirecTV and the American Cable Association have challenged the Gannett-Belo transaction, arguing that the $2.2-billion deal is structured as an end run around the TV ownership rules. These companies fear that they will lose bargaining power over retransmission consent. “The broadcast industry is showing no reluctance to continue to collude on retransmission consent,” said ACA President Matt Polka. ACA is made up of smaller cable operators, who see the ability for a broadcaster to negotiate retransmission agreements for more than one station in a market as unfair and illegal. Polka said his group filed in the Gannett-Belo deal because they were tired of getting a runaround at the FCC. “In the past, the FCC has told us: ‘We’re not going to answer your petition because we have pending rulemakings on retransmission consent reform and media ownership, so we’re going to answer your questions there instead of in the context of a license transfer,’ but they never answer them,” he explained. “This petition will, hopefully, force the FCC to answer the question once and for all.”

Meanwhile, a group of public interest groups, along with the Communications Workers of America and National Association of Broadcast Employees and Technicians, also oppose the deal and the shared services arrangement. The public interest and labor coalition fears that agreements allowing two stations to share resources will lead to less and lower-quality journalism. “These arrangements attempt to mask the true intent and effect of the transaction: to allow Gannett to simultaneously influence and control multiple media outlets in the same local market in a way that is contrary to the public interest and otherwise prohibited by the commission’s rules,” the unions and public interest groups told the FCC in their petition to deny the deal.

“The idea that one company should be allowed to control so many stations in so many markets is simply outrageous. What will it take for the FCC to wake up?” said Free Press President and CEO Craig Aaron. “Local viewers need competing newsrooms and access to a range of viewpoints on local issues, and that means they need the FCC to put down its rubber stamp and start doing its job to preserve localism, competition and diversity.” In an op-ed published in the Seattle Times, Aaron said, “The FCC needs to end this charade. If the agency’s rules don’t allow mergers between these stations, then de facto mergers shouldn’t be allowed either. If that means breaking up a few big media companies along the way and stopping this deal, so be it.”

Ironically, shared services arrangements have risen to be the top issue in the ownership debate just as newspaper-TV cross-ownership, a key issue over the past decade, seems to be cooling. On July 10, the Tribune Company announced it would spin off its beleaguered newspaper unit into a separate company, freeing the media conglomerate to focus on its more promising television and Internet properties. Tribune Publishing will include the Los Angeles Times, the Chicago Tribune and six other daily papers. Other media companies, notably Rupert Murdoch’s News Corp., have spun off their publishing units. The goal is to boost the stock market value of the broadcast properties by unshackling them from the newspapers, whose revenue has been declining sharply.

Variety deemed Tribune’s move the “final nail in the coffin of the rationale underlying the Times Mirror-Tribune merger.” The synergies between newspapers and TV, in hindsight, weren’t as advantageous as anticipated. Although print reporters remain logical talking heads for TV news, the two cultures are vastly different — one steeped in TV-based showbiz and the thirst for ratings, and the other rooted in more old-fashioned notions about journalism with a capital “J.” Even an evolution toward a web environment where newspapers prize clicks and traffic as much as broadcasters covet ratings hasn’t completely closed this divide.

So, to steal the punch line of a joke we often tell about Chicago weather – Who owns your TV station? Wait a half an hour, it’ll change. We’ll be watching – and sharing – all the developments. And we’ll see you in the Headlines.

Notes:

  1. Because of vacation schedules, Benton's weekly round-up will not return until Friday, August 23.
  2. What would summer be without a reading list? Here's where to find more info about the deals we mentioned above:

Sinclair-Allbritton

Gannett-Belo

Media General - New Young Broadcasting

Tribune Broadcasting -- Local TV Holdings

By Kevin Taglang.

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