Feb. 4 (Bloomberg) -- The top U.S. communications regulator is considering restrictions on television-station owners controlling more than one property in a market, a strategy that’s helped fuel an $11 billion station buying spree.
Federal Communications Commission Chairman Tom Wheeler has discussed the idea with staff members without offering a formal proposal, according to two people familiar with his thinking. It’s not clear how his change, which would need approval by a commission majority, would affect pending deals or existing combinations.
Wheeler, a Democrat who took office in November, has said he wanted to re-examine arrangements in which a station owner has marketing or shared-content arrangements with others in the same city -- a situation Sinclair Broadcasting Inc. wants to create in three additional markets as part of a proposed deal. The FCC limits how many TV stations one company can hold in a market to help preserve a diversity of voices.
“These deals are a transparent evasion of those limits,” Andrew Jay Schwartzman, a communications attorney in Washington working with the public-policy group Free Press, said in an interview. Companies set up “a phony license” and keep control and profits, Schwartzman said.
Wheeler’s proposal will go beyond Sinclair’s attempts to add sharing arrangements as part of a $985 million purchase of Allbritton family stations, the people said. Sinclair, based in Hunt Valley, Maryland, pioneered sharing arrangements in the 1990s. It had them in 19 markets at the end of 2012, according to the company’s annual report for that year.
Shannon Gilson, an FCC spokeswoman, declined to comment.
Station sales are booming, in part due to the shared arrangements, as investors chase increased payments from cable providers for network programming. Companies last year proposed TV acquisitions exceeding $11.3 billion in value, compared with $2 billion a year earlier, according to data compiled by Bloomberg Industries.
Shared arrangements help TV stations in smaller markets afford to put on news programming, and to attract bank financing, Rebecca Hanson, a senior vice president for Sinclair, said in visits last week to FCC staff, according to filings.
“They are legitimate business arrangements” approved by the FCC and “do not involve shell corporations,” according to a presentation Hanson presented to FCC officials.
Barry Faber, the broadcaster’s executive vice president, didn’t return telephone calls and an e-mail.
Sinclair in July proposed buying seven stations affiliated with Walt Disney Co.’s ABC network from the Allbritton family and said it expected FCC and Justice Department approval by the end of 2013. In November, Sinclair Treasurer Lucy Rutishauser told investors the company expects approval late in the first quarter of 2014 or early in the second quarter, and cited last year’s federal government shutdown and a backlog at the FCC.
Shared arrangements “provide diversity of voices, more local news, and a stronger funding base for free and local television that competes directly with giant pay-TV conglomerates,” Dennis Wharton, a spokesman for the Washington-based National Association of Broadcasters, said in an interview.
The FCC in December approved deals for buyers Gannett Co. and Tribune Co. that involved sharing arrangements. The U.S. Justice Department required Gannett to sell a TV station in St. Louis to preserve competition for local advertising.
In Sinclair’s Allbritton deal, station combinations proposed in the market areas of Charleston, South Carolina; Harrisburg, Pennsylvania and Birmingham, Alabama, would violate FCC rules, Barbara Kreisman, chief of the video division of the agency’s media bureau that vets station purchases, said in letters to Sinclair’s attorney.
Sinclair will seek to alter deal structures to meet FCC objections, the company said in a Jan. 15 letter from its attorney, Clifford Harrington, of Pillsbury Winthrop LLC. Harrington didn’t return a telephone call.
Sinclair has defended how it structures deals.
“Every transaction we have entered into completely complies with the law and the regulations of the FCC,” Sinclair Chief Executive Officer David Smith said in a statement in October.
Free Press expressed “uninformed views,” Smith said. “We vehemently object to their misguided and offensive claims that broadcasters who simply follow the FCC’s rules are using ‘shell companies’ and ‘shady tactics’ to ‘dodge’ FCC rules.”
Wheeler told an audience gathered by community organizers in Oakland, California, on Jan. 9 that he was considering changes to ownership rules.
“We’re going to do things differently going forward on these, what were called shell corporations up here in one of the presentations,” Wheeler said, according to Broadcasting & Cable magazine.
Republican Commissioner Ajit Pai has said such a rules change would “poison” the FCC’s relationship with broadcasters.
The agency needs TV stations to surrender airwaves for an auction next year to yield frequencies for smartphones, Pai said in a statement Jan. 30.
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