Shared TV Stations Face Breakup Under U.S. FCC Proposal

Sinclair Broadcast Group Inc., one of the largest U.S. television-station owners, would be forced to give up some properties it controls under a proposal by Federal Communications Commission Chairman Tom Wheeler, agency officials said.

Wheeler wants to ban, within a specified period, some shared-service arrangements that have let companies avoid a U.S. ban on owning more than one TV station in a local market, said two officials briefed on his plan. They asked not to be named because the proposal hasn’t been made public.

One official said companies including Sinclair, Lin Media LLC and Nexstar Broadcasting Group Inc. would have two years to comply. The other said the duration was undetermined. Some arrangements may be allowed to remain, they said. Shannon Gilson, a spokesman for the FCC, declined to comment.

FCC restrictions could cost Sinclair “some or all” of the $154.2 million in revenue it generated from sharing arrangements in 2013, the broadcaster based in Hunt Valley, Maryland, said in a March 3 filing with the Securities and Exchange Commission. That would be much as 11 percent of Sinclair’s annual revenue.

It’s not fair to require companies to unwind sharing arrangements previously approved by the agency, Rebecca Hanson, a Sinclair senior vice president, said at a Feb. 24 meeting with FCC staff, according to a filing. Barry Faber, Sinclair’s general counsel, didn’t return a telephone call yesterday.

‘Bright Line’

Sinclair’s revenue last year from the type of arrangement the officials said Wheeler is most directly targeting amounted to $36 million, according to the filing. Sinclair reported $1.36 billion in revenue last year.

Sinclair fell 1.9 percent to $29.51 at 10:12 a.m. New York time. Nexstar lost 1.7 percent to $42.84, while Lin Media declined less than 1 percent to $23.09.

Wheeler needs to win a vote to pass the change at the FCC, where he is part of the three-member Democratic majority. The agency’s next meeting is March 31 in Washington.

In the arrangements Wheeler is said to be targeting, a broadcaster owns one station and sells advertising for another in the same city. Defenders say small-market stations would go out of business without such arrangements, while critics say they help evade ownership limits set to avoid dominance of local media by one corporation.

The FCC in 2004 said it allowed the arrangements known as sidecars because control isn’t as complete as ownership.

Clyburn’s Quandary

U.S. Assistant Attorney General William Baer, in a Feb. 20 filing at the FCC, said it’s appropriate to treat stations participating in sharing agreements as being under common ownership. Even where sharing doesn’t cross “bright-line rules,” the FCC should scrutinize arrangements on a case-by-case basis, said Baer, President Barack Obama’s top antitrust official.

At times the arrangements are used “to patently circumvent the ownership rules” the FCC puts in place to prevent a corporation from dominating local broadcasting, Democratic FCC Commissioner Mignon Clyburn said in a Feb. 25 speech.

Clyburn said the issue leaves her in “a quandary” because the arrangements can help pay for news and other local programming in small and medium markets.

Sidecars help new entrants to the broadcast industry and allow stations to serve the local community better, Ajit Pai, a Republican FCC member, said in a blog posting yesterday.

Uncertainty caused by Wheeler’s proposal has caused a decline of 25 percent to 30 percent in the share values of pure-play TV companies active in sharing arrangements in small and mid-sized markets, Perry Sook, Nexstar’s chief executive officer, told FCC officials on Feb. 24, according to a filing.

Justice Cover

Sinclair owns, operates or provides services to 149 stations in 71 markets. It provides non-programming services such as sales and management to 20 stations in 17 markets, and would create shared-services arrangements in three more markets through an acquisition of stations owned by the Allbritton family. That deal is awaiting FCC approval.

The Justice Department’s filing provides “valuable political and substantive support for any restrictions the FCC wants to impose on sidecars,” Paul Gallant, a Washington-based managing director for Guggenheim Securities, said in a Feb. 21 note.

Gallant said it’s not clear how many stations would qualify, “but our working assumption is that a majority of sidecars exist because FCC rules would not permit common ownership of the stations (and thus a majority of sidecars would need to be eliminated),” Gallant said in the note.

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