Changes Under Republican FCC Seen Leading to TV Deal Frenzy

Updated on
  • Sinclair’s Tribune approach may be first consolidation move
  • CBS CEO Moonves says network may also want to buy TV stations

The floodgates for broadcast TV consolidation are about to open, with Sinclair Broadcast Group Inc. and CBS Corp. among the likely buyers in a round of deals that will further concentrate station ownership in the U.S.

Based on preliminary conversations with government officials, broadcasters are drawing up plans for deals under the expectation the Federal Communications Commission will lift ownership limits as soon as April, according to people close to the companies.

Several large media companies, including CBS and independent broadcaster Sinclair, are up against U.S. rules that limit the reach of station owners to 39 percent of the country and need reform if they want to expand geographically. Sinclair has already approached Tribune Media Co. about a possible tie-up, people with knowledge of the matter have said.

“We think a purchase of the entire company is not just possible, but most likely -- albeit a bit complicated,” said Marci Ryvicker, an analyst at Wells Fargo Securities.

As a first move, the FCC may reverse a decision last year that pushed some station groups over the 39 percent national limit. That change in calculating audience reach left some broadcasters unable to buy more stations or to sell to competitors who were also near or over the limit. Restoring the old methodology would open the door. FCC Chairman Ajit Pai is appearing before a Senate committee Wednesday in Washington.

“We’re very optimistic about this new FCC,” Christopher Ripley, Sinclair’s chief executive officer, told investors on a Feb. 22 earnings call. “We definitely anticipate that more consolidation will happen.”

Broadcasters have argued for a while that station groups “need to get bigger,” said Paul Sweeney, an analyst with Bloomberg Intelligence. “They say their competitors aren’t just the other stations anymore. It’s the skinny bundle, it’s the YouTubes.”

At, Near Cap

Companies at or near the cap include Tegna, Tribune Media, CBS, Nexstar Media Group Inc., 21st Century Fox Inc., Sinclair and Univision Holdings Inc., according to Sweeney.

The impetus for merger talks came last month when the FCC separately eased confidentiality requirements for companies selling airwaves in an ongoing auction. TV stations are voluntarily giving up airwaves in the sale for use by mobile providers, and are getting paid for doing so.

Sinclair, based in the Baltimore suburb of Hunt Valley, is pocketing more than $300 million from those sales, according to its annual report, and agreed this week to sell its alarm business for $200 million. The company also said late Wednesday it plans to sell up to 13.8 million shares of Class A stock, worth almost $575 million at current prices.

Sinclair and Chicago-based Tribune are uniquely suited to combine because there’s little overlap in the locations of their stations, said the people. Sinclair has 173 stations in 81 markets, including affiliations with Fox, ABC, CBS and NBC, and reaches 38 percent of U.S. TV homes, according to its annual report. Tribune has 42 stations reaching 43 percent.

Major Markets

CBS Chief Executive Officer Les Moonves said last month he, too, would be interested in acquiring more TV stations.

“Our major market television stations are playing a bigger and bigger role in our success,” he said on a call with analysts. “We would strategically want to buy some more stations because we think it’s important.” CBS owns 29 stations in 17 markets, covering 38 percent of U.S. TV households, and is interested in buying stations in the top 15 markets.

Other likely participants in a new merger wave include recent spinoffs, according to Sweeney. Tegna use to be part of Gannett Co., while Tribune Media was previously joined with the owner of the Chicago Tribune and Los Angeles Times. The recent growth in retransmission fees -- funds that station owners collect from pay-TV distributors like DirecTV and Comcast -- has turned some broadcasters into buyers. Sweeney puts Nexstar, with 171 stations, and Gray Television Inc., with outlets in 54 markets, in that camp.

“The buyers are the ones that have kind of identified themselves as big believers in television,” Sweeney said.

Opposition Ready

Attempts to weaken ownership rules will provoke opposition, said Todd O’Boyle, program director for the Media and Democracy Reform Initiative at the policy group Common Cause. An FCC bid to relax rules under a Republican chairman in 2003 resulted in more than 1 million comments from individuals opposing the rules.

“Deregulating away all of the common-sense media concentration limits, and allowing local media monopolies would be a huge step in the wrong direction,” O’Boyle said in an interview. Diverse ownership is needed to offer communities a variety of viewpoints, including competing newsrooms, he said.

FCC Chairman Pai, who’s been nominated for a new term at the agency, has targeted several reforms that could stoke deal activity.

He objected last year as the agency changed the counting method and left unchanged most other media ownership rules, saying that regulations “stuck in the 1970s” need to be updated. He criticized curbs on common ownership of the top stations in a market, rules barring ownership of a broadcast station and nearby daily newspaper, and limits on cost-sharing between stations with different owners.

Pai hasn’t publicly indicated when he may move to change the rules, and Neil Grace, an FCC spokesman, declined to comment. At a Senate hearing on Wednesday, Pai said an appeals court had told the agency “that some of these regulations are no longer necessary.” The FCC wants to act consistently with the court’s instructions, Pai said without offering details.

“Most Americans don’t wait for the morning newspaper or the 11 p.m. newscast to learn what’s going on around the globe or at home,” Pai said last August. “That world set sail with ‘The Love Boat.’”

— With assistance by Lucas Shaw

(Updates with Sinclair raising money in 10th paragraph.)
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