FCC

Media Bureau Will Scrutinize Sharing Deals

On Delegated Authority, Bureau Issues Guidance on How Deals Will Be Viewed 3/12/2014 10:48 PM Eastern

In case anyone missed it when FCC Chairman Tom Wheeler signaled the FCC would start looking at sharing agreements on a case-by-case basis, the Media Bureau put an exclamation point on it Wednesday (March 12) in a public notice essentially providing notice that henceforth, in reviewing license transfers or assignments with associated financial agreements, it would scrutinize all sharing arrangements based on how they operate and the incentives they create.

The notice (http://transition.fcc.gov/Daily_Releases/Daily_Business/2014/db0312/DA-1...) was issued around 5:30 on Wednesday.

The Media Bureau, which is taking the action under its delegated authority, so the commissioners don't get to vote on it, said it will look at deals on a case-by-case basis, but suggested unless applicants prove that they are arms-length deals, it could be a high hill. The bureau said it was not creating new underlying rules of policies, "but we owe it to the interested public to share our concern that such a combination of operational and financial relationships raises issues of consistency with our rules and policies, which will have to be considered carefully in our public interest review," said Bureau Chief Bill Lake in a statement.

In essence, the bureau is signaling that technical nonviolation of rules is not a free pass if it concludes that a deal's terms and conditions are not in the public interest.

The Bureau said that in its ongoing review of proposed transactions involving sharing arrangements--Sinclair's proposed station purchases are among those being scrutinized, but the bureau only cited the Gannett/Belo deal in providing background--it said it had identified a "concern" that a broadcaster that has a sharing deal as well as a financial interest, such as an option to purchase a station or guarantee financing, may be assuming "a degree of operational and financial influence that deprives the licensee of the second station of its economic incentive to control programming."

"For example," said the bureau, "an assignable option to purchase a station at less than fair market value may counter any incentive the licensee has to increase the value of the station, since the licensee may be unlikely to realize that increased value. Also, the compensation provisions of agreements to share facilities and employees, to jointly sell advertising, and to jointly acquire programming, can be structured such that the licensee of the station bears little or none of the risks and reaps little or none of the rewards for the performance of the station."

The bureau will scrutinize any any agreement that proposes two or more stations in a market will: "(1) Enter into an arrangement to share facilities, employees, and/or services or to jointly acquire programming or sell advertising, including a Joint Sales Agreement (JSA), a Local Marketing Agreement (LMA), or any other agreement or arrangement (written or oral) that would have the same practical operational or financial effect as any of these agreements."

NAB did not like the looks of the notice.

“NAB will carefully review this Public Notice, but on first blush it raises very serious procedural and substantive concerns," said NAB spokesman Dennis Wharton. "We would also note that in a world of massive consolidation by pay TV behemoths, the FCC seems unduly focused on sharing arrangements by two TV stations offering programming FOR FREE [emphasis theirs] in markets like Topeka and Tupelo. We appreciate the strong statements from both Commissioners Pai and O’Rielly and will continue to make the case that broadcaster sharing arrangements are in the public interest.”

Both Pai and O'Rielly have argued that sharing arrangements have public interest values the FCC seems to be missing. That point was driven home by NAB TV Board Chair Marci Burdick at a House hearing Wednesday, where she said sharing arrangements at her stations had created more news, more jobs, and more public service.

FCC Chair Tom wheeler has said there will be a wavier process for sharing arrangements that can demonstrate that, but the onus now appears to be on broadcasters.

“I must disagree with the Media Bureau’s Public Notice issued today on both process and substance," said O'Rielly. On process, the item appears to set forth a new policy and, therefore, should have been voted by the Commission, rather than on delegated authority. Moreover, the issue of delegation is a recurring and troubling one. On substance, this guidance presupposes the media ownership item to be voted later this month and may deter future transactions that could increase local news and other beneficial diverse programming for communities.”

Pai took issues with the bureau's assertion it was not setting policy. He says he objected to the notice, but was told it "merely clarified existing Commission policy. It does not."

T"he Public Notice does not cite any Commission (or even Bureau) precedent involving both a sharing agreement and a contingent financial interest," said Pai, "and for good reason. In response to a request from my office, the Bureau was unable to cite any order where the Commission or the Bureau denied a license transfer because the transaction involved both a sharing agreement and a contingent financial interest. To the contrary, the Bureau has issued numerous orders approving such transfers."

"Indeed, just three months ago, the Bureau explained: “The Commission has approved applications for consent to television station transactions involving a combination of joint sales agreements, other types of shared services agreements, options, and similar contingent interests and guarantees of third-party debt financing, and has found these cooperative arrangements not to rise to the level of an attributable interest.” It is impossible to square what was said then with what is being said now.