FCC

Sinclair to FCC: We're Priming Divestiture Pump

But says specifics await DOJ conditions, FCC moves that could change equation 10/05/2017 8:39 PM Eastern

Sinclair has told the FCC it is taking steps to spin off whatever stations it will need to  comply with national or local ownership limits on its proposed $2.9 billion merger with Tribune, but that it is not identifying them pending possible DOJ input of FCC rule changes that could change the plan.

If the FCC loosens its ownership rules that could also affect the plan, but Sinclair was focused on answering the FCC's questions about how the deal is currently being structured.

There are 10 markets where a combined Sinclair-Tribune would run afoul of FCC prohibitions on owning two stations in a market, and the deal, even with the UHF discount that means only half a UHF audience's station would count, would result in a 45%-plus national audience reach without some spinoffs -- the current cap is 39%.

Sinclair was responding formally to an FCC Media Bureau request that the broadcaster back up a number of its pledges to bring its proposed $3.9 billion purchase of Tribune stations within the FCC's current media ownership rules, including the duopoly and national ownership cap, as well as Sinclair's explanation of the public interest benefits of the deal. Such further requests in merger reviews are not unusual.

The broadcaster did tell the FCC it did not plan to make any immediate changes in station-level staffing until it looks at each station individually. But Sinclair did say it would bring on as many as 90 new hires to beef up Tribune's online presence.

RELATED: Court Won't Block UHF Discount's Return

The filing did not identify which stations it would divest, mainly because some divestitures may be required by the Justice Department's antitrust review of the deal, which could affect the plan. DOJ also had a second request for information, which Sinclair is responding to on a rolling basis. Sinclair is hoping DOJ will complete its review by year's end. The FCC would likely follow soon after--DOJ usually goes first.

But to demonstrate to the FCC it was indeed proceeding with possible sales related to the national and local ownership limits--rather than banking on the FCC loosening the rules and potentially obviating the need--Sinclair says it has employed a station broker, Moelis & Co., to advise it on potential station sales and that Moelis has contacted a number of potential buyers, both broadcasters and investment types.

Sinclair suggests it is not unusual not to zero in on specifics at this stage--as many deal critics were pushing for--but signaled it was priming the pump by getting Moelis involved and due diligence moving.

Sinclair did get into some numbers--programming hours added, dollars it will spend--but those were redacted from the public filing. It invested $40 million when it bought the Allbritton and Fisher stations and a source speaking on background said a multi-million dollar investment in Tribune stations was a safe bet.

The broadcaster listed categories of public interest benefits--more investment in programming or equipment, for example--but saved the specificity for after it acquires the stations, saying where and how it would invest will vary by station. Sinclair identified opportunities to add more hours and share programs--Sinclair's Full Measure will air on Tribune stations and it plans to replace some paid programming with Tribune's Morning Dose public affairs show in some of its markets including Milwaukee, Pittsburgh, and Buffalo.

READ MORE: 'Underground' producer blames Sinclair for WGNA show's exit

The company also said the merger would give it a critical mass to ramp up programming. "[B]ecause the transaction will expand Sinclair’s congruous stations (e.g., stations like CWs and MYNetworkTVs that have similar programming needs across multiple markets) from about 20% of the country to 53%,9 Sinclair will be able to reach a critical mass that can significantly reduce the financial risk of producing original content," it told the commission.

Sinclair also talks about expanding its high school sports show to Tribune markets, as well as town halls and its "Connect to Congress" initiative.

Sinclair does not lay out, and says it does not have, a station-by-station plan, indicating it will add the investments in sports programming or investigative journalism where needed. But it does provide a glimpse through some examples.

"Sinclair believes the large markets specifically present opportunities for expansion of local newscasts, although it has not yet completed its review of the Tribune markets for purposes of making final programming decisions," it said. "Tribune’s WPIX station in New York currently runs local news from 5:00am until 9:00am.

Sinclair sees an opportunity to expand its newscast to 11:00 am, adding an additional two hours. In Washington, D.C., Sinclair plans to expand Tribune’s WDCW’s 7:00pm and 10:00pm newscasts to a full hour from their current half hour runs. In St. Louis, Sinclair plans to expand both morning and evening newscasts, by adding a 4:30am, 6:00pm, and 10:00pm newscast. Sinclair has not yet identified opportunities to expand local newscasts in Chicago or Los Angeles, but intends to explore such opportunities and will look to leverage the strength of those markers. Sinclair also sees an opportunity to launch news on its MyNet station, WTVZ-TV, at 10:00pm in the Norfolk market."

The FCC had asked how the deal would benefit MVPDs, as Sinclair had claimed. The answer, according to the filing: "Sinclair will be able to invest more money into its programming, to improve its multicasts, and to better target its programming to local markets, thereby providing greater value to MVPDs and their subscribers. Economies of scale make specialized programming possible that would otherwise not be financially feasible. The increased footprint from the Transaction would make it more cost effective for Sinclair to launch more digital networks which are generally provided to MVPDs and their subscribers completely for free." The filing also said the deal will likely reduce MVPDs' "negotiating costs," but did not elaborate.

The lack of specificity, whatever the reason, is not likely to assuage media consolidation critics who were themselves primed to push back on Sinclair's defense of the deal.

Sinclair announced the merger in May, calling it a "transformational acquisition."

The FCC is currently on day 91 of its vetting of the merger. It sets itself an informal 180-day shot clock on deals, but has honored it in the breach as well as the observance.

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