The Justice Department said Monday that it will require Gannett, Belo and Sander Media LLC to completely divest CBS affiliate KMOV-TV St. Louis as a condition of Gannett's acquisition of Belo.
Justice said that without that spin-off, Gannett would have had a dominant position in spot advertising in the St. Louis market, leading to higher ad prices. Gannett had planned to spin-off KMOV and five other Belo stations to Sander that would have run afoul of FCC local ownership limits. But Gannett also planned to provide some services to the Sander stations, including KMOV, where Gannett owns KSDK-TV, the NBC affiliate in St. Louis. Gannett agreements in Belo markets where it has newspapers would include joint sales, though not in St. Louis, where both Belo and Gannett own stations.
But even without that joint sales ageement, Justice said, in the case of KMOV, the joint agreement would have reduced competition for ad rates and that a complete divestiture was necessary given the mix of joint sales, operating and purchase options the deal entails.
"Even though the two stations would maintain separate sales forces, the various agreements between Gannett and Sander, KMOV-TV's new owner, would align the incentives of the two stations," Justice said. "To remedy this harm, the proposed settlement requires Gannett, Belo and Sander to divest all assets primarily used in the operation of KMOV-TV to an independent purchaser to be approved by the United States. That purchaser will not be permitted to have any agreements with Gannett concerning KMOV-TV that could limit competition with KSDK-TV, including options to acquire or assign, financing agreements and shared services or joint sales agreements."
"Gannett’s KSDK-TV and Belo’s KMOV-TV compete head-to-head in the sale of broadcast television spot advertising in the St. Louis area, and this rivalry constrains advertising rates," said Bill Baer, who heads up Justice’s Antitrust Division. "The full divestiture required by the department will ensure that KMOV-TV will remain a vigorous competitor in St. Louis."
The Justice move could potentially signal its approach to the Sinclair/Allbritton deal or others involving station spin-offs that include joint operating agreements. If so, it would be a victory for cable operators who argue joint sales and operations agreements are a way to skirt local ownership rules and allow broadcasters to unfairly combine for retrans negotiations, although Justice pointed out that the Gannett ageements did not include sales or retrans negotiations in markets with both Gannett and (forrmely) Belo-owned stations.
Certainly, Free Press policy director and anti-consolidation activist Matt Wood was hoping that was the sign, calling it the "first step in stopping broadcasters from using shell companies to consolidate" and calling on the FCC to "close the loophole." The FCC has been considering whether to make joint operating agreements attributable under its ownership rules.
“This is a great step, but there is far more for the DoJ and the FCC to do," said Wood. "The rest of the station acquisitions in the Gannett-Belo deal, and in several other transactions proposed by Tribune, Sinclair and others, deserve the same careful scrutiny and the same fate."
"The Transaction would eliminate or greatly reduce the head-to-head competition between KSDK-TV and KMOV-TV in St. Louis and so eliminate or greatly reduce the benefits of that competition," said Justice. "Unless blocked, the Transaction is likely to lead to higher prices for broadcast television spot advertising in the St. Louis DMA in violation of Section 1 of the Sherman Act and Section 7 of the Clayton Act, 15 U.S.C. §§ 1 and 18."
The FCC is still vetting the Gannett's proposed $2.2 billion purchase of the Belo stations.