The Federal Communications Commission on Friday approved two multi-billion dollar TV station group deals, and in both upheld the use of joint sales and shared services agreements by big station groups seeking to have a role in the operation of multiple stations in markets where direct ownership of more than one outlet is restricted.
The FCC cleared Gannett Co.'s proposed $2.2 billion acquisition of Belo Corp.'s 20-station TV group, including proposed side deals in which Gannett will sell five stations to either Sander Operating Co. or Tucker Operating Co. but continue to provide them sales and support services. Those stations are in St. Louis; Louisville, Ky.; Portland, Ore.; Phoenix; and Tucson, Ariz.
The commission also approved the $2.72 billion purchase of Local TV LLC by Tribune Co., which is expanding its presence in TV station operations as it emerges from bankruptcy. Tribune will acquire 16 Local TV stations in 14 markets across the country and transfer broadcast licenses for three Local TV stations in Wilkes-Barre, Pa., and Norfolk, Va., to Dreamcatcher Broadcasting LLC.
In both cases, the larger station groups will provide services to the spunoff stations.
The FCC's decisions uphold the use of joint sales and shared services agreements, which critics complain allow big TV stations to circumvent the FCC's local ownership limits.
Gannett said it expects to close the Belo transaction early next week.
The FCC's rulings are good news not just for Gannett and Local TV, but also for Sinclair Broadcast Group Inc. and its $985 million plan to buy the eight television stations owned by Allbritton Communications Co. That deal would put Sinclair over the FCC's ownership cap in three markets where it already has stations -- Charleston, S.C., Birmingham, Ala., and Harrisburg, Pa. -- so Sinclair plans to spin off those outlets to Deerfield Media Inc. and Howard Stirk Holdings LLC while still providing services to those stations.
The FCC in early December asked Sinclair to revise plans for financing those three stations or withdraw their license transfer applications. Opponents of media consolidation were heartened by the FCC request but Sinclair officials have said that FCC requests to revise deal structures are common and that they don't expect the FCC request to pose a problem for the Allbritton deal.
A plan for revising FCC media ownership rules floated by previous chairman Julius Genachowski would have barred joint sales and shared services agreements in many small markets by counting them as duopolies, but he could not muster enough votes to pass the revisions, which would have relaxed some other FCC ownership restrictions.
Groups opposed to media consolidation had asked the FCC to forbid Gannett and Tribune from continuing to have a role in the stations divested to Sander and Dreamcatcher. Free Press, one of those groups, issued a statement criticizing the FCC's decisions.
Free Press president Craig Aaron noted that the deals involved 40 stations across the country. "The FCC has ignored runaway media consolidation for too long," he said. "There was no good reason to let that trend continue with these mega-mergers. These kinds of deals shutter newsrooms and silence competing viewpoints, harming local service, diversity and competition in media markets across the country."
Free Press had asked the FCC to prohibit the transactions in the eight cities because Gannett's and Tribune's control of multiple TV stations and other news outlets would violate the FCC's media ownership limits.
Free Press said Sander, Tucker and Dreamcatcher are "shell companies" that will actually be under the de facto control of Gannett and Tribune, respectively.
"Gannett and Tribune use shell companies, shady arrangements and accounting tricks to keep total control over broadcast licenses they can't hold in their own names," Aaron said. "They brag to investors and Wall Street analysts about how they can dodge the FCC's cross-ownership limits and get away with it."
But the FCC found that the agreements Gannett and Tribune will have with Sander and Dreamcatcher are in line with similar arrangements the FCC previously has approved. The bright line test the FCC imposes when deciding whether these types of agreements result in de facto control is whether one station operator supplies 15% or more of the other operator's programming. In neither of these instances will Gannett or Tribune be supplying programming.
"The parties to this transaction have relied on an expectation, generated by prior decisions in the broadcast context, that conformity of individual elements of the transaction to our rules and to other transactions previously approved would warrant approval here," the FCC said in regard to the Belo deal. A similar explanation was provided in the commission's order approving the Local TV acquisition.
Free Press complained that the FCC's rationale contrasted with a Department of Justice ruling on Dec. 17 requiring Gannett to divest KMOV-TV, Belo's CBS affiliate in St. Louis, to a buyer other than Sander as a condition of acquiring Belo.
Under DOJ policies, providers of sales and shared services are considered to have an attributable ownership interest in the receiving stations. As a result, the DOJ found that because Gannett already owns KSDK-TV, the NBC affiliate in St. Louis, buying KMOV would allow Gannett to gain a dominant position in broadcast television spot advertising in the St. Louis area, resulting in higher prices for advertisers.
Aaron said that the DOJ wasn't fooled by the "fiction" that Sander is anything other than a shell company for Gannett. "The DOJ recognized that Gannett and other big broadcasters are really in control of their so-called sidecar companies," he said.
But supporters of joint sales and shared services agreements said that, although the DOJ has tougher standards for attributing ownership in a TV station, it has a looser threshold for permitting multiple ownership in a market. So, even though it attributes ownership to providers of those services, it won't ban involvement in the operations of more than one station unless the combined stations control 50% or more of the market's TV ad revenue.
Geoffrey F. Aronow joined Sidley Austin LLP as a partner in the global securities and derivatives enforcement and regulatory practice. For other updates launch today's Movers & shakers slideshow.
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