The FCC yesterday announced a consent decree with Media General by which Media General agreed to pay a $700,000 “settlement payment” to the US Treasury to settle the investigation of its attempts to enforce the provisions of a Joint Sales Agreement with Schurz Communications. Media General had tried to enforce the JSA when Schurz tried to terminate that agreement in order to sell its station to Gray Television. Media General tried to get an injunction from a state court seeking to stop the sale, continue the JSA, and prevent Schurz or Gray from putting the station into the incentive auction. As we wrote here when the case first arose, the FCC wrote to the court, contending that the injunction would not only violate the conditions placed on the sale by the FCC (that the Schurz station be sold before the Gray deal could close) but, more importantly for the general broadcast community, that the restrictions on the sale of the station, and its participation in the incentive auction, were improper restrictions on the control rights of the licensee. Essentially, the FCC was saying the licensee’s right to sell the spectrum it had was not one that could be conveyed to a third party. The FCC even stated its intention to initiate a proceeding to determine whether Media General’s FCC licenses should be revoked.
What we wrote when the case came out, and what we wonder now, is what the FCC considers the degree to which a licensee’s ability to sell its spectrum can be limited by contract or agreement. Yesterday’s release provides no guidance, as it was simply a settlement agreement. The consent decree recites what the FCC was initially concerned with, but Media General did not admit any liability, and the consent decree does not reach any conclusion as to the actual basis of the settlement payment. So it is conceivable that the FCC was actually only worried about the attempts by Media General to require that the station be kept and the JSA stay in place, even though the FCC ordered that it end. It may not have been a case dealing principally with control at all, but instead one dealing with grandfathered JSAs and whether those JSAs can stay in place after the sale of one of the television stations involved in the arrangement. Otherwise, if the case was really about putting limits on the degree to which contracts can limit the ability of a licensee to sell its station, that issue could have had much broader implications than the FCC may have intended.
Perhaps this is simply the FCC’s desire to avoid limits on station’s participating in the incentive auction – the situation actually involved in this case. Perhaps it is just an extension of the FCC’s general proposition that LMAs and JSAs cannot be specifically enforced, as the licensee needs the unfettered ability to decide what programming it broadcasts in the public interest, and to substitute other programming that it decides better serves the public even if it means breaching the provisions of an LMA or JSA. While the programmer may be able to collect monetary damages reasonably related to the actual loss that it suffered from the premature termination of the agreement, the FCC’s actions suggest that the programmer cannot specifically enforce its rights.
But if there is a broader proposition involved, that limits any contractual restrictions on the ability of third parties to enforce voluntary agreements limiting a licensee’s ability to sell a station, it could reap havoc on all sorts of normal business arrangements. Lenders, option holders and others may worry if the rights that they hold under an agreement really will be binding if the licensee refuses to perform as agreed. If this broader proposition is involved, the FCC should make that clear before it starts enforcing such a policy through penalties like the amount involved in this case (paid presumably not only to remove any chance of a license revocation proceeding, but also to lift any potential delay that the final resolution of this matter could have on Media General’s own ability to sell its stations to Nexstar, presently pending at the FCC).