Next week, on August 6, the FCC will be taking the initial comments on its Quadrennial Review of the multiple ownership rules – looking at what limitations should be placed on the ownership of broadcast stations by one individual or company.  As we have written, this Review follows the FCC’s resolution of the last Quadrennial Review, started in 2011, where the FCC made joint sales agreements between TV stations in the same market “attributable interests” – meaning that you can’t enter into a JSA unless you can own that station under the rules.  All of the other issues on the local ownership rules – including whether to change the rules setting the number of radio or TV stations that can be owned in a single market, and whether the rules against the same market cross-ownership of radio and TV stations, and of daily newspapers and broadcast stations should be modified – were pushed back to this new Review, which is not supposed to be finally decided for another two years.  While we wrote about some of the hidden nuggets in this proceeding in defining radio and TV markets here, let’s look a little deeper at some of the other issues involved in the review – today the local TV ownership rules.  In advance of next week’s comment deadline, there has already been much relevant regulatory action this past week – including the FCC’s approval of the Sinclair’s acquisition of the Allbritton TV stations (but only after Sinclair agreed to surrender to the FCC for cancellation TV stations licenses in two markets as its ownership of those stations would not be allowed under the current rules), and a GAO report addressing Shared Services Agreements between TV stations.

Currently, the FCC allows an owner to hold one TV license in a market, except in certain limited circumstances where two can be owned.  An ownership combination is allowed in the normal course only where there would be eight independently owned stations left in the market after the combination, and only where the combining stations are not both Top 4 stations in the market.  The Commission does also allow some combinations where one of the stations is “failing,” but that is looked at only on a case-by-case waiver basis.  Many broadcasters have argued that, particularly in small markets where there is insufficient revenue to support multiple fully competitive stations, greater consolidation should be allowed.  But the Commission has tentatively rejected that idea in its Notice of Proposed Rulemaking in the new Quadrennial Review.  Why?  Seemingly, small market consolidation was not favored on the simple theory that consolidation is bad, and on the hope that, if the FCC forbids consolidation (and stops any sort of sharing arrangement, like the JSAs that it has already prohibited, and the Shared Services Agreements that it has suggested in this proceeding need to be further limited), minorities and other new entrants will enter the market.  Both of this week’s events – the Sinclair acquisition and the GAO report, seem to cut against the FCC’s beliefs.

The GAO (Government Accountability Office) report, prepared at the request of the Senate Commerce Committee, can be found here.  It notes that JSAs and SSAs are far more prevalent in smaller television markets than in large ones.  The report cites broadcasters and financial analysts who attribute that to the revenues in larger markets, where stations can afford to operate independently and still make money.  In smaller markets, the operational costs are not that much less than in the large markets, yet the potential for profit is substantially less, as there simply is not as much revenue in these market.  The GAO study makes that very clear, showing in a chart the difference in revenue in these markets.  Here is the chart:

Click here to view the chart.

As the chart shows, the difference is dramatic – stations in large and small markets barely seem to be in the same business from a revenue standpoint.  Large market stations average 20 times the revenue of those in the smallest markets, and the stations in the top 25 markets average two and a half times the revenues of those stations in the next 25 markets.  With these differences, it’s no wonder that the only way that all but the most dominant stations in small markets can survive with significant program commitments (like news programming) is to combine with other stations in their market.  The Sinclair deal makes that very clear – as Sinclair was unable to find buyers for stations in two markets – Charleston and Birmingham.  When the FCC would not permit them to do any sort of sharing agreement, they simply turned in the licenses.  This prompted Commissioner Pai, who disagreed with the Commission’s decision on JSAs, to ask how the FCC’s interest in promoting consumer choice in programming was fostered by the lessening of the number of stations available in a given market.

Contrary to what the GAO analysis would imply, the FCC’s proposals in this Quadrennial Review suggested that sharing agreements be further restricted.  In fact, the FCC has already implemented an interim policy that effectively prevents many sharing agreements – even before the FCC finishes its Review.  The NAB has challenged that interim policy in Court, so we’ll see whether it will stay in place until the current Review is completed.  But, in this review process, the FCC has asked what kind of sharing should be permitted and what should be prohibited – so interested parties can comment in this proceeding (perhaps even commenting on what the FCC allows and does not under its interim policy that was advanced without clear standards for evaluating any sharing agreements). 

The Commission proposes other rules that would also tighten up ownership consolidation.  While concluding that it does not think that the use of digital multichannels should be regulated or counted against broadcasters in any sort of multiple ownership analysis, it does suggest that, even in markets with more than 8 independent owners, a broadcaster could not combine two stations (one of which is a Top 4 station) and then change the network affiliation of the other station so that it ends up with two different Top 4 affiliates in the same market.

All of these issues and more are on the table for decision by the FCC.  Comments are due next week so, if you are interested in commenting, now is the time.