Spectrum Speculator Agreements Offer Additional Option Around Incentive Auctions for Public TV Stations

Under these deals, an investment company would agree to support the station financially until the time of the auction, said Dow Lohnes attorney Todd Gray, whose noncommercial TV clients have been approached with such offers. In the proposals, “the license remains with the current licensee and there is some sort of ongoing financial support of TV stations’ operations between now and when the auction takes place,” he said. When the auction takes place, proceeds are split between the speculator and the licensee, he said. He said so far his clients haven’t been interested in pursuing such a deal. The main reason seems to be, he said, that “by and large, noncommercial stations are mission-driven enterprises and doing some sort of a deal that offers the prospect of some financial consideration in exchange for giving up the license and ceasing operations doesn’t further the missions of these enterprises."

The deals are an appealing option if a license holder wants to sell its station, said Fletcher Heald broadcast attorney Peter Tannenwald, whose noncommercial station clients haven’t entered into any of these deals so far. With such an agreement, anyone wanting to get out of the broadcasting business faces two questions, he said: “When can they get their money, and are they sure they're going to get it?” Through the speculator deals, a station license holder can know how much it will get and that it would get that money now, he said. “The risk of delay and the risk of auction failure are transferred to somebody else."

LocusPoint, NRJ TV and OTA are the three big speculators that have signed agreements with some commercial and noncommercial stations, said Lawrence Patrick, managing partner at Patrick Communications, which negotiates on behalf of the buyers and sellers in some of the deals. The companies tend to focus on a second or third station in a market, he said. The funding can become like an endowment to help license owners through tough budget times or the potential loss of federal funding, he said. Some NCE stations are worth a considerable amount of money, he said. “If you're a school board or small university and you're the fourth PBS station in the market, what are you really doing if all the others are blanketing the market anyway?"

The Association of Public TV Stations understands that some of its member stations are having financial difficulty, APTS Executive Vice President and General Counsel Lonna Thompson said, referring to cutbacks in state funding. “The licensee may be looking at that as an option,” she said. “I'm sure there are some stations having conversations with some spectrum prospectors. ... We just hope it doesn’t leave a white area where there’s no public TV service. ... That would just be really unfair to the people who are in that community."

In most of the cases, an option on the station is sold and the licensee receives some money up front, then 10 or 15 percent of the auction proceeds over a set number, Patrick said. Another option involves channel sharing between multiple noncommercial educational stations or noncommercial religious stations in a market, he said. Two stations may get together and agree to put one station up for auction and they'll share a channel on the other station, he said. Each station gets 3 MHz instead of 6 MHz “so they can still do their primary programming,” he said. “They share the upside of whatever they can sell the second station for.” In some cases, the speculators “are trying to put those deals together for them to give them some money right now.” There are some PBS, noncommercial Hispanic and black stations or religious stations that are in need of cash, he said.

LocusPoint’s offer to KCSM-TV, San Mateo, Calif., includes funding for operations for up to four years until a spectrum auction occurs, according to the San Mateo County Community College District board of trustees (http://bit.ly/15mJIqF). LocusPoint would provide $900,000 a year and the district would keep 63.5 percent of the auction proceeds, the district said.

APTS still sees channel sharing as a better option for stations looking to participate in the auction, Thompson said. A station can share a channel with another public TV station or a commercial station and they jointly can offer one of the channels into the auction and share the proceeds, she said. The funding can be put back into the programming and services and “therefore, people in the community benefit from that because they get even better programming and services,” she said. Another option is aimed at stations on a higher channel in the UHF band, she said. If a station wants to give up its UHF channel and move to a VHF channel, she said, “the FCC would allow that station to put the UHF channel in the auction and operate fully off the VHF channel."

The Corporation for Public Broadcasting said it’s exploring the potential impact of the auction process on public media’s mission, content service, distribution rights and CPB grant policies. “Ultimately, CPB will be producing a white paper that will inform the CPB Board of Directors, federal and state governments, and the American people as well as offer recommendations to the public media system,” a spokesman said in an email.

APTS put together a spectrum task force that met with LocusPoint and other investment bankers to determine spectrum value, Thompson said. “We wanted to be able to have a sounding board to analyze all these different companies that have been approaching the stations.” As a result, APTS drafted a handbook for stations “to make educated decisions around various opportunities,” including opportunities from the investment companies that may approach them, she said. The decisions on which option is the most beneficial will remain with the stations, she said. APTS wants to ensure that “when they're making those decisions, they have all of the facts,” she said.