DOJ Asking FCC to Attribute TV JSAs Seen Helping Wheeler Get Votes for Ownership Evasion Crackdown

Wheeler is seen as keen to crack down on JSAs and other types of arrangements that allow a broadcaster to essentially control multiple stations in a market without owning them, since ownership is limited in each market, said agency and industry officials. Broadcasters continue lobbying the agency against such attribution, and the matter is getting considerable attention at the FCC, said a commission official. NAB in a written statement and broadcaster officials in interviews Friday opposed the FCC crackdown. “Joint sales agreements allow local TV stations that might otherwise go out of business to increase local news and community service, and to provide robust competition to pay TV giants,” said an NAB spokesman (http://bit.ly/1nUjkI5). “NAB is disappointed with the Justice Department’s conclusions, which we believe could kill jobs and damage the economics of local broadcasting."

Commissioner Mignon Clyburn is thought to be on the same page as Wheeler or nearly so when it comes to JSAs, said some industry officials. They said she may be inclined to approve the forthcoming order and FNPRM from the Media Bureau that would restart the stalled 2010 quadrennial media ownership review and require JSAs be attributed when a station brokers more than 15 percent of another’s ad time. Justice’s filing might also help Wheeler get Commissioner Jessica Rosenworcel, whose views are perhaps less well known on media ownership, to back what Wheeler seeks, said agency and industry officials. A bureau spokeswoman declined to comment.

The FCC Republicans probably will oppose any items seen as anti-JSA, so Justice may not much affect their votes, said industry officials. Mike O'Rielly in a blog post last week (http://fcc.us/1cpYn5P) (CD Feb 20 p13) touted JSAs and shared services agreements (SSAs), and Ajit Pai has backed some of them (CD Feb 8/13 p1). The offices of Clyburn, O'Rielly, Pai and Rosenworcel had no comment for this story.

"Especially in small and mid-sized markets,” TV stations have used JSAs and SSAs “to streamline certain overlapping functions in order to increase efficiencies and reduce costs,” wrote O'Rielly on the FCC’s blog. “While critics voice concern that that JSAs and SSAs are ‘covert consolidation'” there’s “evidence of significant benefits from these arrangements, including saving stations from going dark, adding diverse voices to a market, and enabling local news where it would otherwise be cost prohibitive.” The FCC without codifying such arrangements has sanctioned them in deals, noted O'Rielly. “Cooperative arrangements that should be analyzed like mergers have become relatively common in the broadcast television industry,” wrote Justice in a filing signed by Antitrust Division officials including Assistant Attorney General William Baer and Chief Counsel-Competition Policy Terrell McSweeny, a nominee to become an FTC member.

Helicopter Sharing v. Sidecars

Justice’s filing spoke of potential harms and benefits from such pacts, said broadcast lawyer David Oxenford of Wilkinson Barker. “There has been a pronounced trend toward one station controlling another station that is nominally owned by a separate entity, often called a ’sidecar,'” wrote Justice. “Our investigations have revealed that these ’sidecars’ often exercise little or no competitive independence from the other station. Indeed, the extent of cooperation and integration with ’sidecars’ is so extensive that some television station ownership groups even consolidate the financials of affiliated ’sidecars’ in their securities filings.”

Deals between two stations to share expensive equipment like helicopters may benefit consumers when each station couldn’t buy it on its own, said Justice. “If the two stations added to their helicopter-sharing agreement an agreement also to set advertising prices jointly -- even those that are unrelated to the helicopter news segments,” the ad deal likely is “per se illegal because joint pricing is not reasonably necessary to realize the benefits of sharing the helicopter,” said Justice in an ex parte filing in docket 09-182 on a 2012 notice of inquiry for the 2010 quadrennial review. “To avoid being deemed per se illegal, activities such as joint advertising sales or joint retransmission negotiations would have to be shown to be reasonably necessary to some other efficiency-enhancing combination of the operations of the stations.” Multichannel video programming distributors have been asking the FCC to crack down on such retrans negotiations, which broadcasters defend, and some MVPD groups Friday cheered DOJ’s filing.

Oxenford said Justice’s filing recommends evaluating non-JSA TV station resource-sharing deals on a case-by-case basis. Justice says “these deals, as they are between two potentially competitive stations, can be anticompetitive, but also recognize that they can create efficiencies,” said the attorney. “These deals, because of the efficiencies that they create, when judged by a rule of reason test, can be found to be OK. But the DOJ’s pleading does no marketplace analysis at all, and does not address whether, in small and medium size markets where so many of these deals exist, the combinations actually end up creating better stations and better service to the public” and rivals by efficiencies, said Oxenford. “The pleading only says that these deals should be reviewed -- which the FCC already does. The pleading does not pretend to fully evaluate the benefits that the DOJ itself recognizes can be created by some of these deals, and it does not try to balance these benefits against any lessening of competition that might result.”

Wheeler gets a boost from DOJ in limiting JSAs, said analysts in interviews and research notes to investors Friday. It’s “important backing for new FCC limits and a probably reasonable proxy for what” the agency “will actually do on sidecars,” wrote Guggenheim Partners’ analyst Paul Gallant. “We suspect the FCC will vote at its March 19” meeting “whether to cut back on sidecar arrangements,” he added. “This could be a concern for broadcasters like Sinclair, Nexstar, etc. that use sidecars to create additional value.” It appears DOJ’s filing didn’t “show up out of the blue but was coordinated at some level with the FCC” and so “probably provides a framework for what the FCC will do,” wrote Gallant. He forecast JSAs will be phased out after two years if participating stations couldn’t be held commonly under ownership rules, and the FCC would require TV stations submit for review all other resource-sharing sidecar deals. “FCC will then decide whether each SSA can be continued or must be eliminated,” said the analyst.

DOJ “should strengthen Chairman Wheeler’s hand” in “anticipated action on this front in the very near future,” Medley Global Advisors’ Jeff Silva told us. “Whether it’s weighing in on JSAs and SSAs relative to media ownership or spectrum holdings relative to upcoming auctions, DoJ input is highly significant in the rulemaking process and thus can serve as a guide to where the FCC may be headed on these and other matters.” Silva and a broadcast industry official said they wondered if more stations could decide to let the FCC auction their frequencies in the incentive auction, because of restrictive JSA and other rules.

DOJ “rightly recognized that the alphabet soup of arrangements” -- of JSAs, SSAs, local news service agreements “and whatever other clever monikers that broadcasters dream up -- destroy competition when they place two or more stations in a market under common control,” said Free Press Policy Counsel Lauren Wilson. “Yet, as the DoJ notes, the FCC has failed to review these arrangements and broadcast deals in the same way that it has evaluated cellular, telco and cable transactions.” To American Cable Association CEO Matt Polka, among those seeking retrans reform, he said that “the obvious conclusion, supported by the DOJ filing, is that the FCC should deem the coordination of either advertising sales or retransmission consent negotiations as per se attributable under the media ownership rules.”