2018 Quadrennial Order Murky on 'Undue Influence,' Attorneys Say
Provisions in the 2018 quadrennial review order could inject uncertainty into negotiations between broadcasters and networks, several broadcast attorneys told us. The order’s extension of the top-four prohibition allows networks to switch an affiliation from one station to another even if that would create a same-market duopoly but only as long as there isn’t “any undue direct or indirect influence from a broadcast entity.” Attorneys told us it isn’t clear what constitutes undue influence. The QR "creates more confusion," said Rob Folliard, Gray Television senior vice president-government relations and distribution. “You can’t have a transaction where there’s confusion.”
Sign up for a free preview to unlock the rest of this article
Export Compliance Daily combines U.S. export control news, foreign border import regulation and policy developments into a single daily information service that reliably informs its trade professional readers about important current issues affecting their operations.
The FCC said the 2018 QR order “does not inhibit organic growth, expansion, or changes in station programming, nor does it impact affiliation changes initiated by a network itself.” In the order the FCC provided an example of a network choosing to move its affiliation from one station to another “perhaps because the network is no longer satisfied with the existing affiliate station and the other station has demonstrated superior operation.” Yet the example "presumes that network affiliation is just some sort of gift of programming,” said Pillsbury broadcast attorney Scott Flick in an interview. “It is not. It is a programming contract.” Contracts require negotiation, Flick said, and it isn’t clear how the order views such negotiations. “If, during the negotiations, the station agrees to programming payments that the network finds acceptable, has the station improperly ‘influenced’ the network to grant it the affiliation?” wrote Flick and Pillsbury Broadcast attorney Jessica Nyman in a blog post. The FCC declined to comment.
Attorneys told us that the order likely wasn’t intended to chill networks’ ability to switch affiliations, but uncertainty about what is permitted could mean “no one is going to do it,” Gray's Folliard said. The FCC’s enforcement action against Gray over purchasing a network affiliation swap (see 2301040059) demonstrates that the agency is willing to punish broadcasters over “a good faith misreading of the rules,” Folliard said. The FCC has argued Gray should have known that deal was against the rules, and the 2018 QR explicitly limits such transactions. Broadcast attorneys told us that even if the order permits negotiations with networks over affiliation switches originated by the networks, the agency would likely have to conduct investigations of communications between the network and broadcaster to establish that no undue influence took place. Such probes also would likely have a chilling effect on dealmaking, attorneys told us. Network-initiated switches of a station's affiliation, though, are not the most common transaction, Folliard conceded.
In addition, the order is murky on the process for seeking case-by-case authorization to put a top-four affiliation on a multicast stream or low-power TV station, Flick and Nyman wrote. The order points to the availability of case-by-case permission for top-four combinations as the method for broadcasters in smaller markets that don’t have enough full-power stations to seek relief. “It was hoped that the FCC would announce rules outlining specific cases where combinations of two of the top 4 stations would be allowed -- but the FCC left the decision to be made on an ad hoc basis,” said Wilkinson Barker broadcast attorney David Oxenford in his own blog post. The order doesn’t “specify the procedures for seeking (or challenging) such determinations, nor does it indicate how long such consideration may take,” the blog post said. That creates “potential problems in achieving the certainty broadcasters and networks need to get programming deals done,” Flick and Nyman said.