Sinclair, the FCC and Things Going Wrong—But for How Long?

Talk about a curveball. Last week, FCC Chairman Pai struck a potentially fatal blow to a deal that President Trump favored, the proposed merger of Sinclair Broadcasting and Tribune Media.

If it had gone through, the deal would have had a major adverse impact on future election cycles, making Sinclair the king of the hill with unfettered capabilities to control political advertising and messages across all of its stations.

The FCC’s move was baffling because, ever since Pai became the FCC Chair, he took actions that greased the skids for the deal to go through. They were unambiguous. One, his FCC rescinded the Obama-era rules on service agreements—where one station controlled another without transferring the license. These “legal fictions”, as former FCC Chair Wheeler called them, got around ownership restrictions. Two, Pai reinstituted a rule (the UHF discount) to allow stations to count fewer of its audience against the cap of the US television households that anyone broadcaster could reach. Three, Pai undid a rule that required stations to have a studio in the locations they served. All of these actions serve Sinclair’s (and anybody else’s) consolidation plans perfectly. All of them drew the ire of media reformers.

But Pai abruptly changed course, at least for the Sinclair deal. He said that Sinclair’s proposed plan for consolidation would violate the law because Sinclair would retain control over stations even if it said it would not. Yes, the same “legal fictions” that a rule Pai rescinded a year ago was designed to combat. But, if Pai’s concern is new to him, it is not new to media reformers who repeatedly questioned each version of Sinclair’s consolidation plans. Its plans clearly showed that they would retain control of stations through shell companies and other devices. They were neither subtle nor hidden. Finally, it was a bridge too far for Chairman Pai.

If the Sinclair deal had gone through, only four station groups would have controlled almost half of the television stations in the country. Sinclair, already the largest broadcast group, would have become even more dominant, reaching almost 75% of the households in the U.S. So, nixing the deal saves us from that and less consolidation is a good thing. I know that from my own research and that of others. Non-consolidated stations have more local news, very few duplicated stories and more enterprise reporting, to name a few things. But, the local television space is increasingly a consolidated one. As of late 2017, only five station groups controlled over 40% of the television stations in the country. The Sinclair deal would have made that worse, for sure, but we are not out of the woods.

Sinclair overplayed its hand either out of hubris or incompetence. But the environment for consolidation by other station groups, that Pai’s FCC has created, remains in place. Nexstar Media, the second largest station group, has been approached by Apollo Global Management, a private equity firm. And smaller station groups must survive the “go big or go home” mantra by consolidating. That is exactly what happened in June when Gray Television and Raycom Media announced a $3.6B merger. That will continue.

After years of looking at media ownership and listening to the present FCC’s rhetoric, I would never have predicted Pai’s decision. But, I welcome it. And, I hope that the FCC is moving away from what many assumed is its reflexive support for consolidation, especially as the midterms and increased political advertising are already upon us.

There was a lot riding on the Sinclair deal—economically and politically—and its sudden demise seems a bit too unnerving to me. It may be just as it seems. Sinclair may have just made a devastating miscalculation and Pai simply could not let the deal go through. But there is a voice in my head that tells me to look down the road. Will the FCC change the audience cap to something higher than the present 39%--say 50%, as the media industry has strongly advocated? Will a chastened Sinclair try again? Will the inevitable forthcoming mergers use Sinclair as an object lesson on how NOT to do it, and, having learned that lesson, easily get FCC approval? I have an uneasy feeling because I don’t know if any of this will happen. But it easily could. And it will determine the fate of local television in the United States.

Danilo Yanich, Ph.D. Danilo Yanich is Professor of Urban Affairs & Public Policy at the University of Delaware whose research focuses on media consolidation, political ads, money, and local television news content.