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Gannett, owner of USA Today, announced plans in June to buy Belo Corporations by transferring local TV station licenses to Gannett's shell companies—technically a violation of FCC rules. (USA Today/Gannett / Wikipedia / Creative Commons)

Is Local TV Going Down the Tubes?

An FCC loophole allows media conglomerates to corner smaller broadcast markets.

BY Cole Stangler

'If two companies merge together there’s gonna be one fewer voice in the marketplace ... And so we don’t really get more news. We get more of the same news broadcast over and over again.'

With about $10.4 billion in deals so far, 2013 is shaping up to be the fourth-biggest year for television broadcast media consolidation on record. Some progressive media advocates fear that this surge of consolidation deals means the Federal Communications Commission (FCC) is enforcing its rules on ownership too loosely. In turn, they say, consumers’ exposure to a wide range of independent news sources may become severely limited in coming years.

“We are in the midst of a historic wave of consolidation,” said S. Derek Turner, research director for the progressive media reform group Free Press, on a conference call with reporters earlier this month. “It’s showing no signs of stopping. If it continues to barrel on you’re going to see more newsrooms close, you’re going to see more journalists lose jobs, you’re going to see less informed communities.”

To theoretically prevent such a narrowed spectrum of news coverage, FCC rules prohibit a single company from controlling the licenses of more than one of the top-four Nielsen-ranked stations in a local market—which usually means the ABC, CBS, FOX and NBC affiliates.

But companies are successfully getting around the rule by signing outsourcing agreements known as “shared service agreements”—in other words, they set up shell companies under their control that are able to buy up many different affiliates in local markets. Through these agreements, one city’s local ABC and FOX affiliate channels, for example, may be managed in large part by the same broadcasting company. To date, the FCC has determined that the practice does not violate its basic ownership restrictions.

Turner, along with his colleague at Free Press, policy counsel Lauren Wilson, referred to this corporate maneuvering as “covert consolidation” during the conference call—and they said the FCC isn’t doing nearly enough to stop it.

Broadcast media is booming, powered by a recovering economy, colossal streams of advertising income and skyrocketing “retransmission-consent” payments that cable and satellite providers make to broadcasters in order to carry their channels. The Supreme Court’s Citizens United decision in January 2010, which allows for individuals and corporations to make unlimited political expenditures, has helped transform campaign advertising into one of the largest sources of revenue for television media. As a result of all this, some companies are pouncing on opportunities to get as firm a foothold in the industry as possible.  

Leading the consolidation charge is Sinclair Broadcast Group, a relatively new player in the broadcast television industry that has almost tripled its holdings nationwide and doubled the markets it serves in the last two years. It’s now the third-largest owner of network TV affiliates in the United States, just behind CBS and FOX. The company’s expansion is fueled by its three main shell companies, which have gobbled up top licenses in a number of different media markets, typically medium-sized, across the country. Sinclair often provides the bulk of financing and programming to these so-called “sidecars.” And in many cases, the only physical assets that these shell companies actually own are the station licenses themselves. Meanwhile, Sinclair structures the agreements so that it’s able to rake in virtually all the profits.

Turner claims this process gives the false impression that companies face high levels of competition in local markets. “By letting Sinclair perpetuate this covert consolidation fiction, the FCC is failing to protect the public interest,” he said. “In the FCC’s eyes, these shell companies, which only have business relationships with Sinclair [and no one else], are independent firms that supposedly compete against Sinclair. Nobody in their right mind would believe this fiction except for the FCC.”

Sinclair’s CEO David Smith has defended the so-called outsourcing practice, telling the Wall Street Journal in October that it is “necessary for survival because of the evolutionary nature of the competitive ad-selling marketplace.” 

Turner says the FCC’s tolerance of the practice is particularly egregious given that Sinclair is already required to disclose control over its shell companies to a different government agency—the Securities and Exchange Commission (SEC).

“We have one set of rules for the FCC and another for the SEC,” Turner pointed out. While Sinclair includes all of its shell companies in one single filing with the SEC, the FCC regards them all as separate, competitive entities. Ultimately, Turner argues, the FCC isn’t doing its job—allowing consumers unfettered access to a wide range of information. 

To combat this, Free Press and a host of other organizations have taken matters into their own hands. They are currently challenging three major “covert consolidations” with the FCC on the grounds that parts of the deals violate ownership regulations.  

In June, Gannett—perhaps best known for its ownership of USA Today—announced its plans to purchase the Dallas-based media giant Belo Corporation for $2.2 billion through shell companies. If approved by the agency, the move would double the affiliates Gannett owns and make the company the fourth-largest holder of network affiliates in the country. In July, Georgetown University Law Center’s Institute for Public Representation, representing Free Press and others, filed a petition with the FCC contesting Gannett’s acquisition on the grounds that it violates the agency’s local television ownership rule (in addition to a separate rule on newspaper-broadcast cross-ownership). Time Warner Cable, DirecTV and the American Cable Association have also challenged parts of the deal

Then there’s Sinclair’s attempt, which the company announced in July, to purchase eight television stations owned by the Arlington, Va.-based Allbritton Communications for $985 million. FreePress and Put People First Pennsylvania filed a petition with the FCC in September, asking that the agency block some of the proposed license transfers. 

And finally, another company better known for its role in the newspaper business, Tribune, wants to purchase 19 television stations held by a private equity group—using its shell company to acquire three of those licenses. Free Press is petitioning the FCC to block the transferal of those three licenses. 

Matt Wood, policy director at Free Press, told In These Times that he expects the agency to issue decisions on these three cases by the end of the year. Reformers are hoping that the FCC—now under the leadership of Chairman Tom Wheeler, who was confirmed by the Senate last week—will take a new, more aggressive stance on “shared service” agreements.

The FCC considers the shell companies running stations to be independent operators on the grounds that they play a role—albeit a very limited one—in programming decisions. For its part, however, the Justice Department requested last month that Sinclair and Allbritton provide more information about the use of outsourcing agreements in their recent deal.

Again, advocates say, public knowledge is ultimately what’s at stake in these cases. After all, while the Internet and “new media” like Facebook or Twitter have received plenty of attention for their ability to transform the dissemination of information, television remains the dominant source of news for most Americans.

“If two companies merge together there’s gonna be one fewer voice in the marketplace,” Wilson said. “The end result is really a TV market in which news is just a duplicate of what’s aired on another broadcast station. And so we don’t really get more news. We get more of the same news broadcast over and over again.”

This reporting is supported by The Media Consortium.

 

Cole Stangler is an In These Times staff writer and Schumann Fellow based in Washington D.C., covering labor, trade, foreign policy and environmental issues. His reporting has appeared in The Huffington Post and The American Prospect, and has been cited in The New York Times. He can be reached at cole[at]inthesetimes.com. Follow him on Twitter @colestangler.

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