Pai to Dissent on FCC UHF Discount NPRM

Pai believes the UHF discount is “integral” to the 39 percent broadcast ownership cap, and it’s “arbitrary” to propose eliminating the UHF discount without seeking comment on whether to also raise the cap, the spokesman said. “Eliminating the discount has the effect of dramatically tightening the cap,” said the spokesman. “The proposal does not take account of this basic fact and so Commissioner Pai cannot support it."

Pai also believes the deadline for pending transactions should be the date a rule change is issued, rather than the date the NPRM is approved, the spokesman said. The draft proposal as of Wednesday morning pegged the cutoff to the date the NPRM is issued, he said. “It’s premature to tackle that step in the NPRM because the commission hasn’t decided to change the rule yet."

If the commission ties the cutoff for pending transactions to the date of the NPRM rather than an order, it will unfairly be partially ruling on the matter before a full record of comments and replies is established, a broadcast executive told us. Free Press disagreed. “There is no mistake that licensees have been on notice of potential changes to this rule for nearly [a] decade now,” said the group’s filing last week (http://bit.ly/14AqA63).

Many broadcasters believe the discount will be eliminated, but doing so without allowing pending transactions time to get in under the deadline is extremely controversial, said the executive. An FCC official noted there has been much interest from Congress in the proposal. Chairmen of the House committee and subcommittee that oversee the FCC last week wrote Clyburn asking the commission not to “inequitably harm those broadcast owners with pending transactions that were initiated under the existing UHF discount rule” (CD Sept 16 p10). If the FCC doesn’t use the NPRM as a cutoff, “companies could stuff the pipeline with additional deals (potentially putting the acquirers far above 39 percent actual reach), which the FCC probably would have to approve even if it eventually eliminated the UHF discount,” wrote Guggenheim Partners analyst Paul Gallant in an email to investors Tuesday.

Tribune’s pending deal to buy Local TV would put the acquirer at 42.7 percent without the UHF discount (CD Aug 14 p1), but since the transaction is already pending at the FCC, the current proposed rule wouldn’t affect the deal. FCC officials have said grandfathered ownership groups above the ownership cap would likely need waivers to make future moves, and the broadcast executive told us Tuesday that such a situation would put a halt to many future deals. Analysts and broadcasters have said Univision and Ion are already over the cap without the discount, and that Sinclair’s deal to buy Allbritton’s stations will put the resulting company at 38.2 percent. Sinclair said Wednesday it plans to buy 8 more TV stations from New Age media, with a combined viewership of 0.8 percent nationwide, but the acquirer would also divest some stations. (See separate report below in this issue.) The timing of the push to eliminate the discount suggests such deals may be the FCC’s target, said Gallant. “The mere fact that the FCC moved forward with this UHF discount NPRM on the heels of a series of TV deals ... would seem to indicate FCC concern with the prospect of more companies breaching 39 percent actual reach."

The obvious reason for the rulemaking is the change in the value of UHF stations since the DTV transition, but it also could be related to the incentive auction, said public interest lawyer Andrew Schwartzman, who has worked with Free Press on media ownership. Several communications attorneys have said the rule change could increase participation in the incentive auction by creating a reason for owners to divest themselves of stations (CD Aug 6 p1). Schwartzman said the commission may also want to eliminate the discount to decrease its vulnerability to a possible lawsuit from public interest groups. Such a suit would be based on the argument that “in the wake of the digital transition, it is irrational, i.e. ‘arbitrary and capricious’ to retain a rule that is based on the assumption that a UHF station has inferior audience reach when the opposite is now the case,” said Schwartzman. An industry lawsuit over the NPRM is possible, too, Wells Fargo analyst Marci Ryvickerhas has said (CD Aug 16 p3).

Pai’s dissent on the NPRM could indicate there may be significant changes between the notice and any order, said broadcast attorneys. Several analysts have said it’s unlikely that a rule eliminating the discount would be approved before 2014, and chairman nominee Tom Wheeler is likely to have that job by then. “The chair likes rulemaking votes to be unanimous,” said Fletcher Heald broadcast attorney Frank Jazzo. When a commissioner dissents at an NPRM rather than a order, it’s a statement that “there are better uses of the commission’s time,” said Pillsbury broadcast attorney Scott Flick. This means an order on eliminating the discount is “very likely” to include concessions to bring Pai and commissioner nominee Michael O'Rielly on board, said Jazzo.

Broadcasters that oppose the elimination of the discount still have “cards to play,” Gallant said. He suggested ownership groups may try to use sharing arrangements such as joint sales agreements to work around the ownership limit. They could also try to strike a deal with Wheeler that connects the discount to their participation in the incentive auction, Gallant said. “It’s not clear to us how realistic such a deal is, but we think that’s the avenue broadcasters will pursue.” -- Monty Tayloe (mtayloe@warren-news.com)