Public Notice Announcing Scrutiny of JSAs Tactically Brilliant, Attorneys Say

"That appears to be what the notice is intended to accomplish,” said Pillsbury broadcast attorney Scott Flick in an interview. If the notice is a message, its goal may be broader than discouraging deals involving joint sales agreements, an eighth-floor official told us. The notice and the JSA rule may be intended to urge more broadcasters -- not just those in JSAs -- into participating in the incentive auction, by letting them know they're in for a tough three years under Wheeler, the official said. “I think it’s more of a messaging thing,” the official said.

The processing guidance notice said the bureau will apply “careful scrutiny” to deals involving sharing arrangements and purchase rights to ensure they don’t give one station “an undue degree of operational and financial influence” over another. “We will need to ensure that the economic effects of, and incentives created by, the transaction are consistent with the public interest and our Commission policies,” said Media Bureau Chief Bill Lake in a release (http://tinyurl.com/kysjenj). The notice also includes increased documentation requirements that ask applicants to completely describe the proposed transaction. “The Bureau will seek to ensure that the proposed licensee continues to bear a significant amount of the economic risk -- and reap a significant part of any reward -- in running the station and in increasing its long-term economic value,” said Fletcher Heald broadcast attorney Dan Kirkpatrick in a blog post(http://tinyurl.com/m34b875). Situations involving two stations in a sharing arrangement or sharing a financial institution will get particular scrutiny, the PN said.

The notice is a “tactically brilliant” because there’s little broadcasters can do to counter it, since it’s “guidance” rather than a rulemaking, one attorney who represents a large broadcaster involved in sharing arrangements told us. If a given broadcast transaction doesn’t meet the level of scrutiny described in the PN, the Media Bureau will likely sit on the application rather than outright deny it, making it very difficult for the parties involved to appeal the decision, several broadcast attorneys told us. With no outright denial to take to the courts, it could take years to get a court to force the bureau to make a decision on an application, the attorneys said. The notice raises “very serious procedural and substantive concerns,” NAB said. “In a world of massive consolidation by pay TV behemoths, the FCC seems unduly focused on sharing arrangements by two TV stations offering programming FOR FREE in markets like Topeka and Tupelo."

Several broadcast attorneys echoed Commissioners Ajit Pai and Mike O'Rielly in pronouncing the notice an overreach of delegated authority (CD March 13 p16), saying it represents a rule change and isn’t backed by bureau precedent. “The Bureau has issued numerous orders approving such transfers,” Pai said in a release Wednesday. “It is impossible to square what was said then with what is being said now,” Pai said. “We were provided with no explanation why this needed to done now instead of at the March 31 meeting,” said a spokesman for Pai’s office in an interview. Not everyone agrees that the notice is an overreach. The certainty the clarified scrutiny will provide is “beneficial” to broadcasters, said public interest attorney Andrew Schwartzman, of the Georgetown Law Institute for Public Representation. The FCC always had the authority to apply a public interest standard to these transactions, he said.

The PN could be a message to one broadcaster in particular, some broadcast attorneys suggested. Sinclair’s purchase of Allbritton is still pending before the commission, and Sinclair has already agreed to restructure part of the deal because of several Media Bureau objections involving sharing arrangements (CD Feb 26 p4). The notice explicitly mentions pending transactions, and the scrutiny it describes makes it seem very unlikely that Sinclair’s deal for Allbritton will be approved, one broadcast attorney told us. Sinclair’s stock price fell sharply Thursday, and all broadcaster stocks dropped, the attorney said. The entire stock market was down dramatically Thursday. “Several of the public broadcasters are currently awaiting FCC approval for pending transactions that include one or more of these relationships, which is clearly impacting today’s stock price performance,” said Wells Fargo analyst Marci Ryvicker in an email to investors. “We anticipate continued volatility until we can quantify the risks posed by the FCC’s gamut of new rules."

The public notice may also be intended for Congress, one broadcast attorney suggested. A provision in the current discussion draft of the Satellite Television Extension and Localism Act (STELA) reauthorization bars the FCC from making sharing arrangements attributable until the completion of the 2010 Quadrennial Review. The PN’s warning of increased scrutiny could be Wheeler’s way of pointing out to legislators that the commission would still be able to block transactions involving sharing arrangements even if that provision makes it to the final law. That’s an unlikely reason for the notice, however, Schwartzman said, because few in the industry believe such a clause will still be around when STELA is reauthorized. -- Monty Tayloe (mtayloe@warren-news.com)