Marshall Broadcasting Wants HDO Against Nexstar

“It’s an arranged marriage that went bad on day one,” said Marshall CEO Pluria Marshall in an interview Tuesday, speaking of his company’s relationship with Nexstar and CEO Perry Sook. Nexstar didn’t comment. “If Perry’s a smart guy, he’ll settle this thing,“ Marshall said.

MBG’s FCC complaint accuses Nexstar of exercising control over three stations divested to Marshall as part of Nexstar’s 2014 purchase of stations from Communications Corp. of America, White Knight Broadcasting and Grant Broadcasting: KPEJ-TV Odessa, Texas; KMSS-TV Shreveport, Louisiana; and KLJB Davenport, Iowa. Though the deal included an arrangement for Nexstar to operate the stations through a joint sales agreement, Nexstar’s control went further than agreed and beyond what the FCC permits, Marshall told us.

The complaint describes Nexstar employees presenting themselves as the general managers of those stations, making programming decisions, and hiring and promoting employees there without authorization. Control over employees, financing and programming are important areas the FCC uses to determine what entity has actual control over a station, industry lawyers told us. Nexstar “attempted effectively to seize control of the operations of MBG’s stations and to operate them as, in essence, additional Nexstar stations,” said the complaint.

Marshall accuses its rival of attempting to renege on an agreement to guarantee financing for the stations for five years, and of influencing banks to refuse to negotiate with Marshall. In a motion to dismiss in the New York court, Nexstar said the accusations are motivated by the company’s inability to sell its stations or pay off loans that come due in December. “Rather than face the consequences of its failed business decisions, and unable to sell the three stations to a willing buyer, Marshall has resorted to this inflammatory lawsuit and an accompanying publicity campaign against Nexstar.” Marshall didn't seek specific relief or identify a specific contractual term that Nexstar violated, said Nexstar’s motion.

The lawsuit and complaint appear timed to maximize MBG’s leverage, since the larger broadcaster won’t want the allegations to interfere with its pending purchase of Tribune Media, numerous attorneys said. It’s not uncommon for parties with grievances against a large company to raise them when an important deal is pending, said Fletcher Heald broadcast attorney Donald Evans. Marshall told us the timing is unrelated to the pending transaction. “We have nothing to do with that,” he said of Nexstar/Tribune. “We’re trying to solve our problem.”

If the FCC takes up or rules on MBG’s complaint, it could be evidence in its civil suit, Evans said. It could also have consequences beyond MBG’s control, since if the FCC decides there’s evidence of licensees behaving incorrectly, it isn’t obligated to back off even if Nexstar and MBG settle, several attorneys said. The complaint seeks a hearing only on the three markets where MBG bought stations from Nexstar, which attorneys said could indicate MBG is trying to minimize the scope of what it's requesting. A more inflammatory filing would have directly attacked the Tribune deal, an attorney said. The allegations raised in MBG’s complaint may not necessarily rise high enough on their own to attract that sort of interest from the commission, but could be used as ammunition by opponents of Nexstar/Tribune, a broadcast attorney said.

“Big broadcasters like Nexstar have made a habit out of covertly consolidating using shady sharing arrangements, so it's not surprising to see an independent owner chafing under de facto control,” said Dana Floberg, policy manager of Nexstar/Tribune opponent Free Press. “Nexstar’s hands are dirty,” Marshall told us. “So much information is going to come out of this.” Marshall’s “disappointment in its failure to operate the three television stations purchased from Nexstar profitably is understandable,” Nexstar said in its motion. “But the responsibility for those failures lies squarely with Marshall.”