FCC Media Ownership Review Further Delayed, May Hurt M&A

The upshot may be that sales of TV stations are suffering. Some broadcast industry officials said deals already are at a record low because banks aren’t lending much money for deals, broadcasting is recovering from a recession-induced drop in nonpolitical ads and the industry faces more competition from other media. Lack of new rules on ownership may further add to the industry’s financial hurdles, since stations in small and midsize markets are barred from combining in most circumstances.

FCC Chairman Julius Genachowski had hoped to complete the review on time, by year-end. Earlier this year, FCC officials including Media Bureau Chief Bill Lake and Sherrese Smith, media advisor to Genachowski, had said publicly that the review would be finished by early 2011. That has slipped further because there’s not enough time to finish by then what the commission must do in the ownership review, said officials inside and outside the FCC. Commission representatives declined to comment.

"The delay is very frustrating,” said Senior Vice President Andrew Schwartzman of the Media Access Project, a foe of broadcaster consolidation. “This chairman is not the first to discover that these reviews are very difficult to complete. Everyone on all sides would like some certainty. It’s clearly going along slowly.”

The three media ownership studies that the FCC recently sought bids on from outsiders are due back to the commission Feb. 28, said the requests for quotation issued by the agency. After the studies are received, the commission will issue a rulemaking notice seeking comment on the studies and on possible new rules, agency officials said. That may happen in April, they said. Since comments won’t likely be collected for months after the rulemaking is published, the earliest an order could circulate likely would be June or July. In the 2006 review, comments were due two months after the rulemaking was released, replies two months later. If the commission follows that timeline, the earliest an order could circulate would be September.

The FCC hasn’t yet awarded contracts for the three studies it recently asked outsiders to bid on. They cover TV viewership, viewpoint diversity and local online content. The RFQs are at http://xrl.us/bh6mju, http://xrl.us/bh6mj2 and http://xrl.us/bh6mj4 and each said it would be awarded by Oct. 30. They'll be awarded soon, said Kelly Lael, an FCC contract specialist listed as a contact on the RFQs. The commission earlier issued nine RFQs for this year’s media ownership review (CD June 17 p15). The FCC decided to do in-house at least one study it earlier had wanted outsiders to handle, officials said.

'Delay is Part of the Game’

Deregulation supporters and opponents agree Genachowski won’t meet his goal of finishing the review on time. He would have been the first FCC chairman to do so, noted researcher Mark Cooper of the Consumer Federation of America, a foe of media consolidation. “The fact that we might be in the summer is no big deal here” for completion of the review, he said. “The delay is part of the game.” CFA is happy that the commission is trying to make the review “more data based” and “trying to do it right,” Cooper said. “The media space is subject to a great deal of technological uncertainty, especially with Internet TV, so it’s not clear to me that anyone wants to make deals under these circumstances.” Others disagreed.

"You would see a lot more deals among broadcasters in small and medium markets” if there were new rules, said broadcast lawyer Robert Rini of Rini Coran. “I think that broadband deployment has taken a front seat at the commission, and broadcasting issues aren’t as sexy.” The absence of new rules “absolutely influences how transactions are structured,” said Rini, whose clients seek broadcast ownership deregulation. “Not only do financial markets abhor uncertainty, but so do business people who naturally want to have closeable transactions.” More stations would have gone out of business except that two in a market can enter into shared services, shared sales and other deals without merging, in a way not attributable under ownership rules, Rini said. “And now there are indications that FCC staff has concerns about those non-attributable arrangements."

"The rules clearly need to be changed,” said President Robert Prather of Gray Television, which runs 36 stations. “Even if you own two stations in a small town, it’s not the news monopoly that congressmen used to worry about.” Since there has been “virtually no trading in TV stations” through mergers and acquisitions, because banks have been balking at lending, “I doubt if it’s hurt that much,” he said of the rule delay. “The deal market still seems to be pretty much in the limbo state.” Prather hasn’t heard of any broadcast companies or large stations “coming to market,” he said. “But if the people wanting to sell perceive the market is opening up, they'll leap in."

"Broadcasters are merely seeking reform of rules to allow TV stations in smaller markets to combine forces, or to allow a broadcaster to buy a newspaper,” an NAB spokesman said. “The result would be more local news and public affairs on struggling stations, and the preservation of journalism jobs,” he added. “It’s odd that policymakers would allow a merger of Comcast and NBC [Universal] and not permit two local TV stations to combine in Peoria,” Illinois.

"There would be a noticeable number of additional deals” if FCC ownership rules were eased, with stations buying rivals in their markets, said Vice President Mark Fratrik of BIA/Kelsey, an industry researcher and investment banker. “In some sense you have other activity such as the shared services arrangements” that are short of actual mergers, he said. In the first three quarters of this year, $93 million of M&A among TV stations was announced, an 86 percent decline from a year earlier, when some stations in bankruptcy were transferred, Fratrik said.

"It is not just the local ownership rules” that have made for lack of deals, Fratrik said. “We have this sluggish economy that also affects the deal flow and in particular the lack of debt financing out there.” MF Global analyst Paul Gallant believes “broadcasters obviously will push for changes that create some deal space,” he said. “But given the FCC’s history in this area, it’s hard to imagine any broadcasters are actually factoring in new rules any time soon.”