Attributable JSAs Unlikely to Cause Divestitures or End ‘Sidecars,’ Attorneys Say

FCC Chairman Tom Wheeler’s office is working on a draft order that would propose making TV JSAs where one company brokers more than 15 percent of another station’s ad time attributable for the purposes of calculating ownership (CD Jan 30 p1). The item had been planned for circulation Thursday, but was held back because it’s not yet ready, an FCC official told us Friday. Another official said the item is likely to resurface in March -- the next meeting with a still-open agenda. Public interest officials have also been told by Wheeler’s office to expect such an item, Wilson said.

If such a rule were adopted, it would affect hundreds of stations, said a broadcast attorney who regularly deals with such agreements. In many cases broadcasters would likely be able to come into compliance by restructuring their deals, said industry attorneys. The smaller “sidecar” companies involved in JSAs would likely have to hire their own sales staff, and accountants would have to rearrange the way money passes between the two companies, an attorney said. That would be “a headache” for the parent company, but not “death to sidecars,” he said. Restructuring of such companies is a “much more likely reaction” than divestitures to such a rule, said Fletcher Heald broadcast attorney Frank Jazzo. Free Press would want to see FCC rules on sharing agreements attempt to address any loopholes that might allow such arrangements to continue despite a new rule, Wilson said.

One such concern is a grandfathering provision, Wilson said. When radio station JSAs were made attributable, existing operations were given two years to comply, but that wouldn’t be enough in TV, said a broadcast attorney. “Anything short of permanent grandfathering is going to be of limited use.” Many JSAs involve bank loan guarantees that can’t easily be unwound, he said. An FCC rule that ordered two companies involved in the same loan to end their connection could be problematic, he said. It’s very likely that some form of grandfathering will be included in the proposed rule, said industry attorneys.

Public interest groups like Free Press oppose JSAs and other sharing arrangements because such deals lead to multiple stations in the same designated market area using the same newscast, layoffs at news organizations and a lack of diversity of voices, said a joint ex parte filing from a meeting between Wheeler’s staff and several public interest groups and multichannel video programming distributors. “Jointly run stations eliminate the goals the ownership limits were designed to achieve, and eliminate many real opportunities for new entrants to own and operate a station,” said the United Church of Christ in the filing (http://bit.ly/1bdTzNg). Free Press also recently met with an aide to Commissioner Mignon Clyburn on the same topic, said another filing (http://bit.ly/1bf4ysM). “These agreements lead to the shuttering of local newsrooms, less competition in the local TV marketplace, and less diversity of viewpoint and ownership on the public airwaves,” said Free Press Policy Director Matt Wood in the filing.

Along with public interest groups, MVPDs have also been meeting with FCC staff to discuss modifications to sharing agreement rules, according to ex parte filings posted last week in docket 09-182 (http://bit.ly/1fuupyo). The FCC “should deem that practices by which ostensibly separately owned stations coordinate their retransmission consent negotiations create an ‘attributable interest,'” said an ex parte filing from Time Warner Cable. TWC met with aides to Clyburn and commissioners Jessica Rosenworcel and Mike O'Rielly, the ex parte filing said (http://bit.ly/1hZHlMx). Representatives from Charter Communications, DirecTV and Dish also attended the meetings, said the filing. “When broadcasters use sham arrangements to evade the ownership rules, the effectiveness of all Commission rules is called into question,” the filing said.

"The record is complete, and the commission should make a ruling,” said Cinnamon Mueller cable attorney Barbara Esbin, who represents the American Cable Association, in an interview. ACA also attended the MVPD/public interest group meetings.

NAB and FCC Commissioner Ajit Pai have recently urged the FCC not to pressure broadcasters into participating in the incentive auction by enacting policies that make it less attractive to be in broadcasting. But that’s exactly how some broadcasters would perceive a rule change on JSAs, Jazzo said, and it’s a connection Pai made explicitly in Thursday’s open meeting, using such rules as an example of “a regulatory ratchet.” Targeting JSAs and shared services agreements (SSAs) “would poison the FCC’s relationship with broadcasters at the very time that we need their cooperation to make the incentive auction a success,” he said after commissioners were briefed about staff planning for the incentive auction (CD Jan 31 p8) (http://fcc.us/1deLsQc).

Anti-JSA rules would be a poor goad for the incentive auction, because most such arrangements are located in rural areas, away from the most desirable spectrum, said Pillsbury broadcast attorney Scott Flick. That’s because the superior economic conditions in large markets mean stations there don’t need to be propped up with sharing agreements, he said. Pillsbury and its client Sinclair recently met with officials from the FCC Office of Communications Business Opportunities to discuss sharing agreements, according to an ex parte filing (http://bit.ly/1gyLZ7s). JSAs and SSAs help stations in smaller markets “by sharing the resources and costs, generating news for both stations to monetize with ad sales,” said the filing.