Affiliation Swap Rule Likely, but Court Challenge Would Follow, Attorneys Say
An FCC proposal to tighten rules on broadcasters swapping network affiliations within a market might lead to a rulemaking but is unlikely to result in a final policy banning the practice, said attorneys who oppose the proposed rule, in interviews. FCC ownership rules already prevent a single broadcaster from owning two Big Four-rated network affiliates in a market, but the 2014 quadrennial review Further NPRM tentatively concluded in favor of extending those rules to keep broadcasters from coming into ownership of two Big Four stations in the same market through network affiliation swaps. Initial comments were recently due on the FNPRM (CD Aug 8 p7).
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Though the tentative conclusion indicates a rule barring the practice will likely be approved, it would be quickly challenged, tied up in court proceedings and likely not implemented, said the broadcast lawyers. The proposal is “unwise, unconstitutional and contrary to the public interest,” commented Raycom (http://bit.ly/1kM3u73) in docket 14-50. Stations swapping network affiliation can be used by broadcasters to “consolidate market power” and get around FCC rules, said the American Cable Association (http://bit.ly/1u2I1ti).
Raycom also said it believes the commission will move to stop affiliation swaps. “The characterization of affiliation swaps as illegitimate, despite the absence of any legal prohibition, betrays a decision already made,” said Raycom. The FNPRM pointed to Raycom’s affiliation swaps in Hawaii, the focus of a long-pending application for review, as an example of the behavior the rule change is intended to stop. “The FCC should not rely on predetermination, nor on its apparent -- and unjustified -- view that the need for its proposed rule is ‘evidenced’ by the Raycom-HITV transaction,” Raycom said. Raycom and other broadcasters would likely challenge a rule barring swaps on the grounds that it was an unlawful regulation of content and barred under the first amendment, said lawyers.
Affiliation swaps are on the rise, said ACA Senior Vice President-Government Affairs Ross Lieberman in an email, pointing to a recent transaction between CBS and Tribune in Indianapolis in which a CBS affiliate replaced a Tribune-owned CW station (CD Aug 12 p12). Because such swaps allow a licensee to acquire two Big Four stations without being subject to the approval process that would occur if a station were purchased, they “subvert the intent of the Commission’s local television ownership limits,” ACA said. Since they lead to one licensee controlling two network affiliates, they also aren’t affected by the commission’s recent prohibition against joint retransmission consent negotiation, ACA said. BIA/Kelsey Chief Economist Mark Fratrik -- formerly of NAB -- disputed that such swaps are on the increase, though he conceded it’s reasonable to expect that the commission’s recent tightening of rules for sharing agreements might lead to more swaps.
ACA also wants the commission to take its proposal further and prevent owners from multicasting two Big Four networks out of the same station. Dual affiliation “creates the same consolidation of significant market power by a single station owner in a local television market that the duopoly prohibition aims to prevent,” ACA said. The quadrennial review FNPRM said the commission won’t take aim at multicasting. “Dual affiliations involving two Big Four networks via multicasting are generally -- if not exclusively -- limited to smaller markets with an insufficient number of full-power commercial television stations,” said the FNPRM.
Broadcasters view multicasting as a possible replacement for the sharing arrangements that have been made problematic by FCC rule tightening, said industry lawyers. Sinclair turned to multicasting as a replacement for its sharing agreements in its deal to buy Allbritton’s TV stations (CD July 26 p1). Allowing stations to have dual network affiliation with four networks through multicasting will lead to “virtual duopolies” that will “significantly undermine its duopoly prohibition,” ACA said. The commission’s willingness to allow dual affiliation in multicasting but not allow affiliation swaps shows that it doesn’t have a compelling interest that would justify the rule, Raycom said.
It’s possible that the commission could seek to limit dual network multicasting to protect its ownership rules, said a broadcast lawyer. Replacing sharing arrangements with multicasting “allows stations to follow the letter of the law while still reducing competition,” said Free Press Policy Counsel Lauren Wilson in an interview. Several broadcast attorneys said the commission would avoid any rule limiting multicasting, because channel sharing is viewed as a way to encourage broadcaster participation in the incentive auction. Broadcasters looking to multicasting and dual affiliation reflect “the economics of small markets,” Fratrik said. Because of the difficulties of operating a small-market station, such licensees often need to be connected to a larger operation to be viable, he said.