Media Ownership Changes Won't Spur Deals Until Dust Settles on Court Challenge
Thursday’s FCC vote to relax broadcast ownership rules is likely to spur TV dealmaking (see 1711160054) when it becomes clearer how the rules will fare in court, analysts and attorneys said in interviews. Uncertainty about how the FCC will apply its new standard for top-four duopolies and DOJ's views on big combinations in the same market are seen affecting deals. Transactions likely will wait at least until it becomes clear whether courts will stay the effectiveness of the changes, said BIA/Kelsey Chief Economist Mark Fratrik.
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Public interest groups seeking a stay is considered very likely, and probably would be brought to court before the rules take effect after Federal Register publication, said Fletcher Heald broadcast attorney Dan Kirkpatrick. Officials said the order on reconsideration is designed to withstand challenges (see 1710260049), but the FCC has lost on media ownership changes three times at the 3rd U.S. Circuit Court of Appeals, where many attorneys believe the case would go. Public interest groups could be joined in an appeal by MVPDs, which may challenge the relaxation of restrictions against top-four duopolies, Kirkpatrick said.
The prospect of even more ownership rules being relaxed also may cause companies to hold off on transactions, said Moody’s analyst Jason Cuomo. The FCC is expected to take up the 2018 ownership quadrennial review next year, which could lead to further rule relaxation and more clarity on the criteria for top-four duopolies. Companies “might want to wait,” for even more advantageous rules, Cuomo said. The FCC was expected to tackle the broadcast ownership cap in December, but Chairman Ajit Pai seemed unwilling to affirm that the agency would make that deadline when asked about it at a news conference Thursday.
All analysts agree the first moves made by stations under the new ownership regime likely would take advantage of the eliminated eight-voices tests. Broadcasters with a successful station in a market with fewer than eight voices likely will get cost efficiencies in scooping up a station ranked fifth or lower in their market, said Fratrik. That’s a move broadcasters could make without triggering the uncertain case-by case review standard for top-four duopolies, he said. Some broadcasters may seek to buy stations they were previously in joint sales agreements with, Kirkpatrick said. Broadcasters also may seek station swaps, which would involve “little downside risk,” Cuomo said.
DOJ’s handling of Entercom's buying CBS Radio -- which closed Friday -- could indicate it may limit some of those deals, said Cowen analyst Paul Gallant emailed investors. Justice required divestitures (see 1711010050) where the combination would have controlled 40 to 50 percent of a city’s radio market, Gallant said. That could suggest DOJ will treat local TV advertising similarly, as a discrete market, he said. That could come into play particularly for broadcasters seeking top-four duopolies, he said.
DOJ also precluded Entercom/CBS Radio from having JSAs with the divested stations, Gallant said: “That suggests that the FCC's reinstatement of JSAs may not be a workaround for Sinclair-Tribune as a way of divesting stations to win FCC approval.” That could limit effects of FCC elimination of JSA ownership attribution rules, Kirkpatrick said. Cuomo doesn’t anticipate DOJ or the FCC being hurdles to top-four duopolies, since the FCC and the Trump administration indicated they oppose restrictive regulation.
Stations that have the ability to “consolidate control in local markets” are going to do so, Cuomo said. Larger groups are more likely to have the capital to make moves for transactions, he said. Sinclair/Tribune could be the guinea pig for the FCC top-four duopoly criteria, Kirkpatrick. There’s little risk in a company giving it a try, Cuomo said.