Sinclair Names Fox as Divestiture Buyer; CEO Outlines Scenarios for Court UHF Loss
Sinclair announced Fox as the final proposed buyer of the stations it said it plans divest to buy Tribune, as expected (see 1804250077), paving the way for FCC OK, said CEO Chris Ripley in an earnings call Wednesday: “We are going to go back in front of the FCC and hopefully get this on public file very shortly.” Ripley outlined possible outcomes for the proposed purchase if the U.S Court of Appeals for the D.C. Circuit knocks down the FCC’s restored UHF discount rule, a possibility many industry officials believe likely (see 1804200059). If the agency loses, Sinclair can “wait to see if there’s an appeal or some sort of FCC action,” Ripley said.
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Fox will buy seven TV stations from Sinclair for $910 million, Fox said. They're all in NFL markets. The divestiture includes new affiliation agreements for Sinclair and options for Sinclair to buy Fox-owned stations in Austin and Chicago. The deal gives Sinclair advantages for its Fox affiliates, and helps Fox’s sports content, said Patrick Communications broker Gregory Guy: “It’s good for both sides.”
Fox being named as the buyer is seen as likely to satisfy FCC concerns about a lack of specificity in the Tribune deal, industry lawyers and industry officials said in interviews. Recipients of the other divestitures in the transaction already were named. The FCC isn’t expected to request additional amendments, and could soon put the deal out for public comment, said Fletcher Heald broadcast attorney Dan Kirkpatrick. “This announcement should set the stage for the FCC’s regulatory review to move forward,” Tribune CEO Peter Kern emailed his employees. Though Ripley said Wednesday he expects a 30-day comment period, industry and FCC officials said the comment period could be longer, and Kern said it could be roughly six weeks. “DOJ is wrapping up the vetting of the buyers,” Ripley said (see 1804250077 or 1804240076).
Timing is of heightened importance because the deal has a better chance of surviving an unfavorable ruling on the UHF discount from the D.C. Circuit if it’s complete when an opinion is issued, said attorneys both for and against the deal. Without the discount, Sinclair/Tribune would be well over the 39 percent national audience ownership cap. “We firmly believe the likely outcome here is that the FCC wins,” Ripley said. Transaction opponents said the FCC shouldn’t put it out for comment until the court rules.
If the deal hasn’t been approved and the court strips away the UHF discount, Sinclair will hope for a successful appeal or rule change that lets the transaction survive, Ripley said. He cited the FCC proceeding on altering the national cap as a possible relief valve. “We also had [Commissioner Mike] O’Rielly go on record saying that he was open to changing the cap, and so something could happen there,” Ripley said. Another alternative is that the agreement could expire, Ripley said. “Sinclair does not have any breakup fee in that scenario.”
Cap concerns could also affect the Fox deal, analysts and broadcast officials said. Fox reaches over 37 percent of U.S. households with the discount but without would be over the cap, said Justin Nielson, senior researcher for S&P Global Market Intelligence: “As would many broadcasters.” Since the Fox deal is contingent on Sinclair's transaction being approved, it faces the same issues Sinclair does, Nielson said.
Both deals “would not have been possible were it not for recent Trump FCC efforts, under Chairman Ajit Pai, to gut longstanding broadcast-ownership limits,” said Free Press. “The UHF discount is an outdated rule that Pai resurrected solely to let these companies evade media-ownership limits and get even larger,” said FP CEO Craig Aaron.
Though the D.C. Circuit panel at oral argument on the restored UHF discount was tough on the FCC, judges also repeatedly questioned standing of the anti-media consolidation petitioners (see 1804200059). At the court’s request, Common Cause, Free Press, Media Mobilizing Project, the National Hispanic Media Coalition and the other petitioners Wednesday filed supplemental information (in Pacer) intended to demonstrate that they and members were and will be harmed by the reinstated discount. They list harms caused by Sinclair’s purchase of Bonten Media shortly after the discount was restored and “imminent” harms that the Tribune deal would cause. That includes “concentrated ownership” making it tougher for Latinos to find jobs in the TV industry and damage to local news reporting, the groups said: The harms “are undeniably traceable to the FCC’s decision to reinstate the obsolete UHF discount.” The FCC has until May 16 to file a response.
ATSC 3.0 Notebook
Sinclair will be “lighting up Dallas this summer” with ATSC 3.0 market trials through the Spectrum Co. consortium it shares with American Tower, Cunningham Broadcasting, Nexstar and Univision (see 1804080002), said Chris Ripley on the earnings call. “We are putting the finishing touches” on building a “construct for cooperation with other broadcasters” in Dallas, and participants in the Pearl TV-led Phoenix model market project are doing the same, he said, without mentioning Pearl by name. “That’s the main hurdle right now, is how do people cooperate within each market so that we can channel-share, and some stations can go to 3.0 and others can stay in 1.0.” Ripley reported “good progress has been made on that front.” The need to channel-share was “the primary reason that Phoenix was done, and we’re tackling that same issue within Spectrum Co.” in Dallas, he said. “I think in the back half of the year, you’re going to start seeing people execute on those transitions.” Pearl didn't comment.