Scripps/Ion Not Seen Facing Big Regulatory Challenges
E.W. Scripps' plans to divest 23 Ion stations as part of its $2.65 billion purchase of the broadcaster (see 2009240006) likely will obviate FCC and DOJ regulatory concerns, deal watchers told us. It isn't expected to get the public and political outcry faced by Sinclair's aborted Tribune purchase. The Ion purchase from private equity firm Black Diamond is expected to close in Q1, Scripps announced Thursday.
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Citing FCC ownership regulations, Scripps Chief Financial Officer Lisa Knutson in an analysts' call said the 23-station divestment is "for a clean regulatory review." She said the unnamed buyer will continue operating them as Ion affiliates. Neither buyer nor seller answered our queries.
The divestitures are likely about local TV multiple ownership rules and national ownership cap issues, since Ion is close to the cap even with the UHF discount, said Fletcher Heald broadcast lawyer Dan Kirkpatrick. He said DOJ isn't likely to have antitrust concerns because Ion stations presumably don't draw enough ratings in a local market to trigger a concentration issue.
Benton Institute for Broadband & Society Senior Counselor Andrew Schwartzman said if the divestitures get New Scripps below reaching 39% of U.S. households, the deal seemingly wouldn't have regulatory concerns at the FCC. If they meet local ownership rules, there still could be national limits issues, he said. Even if it meets the 39% penetration limit, opponents could argue New Scripps' size isn't in the public interest, he said.
One potential issue at the FCC is if Democrats take the White House in November and the deal isn't approved before the end of the lame-duck Republican administration at the agency, said Kirkpatrick. Democratic commissioners have been keen on eliminating the UHF discount, and without it, Scripps/Ion can't happen under current ownership limits, he said. Even if there's an administration change, a Democratic FCC could approve Scripps/Ion with the condition that if the UHF discount is eliminated, New Scripps might need to do more divestitures, he said.
Any big station ownership transaction prompts concerns about localism and media consolidation, but Scripps/Ion doesn't involve Sinclair's approach to local news, "which seemed to energize people," said Free State Foundation Senior Fellow Andrew Long. The deal points to the resurgence of power in broadcasting and how competitive the video distribution market is, he said. Sinclair Tribune was creating a number of big four duopolies, raising more powerful combos than Scripps/Ion, Kirkpatrick said.
The deal creates “a distribution double threat [that] looks like a cable network [but] is an over-the-air broadcast business," said Scripps CEO Adam Symson. Scripps also will be able to phase out its practice of leasing digital subchannels from other broadcasters for its Katz networks and migrate many Katz networks instead onto Ion digital subchannels, he said.
New Scripps will be one of the largest holders of broadcast spectrum, giving it opportunities in areas such as autonomous vehicles and datacasting, Symson said. He said the deal wasn't made in anticipation of future broadcast spectrum sales. "We would monetize [spectrum] as an operator, not a seller," he said. Kagan analyst Justin Nielsen said Scripps needs to move on ATSC 3.0 opportunities for additional channels, interactive advertising and spectrum leasing.
Scripps doesn't plan to alter Ion's programming near term, Symson said, since its programming strategy "is working very well." About 20% of Ion viewing is over the air, with the rest through MVPDs, though OTA is growing as a complement to increased OTT trends, executives said.
Berkshire Hathaway will be a preferred equity investor, putting $600 million into the deal, Scripps said. "They see what we see, a compelling opportunity," Symson said.
The 23-station divestiture could have been a big opportunity for diversifying broadcast ownership, if they had been sold off in smaller clusters specifically to new entrants or companies with significant minority or female ownership, said Benton's Schwartzman: "This may be a lost opportunity for diversity."