U.S. regulators Monday tightened rules on broadcast owners controlling more than one TV station in a city, and said companies such as Sinclair Broadcast Group Inc. must alter existing arrangements to comply.
The Federal Communications Commission on a 3-to-2 Democrat- led party-line vote adopted Chairman Tom Wheeler’s proposal to crack down on what he has called attempts to circumvent rules limiting media ownership. The rules are designed to ensure news and information within communities isn’t dominated by one voice.
“Today what we’re doing is closing off what has been a growing end run” around ownership limits, Wheeler said at the FCC’s monthly meeting.
The change adopted Monday attacks a technique in which TV- station owners control the advertising of nearby stations owned by a third party, and reap the sales revenue. The deals position the larger station as “de facto owner” of the smaller station, whose independence is “a legal fiction,” Wheeler said in a March 6 blog post.
Republicans and companies said the arrangements facing new restrictions help fund local programming including news at struggling television stations in mid-size and smaller markets.
The shared arrangements help stations in smaller markets survive, said Ajit Pai, the agency’s senior Republican. He called the agency’s action “the epitome of arbitrary and capricious decision-making.”
The FCC, by its vote Monday, said shared advertising sales of 15 percent or more amount to common ownership. It gave station owners two years to reduce or cease common ad sales, or obtain a waiver.
Wheeler’s proposal would “effectively eliminate” the arrangements in small and medium markets, and unraveling existing sharing deals is “particularly harmful,” Gordon Smith, president of the National Association of Broadcasters trade group, said in a March 24 letter to Wheeler.
The FCC has approved 85 shared-ad sales arrangements in merger reviews since 2008, said Smith, whose group is based in Washington.
Shares have dropped for station owners Sinclair, Nexstar Broadcasting Group Inc. and Gray Television Inc. since Wheeler’s proposal was announced March 6. Marci Ryvicker, an analyst for Wells Fargo Securities based in New York, in a March 17 note cut her outlook for the stocks to market perform from outperform, citing a “worsening” regulatory environment.
Sinclair on March 20 said it would restructure a deal with the Allbritton family to meet FCC objections, selling a station in three markets where it proposes to buy an affiliate of Walt Disney Co.’s ABC network from Allbritton.
Sinclair, based in Hunt Valley, Md., owns or provides programming and services to 149 TV stations in 71 markets, according to a company filing with the Securities and Exchange Commission. It provides non-programming services such as sales and management help to 20 stations in 17 markets, according to the filing. The practice helps stations operate efficiently and better serve their communities, Sinclair said in the filing.
The FCC also voted to limit TV stations’ power to negotiate jointly for fees charged to cable companies, and said it would begin a wider review of ownership rules.