UHF Discount Unlikely to Be on March Agenda, Despite Industry Expectations
The UHF discount is unlikely to make it onto the agenda for March’s FCC commissioners' meeting, an official told us Wednesday, though numerous industry sources expected it to be there. Even if the item isn’t ready in time for the meeting, the commission is widely expected to re-establish the discount soon, said broadcast executives. Though the exact nature of the item remains in flux, broadcast allies still expect (see 1701110067) Chairman Ajit Pai’s office to circulate a draft item that would reinstate the discount and also to make some gesture toward possible changes to the national ownership cap. The latter could range from a simple statement of support for such changes to an effort to create a record on the matter, broadcast executives and attorneys said.
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Expectation that the discount will be restored and other ownership rules relaxed is likely behind recent reports of merger and acquisition interest among large broadcasters, said Pillsbury Winthrop broadcast attorney Scott Flick. “Everyone recognizes that we’ve been in a deal freeze,” Flick said, referring to the incentive auction quiet period. Now that companies have the freedom to discuss transactions, they're looking to see what the opportunities will be if the rules do loosen up, he said. Companies can talk and “do their homework” now so they’re ready for multiple possibilities for how the ownership rules end up, he said. “You don’t want to be sitting on your hands.”
Sinclair and Tribune are believed to be discussing a possible transaction and Nexstar is looking for M&A opportunities, Wells Fargo analyst Marci Ryvicker said in emails to investors. Though relaxed ownership rules would create more deal opportunities for all the companies, the national ownership cap would likely need to be changed to allow Tribune and Sinclair to combine, attorneys said. "We think private equity would have to be involved given the current status of the national ownership rules, even if the UHF discount is reinstated,” Ryvicker said. Sinclair could also buy part of Tribune’s holdings, such as the Food Network or WGN America, Ryvicker said. Sinclair planning to buy WGN is most likely, she said. Sinclair and Tribune didn’t comment. Sinclair closed up 4.8 percent at $41.80 and Tribune up 8.3 percent to $37.38.
It would be thorny for the FCC to directly tackle the national ownership cap because Commissioner Mike O’Rielly has said he doesn’t believe the commission has the authority, attorneys said. O’Rielly said when Congress set the cap at 39 percent of U.S. households, it didn’t anticipate the FCC would change the way that 39 percent is calculated. Though Pai is seen as holding a different view, broadcasters said they still expect the FCC only to explore the matter at first. Reinstating the discount is less controversial, since the original 39 percent calculation was made with the cap in place, Flick pointed out.
The ownership cap is “a legacy, artificial constraint that uniquely limits broadcasters’ ability to pursue creative business concepts that would enable them to achieve the scale and scope necessary to remain competitive in their local markets,” Tribune said in a meeting with aides to Pai, according to an ex parte filing posted in docket 13-286 Wednesday. Cable, public interest groups and Commissioner Mignon Clyburn (see 1702210027) said the UHF discount is obsolete, since UHF spectrum is now the more highly prized. “Reinstating the UHF Discount and restoring the status quo would allow the market to continue to evolve, while obviating the need to engage in another arbitrary, and unjustifiable, line-drawing exercise,” Tribune said. Fox separately is seeking an ownership waiver (see 1703010059) related to owning a daily newspaper and TV stations in New York.