Top-4 Rules Changes Worry Cable; Case-by-Case Review Raises Questions

The FCC in 2014 found joint negotiations in top-four stations would raise rates, and allowing such consolidation would pose that danger, a cable industry official said, saying there's no evidence to overrule what the agency found. Rules ban joint negotiations for non-commonly owned stations, but opening the door to joint ownership of top-four stations would make that ban largely moot because of the consolidation that would follow, the official said. With the agency saying it will take a case-by-case approach in considering proposed takeovers to try to maintain some balance, the cable industry still is trying to figure out what the FCC could do to accommodate a rebalancing, the official said. NCTA (see 1711070052) and American TV Alliance in docket 15-216 (here) in recent days urged the agency to factor in retransmission rates increases when it considers the effect of proposed top-four mergers.

Some media ownership prohibitions haven't made sense for years, but the proposed top-four rules changes will undoubtedly shift leverage, a lawyer with cable clients said, saying the agency is unlikely to make notable changes in its top-four proposal before commissioners vote.

Petersen said a big problem with the proposed TV ownership rule changes is timing, coming alongside Sinclair buying Tribune, and both coming to pass would put more pressure on future retrans negotiations. Petersen said large cable providers have the ability to negotiate far superior retrans rates and program access rates, but smaller carriers like TDS "are left having to make up the difference" for broadcasters and cable programmers. Even if the top-four rules changes don't go through, retrans expenses are expected to go up quickly, he said: "Up 40, 50 percent."

A Top-Four rule adjustment isn't likely to significantly change what MVPDs pay, said Fletcher Heald broadcast lawyer Dan Kirkpatrick. For major MVPDs negotiating with large broadcast groups, a few additional top-four stations won't significantly sway negotiating leverage, and most top-four consolidation is likely to happen with those big players, he said. There could be situations where a big broadcast group bought an unaffiliated second top-four station in a market and that unaffiliated would subsequently command higher rates when folded into the station group's agreement, Kirkpatrick said. Meanwhile, a big MVPD negotiating with a smaller broadcaster that adds a top-four station in a smaller market might even be willing to drop that market altogether, he said.

Since top-four combinations would be allowed only case by case, the draft order may not have a very strong practical effect, broadcast attorneys said. Since the draft does little to illuminate criteria for what combinations will be approved, it’s hard for station owners to be sure any such deal would get the nod, said Holland & Knight's Charles Naftalin. Companies seek certainty in mergers and acquisitions, lawyers said. “You can’t do deals that will only maybe get approved,” one broadcast attorney said.

Senior FCC officials said the criteria for top-four duopolies could be firmed up in the 2018 quadrennial review. Between that delay, likely delays from near-certain court challenges and the traditional unwillingness of companies to be the test case for procedures, it could be a while before a possible top-four combo puts a toe in the water, station lawyers said. Companies also have to be concerned about the policy being reversed by a future FCC, one noted. Without hints about what criteria the agency will use -- “a bone to chew on” -- attorneys won’t know what arguments to make in favor of such combinations, Naftalin said.

Possible top-four combinations also could run afoul of DOJ antitrust rules, an attorney speculated, further limiting the practicality of such combinations. Many broadcasters view the draft order’s treatment of the top-four rule as a loss for the industry. Since the draft recon order is seen as having been constructed with care to survive legal challenges, industry officials don’t expect it to change much before being voted on.

The criteria the FCC might look at in a case-by-case review likely won't be clear until there are a few test cases, Kirkpatrick said. He said a media ownership rules change almost surely will be challenged in court by public interest groups and the key question is whether they get a stay, he said. Stays are always difficult to obtain, Kirkpatrick said, but there's a case for a stay because of the sizable change the order on reconsideration represents and the difficulty in undoing consummated mergers if the FCC's new rules get overturned.

With big MVPDs having no alternatives to get broadcast content elsewhere due to the network non-duplication rule, a broadcaster having two of the top-four stations in a market has undeniably extra leverage, another lawyer with cable clients said. The lawyer also said MVPDs still would be unlikely to drop stations even in smaller markets because of the difficulty in luring lost subscribers back after the blackout ends. The lawyer said it's unlikely the FCC's proposed case-by-case review would amount to much protection to MVPDs from skyrocketing retrans fees, since the agency has long stayed out of retrans issues except to urge negotiators at an impasse to continue talking and come to an agreement. Thus case-by-case reviews aren't likely to result in actual guidance or dictates from the agency, the lawyer said.

Ownership Notebook

NAB General Counsel Rick Kaplan took some jabs on Twitter Tuesday at the author of a Wall Street Journal letter-to-the-editor shared by Commissioner Jessica Rosenworcel. The letter by Tom Morgan of Oviedo, Florida, was critical of the FCC draft media ownership reconsideration order, and Rosenworcel called it “necessary reading” in a tweet. The letter "makes clear @FCC#media proposal does not help us get 'the fact-based, credible news we so drastically need,'” Rosenworcel said. The letter said Morgan had broadcast experience and his father was "a broadcast pioneer who got his license from the Department of Commerce in 1923." Kaplan tweeted that Morgan's experience was limited to working as a DJ in the 1950s and '60s. Kaplan then tweeted several times with apparently satirical hashtags such as “#djs4ownership” and “#djs4mediaownership.”