Sook Proposes Sunset Clause on Raised Cap
Raising the 39 percent national ownership cap to 60 or 70 percent but adding a sunset clause that would require further consideration after a few years could be a way for the FCC to relax the cap in a fashion more politically palatable than getting rid of it, said Nexstar CEO Perry Sook on a panel at NAB Show New York Wednesday. Sook told us he believes FCC Chairman Ajit Pai intends to act, but it's also possible the Pai FCC won't get around to it.
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If Democrats win the House in the midterms, prospects of action on the cap “slows,” said Gray Television CEO Hilton Howell. “If you are honest and want this business to thrive, you can't defend the cap,” said Fox Television Stations CEO Jack Abernethy. He was also among those talking up ATSC 3.0 as broadcasters collaborated on rollout (see 1810170047).
Sook and Abernethy would prefer the cap go away entirely, but Sook said it would be difficult for the FCC to make that happen. “I think they are trying to be thoughtful,” Sook said. The FCC would receive “blowback” from anti-media consolidation groups no matter what they do here, Sook said. “Any number we pick is going to be arbitrary,” said Howell. After Sook said the cap should be relaxed in the name of diversity, to allow broadcasters to offer a viable alternative to unregulated “FAANG” internet companies (Facebook, Apple, Amazon, Netflix and Google), the roomful of broadcast industry officials broke into applause.
The cap should be increased, not go away entirely, said Graham Media CEO Emily Barr. Graham and other mid-size broadcasters pushed for a 50 percent cap, and she oversaw the NAB committee that led to the association arguing for a competition-based version of the UHF discount that would apply to all broadcasters. With no cap, broadcasters could slip into providing homogenized news content, Barr said. Abernethy disagreed: “It's a dangerous game to restrict our ability to maximize our business.”
The FCC current lack of action on the cap doesn't freeze mergers and acquisitions, but it does restrict it, Sook said in an interview. There's enough room under the cap for Nexstar to buy the Cox stations, but it couldn't act to buy Tribune under the current rules, he said.
CEOs agreed FCC designation of Sinclair/Tribune for hearing was an isolated incident that won't affect future M&A. Sook said he has met with DOJ and FCC officials and believes they are “open for business.” Every transaction should stand on its own, and bigger companies shouldn't be equated with bad companies, Sook said. Nexstar's resources let it provide more robust coverage in difficult situations such as areas hit by Hurricane Michael (see 1810170025), he said.
The Sinclair/Tribune “process” led to a negative perception of broadcasting, Howell said. “It's incumbent on all of us” to ”rehabilitate the industry” in the eyes of DOJ and other regulators, Howell said. Sinclair/Tribune “tarred us all,” he said. It's a “one-off,” Abernathy said.
Private equity investors have recently shown an interest in broadcasting, and that could drive M&A, the panelists said. Retransmission consent growth is a big reason for investment interest, said Marcos Torres, RBC Capital Markets senior managing director. Sports gambling and increasing scale may be other factors, said Abernethy. The interest from private equity “speaks to the health of the business,” he said. Due to retrans rates, the broadcast business is less dependent on the ups and downs of advertising, Sook said, adding he doesn't see the upswing in political advertising ending soon.
Rising retrans rates and the increasingly high cost of content will eventually lead cable carriers to get out of the video business, MCTV President Robert Gessner told a retrans panel. MVPDs are losing subscribers because of the high cost of subscribing and there's “nothing” that can be done, Gessner said. “It's pointless to keep trying.”
The fees networks charge stations for content are also disrupting retrans, said ATV Broadcast founder Mike Ruggiero. He compared the networks to mafia families, forcing broadcasters to negotiate retrans rates and taking all profits. "There's a lot of bad actors in the industry,” Ruggiero said. NAB declined to comment. If media consolidation continues, regulators may need to intervene in retrans negotiations, said Torres. If a third of the country could be blacked out during a retrans negotiation, government may need to step in, he said.
Uncertainty about the future of the national cap and FCC policy toward top four duopolies is discouraging some broadcast deal-making, said broadcaster Deborah McDermott. “A lot of groups are standing by with dry powder,” said Patrick Communications CEO Larry Patrick. If Democrats win the House in the midterms, “hopes dim for a while” on relaxing the cap, he said. A Democratic-controlled House could use the FCC's budget as a weapon against Pai, Patrick said. Some on Capitol Hill are still “stung” by Sinclair/Tribune, he said.