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Disputes 'Vigorously'

Nexstar, Mission $1.8 Million NAL Creates Uncertainty for Other Broadcasters

A combined $1.8 million proposed forfeiture for Nexstar and sidecar operation Mission broadcasting over Mission’s station WPIX New York will likely create uncertainty about similar arrangements that other broadcasters use, though attorneys and the FCC say Thursday’s notice of apparent liability is narrowly targeted. “We stress that the decision we reach today is limited to the facts before us and the relationship between Nexstar, Mission, and WPIX,” said the NAL. On the other hand, “If you’re a broadcaster with a sidecar, you’re saying ‘uh oh,’” said Holland & Knight attorney Charles Naftalin. Nexstar said it will dispute the enforcement action “vigorously.”

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Nexstar exercised "de facto control" over Mission’s WPIX, resulting in an unauthorized transfer of control and pushing Nexstar’s reach beyond the 39% cap on broadcast ownership, the NAL said. This is the first time the FCC has proposed a forfeiture for a national cap violation, the NAL said. It proposes a $612,395 forfeiture (the maximum allowed) against Nexstar for the unauthorized transfer, a second $612,395 for the cap violation, and another $612,395 against Mission. According to the NAL, Mission’s finances are completely dependent on Nexstar, which has guaranteed all its debts. The NAL also proposes requiring Mission to either divest WPIX to a third party or sell it to Nexstar, which would in turn have to divest stations to comply with the 39% cap. Under either arrangement, Nexstar couldn’t have sharing arrangements with the divested stations for eight years, the NAL said.

Nexstar oversaw WPIX’s programming and collected all its revenue through a local marketing agreement, which the FCC approved when Mission purchased WPIX from Scripps. Such arrangements are common in broadcasting, but Thursday’s NAL argues that WPIX’s situation was unique because Nexstar doesn’t own another station in the New York market and Nexstar’s degree of control over WPIX, which extended to negotiating retransmission consent deals on the station’s behalf. The NAL “does nothing to change the existing limits for same-market stations,” but sharing agreements “do not release licensees from the requirement that they control their stations,” the NAL said.

Sharing agreements between broadcasters without stations in the same market are rare, broadcast attorneys and brokers told us. That means few station groups are in the same situation as WPIX, but the item also injects uncertainty into the industry about what the FCC allows, broadcast attorneys told us. That deters investment, they argued. One deal that could be affected is Mission’s proposed purchase of WADL Mount Clemons, which is also in a market without another Nexstar station. WADL’s current owner, Adell Broadcasting, said Friday was the “drop-dead” date for the FCC to approve that deal.

The NAL concedes it approved a sharing arrangement allowing Nexstar to provide all of WPIX’s programming but said that “in practice” the deal oversteps the rules. Because Mission never tried to substitute its programming for Nexstar's and runs Nexstar’s logos on all its content without any of its own, Nexstar’s control of programming is part of the evidence for the agency's conclusion that Nexstar controls WPIX.

That sort of conclusion contributes to industry uncertainty about the FCC’s rules, said Commissioner Brendan Carr in his concurrence with the NAL. “It is concerning to me that the FCC cites as evidence of control those features of the relationship that the FCC previously signed off on,” Carr said. “We need to be careful that we do not undermine reasonable reliance on prior FCC decisions.” Nexstar and Mission “acted in reliance upon the FCC’s existing rules,” including the approval of the sharing agreement in “making business decisions regarding financial investments and the operation of WPIX,” the broadcasters told the FCC, according to the NAL.

Joint operating, shared service, and local marketing agreements” are “vitally important to maintain a competitive media marketplace,” said Nexstar CEO Perry Sook in a statement Thursday. Tentative findings of de facto control of a station involving a major broadcasters are uncommon, communications regulatory and transaction lawyer Scott Flick at Pillsbury Winthrop wrote in an email.

Mission’s delegation to Nexstar of all decisions on retransmission consent “was not revealed in the Application nor any other filing, much less ever approved explicitly or tacitly by the Commission,” said the NAL. Combined with Nexstar’s complete control of WPIX’s personnel, finances and website, the retrans negotiation is “indicative of the usurpation by Nexstar of the financial and business affairs of WPIX,” the NAL said. Though the sharing arrangement the FCC approved in 2020 gave Nexstar the right to WPIX’s retrans revenue, that doesn’t confer the right to negotiate retrans deals on Mission’s behalf, the NAL said.

The fact that the parties revealed to the Commission that the way in which incoming revenues would flow in no way indicated that Nexstar would be sole decisionmaker on these key issues,” the NAL said. The NAL also faults Mission for ceding control of its website, personnel and nearly every other function to Nexstar. “It stretches credulity to believe that a station in the number one market in the country can be meaningfully operated based on two part-time employees,” the FCC said.

Nexstar’s WPIX arrangement with Mission was the focus of previous court proceedings. A federal court’s dismissal last week of DirecTV’s antitrust complaint against Nexstar and Mission (see 2403210027) “sets a dangerous precedent that a victim of price-fixing needs to pay the inflated price before it can make a claim in court,” DirecTV said. It said it was assessing appeal options, “particularly given we still believe, regardless of the initial ruling regarding our ability to file a claim, that the engagement is unlawful and must be brought to light.”

Nexstar’s control of WPIX’s finances violated the national cap because of FCC rules that a broadcaster supplying programming to a station effectively owns that station if it has enough of a financial interest in it. Nexstar crossed that threshold because it guaranteed the $327 million line of credit that Mission drew on to purchase WPIX. With WPIX counting against its audience reach, Nexstar reaches 45% of the country, well more than the 39% cap, the NAL said. “This is what protecting the public interest looks like,” said United Church of Christ Media Justice Ministry attorney Cheryl Leanza.

National Content & Technology Cooperative CEO Lou Borrelli emailed that the enforcement action could cause other broadcast station groups “to consider their own situation” regarding leverage they have in retrans talks “and the risks that come along with it.” He added that it’s “obvious to even the most casual observer that the retransmission market has been broken for years. Broadcasters have ruthlessly leveraged their power to the detriment of cable operators and the public.” He said NCTC “welcomes any effort to reign in these behemoth media conglomerates whose only focus appears to be extracting higher and higher fees from our member companies, and ultimately their cable television customers, for services that can be accessed for free over the air, and increasingly from other sources over the internet.”

The NAL was cheered by MVPDs that have been in disputes with Nexstar and the sidecars over WPIX. “We’d like to thank the Commission for correctly attributing the ownership of WPIX to Nexstar and ending the fiction that the station was ever independent once Mission became its licensee,” Comcast emailed. The FCC Media Bureau has proposed Mission pay a $150,000 fine for retrans consent negotiation violations (see 2401120069). DirecTV said it “applaud[ed] the FCC’s efforts to enforce the media ownership rules on relationships Nexstar has with sidecars like Mission Broadcasting.” Whether the NAL indicates the FCC will act on DirecTV’s informal complaint against Nexstar (see 2306300015) isn’t clear, a lawyer with MVPD and retrans experience told us. He said the notice has broader relevance beyond Nexstar because other broadcasters have used sharing arrangements in ways that transfer control.