Holiday Handouts: How the FCC Gave Gifts to Sinclair and Lumps of Coal for ConsumersDecember 22, 2017
It’s the holiday season, and the Federal Communications Commission has been in a giving mood for the largest media companies. Over the past few months, the FCC has adopted a number of items that have relaxed or eliminated rules around media ownership. On their own, these actions allow for the largest media companies to further consolidate, drowning out diverse, independent, and local voices in the marketplace. However, the FCC’s actions have also particularly benefited one broadcast company — Sinclair — and its effort to merge with Tribune.
A quick recap: In July of this year, Sinclair and Tribune filed applications at the FCC to enter into a merger. If the merger is approved by both the FCC and the Department of Justice, Sinclair would control over 200 broadcast stations and reach 72 percent of American households. We’ve explained why the FCC should block the merger, outlining several public interest harms that would result including reduced local programming and higher prices for consumers. The FCC’s media ownership rules were actually put in place to not just to prevent these types of harms but also as a safeguard from allowing a transaction of this size to occur. Relaxing or eliminating several of these rules has not only made it possible for Sinclair to enter into this merger but has also perfectly aligned with its business interests. At the end of the day, each action the FCC took described below has furthered Sinclair’s efforts to merge with Tribune at the expense of consumers.
Gift 1: Creating the Landscape for Sinclair to Merge by Reinstating the UHF Discount
The FCC’s first gift to Sinclair was giving it the opportunity merge with Tribune in the first place by voting to reinstate the Ultra High Frequency (UHF) discount. The UHF discount was first put in place in 1985 to allow broadcasters operating UHF stations to only count half their coverage area when determining if they fell under the national ownership cap. The original intent behind the UHF discount was to even the playing field between UHF broadcasters and Very High Frequency (VHF) broadcasters. VHF stations typically have stronger over-the-air signals and can reach larger audiences than UHF stations. However, this disparity was rendered moot when all broadcasters completed the transition from analog to digital in 2009. In fact, the FCC found that UHF stations had equal if not better technical capabilities than VHF stations under the digital broadcast standard. Therefore, the FCC voted to eliminate the discount in 2013 finding it was no longer necessary.
With its decision to reinstate the UHF discount, the FCC ignored the lack of any technical disparity and opened the door for broadcasters to enter into mergers that would have otherwise far exceeded the national ownership cap. And right on schedule, Sinclair agreed to buy Tribune’s stations in July. Without the UHF discount, the merger would allow Sinclair to reach 72 percent of American households far exceeding the 39 percent cap set by Congress. However, with the UHF discount, Sinclair would only have an audience reach of about 45 percent, which is just slightly over the cap.
Gift 2 : Feeding Into Sinclair’s Business Model by Eliminating the Main Studio Rule
After creating the landscape for Sinclair to merge, the FCC decided to help Sinclair out with its business model by eliminating the main studio rule. Historically, the FCC has required local broadcast stations to maintain actual physical studios in their area of license, rather than just transmit from one blanket tower for a full region. The Commission did this in recognition that broadcasters must serve the needs and interests of the communities they are licensed to, and the best way to ensure on-the-ground, local programming relevant to a particular constituency was to require broadcasters make sure they have the tools at their disposal to get the job done right.
Eliminating the main studio rule plays right into the hands of Sinclair, which has already adopted the business model of forcing local stations to run centralized programming. For years, Sinclair has eliminated local news coverage and replaced it with centralized editorial content, disguising its editorializing with trusted local broadcasters in their communities. No longer requiring Sinclair to maintain a studio in each community makes it even easier for the company to continue forcing its affiliated broadcast stations to run centralized content at the expense of local news, sports, and other programming consumers expect to receive from their broadcaster.
Gift 3: Sweeping Away Legal Problems With the Merger by Relaxing Media Ownership Rules
The FCC’s next gift to Sinclair was to sweep away legal issues with the structure of the merger by relaxing or eliminating several media ownership rules. In November, the Commission voted to eliminate rules that limit any one entity from owning too many newspaper, radio, and television entities within a local market. The rules ensured viewers, readers, and listeners have access to diverse voices and points of view. As a result, the rules were a safeguard from one or two firms controlling all of the media in a local market.
Given the size of both Sinclair and Tribune, it’s inevitable that both companies would own stations in the same local markets that would have conflicted with the Commission’s rules. Sinclair freely admitted this, acknowledging that there are 10 markets where both Sinclair and Tribune own stations that conflict with local ownership limits. But rather than provide a detailed explanation of how it would divest from stations it couldn’t own, Sinclair conveniently waited for the FCC to act to eliminate these rules. Now it is unlikely that Sinclair will have to sell off any stations in these markets for the FCC to approve the merger. While the Commission again shows favoritism to Sinclair, consumers lose out on independent and diverse programming.
Gift 4: Giving Sinclair Benefits in the ATSC 3.0 Transition
In another round of gifting, the FCC also decided to give Sinclair benefits in the ATSC 3.0 transition when it voted to adopt the ATSC 3.0 standard in November. ATSC 3.0 is the “next-gen TV” standard developed by broadcasters. Next-gen TV promises a wealth of benefits to consumers such as sharper pictures, better mobile viewing, and opportunities for community engagement with over-the-air television viewers. But in voting to adopt the item, the FCC failed to consider several public interest harms that would negatively affect consumers during the transition to next-gen TV. For example, consumers who watch over-the-air TV may be forced to buy a new television set in order to receive the ATSC 3.0 signal.
The ATSC 3.0 transition also gives key benefits to Sinclair. For instance, Sinclair owns several patents over the ATSC 3.0 standard that promise to pay the company billions of dollars in royalty fees. Sinclair has also boasted that its patents on the technology will allow them to collect detailed information about consumer viewing behavior that they will then sell to advertisers. Rather than address these consumer concerns, the Commission voted to adopt the item. And to make matters worse, these harms would be exacerbated if Sinclair is allowed to own over 200 stations in its merger with Tribune.
Gift 5: Proposing to Eliminate the National Ownership Cap
In its final gift of the year, the FCC voted to adopt a proposal that seeks to eliminate the national ownership cap. As explained above, the national ownership cap limits entities from owning television stations that reach over 39 percent of households. Despite Congress enacting legislation in 2004 that expressly set the cap at 39 percent, the FCC now wants to circumvent Congress and exceed its legal authority in proposing to eliminate the cap. This plays right into Sinclair’s hands. Even after reinstating the UHF discount and eliminating rules on local ownership limits, Sinclair would still exceed the national ownership cap by about 6 percent. Now Sinclair can close the deal on the merger without having to sell off any stations, allowing it to reach over 70 percent of households.
Stocking Stuffer: A Slap-on-the-Wrist Fine for Failing to Disclose Sponsored Programming
Even when the FCC is supposed to penalize Sinclair, it still rewards the company. Earlier this week, the FCC fined Sinclair $13.4 million for airing sponsored programming without disclosing its funders. As FCC Commissioner Mignon Clyburn pointed out in her dissenting statement, the fine is meager and does not match the scope of Sinclair’s crime. Sinclair grossed over $2.7 billion in revenue last year, but the fine only comes to a fraction of this despite the FCC finding that the company did not disclose sponsored programming more than 1,700 times. Sinclair also has a history of repeatedly violating the Commission’s rules. Instead of taking this all into account, the FCC simply imposed a slap-on-the-wrist fine, which is unlikely to prevent Sinclair from doing the same thing again.
From reinstating the UHF discount to proposing to eliminate the national ownership cap, the FCC’s policies have spread holiday cheer to Sinclair, setting the stage for its merger and catering to its business plans. It’s no surprise that FCC Commissioner Jessica Rosenworcel has expressed concern that the FCC’s actions seem to directly benefit Sinclair, and members of Congress have called for the agency’s Inspector General to investigate whether Chairman Pai is giving the company special treatment. What’s clear is that the FCC’s actions have no benefit for consumers. Consumers want more media choices, not fewer. They want independent and diverse programming that meets their interests rather than one entity owning hundreds of stations airing centralized content. Unfortunately, this FCC is choosing to gift wrap presents to Sinclair and leave consumers with lumps of coal.