UHF Discount NPRM Seen Seeking Comment on Allowing Pending Transactions
A draft FCC rulemaking notice proposing eliminating the UHF discount is being changed and may contain a softer stance on grandfathering pending transactions, said FCC officials in interviews. Earlier, when the NPRM was on circulation but before it was placed on the Sept. 26 meeting’s tentative agenda last week, it proposed letting existing ownership groups in under the old rule but applying a new nationwide ownership limit calculation to any deals pending between the rulemaking’s issuance and when an order is adopted (CD Aug 6 p1). Tribune’s deal to buy Local TV is pending, and would give the new company an ownership cap number of 42.7 percent without the UHF discount (CD Aug 14 p1). The FCC caps ownership at 39 percent of viewers nationwide.
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Now, with the notice set for this month’s meeting, the language is being softened, and the NPRM will only seek comment on whether pending transactions should fall under the old rule, said an FCC official. But another official said the way the NPRM will treat pending transactions is “still moving” and may change again before the item is voted on by the commission. A Media Bureau representative had no comment.
Leaving the door open for the discount to apply to pending transactions “enhances the odds of a unanimous vote” by the commission, said Fletcher Heald broadcast attorney Frank Jazzo, who isn’t connected to Tribune/Local TV. Rulemakings that could disrupt transactions already in the pipeline tend to be controversial, said Jazzo. “It’s just good politics” to avoid disrupting such transactions, he said.
Although Tribune hasn’t commented on the potential of the rulemaking to hurt its deal with Local, the company did refer to the threat of the discount’s elimination in a filing in a related transaction with Local and Dreamcatcher Broadcasting last week (CD Sept 9 p17). The companies “entered into their respective transactions in good faith reliance on Commission Rules in effect at the time of filing,” said Tribune. “Retroactively upending those expectations, devaluing the parties’ transactions and subjecting them to substantial contractual and other transaction costs -- including the possibility of ‘fire-sale’ divestitures -- would be inequitable and unlawful."
Softening the NPRM’s stance on pending transactions would be an indication the commission is trying to avoid opposition by Tribune to the rule change, said Free Press Policy Director Matt Wood. Letting Tribune avoid a new ownership cap rule is akin to closing the barn door after the horses have already escaped, he said. The “obsolete” UHF discount rule should be eliminated to put a stop to the trend of station groups “accumulating too much power,” he said.
Even if pending transactions are allowed to use the discount to calculate ownership, a proposal to eliminate the UHF discount is still going to be controversial with large station groups that are going to find it difficult to buy new stations, said Pillsbury broadcast attorney Scott Flick, who doesn’t have a relationship to the matter. FCC officials had said it was likely that grandfathered ownership groups above the ownership cap would need waivers to make moves. BIA/Kelsey has said Sinclair’s pending deal with Allbritton would put it just under the cap at 38.2 percent, without the UHF discount. Eliminating the UHF discount “would decrease or even remove the headroom for broadcasters to buy more TV stations,” said Stifel Nicolaus in an email to investors Friday.
Large companies that would be affected by the rule changes proposed in the notice will likely argue that the commission doesn’t have the authority to enact it, since the ownership percentage was determined by Congress, said Flick. However, the NPRM anticipates that argument, and says that the commission does have the authority to make changes to the TV ownership rules, said a commission official. If the regulator and broadcasters disagree over whether the agency has the authority from Congress to make a rule, “it almost guarantees that we'll see this in court,” said Flick.