In the coming weeks, the Federal Communications Commission will finalize its mandatory review of the media ownership rules, a set of regulations governing television and radio station ownership in the United States.
Currently, the law prohibits a single company from owning commercial TV stations that reach more than 39 percent of American TV households. The national “ownership cap,” as it is called, dates to 1941 and was imposed to protect localism, diversity and competition in the market, but many believe it has outlived its original intent. The cap has been updated a few times over the years — in 1985, 1996, and 2004, when Congress established the current limit and mandated the FCC to review the rule every four years.
Under new Chairman Ajit Pai, the FCC is expected to expand, and perhaps eliminate, the national ownership cap. If it does, broadcasters will be dealt an unprecedented, but fortuitous, break which will change the media landscape for the foreseeable future. It would be a follow-on to the FCC’s decision earlier this year to reinstate the UHF discount, an arrangement that allows some broadcasters to count their stations as only 50 percent toward the national ownership cap. According to experts, these actions will spark a new spate of mergers, acquisitions, and consolidation in the TV industry at a time when the Trump administration has shifted toward a more favorable policy toward mergers, generally.
To the outside world, this may not be such a big deal. But to an industry undergoing fundamental change, it is monumental. The FCC’s decision will be a long-overdue lifeline to broadcasters as they face a new wave of video competition. As one of the nation’s most heavily-regulated industries, free over-the-air broadcasters are in a fierce battle not only for audiences, but also for advertising dollars, both of which are waning. Beyond traditional television, today’s video market now includes cable and internet video providers that have bigger budgets and deeper pockets. Of the $148 billion spent on local advertising in 2017, only 13 percent has gone to local television, reflecting a steady decline since the glory days of broadcasting.
Competition has expanded well beyond the five major networks: ABC, CBS, FOX, NBC and CW. It includes the likes of Amazon, Apple, Google, Netflix, and other over-the-top (OTT) internet services, in addition to traditional pay TV providers such as Comcast, AT&T, Charter and DISH. None of these entities, however, are subject to any rules that limit how many TV homes they can reach whatsoever, and all have a national footprint. The law also imposes numerous public interest obligations on over-the-air broadcasters that do not apply to non-broadcasters. In many respects, these disparities have disadvantaged broadcasters and favored the newer entrants in the market.
Given these conditions, the stakes surrounding the media ownership rules could not be higher for independent broadcast groups, including Nexstar Media Group (130 stations), Sinclair Broadcasting Group (118 stations), Gray (75 stations), ION Media (60 stations), Raycom (47 stations), TEGNA (45 stations), Tribune (41 Stations) Univision (38 stations), Hearst (32 stations) and Scripps (27 stations).
With an expanded or lifted national ownership cap, these companies would be free to pursue significant growth through acquisition and consolidation. Sinclair and Tribune filed a merger request two months ago which, if approved, will position it as the largest independent station owner in the country with 159 stations. With an increase of 221 hours per week of local news, 6,100 hours of local sports and more than $40 million already invested in newly-acquired stations, Sinclair Chairman, David Smith, promises to invest even more in local programming. Late last year, Nexstar Broadcasting completed the largest merger in its twenty-year history with the purchase of Media General, which positioned it as today’s largest broadcast group. With growth, Nexstar CEO Perry Sook has publicly committed to “putting more stations in the hands of minority buyers as part of our future processes.”
Despite these unforced assurances from the top two industry leaders, none of these transactions have come without criticism. Citing antitrust, public interest and competitive concerns, pay television companies and advocacy groups have opposed the mergers in comments with the FCC and Department of Justice. Yet for all the ink spent in opposition, the comparative analysis seems to favor the broadcasters.
While these mergers are big by traditional broadcast standards, they pale when compared to consolidation among other media players. Several mergers among broadband and content providers in the last three years have been significantly larger. In 2016, for example, Charter Communications merged with Time Warner Cable in a $65 billion deal. AT&T acquired DirecTV in a deal worth $49 billion, and is on track to close a merger with Time Warner for over $100 billion later this year. By comparison, the proposed Sinclair — Tribune merger is a $3.9 billion deal.
In addition to consolidation, there is a competitive disparity between broadcasters and other video programming distributors, especially in comparative size and value. Consider the market capitalization for the top non-broadcast media players: Apple ($670b); Alphabet ($598b); Amazon ($396b); Comcast ($235b), and Netflix ($59b). By contrast, the total value of all broadcast groups barely approaches $40 billion, which is less than the smallest (and newest) non-broadcast video provider, Netflix.
So, what does all this mean?
The message is simple and compelling. Broadcasters need scale if they are going to survive in an evolving media market, where their share of advertisers and audiences continue to wane. For this, they are seeking a level regulatory playing field that will realign the rules. A relaxed cap will allow them to negotiate with major cable companies more effectively and continue to provide quality local programming. New rules also would make it easier to secure investment capital needed for growth.
Finally, no one should lose sight of the enduring power of local broadcast to touch our lives like no other medium in trying times of national emergencies. In the aftermath of Hurricanes Harvey and Irma, local TV and radio broadcasters kept affected communities on top of developments, moment-by-moment. Countless families relied on their local news for community-specific instructions amid the storms. This, alone, fulfills the public interest test beyond measure. Any decision by government that will bolster the ability of broadcasters to do more for Americans, not less, should be commended, not castigated.
Adonis Hoffman is founder and chairman of Business in the Public Interest, Inc. and author of Doing Good—the New Rules of Corporate Responsibility, Conscience and Character. He served in senior legal roles in Congress and at the FCC.