Broadcast Limits Headed for Change, and Question Is by How Much

(Bloomberg) -- The limit on how many television stations one company can own is headed for change at the U.S. Federal Communications Commission and the only question is whether Chairman Ajit Pai will loosen the restrictions by a lot or a little.

The limits aim to encourage independent ownership and to help ensure that TV viewers have a diversity of viewpoints available. Critics say such rules handcuff broadcasters as audiences decline in the face of challenges from online news and entertainment, and from cable competitors.

Any change will have an impact on media deal-making. A modest loosening could force Sinclair Broadcast Group Inc. to scale back its proposed purchase of Tribune Media Co. Broader liberalization would lift a regulatory cloud from the $3.9 billion deal, which has stalled amid scrutiny of complex plans to sell stations in order to meet current ownership restrictions.

Pai, a Republican appointee of President Donald Trump who has promised to take a “weed wacker” to “regulatory underbrush,” last year proposed updating decades-old restrictions on station ownership. He didn’t specify what changes he had in mind but plans to bring a plan up for a vote at the agency’s July 12 meeting, according to two people briefed on the matter who spoke on condition of anonymity because the proposal hasn’t been made public.

“Pai in the past has made clear that he thinks all of the limits on media ownership are unnecessary and outdated, so certainly I would expect that he would raise the cap," Harold Feld, senior vice president at the policy group Public Knowledge, which supports ownership restrictions, said in an interview.

Congress established the cap, which keeps any one broadcaster from reaching more than 39 percent of the nation’s households with all of its stations. Sinclair’s Tribune deal would fit that cap -- but only with rules that allow for discounting the audiences of former UHF stations that reached fewer viewers. Pai has called that discount, established before stations were converted to digital signals, outdated.

“The time probably has come for the UHF discount to take its place in the history books alongside the Fairness Doctrine, the Morse Code exam requirement, and other outdated regulations,” he said in 2013.

Industry Suggestions

Without the discount, Sinclair’s size after absorbing Tribune would stand at around 59 percent.

At Pai’s invitation, broadcasters have offered a number of suggestions for changing the ownership regulations:

  • Eliminate the discounted counting method and set the cap at reaching 50 percent of the national audience. That proposal comes from station owners Hearst Television Inc., Scripps Media Inc., Raycom Media Inc. and Gray Television Inc. who called themselves local broadcasters.
  • Change the methodology for counting and use Nielsen audience ratings, a lawyer for Tribune said in a filing.
  • Eliminate the cap, “to level the playing field between broadcasters and other media” such as cable, satellite and internet providers, Sinclair said in a filing.

A 50 percent limit with no discounting would effectively bar a Sinclair-Tribune combination, while leaving room for growth for most other broadcasting companies, according to an analysis filed with the FCC by the local broadcasters.

Mace Rosenstein, a lawyer for Tribune, said switching to Nielsen ratings to measure reach would allow regulators to consider the sets tuned into a station instead of all of them in a market area.

Courts and Congress

Rosenstein didn’t offer an assessment of how that loosening would affect the Sinclair merger. He discussed the matter with Pai’s top aide, chief of staff Matthew Berry, according to his filing.

Gary Weitman, a spokesman for Chicago-based Tribune, and Tina Pelkey, an FCC spokeswoman, both declined to comment.

The UHF discount is itself under attack in a case before the U.S. Court of Appeals for the D.C. Circuit in Washington that could produce a decision in coming months. On Thursday, 41 House Democrats in a letter told Pai not to act on the merger before the court rules.

“His zeal to get this thing resolved quickly is a transparent effort to interfere with the judicial process,” said Andrew Jay Schwartzman, the lawyer for challengers asking the Court of Appeals to throw out the discount.

Pai’s plan could be challenged in court too. Congress set the cap and the FCC isn’t permitted to change it, House Minority Leader Nancy Pelosi said in a letter last year. Pai last year said FCC Democrats, while in charge in 2016, had determined the agency has the authority to change the cap.

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