Barrier to TV Deals Lowered as FCC Alters Audience Size Rule

(Bloomberg) -- Regulators voted to ease a limit on TV-station ownership, a step that could open a door to mergers such as Sinclair Broadcast Group Inc.’s bid for Tribune Media Co.

The Federal Communications Commission, on a 2-1 Republican-led vote on Thursday, restored the practice of counting just part of some stations’ audience. Shrinking the audience allows more room to buy stations before a company reaches the limit of serving 39 percent of the national TV viewership. The agency also said it may consider raising that limit.

The change adds room to grow for companies including Sinclair, Nexstar Media Group Inc., CBS Corp. and Comcast Corp., Bloomberg Intelligence analyst Matthew Schettenhelm said in an April 19 note. Sinclair, with 173 TV stations, is working to finalize a deal to buy Tribune, which owns stations in major markets including New York, Chicago and Miami, Bloomberg News reported Wednesday.

“This represents a rational first step in media ownership reform policy allowing free and local broadcasters to remain competitive with multinational pay TV giants and broadband providers,” Gordon Smith, president of the National Association of Broadcasters trade group, said in an emailed statement.

The vote reversed a 2016 decision by the FCC, taken when it was run by Democrats. FCC Chairman Ajit Pai, a Republican, criticized the earlier action because it effectively tightened ownership limits without considering whether to raise the national cap.

“Today, the FCC is wiping the slate clean” by restoring the practice of discounting audience size for stations that formerly used UHF technology, and preparing to examine the cap, Pai said.

The change was “a huge gift for ambitious broadcasters,” said the FCC’s sole Democrat, Mignon Clyburn, who dissented. She said it “will enable the largest broadcast station owners to grow even larger.”

The FCC’s action carries “unusually high” litigation risk and could be stayed by a court because there’s no longer a real-world basis for not counting the entire audience, Schettenhelm said. “It isn’t clear the FCC can restore an obsolete rule,” he said.

The issue is a relic of days when UHF stations -- broadcasting on channels 14 and higher -- used signals that didn’t reach as far as stations assigned lower-numbered channels. For technological reasons that disadvantage disappeared with the switch to digital TV in 2009. With Thursday’s action, formerly UHF stations regain their advantage.

Sinclair reaches 24 percent of the country with the UHF discount while Tribune covers 26 percent. Their combined holdings come to 42 percent with the discount reinstated, according to a Bloomberg Intelligence analysis, implying a likelihood of divestitures.