Only two weeks ago, we were writing about the FCC’s consideration of TV Joint Sales and Shared Service Agreements (or “side-car arrangements” as some have called them) as being an issue that was just being reviewed at the FCC by the new Chairman and his staff. Now, according to press reports (including this one), the exploration has quickly moved much further – so far that we apparently will see FCC action in the very near future on these very controversial subjects. The rumors suggest that the FCC is ready to resolve many of the issues in the current Quadrennial Review of its multiple ownership rules (see our summary of the issues initially raised in that proceeding here) at its March open meeting. According to these rumors, the FCC will prohibit Joint Sales Agreements for television stations in situations where the two stations involved cannot be commonly owned under the FCC’s multiple ownership rules, and at the same time do nothing to relax the broadcast- newspaper cross-ownership restrictions. This is much the same result on JSAs that was rumored in December 2012, but a harsher result on the cross-ownership issue than the previous FCC Chair was rumored to be ready to take. In 2012, the proceeding was put on hold to take more comments on the effect of a change in the cross-interest policy on minority ownership (see our article here), and it has sat there since. This week’s rumors suggest that, as part of the same action (or through a simultaneous action), the FCC will ask about the public interest benefits and harms of Shared Services Agreements in the TV industry.
For investors in television companies and the general public, these rumored actions raise many questions. How can the FCC take such a decision on the JSA/SSA issue when such agreements have become an integral part of the TV business over the last few years? What is the difference between a JSA and an SSA? How can the FCC not recognize that newspapers are in difficult economic times, and some degree of consolidation may well help these economics? Does the FCC recognize that the media landscape in broadcasting has changed dramatically in the last few years?
JSAs and SSAs developed as a reaction to the changing economics of television operations, especially in small and mid-size TV markets, but also involving weaker stations in larger markets. Television is a very expensive business to run, especially if the station produces local news programming. And television operational costs are not dramatically different in a mid-size market from those incurred by a station in a large market – but the revenue potential in those smaller markets is much less. As competition in the media marketplace has grown in recent years, stations have had to look for ways to economize, and combinations of operations to reduce some operating costs have been necessary. But, as FCC limits on the ownership of two TV stations in the smaller markets have made outright combinations impossible in many markets, stations have found ways to combine their operations short of outright ownership and control. These circumstances are much like those that gave birth to the LMA and JSA in the radio marketplace in the early 1990s, where the growth of such arrangements led not to FCC crackdowns, but instead to a relaxation of the radio ownership rules in the 1996 Telecommunications Act.
In TV, LMAs or Time Brokerage Agreements (where one station provides not only sales services to another, but also programming for more than 15% of the other station’s programming hours) have long been deemed to be an attributable interest under the FCC’s ownership rules, meaning that the arrangements can only be entered into if the ownership rules would permit the two stations to be under common ownership. But, unlike in radio, where JSAs are attributable, in TV they have not been. The FCC has long had a proceeding outstanding to look at whether such interest should be attributable, but the formal comments in that proceeding are almost a decade old, and much has changed in the media industry in that time. But the recent reports make it seem as if the FCC is nevertheless ready to act by prohibiting many JSAs in the TV industry without additional comment, and that it is looking further at whether to restrict SSAs.
Where TV stations cannot be commonly owned, parties have used JSAs or SSAs to share some operational expenses. What is the difference between an SSA and a JSA? Joint Sales Agreements are agreements by which one TV station sells advertising time on another station in the same market. Shared Services Agreements may or may not involve a JSA, instead being focused on one station providing services to another – sometimes involving elements such as physical space, engineering and technical services, bookkeeping and accounting, promotional assistance, and sometimes news programming. Some or all of these elements are involved depending on the particular agreement (as evidenced by the facts recited in the FCC’s analysis of the station agreements involved in the recent Belo-Gannett transaction).
According to the recent press articles, the FCC’s impending action could give parties with existing JSAs two years to unravel their deals. For companies with such arrangements, this may require some complex rearrangements of assets and employees to come into compliance. And, for some weaker stations, current programming levels could be changed as well.
The NAB and other broadcasters groups have been actively challenging the assumptions that seem to underlie the FCC’s proposed actions, so we’ll have to see if the action happens in the way that the press reports suggest. Many of the more conspiratorially-minded broadcast advocates view any actions like this which could undermine the financial stability of some TV stations as being a way for the FCC to entice more stations to participate in the upcoming incentive auctions. On the other side, “public interest” groups who oppose consolidation applaud these actions as preserving competition, and certain multichannel video providers support actions such as those apparently being considered by the FCC claiming that JSA/SSA combinations give local broadcasters too much power in retransmission consent negotiations.
Also pending in the Quadrennial review is the question of broadcast-newspaper cross-ownership restrictions, which we will cover in a separate post here on the Blog later in the week. These very important and controversial issues may be heading toward some resolution in this proceeding, but until the final order is out, and all appeals exhausted, no decision is certain. The multiple ownership rules have been under constant review for well more than a decade, with the current proceeding involving issues left unsettled after a successful appeal of the FCC’s 2003 ownership order. Given the history of these proceedings, no matter what happens next month, there will no doubt still be controversy about these issues for many years into the future.