A webinar to explain the new rules for TV stations that want to share 6 MHz channels after the incentive auction (so that the broadcasters sharing the channel post-auction can enjoy the financial benefit of selling one of their channels during the auction), will be held by the FCC on July 22 from 2 to 3 PM ET. Information about the webinar and a place to register can be found on the FCC website, here. This webinar follows the FCC’s recent decision to provide more opportunities and flexibility for post-auction channel sharing, and the FCC’s other recent actions (see our article here) in moving the incentive auction forward. The webinar will also be on the heels of the decision to be announced on Thursday as to specific auction bidding procedures – including issues such as how the amounts of the initial monetary offers to TV stations to surrender their spectrum will be set, and how much those offers will be reduced in the subsequent bidding rounds until the FCC reaches its target amount of TV spectrum to be cleared for sale to wireless users. Today, let’s look at the channel sharing changes made in the FCC’s order released last month.
Channel sharing has been pushed by the FCC as a way for broadcasters to have their cake and eat it too in the incentive auction. By agreeing to share a 6 MHz channel with another broadcaster, a broadcaster can stay in the TV business and, at the same time, offer a channel for sale in the incentive auction and, if they are successful in that auction, reap the financial benefits of the sale (of course, they will have to share some of those benefits with the other station with which they plan to share). The FCC has even promised that stations that share will still be considered independent stations, so they can each sell their stations independently, and each station on a shared channel will have all the must carry and retransmission consent rights that they had when they independently operated on separate 6 MHz channels. But these agreements cannot be entered into without significant planning and forethought.Obviously, there are technical issues as to how the channel sharing will be implemented, and how the technical operations of the station will be handled. When two stations share the same digital bit stream, all of the issues of sharing a tower and then some must be addressed in any agreement. Plus, as stations will be competing for the digital bits that can be conveyed in one 6 MHz channel block, there can even be questions as to whether the sharing will be static – each sharing party always gets to use a set percentage of the bits available – or dynamic, so that adjustments can be made when one station or the other needs more digital capacity to broadcast a program like a fast-moving sports event or action movie, as opposed to a talking heads public affairs program. All these issues are a matter of contract. And obviously, there are legal issues too, and some of those were addressed by last month’s FCC order.
One issue addressed by the order, for instance, was whether these deals had to be permanent, and whether one station sharing a channel could have the rights to reclaim the remainder of the channel should its sharing partner’s station disappear (e.g. if its license is revoked). Or, should the parties have the ability to enter into these deals for a limited period of time and, if the arrangement does not work out, should a station be able to revert to full operation of the 6 MHz block? In its 2014 order adopting the auction framework, the FCC had envisioned channel sharing agreements as permanent. But, in its recent order, the Commission changed its view making these agreements more flexible. Under this new policy, agreements can be for a term of years (the FCC also starting a proceeding to allow such agreements to be entered into well after the incentive auction, an ability that would seem to be necessary if one sharing station could suddenly find itself without a technical home if its limited-time channel sharing agreement expires and is not renewed at some point after the auction).
In addition, stations can have rights under these agreements to recapture the shared spectrum should its sharing partner lose its license or otherwise stop operating. Sharing stations can also have puts, calls and options on each other’s’ share of the channel. Note, however, that the FCC did impose certain restrictions, including that presumptively, a channel that is currently reserved for noncommercial use would still carry that reservation post-auction, so a commercial sharer would have to plead for an exception to be able to take over full operations of a reserved noncommercial channel.
The FCC also provided more flexibility as to when these agreements could be entered into. Under the 2014 order on auction structure, deals had to be made before the commencement of the auction. Under its new order, a party can indicate in its initial auction application that, rather than turning in its license and exiting the business, it intends to attempt to enter into a sharing agreement after the auction. When the bidding is complete, that operator must then find a sharing partner and start sharing operations before the date set by the FCC for it to surrender its current channel – only 3 months after the auction ends and payment is made. The certainty for auction planning and coordination (as sharing partners with pre-auction deals can coordinate bidding strategy, while a station with no identified sharing partner cannot talk to other broadcasters in its market about its bidding plans once the auction “quiet period” begins) and general business purposes (so that the station can plan for post-auction operations knowing that it will in fact have a place to operate) that is provided by a pre-auction agreement is probably preferable in most cases, yet the FCC has given stations this additional flexibility to try to cut a channel sharing deal after the auction.
So parties looking at the potential of channel sharing should carefully review the FCC’s orders, discuss the issues with attorneys and other advisors versed in these rules, and consider listening in on the FCC’s webcast. Also, as I said in another post on the incentive auction earlier this week, my partner Jonathan Cohen and I will be doing a webcast for the Michigan Association of Broadcasters on August 4 that will discuss these and other auction issues for TV broadcasters. This webcast will be made available by other state associations, so check with your state association to see if they will be subscribing to the event. With so much at stake in the upcoming incentive auction, there can never be too much information on these topics.