Posted on November 27, 2011 by David Oxenford

FCC Says TV Shared Services Agreement and a Combination of Two Top 4 Network Affiliates in One Market is Permissible - For Now

In an eagerly anticipated case involving TV stations in the Honolulu market, the FCC's Media Bureau determined that a programming swap that permitted one company to hold the licenses of both the NBC and CBS affiliates in a single market, and to also provide technical and office services and news programming to a third station in the market, was permissible under current rules.  However, the Commission warned that it would consider in its upcoming Notice of Proposed Rulemaking in its Quadrennial Review of the multiple ownership rules whether similar situations should be permitted in the future, and seemingly implied that even this combination could be subject to further review in future licensing proceedings.  The permissibility of shared services agreements has been a question raised by public interest groups for quite some time (see our post here), and has also been raised by certain cable and satellite television operators as such combinations can result in one broadcaster negotiating carriage agreements for multiple stations in a market.  Based on this case, and the issues raised in connection with previous decisions, this will no doubt be a very controversial topic when the Commission considers the upcoming multiple ownership proceeding.

The Honolulu case began with one owner - Raycom - holding two licenses in the market - one an NBC affiliate, and the other an affiliate of the MyTV Network.  As there are 8 independently owned television stations serving Honolulu, the combination of these two stations, only one of which is a Top 4 station in the market, was permissible.  Raycom then entered into a deal with the owner of the local CBS affiliate, where the parties swapped call letters and network affiliations.  Raycom also purchased many of the non-license assets of the station, and received an option to purchase the station, and agreed to pay the licensee, over time, $22 million.  Raycom also entered into a shared services agreement with the owner of the station that had become the MyTV affiliate where Raycom would provide back office services, sales personnel, and a physical location for the station's studio and transmitting antenna, in exchange for 30% of the stations revenues, and a flat monthly payment.  As detailed below, the Commission determined that the swap of call letters and network affiliations was not subject to review at this time as there was no licensing transaction before the FCC, and the shared services agreement did not violate current FCC policies.

The Media Bureau's decision on the purchase of the CBS affiliation was based on the analysis of the rules that currently prevent the combination of any of the Top 4 rated stations in a market.  As the FCC noted, the rule prohibiting the combination looks at the situation at the time of the acquisition of a station.  The FCC, when it adopted the Top 4 rule, specifically stated that it would not penalize stations that grew their audience.  Thus, an owner with a Top 4 TV station could acquire another low rated station in the market, and if that second station eventually grew its audience so that it also became a Top 4 station in that market, the owner would not be penalized for its success.  The review is limited to occurring at the time of the proposed acquisition of the second station.  As no acquisition was proposed in this case (Raycom already owned the second station), the Bureau determined that there was nothing to review.  The Commission did note, however, that in connection with subsequent licensing decisions (e.g. a sale of the combined operation), the situation could be reviewed again - specifically stating that the combination could not be sold together should both stations remain in the Top 4 and the rules remain unchanged.

The shared services agreement with the new MyTV affiliate was also found to be within the FCC's previous decisions approving such agreements (see, e.g. our summaries of cases here and here).  The licensee was deemed to have an economic interest in the success of the station, as it received 70% of station revenues (from which it would have to pay it's operational costs, plus a $208,333 monthly payment to Raycom for the services that Raycom provides).  The public interest groups contended that the reality of the situation was that the licensee of the MyTV station would probably receive little money from station operations, as the potential profits would be eaten up by the monthly payments to Raycom.  The Media Bureau rejected that assertion, finding that the 70% share from which a payment to the shared service provider was within the scope of prior agreements approved by the FCC.

The FCC also found that the licensee of the MyTV station was in control of the station - that there was no unauthorized transfer of control.  Some of the specific factors looked at by the FCC in determining that the licensee maintained control included the following:

  • The licensee had a full-time General Manager and General Sales Manager, and leased 4 employees from Raycom, and those 4 employees were specifically supervised and answered directly to the station's employees and performed services only for the station (and not for Raycom's stations)
  • The General Manager helped produce the news run on the station (produced with Raycom), and, on a daily basis, vetoed programming offered by the MyTV Network
  • The General Manager scheduled station programming, bid for syndicated programming, and negotiated agreements for local programming
  • The General Manager produced two editorials each week, that were run on the station
  • The General Manager produced a weekly programming report, sent to the station's owner

Based on these facts, and the financial arrangements set out above, the Bureau concluded that the licensee maintained sufficient control over the station based on prior precedent.

 As we wrote last month, Commissioner Copps already stated, when it began its online public inspection file proceeding, that these agreements were an evasion of the ownership rules.  In this case, the Bureau did not seem very comfortable in making the decisions it did, promising to revisit these issues in the upcoming Notice of Proposed Rulemaking on the revisions of the FCC's multiple ownership rules.   Recent press reports indicate that that notice is circulating among the Commissioners now, and will probably be released for public comment soon - probably without any relief from the local TV duopoly rules being proposed.  With the NPRM set to examine shared services agreements, these issues are bound to be matters of serious contention for the next year, as the ownership proceeding makes its way through the Commission.   And this case may not be at an end either, as an appeal to the full Commission is possible.  So look for the very contentious arguments on this very contentious issue to continue. 
Tags: , , , , ,
Posted on May 6, 2010 by David Oxenford

More Indications of FCC Review of TV Shared Services Agreements

In recent years, as competition in the video marketplace has become more intense, in a number of broadcast television markets, competing stations have teamed up to combine certain of their operations to achieve economies while still allowing for some degree of independence of programming.  Under these "shared services agreements", one station will provide back-office support and often advertising sales for another station in the market.  Where the station providing the support programs less than 15% of the programming hours of the station being supported, the contractual arrangement is not "attributable under the FCC's multiple ownership rules.  Thus, these services can be provided in circumstances where the supported station could not be owned by the station that is providing the services.  Nevertheless, a number of these arrangements have been under attack from public interest groups, and recent Commission actions indicate that the FCC may well be reviewing its position on these sorts of agreements.

A few weeks ago, in approving an application which provided for a shared service agreement between two television stations in the same market (over the objection of a competitor), the FCC noted that it was approving the deal as consistent with its rules as they are currently enforced, but warned that the arrangements would be reviewed as part of the FCC's review of its multiple ownership rules - a review which is to take place this year.  This week, the FCC agreed to treat a case in Hawaii, which has generated much controversy and press coverage, as a "permit but disclose" proceeding, meaning that parties are not confined to the usual process of arguing their cases through written submissions served on all parties (or meetings at which all parties are present).  Instead, interested parties can now meet with FCC decision-making staff (including FCC commissioners) on their own, as long as they file an "ex parte" notice in the record summarizing the presentations that they made.  This process is usually used only for high-profile decisions with potential far-reaching impact or where new policy is potentially to be made. 

These decisions make clear that the Commission is carefully thinking about its position on these agreements.  While there is no certainty where that thinking will come out (whether it will uphold its current policy or evolve its thinking on the matter), the issue is clearly being considered.  We have written about how certain public interest groups have targeted these agreements for FCC scrutiny in some of the preliminary hearings on its quadrennial review of its multiple ownership rules, and we expect more discussion of them in coming months.  Supporters of these agreements, who believe that they provide the only way that many smaller television stations can survive in today's media marketplace, will no doubt be heard as well.  Watch for this debate to unfold in coming months. 
Tags: , , , , , , ,
Posted on August 5, 2007 by David Oxenford

An Option, A Guaranty, and a Shared Services Agreement - OK By the FCC

The FCC last week approved two television "Shared Services Agreements," here and here, each between the proposed Buyer of a television station and a company that owns another television station in the same market.  In each case, the existing owner would sell advertising time for the station being purchased, as well as provide a loan guaranty for the funds necessary for the purchase of the station.  And the station already in the market would receive from the purchaser of the new station an option to purchase the station in the future, if that purchase is permitted under some future set of multiple ownership rules.  It is interesting that these decisions were released in the same week as the FCC issued two requests for public comment on the multiple ownership rules (see our post here).

These decisions probably mark the outside limit of what two stations can do in a television market where they cannot be co-owned without triggering multiple ownership concerns.  In the radio world, such agreements would not be possible to the same extent.  A radio licensee who provides sales services for another station in the same market, where more than 15% of the advertising time on the station is sold pursuant to such an agreement, would result in an "attributable interest," meaning that such services could only be provided to a station that could be owned under the multiple ownership rules. 

 

Even in the television world, it is not clear how long such agreements will be allowed.  There is currently pending an FCC rulemaking proceeding asking if Joint Sales Agreements in television should be allowed to continue if they are between two stations which cannot be commonly owned under the FCC ownership rules.  In many television markets - particularly smaller television markets - these agreements have allowed some stations to survive and provide service to the public when the economics of the situation probably would not have allowed a wholly independent station to survive (or to provide much in the way of local service).  But sometimes these distinctions between markets are overlooked, as the FCC tends to look at larger markets when making decisions, as these markets are most visible, while overlooking the economic impact of their decisions on stations in smaller markets.
Tags: , , , , , ,
  • Email This
  • Print
  • Comments
  • Share Link