Moonves Auction Endorsement May Not Spur Participation

Broadcast industry observers are divided over whether interest in the incentive auction expressed by CBS CEO Les Moonves last week is likely to have much effect on potential participation in the incentive auction, they said in interviews Friday.

Speaking at the UBS 42nd Annual Global Media and Communications Conference Tuesday, Moonves said the high yield of the ongoing AWS-3 auction made the prospect of entering the incentive auction “potentially a great opportunity” for CBS. The company could consider putting the spectrum of CBS-owned CW affiliates in markets where it already owns a CBS station into the auction, Moonves said, saying participating in the auction while remaining a broadcaster is “having our cake and eating it, too.” Though some attorneys and analysts said CBS’ endorsement of auction participation could sway some smaller broadcasters previously on the fence, others told us most broadcasters similarly situated to CBS -- in possession of one or more duopolies -- already are well aware of the auction, and smaller ones don’t have the same options. Broadcasters may also disagree that the success of the AWS-3 auction presages a similarly successful incentive auction, attorneys told us.

It’s not particularly surprising for Moonves to express interest in the auction, said broadcast attorneys. Since CBS is a publicly traded company, Moonves has a duty to maximize shareholder value, and as the auction begins to look increasingly viable, the company is obligated to examine it as a possibility, the broadcast attorneys said. Moonves’ interest in the auction could be “a modestly encouraging data point” for small broadcasters considering auction participation, said Guggenheim Partners analyst Paul Gallant. BIA/Kelsey Chief Economist Mark Fratrik said the FCC's "Greenhill book" information packets on the likely prices for spectrum in the auction are more likely to have galvanized broadcasters into considering auction participation than Moonves’s endorsement. “The wake-up call for many broadcasters was the issuance of the Greenhill book,” Fratrik said. “That was exactly the FCC’s intention."

Moonves’ interest in trading the spectrum of stations where CBS has a duopoly is an indication that the FCC’s tightened restrictions on joint sales agreements may hurt the incentive auction, said Pillsbury Winthrop communications attorney John Hane. It’s easier to participate in the auction “if it’s not a binary choice between participating in the auction and staying in business,” he said. “If you only have one station in a market you might not even consider the auction,” he said. “If you have three, it’s pretty easy to sell one and selling two may even be an option.”

Though Moonves pointed to the AWS-3 auction’s success as indicating a lucrative incentive auction, attorneys and analysts are divided on whether he’s correct to make that connection. Some broadcasters are concerned that the incentive auction will come too soon on the heels of the AWS-3 auction, and that the companies purchasing spectrum now will be consequently less willing to take part in the later auction, one attorney said. Another longtime broadcast attorney referred to the two years between the two auctions as enough time for wireless spectrum buyers to refresh their finances to buy spectrum in both proceedings. The idea that the anonymous participants in the AWS-3 auction will run out of money to buy the “more valuable” 600 MHz spectrum in the incentive auction is “a bit far-fetched,” Fratrik said. The success of the AWS-3 auction supports the estimates outlined in the Greenhill book and Moonves’ optimism, Fratrik said.