UHF Action, Slow Broadcast M&A Seen -- When There's 3-2 FCC

Whenever the FCC gets a Democratic majority, broadcasters expect an uncertain environment for potential mergers and acquisitions, possible action on the UHF discount, and potentially two broadcast ownership quadrennial reviews, they said in interviews. Chairwoman Jessica Rosenworcel declined to comment last week on whether the FCC would go after the UHF discount. She said the agency is reviewing some potential broadcast items for 2022 (see 2112140062).

“I think you’ll see some action, and it won’t be things the broadcasters will jump up and cheer for,” said Patrick Communications broker Larry Patrick. Several broadcast industry officials suggested the agency would be too busy in areas such as broadband deployment and net neutrality to act on broadcasting items, but others said that view is naive. “They’re not mutually exclusive,” said longtime broadcast attorney Jack Goodman.

The UHF discount is likely “a high priority” for a 3-2 FCC, said Gray Television Chief Legal and Development Officer Kevin Latek. Rosenworcel and Commissioner Geoffrey Starks have said the discount is outdated (see 1909160065), and broadcast CEOs said they considered the discount a likely target after President Joe Biden took office (see 2011130049). Broadcasters behave as though the discount has been repealed, Latek said; few deals have been submitted to the agency lately that wouldn’t be viable without the discount. Since even proponents of the discount admit it no longer makes technological sense, the FCC could see it as an easier lift than restoring net neutrality rules, broadcast attorneys said. "That would be a mistake,” said Lerman Senter broadcast attorney David Burns. “It would definitely be a challenge” and almost certainly involve litigation, he said

Eliminating the UHF discount would involve some fraught legal questions about the extent of FCC authority over the congressionally created national ownership cap, and what companies should be grandfathered in. The broadcast industry was split on possible solutions when the matter was last raised in 2018 (see 1806050040). To go after it under Rosenworcel, a new record would need to be assembled, a process that would take significant time, Goodman said.

Broadcast industry officials aren’t sure what to expect from the FCC on the 2018 and 2022 QR, but they're looking to those proceedings for clues as to how an empowered Rosenworcel will respond to broadcast M&A, said Patrick. Uncertainty about the FCC’s stance is likely to greatly slow deal-making for the next few years, broadcasters said. “No one wants to be the test case,” Patrick said.

The agency isn’t expected to get to the 2018 QR this year, and it’s not clear if it will seek to roll it into the 2022 proceeding. United Church of Christ attorney Cheryl Leanza has said doing so would be against the law, but some broadcast attorneys told us that with the 2018 QR already so late, it could happen anyway: One possibility is that broadcasters could take the agency to court over not completing the 2018 QR on time or rolling it into 2022.

Broadcasters aren’t sure what to expect from a QR order. Resurrection of defunct rules against newspaper/broadcast cross-ownership is considered unlikely, but tightening the attribution of joint sales agreements and other sharing arrangements is possible, attorneys said. Action on JSAs would likely have to account for 2015 legislation that grandfathered existing combinations until 2025, broadcast attorneys said. Public interest advocates pushed for the 2018 QR to focus on gathering ownership demographic data to pave the way for future action.

FCC action on radio ownership sub-caps isn’t expected, either, Patrick said. He said loosening ownership caps would be a big help to smaller companies that can’t currently sell their stations. But the radio industry is divided on possible solutions, and radio isn’t considered a likely major focus of the Rosenworcel administration, attorneys said. The Ajit Pai FCC’s focus on broadcasting was an outlier among recent FCCs, said Fletcher Heald's Francisco Montero. “Broadcasting is not gonna be what it was in terms of an agenda item.”

An order on data collection on broadcaster equal employment opportunity information is considered very likely in 2022. The issue has been a longtime focus for Starks and Rosenworcel, and was teed up earlier this year. Broadcasters have indicated a court challenge on the matter is possible, depending on what the FCC does.

Several broadcast lawyers suggested the Rosenworcel FCC could look into political advertisements. Requests on rules requiring broadcast disclosures on issue ads are pending, blogged Wilkinson Barker's David Oxenford. Rosenworcel was also vocal before becoming chairwoman about the need for machine searchable databases of political ad buyer information. “This is an embarrassment,” she said of the lack of a machine-readable political ad file system in a 2019 statement. “It’s one we can fix. I sincerely hope we do so without further delay.” Oxenford also noted any new iteration of the minority tax certificate created by Congress would involve FCC implementation.

The agency is also seen likely to come into conflict with broadcasters in 2022 over regulatory fees. NAB has for years raised the issue of paying fees to support FCC activity in other industries and upped the ante with a petition for rulemaking this time around (see 2112140073). The issue is unlikely to go away by the time 2022 fees come due, and could end up in court, an industry official said. “The current approach is inaccurate, unlawful and unjust,” blogged NAB General Counsel Rick Kaplan.