FCC Looks the Other Way as a New Wave of Consolidation Devours Local TV Stations

On Monday, Free Press released Cease to Resist: How the FCC's Failure to Enforce Its Policies Created a New Wave of Media Consolidation. The report investigates how companies are using shady tactics to buy up TV stations and build new national media empires.

"TV consolidation is out of control, and communities are paying the price," said Free Press Research Director and report author S. Derek Turner. "Companies are swallowing up stations at an alarming rate, often through deals that violate the law. If the FCC doesn't start enforcing its rules, the damage to local competition and viewpoint diversity will be overwhelming and irreversible."

The report comes as Sinclair Broadcast Group spearheads one of the largest waves of TV consolidation in history. The report also looks at tactics used by Gannett, Media General, Nexstar and Tribune.

Among the report's key findings:

• In the first eight months of 2013, 211 full-power TV stations changed hands, the highest level in more than a decade, and the fourth-highest year on record in terms of deal value. The latest surge of consolidation is unique from prior waves in that it's taking place in small and medium-sized markets and involves companies that are not household names.
• Sinclair Broadcast Group is leading the current wave of consolidation. In the past two years alone, Sinclair has closed or announced deals that will increase its holdings from 58 to 161 stations nationwide. These deals will more than double the number of markets Sinclair serves from 35 to 78, covering nearly 39 percent of the U.S. population.

The report also details how media companies are using shell companies to evade the Federal Communications Commission's media ownership rules, making inefficient use of the scarce public airwaves and depriving communities of diverse viewpoints and in-depth news coverage. Sinclair controls or will control 46 stations nominally owned by a third party, with 40 of these stations' licenses held by shell companies Sinclair created for the express purpose of evading the FCC's ownership rules.

While Sinclair started this wave of consolidation, several other companies have come along for the ride. Firms like Gannett, Media General, Nexstar and Tribune have collectively gobbled up billions in TV assets over the past year and are taking a cue from Sinclair's playbook, using covert-consolidation arrangements like Shared Services Agreements to skirt the ownership rules.

"We've seen the effects of this so-called covert consolidation on local news already," Turner said. "Stations in the same market air the same content, often with the same on-air personalities and production teams. You can literally change the channel and find the same exact news."

In researching the shell companies held by Sinclair and the other companies that use these covert-consolidation tactics, Free Press found that in almost every instance, the only asset the shell company owns is the license, while the parent company controls the physical assets. For example, Sinclair is often the sole financier of its shell companies' debt, and it reaps nearly all of the profits the shell companies' stations bring in.

Perhaps the most damning evidence indicating the true nature of these covert arrangements is the fact that under Securities and Exchange Commission rules, these shell companies and their parent corporations are considered one and the same. When Sinclair communicates with investors, it makes no effort to hide the fact that it's the true owner of these shell companies and their stations, repeatedly referring to them as "our sidecar companies" and "our stations." In its SEC filings, Nexstar specifically lists among its assets all of the licenses held by its shell company, Mission Broadcasting.

"What's good enough for Wall Street should be good enough for Main Street," Turner said. "The FCC should recognize that these shell companies and the outsourcing agreements that govern them are merely a legal fiction created by companies like Sinclair, Gannett, Tribune and Nexstar to evade the ownership rules."

The report also details recommendations to the FCC and incoming Chairman Tom Wheeler. Turner calls on Wheeler to deny the latest transaction deals, which Free Press and other groups have challenged, and to close the numerous loopholes in its ownership rules. The report also describes how the FCC can modernize its ownership rules to better reflect the capabilities of digital broadcasting. These changes would maximize efficient use of the public airwaves and promote greater competition and diversity in the local TV market.

"If Tom Wheeler wants to be an honest regulator, he should end the dishonest practice of covert consolidation," Turner said. "By closing these loopholes, Mr. Wheeler and the FCC can give truly independent owners a chance to compete fairly to better serve their communities."

To read Cease to Resist: How the FCC's Failure to Enforce Its Rules Created a New Wave of Media Consolidation, go to: https://www.freepress.net/sites/default/files/resources/Cease_to_Resist_Oct._2013.pdf.