FCC issues new rules that crack down on local TV partnerships

The Federal Communications Commission approved new rules Monday that will greatly reduce and potentially bring to an end the popular practice of business partnerships between competing local television stations.

FCC Chairman Tom Wheeler said such partnerships have been abused by many broadcasters who have used so-called joint sales agreements to get around the regulatory agency’s rules limiting the number of television stations a broadcaster can own.

The new guidelines are seen as a blow to several big broadcasters including Sinclair Broadcast Group and Nexstar Broadcasting, two of the nation’s largest owners of local television stations. The FCC did not say how many JSAs currently exist, but industry estimates put the number at north of 100, primarily in mid-sized and smaller markets.

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Broadcasters have argued that joint sales agreements and similar partnerships help keep struggling television stations afloat and increase diversity of content in smaller markets. Public policy advocates and consumer groups have countered that the opposite is true and that these arrangements serve only large media companies, harm competition and can lead to anti-competitive behavior.

Under the new rules, a broadcaster that accounts for more than 15% of another station’s advertising sales would be seen by the FCC as the defacto licensee of that station. For many broadcasters, such a caveat could put them in violation of the FCC’s ownership rules. The FCC typically limits the amount of stations one company can own in an individual market to one in all but the biggest cities.

The FCC said broadcasters will have two years to unwind their joint sales agreement arrangements or can file a request for a waiver and try to make the case that the partnership serves the public interest.

The 3-2 vote was divided along party lines. All three Democrats -- Wheeler and Commissioners Mignon Clyburn and Jessica Rosenworcel -- voted yes while Republicans Ajit Pai and Michael O’Rielly voiced strong opposition.

Pai said joint sales agreements have allowed broadcasters to better serve their communities and that the case to get rid of them was “embarrassingly weak.” He added that the FCC’s notice for the new rules did not cite a single complaint from an advertiser regarding JSAs nor were there examples of a JSA resulting in one station “exercising undue influence” over another.

“This is the dog that didn’t bark,” Pai said.

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Wheeler countered that joint sales agreements have been used to skirt existing rules to “create market power that stacks the deck against small companies seeking to enter the broadcast business.”

Craig Aaron, president of the media watchdog group Free Press, praised the FCC’s actions.

“For years, a small handful of powerful conglomerates has used outsourcing agreements to dodge the FCC’s ownership rules and grow their empires at the public’s expense. It’s time for conglomerates to start playing by the rules,” he said in a statement.

John Hane, a communications lawyer with Pillsbury Winthrop Shaw Pittman, whose clients include many broadcasters, countered that the FCC’s moves will undermine the television industry.

“This will increase cost and lower revenue for over-the-air television,” Hane said.

In another blow to broadcasters, the FCC also issued new regulations that would prohibit competing stations from teaming up to negotiate distribution agreements with pay-TV distributors. The FCC said such a move could lead to lower pay-TV bills for consumers, and the cable industry cheered the news.

“Such coordinated behavior harms consumers by artificially inflating the cost of watching over-the-air broadcast stations on cable systems,” the National Cable & Telecommunications Assn. said.

That notion was dismissed by the broadcasting industry.

“Pay TV companies have been raising rates more than twice the rate of inflation for the last 20 years, according to Consumer Reports. The notion that a punitive crackdown on local TV stations will lead to lower cable rates is simply not credible,” said Dennis Wharton, a spokesman for the National Assn. of Broadcasters.

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Follow Joe Flint on Twitter @JBFlint.