The Commission’s rulebook may be silent about what flies and what doesn’t when it comes to SSAs and JSAs – but the Commission’s processing staff isn’t.
Shared Services Agreements (SSAs) and Joint Sales Agreements (JSAs). To some, they’re a godsend, sustaining stations that would otherwise be dead-and-gone. To others, they’re an anti-diversity scourge, a disingenuous device reflecting all that is wrong with Big Media Consolidation. One thing everybody can agree on, though: as a matter of regulation, SSAs and JSAs are not subject to specific definitions or easily identified parameters. While lots of folks recognize the acronyms and wax eloquent about the concepts underlying SSAs and JSAs, the FCC’s rules themselves are silent about their precise metes and bounds.
If you’re a newcomer to the world of SSAs and JSAs and would like some background, check out this post from last fall. Quick recap: SSA/JSA arrangements usually involve two separate TV licensees in the same market. While common ownership of the two stations is prohibited by the FCC’s rules, the two licensees wish to cooperate with one another to increase the efficiencies of their operations. This is usually accomplished by one of the licensees (let’s call it the “Services Provider”) agreeing to provide a range of operational services to the other (the “Services Recipient”).
The FCC’s staff has been aware of – and has tacitly blessed – these arrangements for years, but only if the particular terms of the SSA/JSA arrangements don’t cross certain boundaries. Unfortunately, those “certain boundaries” have not been generally publicized. Oh sure, there have been a very small handful of high profile cases – for instance, in Hawaii last fall, or in Corpus Christi two years ago – that have shed some official light on things. But apart from those the allowable parameters for SSAs and JSAs have been disclosed during private conversations with the FCC’s staff when they are evaluating a proposed SSA/JSA arrangement in the context of an assignment of FCC licenses from one party to another. (In 2004, the FCC did open a formal rulemaking proceeding to consider whether JSAs should be treated as attributable interests. While that proceeding is technically still open, it has gone nowhere in eight years and shows no current signs of life.)
Which is why we figured it might be a good idea to share some of what we have learned from having been in on a number of such conversations.
The following is based on our experiences with the Video Division in a number of deals which included SSA/JSA components. Important caveat: Since a number of the Division’s (not to mention the Commission’s) policies aren’t written down anywhere, they can change from one day to the next and from one deal to the next. That, obviously, is not an ideal circumstance for anybody who might be trying to structure a deal to comply with whatever the applicable standards might be. So if you’re in that particular boat, understand that the following reflects policies and guidelines that have been used by the FCC’s staff in the past and that could be used in the future – but there’s no guarantee that the staff won’t perceive in your particular deal some reason to change things up along the way without telling anybody (including you) in advance.
The staff’s touchstone in dealing with SSAs and JSAs (as well as with other questions of broadcast ownership attribution) consists of three basic elements of station operation: programming, financing and personnel. The primary goal is to assure that each independent licensee can and does exercise control with respect to each of those elements.
As to programming, the Commission’s rules do specify that an entity providing more than 15% of the total weekly programming to a station is deemed to have a cognizable interest in that station. Since parties to an SSA generally want to avoid the creation of any cognizable interests, the 15% limit affords important guidance. SSAs often provide that the Services Provider will be responsible for the news gathering and newscast program production of the Services Recipient. In such cases the parties must be careful to keep the total length of all provided news programming under the 15% threshold (i.e., no more than 25 hours in a 24-hour/7-day broadcast week).
Beyond the 15% limit specified in the rules, though, other programming-related considerations come into play as far as the processing staff is concerned. For example, the staff has insisted that each station licensee must retain control over the entertainment programming aired on its station. If the Services Recipient’s station is a network affiliate, the affiliation agreement must be directly between the Services Recipient and the network. The Services Provider cannot negotiate either the network affiliation or any syndicated programming agreements on behalf of the Services Recipient. The Services Recipient must also have the right to reject any advertising sold by the Services Provider for broadcast on the station.
When it comes to finances, each station’s licensee must own or control certain minimal assets necessary to run the station, such as the transmitter and access to a tower. For processing purposes, we understand the staff’s position is that the value of these assets owned/controlled by the licensee must be at least 20% of the value of all of the station’s assets. (Such equipment may be owned or leased.) That means that the Services Provider cannot own or control more than 80% of the asset value of the Services Recipient’s station. Additionally, direct loans to the Services Recipient from the Services Provider must not exceed 33% of the combined equity and debt of the station, according to the Commission’s EDP rule. Note, though, that the Services Provider may guaranty lease payments and loans to the licensee made by banks and other unrelated financing sources.
Under a typical JSA, advertising sales for both of the contracting parties’ stations are provided by the sales staff of the Services Provider’s station. Video Division staff members have advised that no more than 30% of the revenue collected from such sales may be retained by the Services Provider. (That’s consistent with the Media Bureau’s published decision in the Hawaii case.) That policy arises from the apparent belief that if the Services Recipient retains 70% of the station’s advertising revenue, it will have sufficient economic incentive to control programming on its station. This 30/70 split between the Services Provider and the Services Recipient has been a consistent hallmark of staff-approved JSA arrangements for TV stations over the last eight years. The 30/70 split relates only to advertising revenues; the parties’ arrangements could, for instance, include an SSA that provides for payments from the Services Recipient to the Services Provider that would have the net effect of reducing the latter’s overall revenues to significantly below 70% of advertising sales.
Finally, regarding personnel matters, the staff has indicated that, under an SSA arrangement, a Services Recipient must keep at least two full-time employees on its payroll. In the staff’s view that’s the minimum number necessary for the station to effectively control its own programming and financing. One of those two employees must be a manager with full editorial discretion in carrying out the Services Recipient’s policies, including the authority to accept or reject programming provided by the Services Provider. The other employee may be a staff-level person. The Services Recipient must be able to hire and fire its employees at the station and pay their salaries without interference from the other party to the SSA.
Video Division staff policy limits the duration of JSA/SSA arrangements to the length of time of a station license – eight years – although, oddly, the terms of the agreements and the terms of the license do not need to run concurrently. In other words, an SSA/JSA arrangement can begin at any time during a station’s license term, so long as the arrangement doesn’t last longer than eight years, even if that means the arrangement will span portions of two separate license terms. The staff has also indicated that automatic renewals of SSAs and JSAs for additional eight-year periods are permitted, so long as both parties have the right to opt out at the end of each term.
Most SSA/JSA arrangements also include an option for the Services Provider to acquire the Services Recipient’s license. While some doubt existed several years ago as to the acceptability of such options, more recently the staff has indicated that it does not have a problem with them. That makes sense because, historically, the mere possibility that a station might eventually be acquired does not constitute an attributable interest in that station for purposes of the FCC’s multiple ownership rules. However, the staff has indicated that, in such arrangements, the option price must be neither a fixed amount nor an amount that decreases during the life of the option if the station does well and the licensee benefits from cash flow over a predicted amount. Such option pricing methods have been determined to be counter to the FCC’s goal of ensuring that a licensee has the economic incentive to control its station’s programming. Option prices that are based upon multiples of cash flow or that increase over time have been approved by the staff.
Over the past decade the FCC has faced pressure from public interest groups concerned about consolidation of television news reporting, and from cable companies who think that SSA/JSA arrangements give broadcast TV stations too much leverage in negotiating retransmission consent agreements. In spite of those pressures, the Video Division has continued to approve license assignments or transfers which include SSA/JSA arrangements, so long as such arrangements are consistent with the guidelines described above.
Parties looking to enter into SSA/JSA arrangements should exercise caution. The staff’s ad hoc approach to SSA/JSA arrangements, usually implemented through informal conversations, has not resulted in a substantial body of written precedent – the Hawaii and Corpus Christi cases mentioned above, and a small handful of others, are pretty much it. While those cases do provide some helpful guidance in some areas, in others the staff remains able to modify or even reverse policies without prior notice. The good news is that the Video Division staff has been willing to provide applicants with helpful guidance during the staff’s routine review process. As a result, applicants have a chance to get the staff’s read on their proposed arrangements – and make any adjustments that might be necessary to get their application granted. That is certainly a preferable option.