Media Bureau finds no problem with TV deal featuring SSA, JSA, other arrangements between two licensees in Corpus Christi market

In the latest of a growing line of cases, the Commission’s Media Bureau has approved a multi-level operating arrangement permitting two television stations in the same DMA to merge aspects of their operations in ways which bump up against – but apparently don’t violate (according to the Bureau) – the Commission’s duopoly rule.

The case involved two stations (we’ll call them Station A and Station B) in the Corpus Christi, Texas market. Common ownership of both stations would be barred by the duopoly rule, but the two licensees perceived considerable potential benefits if the two stations’ operations were conjoined in certain respects. And as often is the case, where there’s a will, there’s a way.

Station A agreed to sell its licenses, network affiliation and syndication agreements, and certain equipment and leases to a third party (“the New Guy”). At the same time, Station A entered into a separate agreement to sell Station A’s real property, certain other equipment, and additional assets to the owner of Station B. Station B and the New Guy also entered into a series of ten-year operating agreements, including a Shared Services Agreement (SSA), a Joint Sales Agreement (JSA), an Option Agreement and an Equipment Lease Agreement – but while the proposed sale of Station A was pending before the Bureau, the New Guy assigned those agreements to Station A. Additionally, Station B agreed to guarantee a bank loan for the New Guy.

Station A and Station B put the SSA, JSA and Lease Agreement into effect immediately, without waiting for FCC approval.  The net result was that significant elements of Station A’s operation became subject to substantial input, if not control, by Station B. For example, under the SSA, Station B provides newscasts (up to 15% of programming) and Station A pays Station B a monthly fee of $100,000. Under the JSA, Station B sells all of Station A’s commercial time and sets ad rates for Station A.

Needless to say, this arrangement attracted the attention, and aggressive opposition, of a competitor in the Corpus market. Alarmed that the arrangement would apparently give 50% of the ad revenues in the market to Station B, the competitor challenged the arrangement as a de facto duopoly and an unauthorized transfer of control. The Commission’s staff ruled otherwise.

According to the staff, these kinds of arrangements have been approved in the past and have not been held to constitute transfers of control to Station B. As the staff read them, the parties’ various agreements made clear that the licensee of Station A retained ultimate control over that station’s newscasts and all programming decisions, as well as employees, and that the New Guy would inherit that control at closing. 

The staff was not disturbed by the fact that physical assets would be sold to a buyer (i.e., Station B) other than the proposed assignee of Station A (i.e., the New Guy). Nor was the fact that the option price (in the option agreement between Station B and the New Guy) was a mere $10. The interests conveyed were not attributable under prior decisions and did not violate the so-called EDP (“equity plus debt”) limit of 33% of total assets. The guarantee of debt and the option were not attributable under the FCC’s rules.

In the new digital Internet world, televisions’ non-broadcast competitors are able to form combinations without regulation, while the FCC’s duopoly and attribution rules shackle television combinations in a manner divorced from reality. It is therefore inevitable that TV stations will resort to elaborate arrangements like the Corpus Christi deal in order to survive. This case provides a road map for creating such arrangements and should be read carefully for that purpose. It’s a brave new world for sure.