Recent developments at the FCC and in Congress set up major fights over sharing arrangements and retransmission consent negotiations.  

In the last week, the FCC’s increased scrutiny of joint sales agreements, shared services agreements, and other sharing arrangements between broadcasters has picked up significant steam.  A recent flurry of action in this area peaked (at least for now) – and perhaps boiled over – on Wednesday, March 12 when the Media Bureau released a Public Notice providing some “guidance” on how the Bureau would analyze pending and future applications proposing sharing arrangements (check out our posts from 2011 and 2012 for a description of TV sharing agreements—a.k.a. JSAs and SSAs).

The Notice, which drew sharp criticism from Republican Commissioners Michael O’Rielly and Ajit Pai, suggested that the Bureau would apply enhanced scrutiny to any assignment and transfer applications that include sharing arrangements, particularly where those agreements also involve a financial interest such as option to buy.  While the Bureau promised to continue to review applications on a case-by-case basis, the Notice clarified that the Bureau will now demand that each applicant provide documentation that “fully” describes the proposed transaction.  The Bureau will review that documentation to determine whether those documents provided the station providing services with excessive “influence” over the proposed licensee.

Under its general authority to review transactions to determine if they are in the public interest, the Bureau will now review all of the circumstances of a proposed sale with a focus on several specific economic issues.  The Bureau will seek to ensure that the proposed licensee continues to bear a significant amount of the economic risk – and reap a significant part of any reward — in running the station and in increasing its long-term economic value.   In particular, the Bureau indicated that it will carefully review situations where both parties to the sharing arrangement share a financial institution, where the services provider guarantees a loan, or where it otherwise appears that a loan is not being made as part of an arms-length transaction.  The Bureau will also carefully review any arrangements that involve the sale of license and non-license assets to different parties to ensure that the prices offered to each party represent fair market value of the licenses involved. 

Wednesday’s notice is just the latest in a rash of recent developments regarding sharing arrangements.  Late in the first week of March, informal word leaked out of the FCC that the Chairman intended to circulate an order to make the majority of joint sales agreements attributable under the Commission’s multiple ownership rules and request comment on whether to apply additional scrutiny to shared services agreements and other cooperative arrangements between broadcasters, including potentially through enhanced disclosure or attribution.  Reports indicated that the proposed order would also prohibit joint retransmission consent negotiations between multiple broadcasters in a market.   

Fast forward to Monday, March 10 when – surprise! — the Commission released the proposed Tentative Agenda for its March 31 meeting, which confirmed these rumors.  The agenda includes an item showing that the Commission will consider, as part of its Quadrennial Review of its ownership rules, an Order that will make joint sales agreements attributable and a Notice of Proposed Rulemaking that will “define and require the disclosure of” certain other sharing arrangements.  In a separate item, the Commission will also consider an Order to modify its retransmission consent rules (presumably directed to prohibiting joint negotiations) and a Notice of Proposed Rulemaking proposing eliminating the Commission’s network non-duplication and syndicated exclusivity rules.   

Also on Wednesday the 12th, the House Communications and Technology Subcommittee held a hearing on a draft bill to renew the Satellite Television Extension and Localism Act (“STELA”).  The draft bill contains a provision that would prevent the FCC from attributing joint sales agreements until the Commission completes its long-pending Quadrennial Review of its ownership rules.  The bill would also prohibit joint retransmission consent negotiations by separately owned television stations and would eliminate the FCC rule that prohibits a cable operator from dropping a broadcast station during a sweeps period.  Although the NAB, NCTA, and satellite television operators have all expressed some support for the draft bill, opinions on both the bill and the Commission’s proposed Orders remain sharply divided, largely along partisan lines.   

Speaking of partisan lines, both Republican FCC Commissioners spoke out sharply against the proposed FCC rules up for discussion at the March 31 meeting and, most recently, Wednesday’s Public Notice.  In separate statements on the Public Notice, both Commissioner O’Rielly and Commissioner Pai criticized that Notice both on its substance and on the process by which it was released.  Both expressed strong displeasure that the Media Bureau has, by Public Notice, adopted processing standards that seem to constitute policy changes that should have been voted on by the full Commission.  Both find this particularly problematic, and somewhat surprising, when an Order addressing those issues is scheduled for a vote at a Commission meeting later this month.   On the other side, House Democrats, including Representatives Henry Waxman (D-CA) and Anna Eshoo (D-CA) at Wednesday’s Subcommittee hearing expressed support for the proposed Commission Order and opposition to the proposed House bill that would delay any change to attribution of JSAs.   

At this point, one has to wonder how these controversies will be resolved and, with the ultimate fate of any changes up in the air, how extensive both the long and short-term impacts of these proposals will be on broadcasters and the television industry.  But, as we wait to see what transpires, one thing seems certain: the Public Notice at the least indicates that any broadcaster with a pending or potential deal involving a sharing arrangement should be prepared for intense scrutiny from the Media Bureau and potentially significant delay in processing.  Follow Commlawblog for further details and the latest updates as this situation develops.