FCC Will Approve Gannett/Belo Merger Despite Objections, Say Industry Observers

The FCC will likely approve the proposed $1.5 billion merger between Gannett and Belo despite petitions to deny the transaction filed Wednesday by the American Cable Association, Time Warner Cable, DirecTV and multiple public interest groups, said several industry observers in interviews Thursday. “It’s unlikely that the petitions to deny would result in the commission not approving the transaction,” said former FCC Commissioner Robert McDowell, now a visiting fellow at the Hudson Institute.

Both petitions attack Gannett’s plan to use shared service agreements to get around FCC cross-ownership rules in several markets. That plan will lead to higher retransmission consent fees in those markets, said the petition from ACA, TWC and DirecTV, while Common Cause, Free Press and other groups filed a joint petition arguing that circumventing the cross-ownership rules this way shouldn’t be allowed. “Sometimes parties file petitions to make a statement,” said McDowell.

Under the terms of the merger, Gannett will acquire Belo’s 20 TV stations (CD June 14 p7) -- including stations in Phoenix, Louisville, Tucson, Portland, Ore., and St. Louis, all places where it already owns a newspaper or another station, said the public interest group’s petition. As part of the transaction, Belo will transfer the licenses for stations in the overlapping markets to “a third-party shell company,” the petition said. “These newly created companies will technically own the television licenses while Gannett will provide services (including local news-gathering and reporting) to the stations,” the public interest groups said. The transaction doesn’t violate any rules and “the efficiencies provided by this transaction will allow these stations to remain competitive and vibrant,” said a Gannett spokesman.

The Gannett/Belo merger “threatens to drive up retransmission consent fees (and, in turn, consumer prices) and to increase the risk and incidence of broadcast programming blackouts” in the markets where stations overlap, said the petition from ACA, TWC and DirecTV. “Gannett has even cited its expectation of increased retransmission consent fees as a central rationale for the transaction,” the petition said. If the commission won’t deny the merger, the petition asks it to “condition approval on a requirement that Gannett and the assignees of the stations at issue refrain from coordinating negotiations for carriage on behalf of any of their non-commonly owned stations in any of such stations’ markets."

The petition is the latest step in the MVPDs’ battle against retransmission consent, which has been ongoing in filings to the commission’s proceeding on ownership rules, said Fletcher Heald attorney Frank Jazzo, who isn’t involved in the merger but has represented clients in SSAs. Joint negotiations of retransmission consent agreements have been a focus of several filings by ACA and TWC (CD June 11 p21). “They've been on the offensive against the retransmission consent regime,” he said, calling the petition to deny “part and parcel” of that campaign. The Gannett/Belo transaction “accentuates the importance of the Commission moving expeditiously to make clear that the joint negotiation for retransmission consent by multiple broadcast stations in a particular market is impermissible,” said NCTA in an ex parte filing (http://bit.ly/167pdvD) Thursday.

"While we don’t take this petition lightly, we also don’t anticipate a significant overhaul of the shared service agreements that have been a part of this industry for many years,” said Wells Fargo analyst Marci Ryvicker in an email to investors Thursday. She also said an FCC denial of the merger was “unlikely.” Even “if the FCC were to strike down certain sharing agreements, most would be grandfathered and/or provided a waiver,” Ryvicker said. Lawsuits in the wake of an FCC shift on SSAs would also be likely, she said, “which means it may be several years before any financial ramifications.” Since the commission is already considering joint service agreements as part of its ownership proceeding, Jazzo and McDowell both said it was extremely unlikely it would address the issue in a specific transaction with the larger rulemaking unresolved.

The merger “raises novel questions of law, fact, and policy, and thus must be acted upon by the full Commission rather than the Media Bureau,” said the petition to deny filed by the public interest groups. The FCC has never dealt with a merger that used shared service agreements to get around newspaper/broadcast cross-ownership rules, said the petition. Although Gannett’s SSA strategy has been compared to Raycomm’s acquisition of several stations in Hawaii, that case involved duopolies rather than cross-ownership of a newspaper, the petition said. Raising “novel questions” is one of the conditions in which the bureaus are supposed to kick a matter up to the full commission, the petition argued. However, it would be “unusual for a relatively small transaction like this one to be elevated to the eighth floor for a vote,” said McDowell. “Failure to act will encourage even further consolidation to the detriment of the public and will undermine the Commission’s credibility and ability to regulate in the public interest,” said the petition.