STELA Change?

JSA Rule Changes to Go on Circulation Monday, as 2010, 2014 Ownership Reviews Joined

March 7, 2014 by Monty Tayloe and John Hendel|Top News

An order to make TV-station joint sales agreements (JSAs) attributable for calculating ownership caps and to prohibit joint negotiation in retransmission consent agreements will go on circulation Monday, the FCC said. Also on circulation then will be an FNPRM seeking comment on shared services agreements (SSAs) and FCC ownership policies that kicks off the 2014 quadrennial review of media ownership, the commission also said Thursday. The FNPRM proposes retaining the current dual-network rule and the local radio rule, tentatively concludes that cross-ownership rules for newspapers and TV stations should remain, and asks whether to eliminate rules against newspaper/radio and the radio/TV combinations rule “in favor of reliance on the local radio and local television rules,” a senior commission official told reporters Thursday. Broadcasters criticized the draft order, while pay-TV interests seeking changes to retrans rules cheered it.

The office of House Communications Subcommittee Chairman Greg Walden, R-Ore., meanwhile released a draft version of the Satellite Television Extension and Localism Act that would bar the commission from changing the attribution rules before completing the quadrennial review. “This JSA proposal is a dagger aimed at the heart of small town broadcasters,” said a spokesman for Commissioner Ajit Pai. FCC Chairman Tom Wheeler said that “scrutiny” of JSAs “reveals that the Commission’s attribution rules have failed in their purpose and require a technical adjustment,” writing on the FCC blog (http://fcc.us/1lCVWCd). “The independence of the controlled station is a legal fiction.”

The commission can’t modify its rules to make JSAs, SSAs, local news service agreements, local marketing agreements, “or any similar agreement between television broadcast stations in the same local market” attributable for the purposes of the commission’s multiple ownership rules until it addresses all of the rules required to be quadrennially reviewed and closes the 2010 quadrennial review, the STELA draft said.

The proposed FCC rule changes would make JSAs involving one station handling more than 15 percent of another’s sales attributable under FCC ownership rules, and give existing arrangements two years to be unwound —- similar to the rules governing radio JSAs, said the senior FCC official on a conference call with reporters. That’s as expected (CD Jan 30 p1). The rule change would also include an “expedited waiver process” that will allow waivers for companies that can demonstrate a public interest benefit to their JSAs on a case-by-case basis, the official said. “There will certainly be entities that have a strong case for demonstrating that the public interest would not be served by the application of our rules,” Wheeler said on the FCC blog.

For SSAs, Wheeler “proposes to define a category of sharing agreements that commercial television stations must disclose,” said the senior official. The Department of Justice made such a proposal last month (CD Feb 24 p7). The forthcoming item would also seek comment on how sharing agreements should be defined and possible rules for disclosing them, said the FCC official. Public interest officials said this part of the proposal doesn’t go far enough. “There is ample evidence to justify immediate action on SSAs rather than seeking more comment, and we especially believe that there is no need to ask questions before requiring immediate online disclosure of SSA agreements,” said public interest lawyer Andrew Schwartzman. “Today’s announcement begins the process of righting FCC mistakes on media ownership,” said Free Press in a release. “Unwinding JSAs is not a welcome step for broadcasters but living to fight another day on the SSA front is an important silver lining,” said Guggenheim Partners analyst Paul Gallant in an email.

The FCC official said the pending deal for Sinclair to buy Allbritton’s TV stations, which uses JSAs, would be considered “under a totality of the circumstances” including any changes to JSA rules. There’s no “factual or policy reason” for the FCC to attribute JSAs, said Sinclair Senior Vice President Rebecca Hanson. “The FCC and DOJ have approved these for years.” The FCC’s record on sharing agreements doesn’t include any evidence they're causing harm, she said. Rule changes to JSAs will “negatively affect local TV stations in medium and small markets,” said BIA/Kelsey Chief Economist Mark Fratrik. The proposed changes don’t “reflect the marketplace realities of local TV stations competing for viewers and for advertisers with so many other media,” he said.

The proposed order would also bar two or more separately owned top-four TV stations in the same market from jointly negotiating retrans deals, and for non-top four stations “adopts a rebuttable presumption” that the costs of joint negotiation in the same market outweigh the benefits, and “constitutes a failure to negotiate in good faith,” said the senior official. The retrans rule change “will return retransmission consent to one-on-one negotiations as intended by Congress, rather than many against one,” said Wheeler. The American Cable Association praised the proposal as a victory for competition, while NAB characterized it as a strike against broadcasting. “Coincidentally, two industries would benefit from today’s proposal: Big Cable companies who want less competition for advertising in local markets, and wireless companies who support punitive FCC actions that drive more TV stations into spectrum auctions,” said NAB. The proposed retrans rule changes include extending the sweeps-period prohibition to DBS and a request for additional comment on whether to eliminate the commission’s network non-duplication and syndicated exclusivity rules for carriage of out-of-market network and syndicated programming, said the FCC official. The sweeps rule prohibits a cable operator from deleting or repositioning a station during a ratings sweeps period.

The FNPRM is the first step in the agency’s 2014 quadrennial review, said the senior official. That’s also as some expected. The 2010 quadrennial review, pulled by Wheeler last year, will be “conjoined” to the 2014 one, the official said. “I come to the 2014 review with two bedrock beliefs,” Wheeler wrote: “That broadcasting provides a vital public service as a part of its public trust, and that the overall changes in the media landscape are opening new opportunities for U.S. broadcasters."

STELA Limits on FCC?

The STELA discussion draft was formally released Thursday afternoon (http://1.usa.gov/1fLRxEA). The draft hasn’t been formally proposed, and that clause is unlikely to make it into a final draft, though much about the STELA bill is still being determined, said Free Press Policy Director Matt Wood. One Democratic Capitol Hill aide, considering the provisions limiting FCC action on sharing arrangements, called the draft bill “bad” and “highly partisan.”

"Industry does not see this as a partisan issue,” a broadcast industry executive who has lobbied on these issues told us. The broadcast industry is united in its thoughts on such a provision, and several parties had requested it, the executive said. The executive called for regulating on the merits and a debate based on the policy, countering that if the issue becomes partisan, it’s because the Hill made it that way. The executive conceded that this language limiting FCC action is a quite recent addition to the STELA draft: “It’s not partisan to require the FCC to fulfill its legislative obligation to conduct a comprehensive quadrennial review.”

The STELA draft includes limits on joint retransmission consent negotiations and would kill the sweeps week prohibition on signal changes as well as the set-top box integration ban, as expected over the last week (CD Feb 28 p1), in addition to the unexpected language on FCC limitationsThe draft STELA provision about joint retrans negotiation calls for the FCC to “promulgate regulations to implement” it within nine months, according to the discussion draft. The STELA draft was until Wednesday also expected to include a provision allowing cable operators to remove broadcast stations from the basic tier, which had prompted active lobbying from broadcasters and caused concerns among some Republican members. Those subcommittee Republicans met Wednesday, and the provision was nixed following that, according to industry lobbyists (CD March 6 p1). The draft also would call for a report on the communications implications of statutory licensing modifications, to be conducted by the U.S. Comptroller General. That report would have to be submitted to Congress within 18 months of STELA’s enactment, the draft said.

Walden said the draft, which calls for a five-year reauthorization of the law, included “a number of discrete issues raised over the course of our year-long review of this law and its benefits to consumers” and he stressed the importance of timely passage of the STELA bill. STELA expires at the end of 2014.

"Our video marketplace demands rules that reflect the modern communications marketplace, and I look forward to working with my colleagues to address those issues in our work to update the Communications Act,” Walden said in a statement. “As we consider those larger issues, however, we must not lose sight of the looming year-end deadline for action on STELA and the 1.5 million households whose satellite television service would suffer if we fail to act.”

Walden said he firmly believes Congress can pass a STELA bill before the end of 2014. House Republicans say they will discuss the draft at a STELA hearing next Wednesday at 10:30 a.m. in 2123 Rayburn. Any legislation will also need to pass through the Senate Commerce Committee and Judiciary committees in both chambers.