Contractual Obligations Could Complicate Auction Options for Broadcasters

TV broadcasters considering selling all their spectrum in the incentive auction and leaving the industry need to consider the liability and contract ramifications of taking that step, said Pillsbury Winthrop broadcast attorney Scott Flick during a Broadcasting & Cable webinar on the incentive auction Thursday. The webinar also included University of Maryland auction economist Peter Cramton, Incentive Auction Task Force Vice Chair Howard Symons, and KLCS Los Angeles Director-TV Engineering Alan Popkin. Broadcasters need to consider that untangling contractual obligations could eat up a portion of the money they get for selling their spectrum, Flick said. “It’s not the size of the bid, it’s how you use it,” said one of the slides in Flick’s presentation.

When a broadcaster chooses to leave the industry, it needs to consider contractual obligations to employees, leased facilities, and other agreements, Flick said. It’s possible a station’s projected auction takings won’t amount to much if the cost of exiting those obligations is factored in, he said.

Few broadcasters will receive their opening bids, and the actual worth of the spectrum in the auction won’t really be clear until it's in progress, Flick said. The prices broadcasters take home will vary widely, Flick said. “The opening bid price is not consequential, it’s merely a high-water mark.” Symons and Cramton, who has worked on comments for the Expanding Opportunities for Broadcasters Coalition, disagreed. They said stations near the Canadian and Mexican border could “freeze” -- win a bid -- at their opening bid price. Some markets may clear their spectrum faster than others, Cramton said. New York City, Philadelphia, Los Angeles and the border areas will likely be among the first markets cleared, he said.

The UHF spectrum available in the incentive auction is “enormously valuable” to carriers, Cramton said, saying broadcasters should try to keep their options open as long as possible. He said most broadcasters should file to participate by the Dec. 18 short-form deadline, since they can still later elect to back out. If broadcasters think their opening bid price is enough for them to exit the business, they should commit to participate by the March 29 deadline, he said. The short-form application, Form 177, will be released ahead of a Nov. 17 FCC webinar on the application process, Symons said.

With that deadline approaching fast, broadcasters looking to channel share should already be in discussions with possible partners, said Flick, Popkin and Symons. Channel-sharing agreements need to be worked out to account for every possible eventuality, because previous channel-sharing arrangements have failed over disagreements between the partners, Flick said. The split of the spectrum between sharing partners is one of the most complicated aspects of such agreements, said Popkin. KLCS was part of the FCC channel sharing pilot program, and is involved in a sharing agreement. That experiment showed that different TVs react to the signals from shared channels differently, and with the repacking and channel sharing, broadcasters will likely need to mount an extensive consumer information effort after the incentive auction to help viewers find their signals, Popkin said.