FCC Democrats Seen Unlikely to Support National Cap NPRM

FCC Democrats aren't expected to support the draft NPRM seeking comment on the national TV ownership cap, industry officials said in interviews. Though the item is an NPRM without tentative conclusions (see 1711210044), comments from Commissioners Jessica Rosenworcel and Mignon Clyburn when the item was released indicate they don't support it, and both said the FCC doesn’t have the authority to modify the cap. The NPRM is on the agenda for commissioners' Dec.14 meeting.

The Republican majority is expected to support the item, though Commissioner Mike O'Rielly is also on record saying the FCC doesn't have the authority to alter the cap. He said he looks forward to seeing the issue "litigated out," which some industry officials said could indicate he would vote in support of action to alter the cap to allow the courts to decide. Such a vote would run counter to his previous statements on the subject, and many industry officials don't expect the NPRM to lead to commission action. The agency didn’t comment.

Broadcasters, including pending partners Sinclair and Tribune, aren’t seen counting on a relaxed cap, said executives and analysts. Few broadcasters are large enough for the national cap to be a factor, and DOJ’s antitrust oversight is considered a bigger obstacle to deals than the cap, after its recent lawsuit to block AT&T buying Time Warner (see 1711290035), analysts said. “I don’t think the NPRM changes the strategic expectations,” Wells Fargo's Marci Ryvicker said, though she believes the cap eventually will be changed.

Station owners aren’t planning around a relaxed cap because prospects for actual FCC action resulting from the NPRM are uncertain, said analysts and attorneys. It’s not clear if O’Rielly’s support for the NPRM would extend to actual rule changes, and if the FCC decides it does have authority to make such changes, setting a new cap number would be a complicated and time-consuming job, broadcast officials said. Even if the regulator were to set a cap number, it probably would be extremely vulnerable in court, they said. There are serious legal questions about FCC authority to raise the national cap, said Cowen's Paul Gallant. The legal risk is “clearly greater” than the legal risk of the recent reconsideration order relaxing duopoly and cross-ownership rules (see 1711170061), said Gallant.

Sinclair/Tribune, which as filed would leave the new combination broadcasting to more than 45 percent of U.S. households (see 1709150041), isn't expected to depend on a relaxed national cap, Ryvicker said. Sinclair is in discussions with DOJ on divesting stations, and will seek to come in under the national cap, she said. Sinclair’s application included requests that it be allowed to ask for retroactive waivers if FCC ownership rules change in the company’s favor after the deal is approved. Sinclair declined to comment, but its officials had said the deal is constructed to be able to proceed under the current cap.

The national cap isn't a limiting factor for most broadcasters, said BIA/Kelsey Chief Economist Mark Fratrik. Few deals will brush up against it, though it’s possible now-loosened ownership rules could pave the way for mid-size groups to combine in a way that approaches the cap, he said. Few operators of scale currently are interested in selling, Ryvicker said. Smaller broadcasters seeking to exit the business might be available to companies looking for “grave-picking” opportunities, but such deals are unlikely to trigger cap concerns, she said.

DOJ scrutiny of AT&T/TW suggests its definition of local markets doesn’t account for the full range of competition broadcasters face, Ryvicker said. That may indicate that, after the FCC’s relaxed duopoly rules, DOJ may get in the way of possible broadcast takeovers more often than the national cap will, Ryvicker said.

Legal action is expected if the FCC makes changes to the national cap, and public interest groups are already in litigation against the agency in the U.S. Court of Appeals for the D.C. Circuit over the related reinstatement of the UHF discount. Bringing back the discount was a “shrewd, but indefensible, mechanism to circumvent the Congressionally-mandated limit on national TV ownership,” said a reply brief (in Pacer) filed Tuesday by Free Press, Media Alliance, Common Cause and others. The FCC hasn’t demonstrated that the previous administration didn’t adequately consider the context of the national cap when it eliminated the discount, and hasn’t shown it has the authority to alter the cap, they said.

The groups challenge FCC tying of the elimination of the discount to the proposed national cap proceeding. The FCC treats the relationship between the discount and cap as “a mandate to evaluate them together” but when the discount was eliminated, “it was not necessary, feasible or desirable to complicate the process by broadening the scope,” the brief said. Reports and commissioner statements indicate the FCC is unlikely to take action on the cap as it indicated in the order eliminating the UHF discount, the brief said. That makes reinstatement arbitrary and capricious, the brief said. The groups also disputed FCC arguments they lack standing. Petitioners “are the intended beneficiaries of the national television ownership limit, and reinstatement of the UHF discount reduces program diversity,” they said. “Petitioners have shown injury-in-fact.”