Tough UHF Discount Oral Argument for FCC Could Spark Cap Action

The FCC had a more difficult time in court Friday than some expected (see 1804190056) in defending its change of the UHF discount so that stations in that part of the TV band could have twice the concentrated ownership as those lower down the dial. Every member of a three-judge panel took issue with the FCC’s lack of justification for restoring the UHF discount.

Tough questions in oral argument on restoration of the discount before the U.S. Court of Appeals for the D.C. Circuit could spur the FCC to move quickly toward a rulemaking in its proceeding on the national ownership cap, broadcast attorneys and industry officials told us. Though the proceeding on the cap -- which closed Wednesday -- has been seen as unlikely to result in concrete action (see 1711210044), attorneys believe that could now change.

“There doesn’t seem to be any argument for keeping it,” said Judge Patricia Millett, saying the restored discount was like “a moribund body” still attached to life support. “You are formally inserting something into the Federal Code of Regulations that doesn’t make sense,” Judge Gregory Katsas told the FCC.

With the court seen likely to rule against the FCC and vacate or remand the restored UHF discount, the national cap proceeding could provide a way for the commission to moot the court’s decision by raising the cap or changing the UHF discount rules, possibly before a court opinion is issued, said numerous broadcast attorneys. Katsas alluded to the possibility, asking FCC Counsel James Carr if the agency was close to issuing a rulemaking that would invalidate the court’s actions. “What we are addressing here has a real possibility of being overtaken by events,” Katsas said. The agency didn’t comment.

Petitioners' Standing

Friday’s hearing initially appeared to favor the FCC, but turned when the panel began it's questioning of the FCC counsel.

The jurists interrupted petitioner attorney Andrew Schwartzman, senior counselor at Georgetown Law’s Institute for Public Representation, almost immediately after he began his opening remarks to press him on the anti-consolidation groups’ standing. Petitioners typically file declarations from injured parties they represent to demonstrate standing, the judges said.

Schwartzman said groups such as Common Cause and Free Press are understood to represent all viewers, and showing individual injury from national broadcast consolidation is difficult, but Millet told the lawyer that he had nearly argued his way out of having standing in the case. She became more gruff with Schwartzman when his cellphone alarm began beeping as he addressed the judges, and she ordered him to remove it from the room. He did just that, giving his briefcase to someone to take outside the courtroom.

Though all three judges made comments suggesting Schwartzman hadn’t sufficiently shown standing, Judge Cornelia Pillard said the petitioners could supplement their filings later with declarations to demonstrate they have standing, comments Millet later echoed. Though several broadcast attorneys said the standing issue is serious, most said they believe Free Press and the other groups will be able to satisfy the court’s requirements. Common Cause has members nationally who will be able to show they're adversely affected by broadcast consolidation, said Common Cause Director of Democracy and Media Yosef Getachew in an interview. That could be difficult to show, said Fletcher Heald appellate attorney Harry Cole, since it's “an amorphous harm.”

FCC Justification

The panel’s questions about the restored UHF discount came after Carr took the podium, arguing that the discount had been restored to undo the “tightening” of the national cap caused when the discount was struck down in 2016. The FCC restored the discount so it could “start from scratch” and consider the cap and discount together, he said. Referring to the FCC’s 2016 record showing the “obsolescence” of the discount, Millett disputed Carr’s characterization. The 2016 FCC didn’t tighten the cap, “they made it real” by removing the UHF discount loophole, she said.

“What is the current justification for the UHF discount?” Pillard asked the FCC's representative. “It doesn’t really have one.” Though Carr repeatedly argued the discount and cap are “inextricably linked,” Pillard and Millett seemed to dismiss that. “Do you have a fallback position?” Pillard asked. Carr argued that the FCC has discretion over its own procedures, and should be allowed to decide the best way to approach a rulemaking.

Katsas seemed most sympathetic to the FCC’s position, saying it made sense to combine the cap and discount rulemakings, but appeared disappointed when Carr couldn’t promise the FCC will soon remove the UHF discount as part of its ongoing national cap proceeding. Katsas tried to get Carr to volunteer a timeline for how soon the FCC's cap proceeding would be resolved, and when Carr demurred, said it had been “an attempt to help.” Katsas also joined with the other judges in saying there's no current justification for the UHF discount.

Sinclair/Tribune

Attorneys on both sides said it’s likely oral argument won’t affect FCC approval of Sinclair buying Tribune. Though the deal would leave Sinclair far outside the bounds of the national ownership cap if the UHF discount were struck down, it’s likely that transaction would be grandfathered if it were approved before a court order, and numerous attorneys said they believe it will be. The FCC has traditionally been unwilling to unwind existing combinations, said an attorney sympathetic to the petitioners.

“The outcome of the UHF case should have little to no impact on SBGI-TRCO,” Wells Fargo analyst Marci Ryvicker emailed investors, referencing the companies' stock ticker symbols. Ryvicker also said Wells Fargo was receiving numerous calls about Friday’s oral argument. Sinclair didn’t comment.

The FCC and DOJ shouldn’t approve Sinclair/Tribune while this case remains undecided, said Getachew of Common Cause. The anti-Sinclair Save Local Media Coalition and Newsmax CEO Chris Ruddy also issued statements Friday urging the FCC to hold off on approving the deal while the court is undecided. Common Cause is a member of the coalition. "The FCC should avoid the appearance of impropriety and proceed with a transparent national ownership cap proceeding to set a level playing field before approving any merger that benefits just one company," Ruddy said.

Uncertainty over how the court will rule and how the FCC will proceed is likely to make it extremely difficult for large broadcast deals to get done in the coming months, communications attorneys said. Though FCC action to tinker with the cap or adopt suggestions from the national cap proceeding such as the “everybody discount” (see notebook 1804190056) is expected, such actions are likely to be difficult and come with their own court challenges, attorneys said. “If the courts eliminate the UHF discount, it could be challenging for the FCC to come up with a new solution that would make the broadcasters whole,” said American Cable Association Senior Vice President Ross Lieberman.

It’s also not certain the FCC would have the votes to take action on the cap. Though Commissioner Mike O’Rielly has said repeatedly he doesn’t believe the FCC has the authority to change the national cap, broadcast attorneys said the prospect of “re-regulation” and broadcasters having to fit under the 39 percent cap without the cushion of the UHF discount would likely motivate him to support FCC action on the matter, along with the rest of the agency’s majority. An attorney sympathetic to the anti-consolidation petitioners in the case disagreed, saying O’Rielly “painted himself into a corner” with his prior statements. Since Commissioner Jessica Rosenworcel is seen as likely to oppose, all the commission’s Republican votes would be needed, attorneys said. When voting in favor of the NPRM examining possible changes to the national cap (see 1712140054), O’Rielly said the courts would provide certainty on the question of the agency’s authority. “It is time for the courts to opine on this matter” he said at the time.