FCC Puts the Squeeze on Minority Station Owners

Behind the recent battle over the Federal Communications Commissions’ quadrennial review of television and cable ownership rules are a host of rapidly evolving economic and political dynamics.

Not the least of which is, at the very top, a political decision by the executive branch to circumvent the elected Congress by implementing a series of executive orders designed to force into existence the chief executive’s priorities.

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On the economic playing field, an intensifying competition for consumer attention is heating up rapidly, mostly due to the proliferation of the Internet, which has given rise to a multichannel, multiplatform environment for media consumption (and thus advertiser spending).

This autocratic political environment has produced, at the FCC, an informal decision to "slow track" and excessively scrutinize applications for new local broadcast station ownership by small businesses who are seeking to finance their acquisitions under what are known as joint sales agreements (JSAs) and shared service agreements (SSAs).

These mechanisms have long been used by small business owners to control costs and keep the lights on. They are essential to larger media companies as well, as it enables them to make strategic acquisitions in major markets, while taking advantage of economies of scale by providing back-office services to local owners in smaller markets.

Critics of the arrangements have complained that they constitute a sort of back-door consolidation among the big players, and are designed to circumvent the FCC’s media ownership rules.

The reality couldn’t be further from the truth. In reality, the costs of producing original content and attracting advertising at the local level are often crippling for individual station owners. Advertisers, for example, often prefer to negotiate large blocks of ad time in advance, and find it inefficient to negotiate separate contracts with multiple small station owners.

Similarly larger broadcast networks often cannot afford the idiosyncratic risks associated with producing and managing content in smaller markets. The operating economics are quite tough for local owners, and it is usually through a combination of creativity, grit, and ingenuity that they are able to survive at all.

Thus, JSAs and SSAs are critical mechanisms for ensuring that local ownership continues to be a feature of the American media landscape.

Let’s take the case of pending ownership applications for two stations — Charleston, S.C., and Harrisburg, Pa. — currently in the pipeline at the FCC on behalf of my company, Howard Stirk Holdings.

This opportunity arose because Sinclair Broadcasting agreed last July to buy the group of eight stations owned and controlled by the Allbritton family. Because of overlapping ownership restrictions in certain markets, Sinclair has agreed to sell the stations to our firm, and help finance our ownership using JSAs, SSAs, and other arrangements.

Without getting into the particulars of the deal, this represents a win-win situation. It instantly creates a minority owner of up to five broadcast stations (we are also pursuing a purchase in Birmingham, Ala.), which would represent the largest black owned media network in the country. But even more importantly, we have been a broadcaster and content creator for over 25 years.

This deal creates the opportunity for our company to create and distribute original content, as we have already begun to produce.

We are not, as some have argued, a shell company designed purely to help Sinclair skirt the rules. We are a growing network with plans to produce and license its own content, content that will hopefully be distributed widely on cable and Internet channels as well.

In other words, people who are analyzing the deal from a purely transactional perspective are not entrepreneurs, but financiers at best, and biased journalists at worst.

They lack the vision and creativity to understand how to create value out of these assets, which is why they do what they do, and I do what I’ve done successfully for the past quarter century: build businesses.

But it’s obvious that I, as one of only two black broadcast station owners in the country, would be concerned with the outcome of the ownership rules. At the end of the day though, the FCC must administer rules designed to protect and advance the public interest.

I submit that JSAs and SSAs and similar policies have done just that and will continue to do so.

First, if one looks out at the broader landscape of media, whether in terms of broadcast journalism, print journalism, Hollywood, reality television, radio and so on, one notices that a significant amount of the top talent got their start on local television, print, and radio.

This is especially true of black talent. A casual survey of the talent pools at the major networks, even among those who extol their supposedly liberal values, reveals a surprising dearth of opportunity for up and coming black talent.

Whether you are talking about Oprah Winfrey or Roland Martin, they all got their start at small, locally owned network affiliates in smaller markets.

If opportunities for local television owners were to dry up, it would have devastating effects on developing black talent.

It doesn’t just stop there, however. Small, black owned stations hire more blacks per capita than mainstream stations in other roles as well, from camera operators, to editors, to producers, to management. In this way they provide critical avenues of opportunity to minorities that are woefully underrepresented in the mainstream media.

Let’s return again for a moment to the politics. Critics of the supposed media concentration among broadcast networks seem to have turned a blind eye to the massive concentration emerging on the cable front.

In fact, the two largest cable networks in the country, Comcast and Time Warner, are basically on the fast track to merge. The combined entity would control not only cable distribution, but Internet service in 20 of the 25 top markets in the country.

As the recent experience with Netflix-Time Warner-Comcast bandwidth battle reveals, content creators are going to be increasingly held up by cable companies who also own Internet companies.

This is a classic case of using monopoly power to achieve vertical integration. On top of that, cable television and Internet costs to the consumer have increased by over three times the rate of inflation for the past five years, with service quality being so poor that competing service platforms have created several successful national ad campaigns lampooning it. And yet no none seems to screaming about the public interest.

And why is that? It’s the same reason why the FCC is taking arbitrary and capricious action to slow track broadcast ownership by small local station owners.

The executive branch has in essence been captured by the cable industry. President Obama even remarked at a fundraiser at a Comcast lobbyist’s home, “I have been here so much, the only thing I haven’t done in this house is have Seder dinner.”

Furthermore, if we look at the lobbying landscape, cable and Internet companies from Google to Comcast have ramped up their lobbying organizations in Washington, and poured huge sums into Democrats’ coffers. Most of this is in a bid to control the outcome of spectrum auctions.

The bottom line is that cable companies want the spectrum that has been allocated to broadcast television, and they are competing fiercely in the political arena to obtain it.

Derek Turner, an official with the euphemistically named “Free Press” organization, which fronts for the cable industry, finally revealed his true hand after issuing a long litany of disparaging and inaccurate allegations against Sinclair’s sidecar agreements, before arriving at his real objective: “reclaimed spectrum could be used for wireless broadband deployments in the “white spaces” to improve Internet access.”

The fallout of all of this of course, is that local broadcast owners, original content creators, and the American consumer are feeling the squeeze.

With so much at stake, and so many opportunities for increasing the diversity of voices in American media, this latest gambit over local ownership stands in the way of needed progress.

In fact, it’s a reversion to the tired old politics of obstructionism, cronyism, and holding the American people hostage to the whims of an entrenched special interest.

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