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Justice Department Backs FCC Plan to End TV Station Partnerships

Stocks in this article: SBGI NXST GTN GCI

NEW TODAY (The Deal) -- The Department of Justice of Friday provided some important support for a Federal Communications Commission plan to impose tough new restrictions on business partnerships that broadcasters have used to sidestep restrictions that bar a company from owning more than one TV station in a market.

In a filing with the FCC, the Justice Department said it favors restrictions on joint sales and shared services agreements between broadcasters.

FCC Chairman Tom Wheeler reportedly aims to address JSAs and SSAs at the commission's March 19 open meeting. Under JSAs, the larger station group helps the junior partner sell advertising time.

Under a SSA, the junior partner receives technical or back office support from the larger station. If approved, the new restrictions would put a damper on a strategy by TV station groups such as Sinclair Broadcast Group (SBGI - Get Report), Nexstar Broadcasting Group, (NXST - Get Report)Gray Television (GTN - Get Report), LIN Television, Gannett, (GCI - Get Report) and others to enter joint sales agreements or shared services agreements with other broadcasters in their markets as a way of being involved in operations of additional station in individual markets.

FCC rules currently prohibit ownership of two stations unless the market has at least eight stations held by different owners. That effectively bars TV duopolies in all but the largest markets. And in markets where duopolies are permitted, only one of the stations in the pair may be among the four top-rated.

Under Wheeler's proposed changes, any station owner that sells 15% or more of the advertising time in another owner's station through a JSA would have to count that station toward its tally of properties in that market. He also wants to forbid the creation of more JSAs that violate ownership rules and require existing ones to be terminated after two years.

The fate of shared services agreements will be subject to public comment, but the chairman's tentative approach would be to limit or eliminate SSAs too. How waivers would be granted to existing JSAs that produce a threshold amount of local news and that include minority ownership is unclear.

Broadcasters have been lobbying to retain JSAs and are expected to fight to make any waiver as wide a possible if the phase out prevails.

Opponents of media consolidation have sought restrictions on JSAs and SSAs for years, arguing that broadcasters created a loophole allowing them to evade the intent of the FCC's local ownership limits.

Guggenheim Securities analyst Paul Gallant wrote to clients that the DOJ's support for Wheeler's plan "could be a concern" for station groups that employ joint sales and shared services agreements because they "can create meaningful value for local TV stations." He said if implemented, the plan would likely result in the eventual elimination of most JSAs and SSAs.

"We suspect DOJ's filing did not show up out of the blue but was coordinated at some level with the FCC," he said.

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