Articles Posted in Transactions

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Next week, the eyes of the broadcast world shift to Nashville, where the National Association of Broadcasters is holding this year’s Radio Show. Pillsbury will again be kicking off the Show with its annual broadcast finance session at 8:30am on Wednesday, September 21.

This year’s event is titled Pillsbury’s Broadcast Finance Forecast – 2016 Leadership Breakfast, and will feature the expanded format we used for last year’s 25th anniversary broadcast finance session.  It will start with a visual analysis of the 2016 financial performance of the radio industry and its major players by Davis Hebert of Wells Fargo. An advance peek at some of the slides from his presentation drew attention in the radio trade press a few weeks ago, and he has many more where those came from.  The Wells Fargo analysis is always packed with information and economic insight and, having seen the slide deck, I can tell you that this year will be no exception.

Davis’s “State of the Industry” presentation will be followed by our six-member “broadcasters and bankers” panel discussing a wide variety of issues impacting the radio industry and its financing. These include the uptick in radio M&A activity represented by Beasley’s recently-announced acquisition of the Greater Media stations, the obstacles in obtaining financing for radio acquisitions and debt restructuring, and the competitive and other challenges facing radio stations as they seek to ride the economic wave generated by the end of the Great Recession.

We have a particularly well-qualified panel to tackle these tough topics, including Caroline Beasley of Beasley Broadcast Group and Larry Wilson of Alpha Media, representing two of the most active players in radio station acquisitions the past few years, Bill Hendrich of Cox Media, who has a long history of radio operations, and Garret Komjathy (U.S. Bank) and Ray Shu (Capital One), two of the most experienced lenders in the radio world.

I’ll be moderating the panel (no event is perfect), and Media Services Group is again providing the breakfast, ensuring that when the session is over, attendees will leave with not just full minds, but full stomachs.

My partner, Lew Paper, started this event many years ago (26, to be exact), and a lot of people, both at Pillsbury and NAB, work hard to put it together every year. When Lew handed the reins to me a few years ago, I think only he knew how hard it is pull together all the pieces and make it look as easy as he did (turns out he’s sneaky that way).  Fortunately, with this year’s panel, my job has been made easy.  For those that will be in Nashville, we hope to see you there.

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Today, the FCC released a document entitled Fact Sheet: Updating Media Ownership Rules in the Public Interest.  The driver behind the Fact Sheet is the Chairman’s promise to the Third Circuit Court of Appeals that draft multiple ownership rules would be circulated among the commissioners by June 30, with the intent of adopting final rules by the end of 2016.  The Fact Sheet trumpets the accomplishment of that task.  It also makes clear, however, that the path the Chairman has chosen in proposing new rules is to further regulate rather than deregulate broadcasters, and to do so without gathering any additional record evidence to defend that regulatory initiative.  This once again places the Commission on the well-trod path of adopting its desired result and leaving the task of defending it in court to a future FCC.  In the meantime, broadcasters remain in regulatory limbo.

In the Fact Sheet, the Commission explains that the record in the proceeding, which consists of the record of the 2010 quadrennial review as supplemented by comments received in response to the Further Notice of Proposed Rule Making (FNPRM) that commenced the 2014 quadrennial review, is sufficient to conclude that traditional media outlets remain “of vital importance to their local communities.”  Based on this finding, it concludes that continued regulation of the industry is in the public interest.  The Fact Sheet goes on to detail how each of the Commission’s existing media ownership rules will be “tweaked”, but otherwise reaffirmed, save the rules affecting television ownership, which will be tightened.

The Fact Sheet summarizes the proposed rules as follows:

  • The local television ownership rule, which prohibits common ownership of two full-power television stations in a market with fewer than eight independent television owners, and the common ownership of two Top-Four television stations in any market, will be left intact other than to update it to reflect the transition to digital television. However, the new rules will expand the prohibition against ownership of two Top-Four stations in the same market to apply to “network affiliation swaps, to prevent broadcasters from evading” the local ownership limits.
  • The controversial rule that the Commission adopted in 2014 treating TV Joint Sales Agreements (JSAs) as ownership interests (which the Third Circuit recently invalidated) will be reinstated, although existing JSAs will be granted some type of grandfathering relief, consistent with what the Fact Sheet terms Congress’ “guidance” on that issue. The Fact Sheet does not provide any details, nor address whether such grandfathered JSAs will be assignable.
  • TV Shared Services Agreements (SSAs) will now have to be placed in television stations’ online public inspection files. The agreements subject to this provision will be numerous, as SSAs are broadly defined by the Fact Sheet as “[a]ny agreement in which (1) a station provides another station, not commonly owned, with any station-related services, including administrative, technical, sales, and/or programming support; or (2) stations not commonly owned collaborate to provide station-related services, including administrative, technical, sales and/or programming support.”
  • The existing radio ownership rules will remain unchanged except for some “minor clarifications to assist the Media Bureau in processing license assignment/transfer applications.” An example provided of such a clarification is addressing how to define radio markets in Puerto Rico.
  • While the FCC tentatively concluded in the 2014 FNPRM that the Radio/TV Cross-Ownership prohibition is no longer needed for competition or localism purposes, and that the record indicated elimination of the prohibition would not adversely impact ownership diversity, the Fact Sheet, in keeping with its pro-regulation theme, reverses course and states the rule will be retained unchanged except for an update to reflect the transition to digital television.
  • Similarly, while the FCC suggested in the 2014 FNPRM that radio should be eliminated from the Newspaper/Broadcast Cross-Ownership prohibition, the Fact Sheet indicates that the current rule will be retained, but updated for digital television, and will now incorporate a failing or failed station/newspaper waiver standard.
  • The Dual Network Rule, which prohibits common ownership of ABC, CBS, NBC or Fox, will remain unchanged.
  • The Eligible Entity Standard, which determines which entities are eligible for favored regulatory treatment under the multiple ownership rules, was also affected by the recent Third Circuit decision.  The court ordered the FCC to collaborate with advocacy groups on a timeline to adopt a new standard and urged the Commission to engage with those groups on the substance of that standard as well.  The Fact Sheet indicates that the FCC will simply reinstate the prior revenue-based standard, rejecting the advocacy groups’ proposals to use a race or gender-based standard.

While today’s news is hardly surprising, it is disappointing for those waiting for the FCC to address (or even acknowledge) competitive realities that weren’t dreamed of when the FCC completed the 2006 quadrennial review.  For the most part, the Fact Sheet tracks the rules proposed in the even-further-out-of-date-now-than-it-was-then March 2014 FNPRM.  To the extent it varies from the FNPRM, it does so by rejecting any deregulatory proposals, increasing the regulatory burden on broadcasters beyond what was contemplated in 2014.

It wouldn’t be the first time the FCC has had to proceed on an out-of-date record, this time under pressure from the Third Circuit to do something (anything?) before the year is out.  However, expanding TV regulations beyond what the FCC felt could be justified a decade ago will take more than wishful thinking to defend in court, and the decision to go down that path without seeking further comments on the specific new proposals means that the regulatory uncertainty for broadcasters will continue until the courts have had a chance to weigh in.  It is therefore becoming increasingly clear that it is judicial review, and not the FCC’s quadrennial review, that will determine the rules under which 21st Century broadcasters will operate.

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We tend to focus on regulatory and legislative issues here at CommLawCenter, as that is the common ground for many of our media clients.  However, the truth is that—just like our clients—we spend more time working on business issues than regulatory ones.  Whether it’s mergers and acquisitions informed by regulatory rules, program negotiations, or novel business arrangements like channel-sharing agreements, the transactions are driven by business needs, regulatory needs, or both.

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It sounds like the setup for a joke: a broadcaster, a broker, a banker, a broadcast lawyer, and a backer all walk into a bar. There is no punch line, however, as that will happen innumerable times over the next week, and that just means it’s time for this year’s NAB Show!

What started as a simple gathering of broadcasters and broadcast equipment vendors has grown to mammoth proportions, now encompassing not just broadcasting, but every aspect of content and content delivery, as well as mountains of technology for creating and distributing that content. Billed as “the world’s largest media and entertainment event” with around 100,000 attendees, it is also one of the largest conventions in Las Vegas each year, nearly doubling the attendance (I kid you not) of February’s “World of Concrete” convention.

As it has grown, the NAB Show has become a magnet for those of us that work in and around the industry, as you can accomplish in an afternoon what would otherwise take dozens of plane trips. As a result, lots of transactions are launched or sealed in the confines of the hotels surrounding the Convention Center. While that may not be different from any other week in Vegas, these deals will often involve broadcast stations and program content.

The Great Recession battered all conventions, including the NAB Show, but pre-Show levels of activity seem to indicate that this year’s Show will be a return to form, bringing back people that may have skipped the past few years. Perhaps more important is an accompanying shift in attitude. It seems attendees are back to looking for ways to expand their businesses rather than just survive until economic conditions improve.

I will be there along with the rest of the Pillsbury contingent going this year—Lew Paper, Miles Mason, Lauren Lynch Flick, John Hane, and our newest addition, David Burns. There will be much to see, and I know the other lawyers on Pillsbury’s Unmanned Aircraft Systems team are jealous, as the number of drones on display in the Convention Center will likely exceed that of both the CIA and the Air Force (minus the Hellfire missiles).

So we look forward to seeing you there, and if it isn’t everything you are hoping for, don’t worry; there’s another World of Concrete expo coming in 2016!

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The FCC announced in March of this year that it would begin treating TV Joint Sales Agreements between two local TV stations involving more than 15% of a station’s advertising time as an attributable ownership interest. However, it also announced at that time that it would provide parties to existing JSAs two years from the effective date of the new rule to make any necessary modifications to ensure compliance with the FCC’s multiple ownership rule. As I wrote in June when the new rule went into effect, that made June 19, 2016 the deadline for addressing any issues with existing JSAs.

However, the STELA Reauthorization Act of 2014 (STELAR) became law on December 4, 2014. While the primary purpose of STELAR was to extend for an additional five years the compulsory copyright license allowing satellite TV providers to import distant network TV signals to their subscribers where no local affiliate is available, as often happens in Congress, a number of unrelated provisions slipped into the bill. One of those provisions extended the JSA grandfathering period by a somewhat imprecise “six months”.

Today, the FCC released a Public Notice announcing that it would deem December 19, 2016 to be the new deadline for making any necessary modifications to existing TV JSAs to ensure compliance with the FCC’s multiple ownership rule. As a result, in those situations where the treatment of a JSA as an attributable ownership interest would create a violation of the FCC’s local ownership limits, the affected broadcaster will need to take whatever steps are necessary to ensure that it has remedied that situation by the December 19, 2016 deadline.

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When the FCC voted at its March 31, 2014 meeting to deem television Joint Sales Agreements involving more than 15% of a station’s weekly advertising time as an attributable ownership interest, it announced that broadcasters that are parties to existing JSAs would have two years to modify or terminate those JSAs to come into compliance. However, the FCC’s Report and Order adopting that change to the rules was not released until April 15, 2014, and noted that the effective date of the rule change would be 30 days after the Report and Order was published in the Federal Register.

The Federal Register publication occurred on May 20, 2014, and the FCC today released a Public Notice confirming that the effective date of the JSA attribution rule is therefore tomorrow, June 19, 2014. At that time, the two-year compliance period will also commence, with the deadline for existing JSAs to be modified to come into compliance with the new rule being June 19, 2016. As a result, subject to any actions the courts may take on the matter, all new TV JSAs must comply with the FCC’s multiple ownership rules from their inception, and JSAs that were already in existence before the rule change can remain in place until June 19, 2016.

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May 2014

Pillsbury’s communications lawyers have published FCC Enforcement Monitor monthly since 1999 to inform our clients of notable FCC enforcement actions against FCC license holders and others. This month’s issue includes:

  • FCC Proposes $11,000 Fine for Marketing of Unauthorized Device
  • $2,944,000 Fine for Robocalls Made Without Recipients’ Consent
  • Sponsorship Identification Complaint Leads to $185,000 Consent Decree
  • Premature Consummation of Transaction Results in $22,000 Consent Decree

Modifying Design of Parking Meter Requires New FCC Certification and Warning to Users

Earlier this month, the Spectrum Enforcement Division of the FCC’s Enforcement Bureau issued a Notice of Apparent Liability for Forfeiture (“NAL”) against a company that designs, develops, and manufactures parking control products (the “Company”). The NAL indicated the Company had marketed one of its products without first obtaining an FCC certification and for failing to comply with consumer disclosure rules. The FCC’s Enforcement Bureau proposed an $11,000 fine against the Company.

In August of 2013, the FCC received a complaint that a particular product made by the Company did not have the required FCC certification and that the product did not comply with consumer disclosure requirements. After receiving the complaint, the FCC’s Spectrum Enforcement Division issued a Letter of Inquiry (“LOI”) to the Company. The Company responded in the middle of March, at which time it described the product in question as a “parking meter that accepts electronic payments made with credit cards, smart cards, or Near Field Communications-enabled mobile device applications.” The response to the LOI indicated that the Company had received an FCC authorization in 2011 but had since refined the design of the product. Although one refinement involved relocating the antenna on the device, which increased the field strength rating from the level authorized in 2011, the Company assumed that the changes to the device qualified as “permissive changes” under Section 2.1043 of the FCC’s Rules. In addition, the Company admitted to marketing the refined product before obtaining a new FCC certification for the increased field strength rating, and that its user manual did not contain required consumer disclosure language. However, the Company had not actually sold any of the new parking meters in the U.S.

Section 302(b) of the Communications Act prohibits the manufacture, import, sale, or shipment of home electronic equipment and devices that fail to comply with the FCC’s regulations. Section 2.803(a)(1) of the FCC’s Rules provides that a device must be “properly authorized, identified, and labeled in accordance with the Rules” before it can be marketed to consumers if it is subject to FCC certification. The parking meter falls under this requirement because it is an intentional radiator that “can be configured to use a variety of components that intentionally emit radio frequency energy.” The Company’s product also meets the definition of a Class B digital device, in that it is “marketed for use in a residential environment notwithstanding use in commercial, business and industrial environments.” Under Section 15.105(b) of the FCC’s Rules, Class B digital devices “must include a warning to consumers of the device’s potential for causing interference to other radio communications and also provide a list of steps that could possibly eliminate the interference.”

The base fine for marketing unauthorized equipment is $7,000, and the base fine for marketing devices without adequate consumer disclosures is $4,000. The Company argued that even though it had marketed the device before it was certified, it had not sold any, and it promptly took corrective action after learning of the issue. The Enforcement Bureau declined to reduce the proposed fines because the definition of “marketing” does not require that there be a sale, and “corrective measures implemented after the Commission has initiated an investigation or taken enforcement action do not nullify or mitigate past violations.” The NAL therefore assessed the base fine for both violations, resulting in a total proposed fine against the Company of $11,000.

Unsolicited Phone Calls Lead to Multi-Million Dollar Fine

Earlier this month, the FCC issued an NAL against a limited liability company (the “LLC”) for making unlawful robocalls to cell phones. The NAL followed a warning issued more than a year earlier, and proposed a fine of $2,944,000. The LLC provides a robocalling service for third party clients. In other words, the LLC’s clients pay it to make robocalls on their behalf to a list of phone numbers provided by the client.

The Telephone Consumer Protection Act (“TCPA”) prohibits robocalls to mobile phones unless there is an emergency or the called party has provided consent. These restrictions on robocalls are stricter than those on live calls because Congress found that artificial or prerecorded messages “are more of a nuisance and a greater invasion of privacy than calls placed by “live” persons.” The FCC has implemented the TCPA in Section 64.1200 of its Rules, which mirrors the statute.

The LLC received an LOI in 2012 from the Enforcement Bureau’s Telecommunications Consumers Division (the “Division”) relating to an investigation of the LLC’s services. The Division required the LLC to provide records of the calls it had made, as well as to submit sound files of the calls. This preliminary investigation revealed that the LLC had placed 4.7 million non-emergency robocalls to cell phones without consent in a three-month period. After making these findings, the Division issued a citation to the LLC in March of 2013, warning that making future calls could subject the LLC to monetary penalties and providing an opportunity to meet with FCC staff and file a written reply. The LLC replied to the citation in April of 2013, and met with FCC staff.

However, in June of 2013, the Division initiated a second investigation to ensure the LLC had stopped making illegal robocalls. The LLC objected, but produced the documents and audio files requested. The Division determined, by analyzing the materials and contacting customers who had received the prerecorded calls made by the LLC, that the Company made 184 unauthorized robocalls to cellphones after receiving the citation. Continue reading →

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When CBS and Time Warner announced Monday they had ended their month-long standoff over retransmission of CBS programming on Time Warner cable systems, the announcement brought a sigh of relief from Time Warner subscribers, particularly the NFL fans among them, and the usual press statements putting each party’s best spin on the highly confidential result. However, the real legacy of these negotiations will be to alter how retrans agreements are negotiated in the future, and the somewhat surprising result will be less, not more, retrans blackouts.

When a change in the law in 1992 gave broadcasters the right to negotiate with cable system operators wishing to resell their programming to the public, the idea was to balance the playing field between cable networks, which relied on both ad revenue and a share of cable subscriber fees, and local broadcast stations, which had only ad revenue to support their operations. Prior to that time, broadcasters had effectively subsidized competition from cable because cable system operators could resell broadcast programming without paying for the underlying content, and then use the profits to launch and invest in cable networks that competed with broadcasters for both programming and advertising. These economics are what initiated the migration of sports programming from broadcasting to cable.

In the early retrans negotiations, which I’ll refer to here as Retrans Version 1.0, cable still had local monopolies, leaving broadcasters in the awkward position of attempting to negotiate with a party whose only “competition” was the broadcaster’s free signal. If the broadcaster’s programming disappeared from the local cable system, subscribers couldn’t leave for a new provider. Their only option was to put up an antenna and continue to be a subscriber in order to receive non-broadcast content. Under those circumstances, cable operators didn’t see any reason to pay money for the right to resell broadcast programming–they were the only resellers in town. The result was very few retransmission blackouts, as broadcasters knew that dropping off of the only cable system in town would hurt the broadcaster a lot more than the cable operator.

Unable to obtain money for retrans rights, the compensation broadcasters typically received for permitting retransmission of their signal was the right to program additional channels on the cable system. This cost the cable operator little to nothing while providing it with yet more free content from the broadcaster, making it an easy “give” in retrans negotiations. Ultimately, however, it ended up providing the public with its first great benefit from retransmission negotiations–the launch of a plethora of diverse new program services that not only developed into some of today’s most popular cable networks, but provided an alternative to existing cable networks that were largely owned by the cable systems themselves.

Retrans Version 2.0 commenced after Congress passed the 1999 Satellite Home Viewer Improvement Act, which finally allowed satellite TV to carry local broadcast signals. As a TV service wanting to be competitive to cable, satellite TV operators knew they needed to provide local broadcast signals and fought hard to persuade Congress to change the law to make that a reality. However, lacking the monopoly status enjoyed by most cable systems at the time, satellite TV operators understood they couldn’t replicate the strongarm negotiating tactics that had been employed so successfully by cable operators. Instead, they agreed to pay broadcasters money for the right to retransmit broadcast content, allowing them to attract subscribers away from cable and ultimately end cable’s monopoly. For the first time, broadcasters had competing multichannel providers vying for the right to resell their content to subscribers. As satellite TV’s market share grew, cable operators needed to ensure continued access to the most popular programming on their systems to fend off that competitive threat, and grudgingly began paying for the right to resell broadcast programming as well.

While you might think these competitive developments would have quickly led to a mature market for program retransmission rights with stable pricing, reaching that inevitable destination has been slowed by two factors. The first is simply that the monopoly years of cable so badly distorted market forces that the market for retransmission rights didn’t begin to develop until satellite TV became a competitive force and the retransmission contracts in place in 1999 began to expire, requiring negotiation of new retransmission deals. This occurred much later in markets where satellite-delivered “local into local” service was delayed because of capacity limitations of the satellite systems themselves. Even then, progress was slow for broadcasters, with cable operators being understandably resistant to paying for something they previously saw themselves as receiving for free. One of the best examples of this era is the cable operator who told us during negotiations that he believed paying for the right to retransmit broadcast signals was “unethical” and proceeded to carry my client’s broadcast programming illegally. The negotiation was concluded shortly after the cable operator became the first party ever to be found in violation of the FCC’s rules on good faith retrans negotiations, and the FCC ordered retransmission to cease until an agreement was in place.

Which brings us to the second factor that has delayed countless retrans negotiations and slowed the maturation of the market for broadcast retransmission rights–the possibility of government intervention. Retrans negotiations over the past decade have been conducted with a spectral third party in the room–the threat of governmental intrusion into the negotiations. While the FCC previously concluded that it has no authority to force any particular result in retrans negotiations beyond ensuring that the parties are negotiating in good faith, that has not stopped cable and satellite TV operators from regularly calling upon the FCC to intervene in negotiations. When the FCC resists, the call goes to Congress to “fix” retransmission laws or provide the FCC with authority to step in and alter the dynamics of a retrans negotiation. While such multichannel distributors certainly are hoping to place the government’s heavy thumb on their side of the scale, creating even the possibility of government intervention generates uncertainty which the cable or satellite TV operator hopes will cause the broadcaster to take the deal that’s on the table.

Uncertainty, however, is the enemy of efficient negotiations. When each party knows exactly where it stands, the parties focus on reaching an agreement and getting the deal done as quickly as possible. Where the possibility of government intervention is introduced, the parties cease focusing on each other and start playing to the FCC (or Congress). At best, that means grandstanding and delays in the negotiations while one party hopes to generate enough noise to entice the FCC to step in and get a better result than the party can negotiate on its own. At worst, it means creating high visibility blackouts in an effort to draw the FCC or Congress into launching retrans “reform”. Both approaches are the antithesis of efficient and swift negotiations, with one party quite literally putting off “getting down to business” in hopes that it is buying time for the FCC to join the fray. This approach has unfortunately made some Retrans 2.0 negotiations slow, messy, and unpleasant for all involved, including subscribers.

That is why this week’s CBS and Time Warner deal, regardless of its economic terms, is a watershed event. The negotiations started in typical Retrans 2.0 fashion, resulting in a blackout of CBS programming on Time Warner systems and the traditional public exchange of unpleasantries between the parties as government intervention was sought to protect subscribers from the loss of CBS programming. In fact, some have speculated that Time Warner dug in its heels specifically to create a high profile program disruption that might draw in Congress or the FCC. The FCC played its part in the drama, with a spokesman for the acting Chair of the FCC announcing just five days into the blackout that the agency “stand[s] ready to take appropriate action if the dispute continues.”

However, it is what happened in the nearly four weeks of CBS blackout after that comment was made that carried us from Retrans 2.0 into the world of Retrans 3.0. Specifically: the blackout occurred in the highest profile markets, but the government did not step in; the blackout was geographically widespread, but the government did not step in; the blackout involved high-profile network programming, but the government did not step in; the blackout drug on far longer than imagined, but the government did not step in; the blackout affected a major sporting event and threatened to affect upcoming NFL games, but the government did not step in. In short, it presented one of the most politically-appealing invitations for the government to second guess the path of a free market retrans negotiation, and the government declined to do so. Perhaps just as important, viewers came to realize that the sun still rose in the morning despite the CBS blackout, antenna manufacturers enjoyed a sales boost, and a retrans deal was achieved in less time than it typically takes Congress to name a post office.

Having seen the government’s lack of enthusiasm for getting involved in one of the most extreme examples of a blackout, parties to retrans negotiations will hopefully be able to retire “threatening to involve the government” as a negotiating tactic. While I have no illusions that such threats will now cease, their impact has been considerably diminished over the past month. The CBS/Time Warner dispute presented an unprecedented opportunity for broadcasters and multichannel providers to peer into the deepest recesses of their corporate closets and confirm that there is no government bogeyman residing within, waiting to pounce on unsuspecting negotiators. Freed from the need to look over their shoulder during retrans negotiations, or to play to the governmental crowd, parties can focus on getting retrans deals done quickly and efficiently, without being distracted by the uncertainties and contingency planning surrounding disruptions from outside the negotiating room.

Blackouts are caused by one or both parties to a retrans negotiation misgauging their negotiating power relative to the other party. While that will inevitably still happen from time to time for the same reasons it happens in any business negotiation, the legacy of Retrans 3.0 is that it should no longer happen because one party thinks that if it delays enough, or causes enough of a public stir over a retrans dispute, the FCC will come to its rescue. The result will be better for all, including subscribers.

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Recently, TVNewsCheck.com ran a short item noting that a large broadcast group (not a network owned and operated group) and a large multichannel video distributor (MVPD) successfully concluded carriage negotiations. There was no interruption of service. Given the successful outcome, I was surprised to see that someone posted a comment regarding the piece saying the deal illustrates why the FCC should tighten its broadcast ownership rules. No matter how many times I read comments of this sort, I am perplexed that people actually believe it’s a good thing for the government to mandate that broadcasters be the underdogs in all major negotiations that impact the quality and availability of broadcasters’ programming. If anything, government policy should encourage broadcasters to grow to a scale that is meaningful in today’s complex television marketplace. Not one of the other major distributors makes its programming available for free.

If independent (non-O&O) broadcasters aren’t permitted to achieve a scale large enough to negotiate effectively with upstream programmers and downstream distributors, you won’t have to wait long see high cost, high quality, high value programming available for free to those who choose to opt out of the pay TV ecosystem. It’s much better to have two, three or four strong competitors in each market, owned by companies that can compete for rational economics in the upstream and downstream markets, than to have eight or more weak competitors, few of which can afford to invest in truly local service or negotiate at arms-length with program suppliers and distributors.

For those who have not been paying attention, the television market has changed profoundly in the past 20 years. The big programmers and the big MVPDs have gotten a whole lot bigger. The largest non-O&O broadcast groups have grown too, but not nearly as much. Fox, Disney/ABC, NBCU and the other programmers are vastly bigger companies with incomparable market power vis-a-vis even the largest broadcast groups. The same is true of the large MVPDs, which together serve the great majority of television households.

There’s nothing inherently bad about big content aggregators and big MVPD distributors. And anyway, they are a fact of life. Despite their size, each is trying to deliver a competitive service and deliver good returns for shareholders. That’s what they are supposed to do, and in general (with a few exceptions) they serve the country well. But again, they are much, much larger than even the largest broadcast groups. If you believe that having a viable and competitive free television option is a good thing, that’s a problem.

So in response to the suggestion that the FCC further limit the scale of broadcasters, I reply: why does the government make it so damn hard for the only television service that is available for free to bargain and compete with vastly larger enterprises that are comparatively unregulated?

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While the FCC gets to have a say in nearly every sale or merger in the communications industry, no matter how small, the Department of Justice and the Federal Trade Commission will also be called upon if a transaction is large enough. The test for when a transaction is large enough to require a filing with the DOJ or the FTC is whether it exceeds the minimum financial thresholds of the Hart-Scott-Rodino (“HSR”) Act.

Because of inflation and other factors, however, the HSR thresholds must be annually adjusted to accurately separate small deals from big deals. This separation is critical because the DOJ and the FTC have limited resources to investigate transactions, and therefore only require advance notification of transactions that involve companies or transactions above a certain minimum size. Transactions that fall below the HSR reporting thresholds, however, are not immune from antitrust scrutiny even after they are consummated if they are likely to have an anticompetitive effect in any relevant market.

On February 27, 2012, the HSR thresholds will increase significantly, with the “minimum size-of-transaction test” threshold increasing from $50 million to $68.2 million. If the value of the proposed transaction is above $68.2 million but below $272.8 million (up from $200 million), reporting is required only if the ultimate parents of the acquiring and acquired entities meet certain “size-of-person” tests, the thresholds for which will also increase on February 27, 2012. Subject to a myriad of exemptions, transactions valued at over $272.8 million under the HSR regulations must generally be reported. If that sounds complicated (and it can be), Pillsbury’s Antitrust lawyers recently published an Advisory with more details on these changes.
While transactions that meet these thresholds must be reported whether or not they are communications-related, the thresholds can be particularly relevant to large broadcasters, since broadcasters that enter into a transaction requiring an HSR filing need to be aware that they may not be able to implement a local marketing agreement or similar cooperative arrangement in conjunction with an anticipated acquisition until the HSR filing has been made and the mandatory post-filing waiting period has either passed without action by the DOJ/FTC, or the DOJ/FTC have agreed to terminate the HSR waiting period early.

With communications transactions starting to heat up again, the increase in the HSR thresholds is welcome, and may simplify transactions that fall above the current HSR thresholds, but below the new ones.