FCC Chairman Ajit Pai is proposing to restore the so-called “UHF discount,” a regulatory provision that has allowed major broadcast groups to amass a greater number of TV stations without exceeding caps on ownership.
Pai also said that the FCC would launch a “comprehensive review” later this year of the national ownership cap, in which a single entity is limited to stations that collectively reach no more than 39% of TV households.
Such moves are expected to spur a new wave of mergers among broadcast station groups.
Many major broadcast group station holdings include UHF stations, and for years they enjoyed a “discount” in the way that the FCC calculated the coverage area of the UHF band. For those stations, they were allowed to count only 50% of the households in their market when calculating whether they complied with the ownership cap.
But last August, the FCC voted to eliminate that discount, much to the opposition of broadcasters. Existing station groups who exceeded the cap without the benefit of the discount were grandfathered in, but that waiver was not granted to any future owner.
Pai said that what he is proposing is to “hit the reset button” and restore the rule at the next commission meeting on April 20. He expressed doubts that the FCC’s decision last year would survive a court challenge.
The FCC currently has two vacancies. Along with Commissioner Michael O’Rielly, another Republican appointee, Pai would have the votes to pass his proposal.
If the “UHF discount” is restored, it could help station groups like Sinclair Broadcast Group, which has reportedly been interested in acquiring Tribune Media, which has 42 stations. According to Bloomberg News, Sinclair CEO Christopher Ripley last month told investors that he believes that “more consolidation will happen, in fact we think it’s a necessary activity.”
In an FCC filing in January, Sinclair not only urged the agency to restore the UHF discount, but to eliminate the ownership cap entirely. They argue that “television stations face increased national competition from a host of new services, including satellite companies, cable networks, OTT providers, and direct subscription services.”
“The national cap is simply no longer justified in today’s media environment,” the company’s attorney wrote in the filing.
Another station group, ION Media Networks, has also been urging the FCC to reconsider the UHF discount. In January, their CEO, Brandon Burgess, met with Pai and O’Rielly, along with their chiefs of staff, according to agency filings. They were joined by two of ION’s legal representatives from Cooley LLP: John Feore and Robert McDowell, a former FCC commissioner. They argued that the abandonment of the discount created an “investment disincentive,” and undermined their capital structures.
Major station ownership groups like Nextel and 21st Century Fox favor restoring the UHF discount, and representatives from NBCUniversal and Tribune Media also have met with FCC officials to urge them to do so.
Andrew Jay Schwartzman, lecturer in law at the Institute for Public Representation at
Georgetown University Law Center, said that companies like Nextel and Fox are eager to see restrictions eased so they can go “on buying sprees.”
Although Pai is “certainly targeting all of the rest of the ownership rules,” Schwartzman said, it isn’t necessarily as easy as putting it to a vote.
Lifting the 39% ownership cap would take congressional action, he said, while the FCC would need to provide justification for reversing itself when it comes to the UHF discount.
The discount dates back to 1985, when UHF stations were a low-quality stepchild on the TV dial. Their visibility, however, grew substantially as the cable industry grew and carried their signals, and later with the transition to digital television.
“The are going to have to do real contortions to justify this,” Schwartzman said of the proposal to restore the discount.