FCC Poised To Move Against ‘Sidecar’ Pacts Among Owners of Local Stations

Federal Communications Commission Chairman Tom Wheeler is expected Thursday to take moves against arrangements among local stations that he believes crimp local competition and put upward pressure on the prices consumers pay for cable service.

Wheeler is expected to circulate a proposal among the other commissioners at the FCC that could bring a halt to the practice of one station group selling some or all of the ad time of a station that it is supposed to be competing against in the same market. The  technique, known in the business as a “sidecar” arrangement, effectively gives one media company the ability to run more stations than it might be allowed to under ownership caps the U.S. government has in place.

Wheeler is also expected to ask for a vote on banning big local station owners from banding together in local cable carriage negotiations, a practice he believes has played a role in the increase of fees consumers must pay for cable and satellite service. According to an FCC official, so-called “retrans” monies have ballooned in recent years, rising to approximately $2.4 billion in 2012, from around $28 million in 2005.

The new rule, if approved, would prohibit two or more separately owned top four broadcast stations in a single market from jointly negotiating the terms of re transmission consent.

Much has been made of both practices in recent months as local stations have tried to make their way in a shifting media economy. Local stations once thrived as the dominant distributors of TV programming in a specific geographic area, but the rise of digital video has given the companies that own the stations heady competition.  Sharing services can prove an efficient way to decrease operating costs. Striking new prices for allowing cable, satellite and other video distributors to transmit a station’s content to viewers has become a lucrative revenue stream as the competition for ad dollars grows.

Critics believe the “sidecar” practices work contrary to the spirit of FCC rules that encourage a diversity of  local players in any market. In October, The Wall Street Journal called attention to the practice by looking at Sinclair Broadcast Group, which in Columbus Ohio managed several stations from one building, even though it owned only one of them. Even so, Sinclair collected the majority of revenue from  the three it did not own.

According to an FCC official, the Commission is prepared to adopt a rule mandating that if one station sells 15% or more of the advertising time of a competing station, then it will be considered to have an ownership stake in that station. Station owners can apply for waivers, and will receive them if they can demonstrate how a joint services agreement serves the public interest, this officials said.

The Commission is required by law to assess its media-ownership rules every four years, but concerns over “sidecar” arrangements have been extant since 2004, according to the FCC official. More recently, the U.S. Department of Justice has voiced concerns about such practices, and in December placed added scrutiny on Gannett Co.’s then-pending acquisition of Belo Corp. The DOJ expressed concern that Gannett would help a St. Louis executive run a Belo station there, even though it already owned a top station in the market. Gannett and Belo agreed to sell the station to an independent third party instead.

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