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FCC Votes to Bar Stations from Jointly Selling Ad Time

The FCC on Monday prohibited so-called “sidecar” deals among stations in the same market, a move that Chairman Tom Wheeler said will close a loophole that has allowed major media groups to skirt media ownership rules.

The FCC’s order, on a 3-2 vote, puts 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.

Wheeler argued that such joint sales agreements effectively give one media company the ability to run more stations than it might be allowed to under ownership rules.The new rule mandates that if one stations sells 15% or more of advertising time of a competing stations, then it will be considered to have an ownership stake in that station.

“Skirting the existing rules to create market power that stacks the deck against small companies seeking to enter the broadcast business,” Wheeler said.

At a press conference after the FCC’s meeting, he said that the move was “a win for competition, but more importantly, it is a win for common sense.”

Broadcasters had lobbied heavily against the new rule, arguing that such joint sales arrangements allow them to share operating costs and invest more heavily in local programming in the face of increased competition from cable and satellite services.

Dennis Wharton, a spokesman for the National Assn. of Broadcasters, called the FCC’s move an “arbitrary and capricious decision,” a term that has been used by industry groups when they challenge regulatory decisions in court.

As it lobbied against the FCC’s prohibition, NAB had argued that cable and satellite advertising also were coordinating sales of advertising time, to the point where it was “collusive.” But the commission took no action on multichannel video providers.

Commissioner Ajit Pai argued against the rule, saying that the agreements have allowed stations to help line up bank financing, launch additional newscasts and modernize facilities.

In a blistering speech, Pai said that the commission was taking a “classic bait and switch” by taking action on such joint sales agreements, yet not taking steps to modify the underlying ownership rules to respond to changes in the media marketplace. He pointed to rules that prohibit a single company from owning a TV station and newspaper in the same market, a regulation that dates to 1975.

He added that there would be a “deficit of trust” between broadcasters and the FCC, hurting investment in smaller outlets. He also said it would dampen hoped-for participation by stations in the upcoming incentive auction in which the agency plans to sell off broadcast spectrum for wireless use.

Yet William Lake, chief of the FCC’s media bureau, challenged the notion that the joint-sales agreements help stations save money, noting that they had to do with coordinated sales of advertising time and not pacts to save operational costs. The latter agreements are separate, he said.

Station owners can still apply for waivers, and will receive them if they can demonstrate how a joint services agreement serves the public interest. A last-minute change to the proposal placed a 90-day time frame on when the FCC must rule on such a waiver, a move designed to assuage stations who argued that they otherwise would face the uncertainty of waiting for the agency to act.

Commissioner Mignon Clyburn said that the 90-day time frame will create “a level of predictability and certainty for licensees so they don’t end up in FCC purgatory.” She ultimately supported the new rule after she and her staff met extensively with interest groups and industry representatives, but said that the final draft of the regulation strikes a balance.

Stations that are in current joint sales agreements will be given two years to modify their pacts to comply with the new rule.

Wheeler targeted such joint-sales agreements earlier this month, after the U.S. Department of Justice expressed its concerns, and in December placed added scrutiny on Gannett Co.’s then-pending acquisition of Belo Corp. The DOJ argued 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.

Pai also argued that the restriction of joint-sales agreements would hurt minority-owned broadcast outlets, noting that there was only one full-powered station in the country with African-American ownership that was not in some kind of joint-sales agreement.

Commissioner Michael O’Rielly said that the new rule puts “all stations” at the mercy of “arbitrary” FCC decisionmaking.

“Our rules are stuck in the past,” he said.

Wheeler, however, said that essentially what the FCC was doing was enforcing regulation already on the books. He also dismissed broadcasters’ suggestions that his moves were designed to turn up the pressure on stations to participate in the upcoming incentive auctions.

“Baloney,” Wheeler said after the FCC’s meeting. “That is my non-civil response.”

The commission also will review whether there should be disclosure of other types of agreements in which stations share services, such as the costs of day-to-day operations and newsgathering.

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