The FCC on Thursday voted to restore an arcane rule that has allowed station groups to fall within media ownership limits.
The commission, in a 2-1 vote, reinstated the so-called UHF discount. First adopted in 1985, it has allowed media companies to count only half the coverage area reach of their UHF stations.
That’s important for major companies like Sinclair Broadcast Group, Fox Television Stations, Nexstar, and ION Media Networks in making sure that they fall within the media ownership cap — in which no one company can own stations that collectively reach more than 39% of the country.
Commissioner Mignon Clyburn, the sole Democrat on the FCC, dissented. She warned that the FCC’s move would diminish diversity, competition, and localism, and predicted a wave of mergers and acquisitions.
The UHF discount, she said, was from another era when there was a disparity between the UHF and VHF signal. That was eliminated with the transition to digital television. Broadcasters balked when the Obama-era FCC, under then-chairman Tom Wheeler, voted to eliminate the UHF discount, and station groups have been urging FCC chairman Ajit Pai to reinstate it.
She called the discount an “outdated state of play, with rules made for the analog era.” She cited statements from Sinclair that they are looking to buy more stations, and from CBS chief Leslie Moonves, anticipating a rise in the media ownership cap.
“The commission just wrapped up and put a bow on a huge gift for those large broadcasters, with ambitious dreams of more consolidation,” she said at the meeting. “Now I am not a betting woman, but mark my word: this order will have an immediate impact, on the purchase and sale of television stations.”
She showed a chart from Bloomberg showing how major station groups benefit from the discount. The largest, ION Media, reaches 33.7% of the country with the discount, but 65.2% without. Univision reaches 23.6% with the discount, but 44.8% without. When the discount was repealed last summer, station groups were allowed to retain their existing holdings, but they would be forced to divest assets in the event of a merger or corporate takeover.
Pai, however, argued that the elimination of the discount needed to go hand-in-hand with an examination of the media ownership cap. He said that the FCC would start just such a proceeding later this year. Reinstating the UHF discount, he said, would give the FCC a “blank slate.”
“This represents a rational first step in media ownership reform policy allowing free and local broadcasters to remain competitive with multi-national pay TV giants and broadband providers, ” said Gordon Smith, the CEO of the National Association of Broadcasters.
Update: Brandon Burgess, the chairman and CEO of ION Media Networks, sent a letter to Pai praising the restoration of the UHF discount.
“This action allows small entrepreneurial and consumer-oriented companies like ION Media to continue to succeed in a consolidating media world,” he wrote.
“Why anyone would want to micro-regulate tiny pro-consumer companies like ION Media (while simultaneously approving the media consolidation deals you reminded everyone of today) shall remain a mystery to both of us. But onward.”