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Why a Few Derailments Won’t Stop the Media Merger Train

The Trump era has now seen two major media mergers halted or almost stopped — Sinclair Broadcast Group’s combination with Tribune Media, and AT&T’s acquisition of Time Warner. That’s a surprising twist for a conservative administration that has promised to drive a pro-business agenda of deregulation wherever possible.

So what to make of it?

Both transactions met with turbulence from the feds, but that does not signal that media consolidation will be slowed in the coming years — far from it. In fact, getting far less attention are moves that likely will encourage more media M&A down the road.

Here are a few examples:

Broadcasters still may find it easier to get bigger. FCC chairman Ajit Pai put the brakes on the $3.9 billion Sinclair-Tribune transaction, but the stated reason had everything to do with Sinclair’s “lack of candor” in presenting its merger plans. At issue was how it planned to sell off stations so that the deal complied with media ownership limits.

According to Tribune, Sinclair could have gotten the greenlight had it proposed “clean” station sales, but it instead chose plans that raised serious concerns that they were “sham” transactions. Sinclair’s goal, per Tribune’s $1 billion lawsuit against its former suitor, was to hang on to as many stations as possible even though it knew it would have to make significant divestitures.

Despite the Sinclair fiasco, the FCC is still considering proposals to revise the national ownership cap, which currently limits TV station groups to holdings that reach no more than 39% of the country. Broadcasters are pushing to increase the cap to 50% or more, and there is every reason to believe that a majority of the Republican-controlled commission will go through with it.

Given other moves to relax regulations, in broadcasters’ eyes the Trump-era FCC has been very good for them and responsive to arguments that they need to bulk up to survive in a shifting landscape.

While Sinclair may be sidelined, analysts believe that other large-scale station mergers are “very feasible,” in the words of Paul Gallant of Cowen Washington Research Group. His advice: “Go now,” before the onset of inevitable court challenges and shifting political winds as the 2020 election approaches.

Film studios may be able to get stronger. The Justice Department recently launched a review of the Paramount consent decrees, the 70-year-old restrictions that prohibit major studios from owning theater chains and disallow a number of business practices between distributors and exhibitors.

“The reversal of antitrust policy for the film industry that has been in place for the past 70 years has the potential to flip the relationship between studios and exhibitors on its head.”
Andrew Rodgers, Denver Film Society

The decrees were put in place in a bygone era, when studios controlled all aspects of a movie’s production and release.

In the decades since, the multiplex replaced the single screen, and in recent years in-home streaming has come to pose a threat to brick-and-mortar locations.

If the DOJ lifts the consent decrees, it doesn’t necessarily mean that studios will rush to link up with exhibitors. But if the DOJ eliminates some of its other restrictions, such as block booking, circuit dealing and minimum pricing, that could be of just as great a consequence.

There is concern among indies. Andrew Rodgers, executive director of the Denver Film Society, which has been involved in independent exhibitors’ antitrust litigation against Landmark Cinemas, said, “It’s safe to say that the reversal of antitrust policy for the film industry that has been in place for the past 70 years has the potential to flip the relationship between studios and exhibitors on its head.”

There’s a way to get a greenlight quickly. The friction between big media and the feds in many ways overshadowed one of the most consequential actions — the DOJ’s approval of the Walt Disney Co.’s purchase of much of 21st Century Fox in June. Many expected that the merger process would take a year; instead, it cleared in about six months.

The speed with which the merger was approved triggered suspicion that the DOJ was favoring media mogul Rupert Murdoch, a friend of the president’s.

DOJ antitrust chief Makan Delrahim defended the process, and has said that one thing that sped things along is that the companies were more cooperative by agreeing to divest 22 regional sports networks — the Antitrust Division’s central area of concern — rather than haggling over conditions of the deal.

Tribune is still for sale. The Sinclair deal may be dead, but that doesn’t mean Tribune isn’t on the block. Tribune CEO Peter Kern said as much, as the company announced the termination of the merger and the lawsuit against Sinclair, filed in Delaware Chancery Court.

Fox flirted with making a run at Tribune last year in partnership with private equity giant Blackstone, before Tribune set its Sinclair pact. Now, with Fox poised to emerge from the Disney sale with slimmed-down operations focused squarely on TV, a big station acquisition is a natural move, especially if the company recruits a well-heeled partner to foot most of the bill.

Cynthia Littleton contributed to this report.

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