Sinclair Broadcast Group plans to sell Tribune Media’s TV stations in New York and Chicago to comply with FCC ownership limits if the $3.9 billion Sinclair-Tribune merger is approved by the FCC and Justice Department.
Sinclair disclosed the plan to divest Tribune’s WPIX-TV New York, WGN-TV Chicago, and KSWB-TV San Diego in a lengthy FCC filing Wednesday that is expected to be the last step for the company before getting decisions from the Justice Department and FCC on the deal. Sinclair also makes its case in the filing for why it should receive an FCC rule waiver to own more than one of the top four stations in three markets: Indianapolis, Greensboro, N.C., and Harrisburg, Pa.
The decision to offload stations in the nation’s No. 1 and No. 3 TV markets is a surprise, given that those are among the most lucrative and high-profile markets in the country. However, Sinclair doesn’t plan to be too far removed from WPIX and WGN. The filing discloses that Sinclair already has buyers lined up for both stations and that Sinclair intends to continue running the stations through an “options and services agreement” inked with the buyers. That will raise some hackles among media watchdog groups that have long been critical of Sinclair’s use of such shared-services agreements, which are seen as an end-run around the FCC’s ownership rules.
The filing made no mention of a plan for an operational agreement with the buyer of KSWB. San Diego ranks as No. 28 out of Nielsen’s 210 designated TV markets.
Sinclair’s filing also identified eight markets — including Seattle, St. Louis, Salt Lake City, and Oklahoma City — where it needs to sell off stations to comply with FCC rules regarding the number of outlets a single entity can own in a given market. But again, Sinclair said it plans to enter into agreements with buyers in three of those markets — Seattle, Oklahoma City, and Greensboro, N.C. — to continue operating the stations even after a sale.
It’s understood that Fox Television Stations has been talking to Sinclair about buying several stations in markets where Sinclair is facing divestitures. But it’s unlikely that Fox could buy WPIX or WGN given that Fox already owns two stations in both markets, nor would Fox likely be interested in an agreement to allow Sinclair to effectively run the stations. Seattle and St. Louis are seen as prime targets for Fox.
Sinclair needs to sell off stations to keep the combined company under the FCC’s TV station ownership cap which limits TV station ownership to outlets that reach no more than 39% of U.S. TV households. The Tribune acquisition would put Sinclair well over the cap, into the 45% range, even with the discount for calculating reach that the FCC allows for UHF stations versus VHF outlets.
The decision to sell New York, Chicago, and San Diego will slice enough reach off of the enlarged group to bring Sinclair below the 39% cap. New York alone accounts for more than 6.4% of the country while Chicago represents 3% of TV households.
Sinclair’s willingness to part with New York and Chicago underscores the company’s strategic interest in expanding through the Tribune acquisition. Sinclair is focused on an ambitious growth plan driven by enhanced technological capabilities offered by a new digital broadcasting standard, known as ATSC 3.0, that is wending its way through FCC approvals. That system will afford broadcast TV stations far greater bandwidth to offer data services and MVPD-like channel packages.
Sinclair is in the midst of assembling a coalition of other station owners to create a truly national footprint for advanced 3.0 services. Sinclair is banking on being able to retain access to WPIX and WGN, or to recruit a partner with stations in New York and Chicago, such as Univision. In this calculation, Sinclair’s reach in small- and mid-sized markets is at least as valuable, if not more, than having a wholly owned outlet in New York and Chicago. This marks a big change in the mindset of broadcast TV station owners. Heretofore, the most desirable markets were the largest urban areas that command a bigger pool of advertising dollars.