FCC’s ruling on the Sinclair tribune deal: surprising or not?

Hi everyone, my name is Akash Bhat and I’m a summer intern at Hindsight and I’ve been closely following the breaking news about Sinclair Broadcast Group’s bid to buy Tribune Media.

Here’s my view of the story.

Back in May, media giant Sinclair Broadcast Group announced that they were in the process of acquiring Tribune Media in a $3.9 billion cash-and-stock agreement. The combined company would control 223 TV stations in 108 markets, including 39 of the top 50 markets. In total, these stations would reach some 72% of U.S. households, nearly twice the reach of the next biggest broadcast competitors.

Sinclair Broadcast Group expected the conservatively led FCC (which has generally been against media regulation since the change in leadership in 2017) to approve the acquisition.

But here’s where it gets interesting.

Since becoming chairman in January 2017, Ajit Pai has proposed a long list of policy changes also advocated by Sinclair Media Group. Most importantly, one of the policy changes is called the “UHF discount”, which relaxes FCC media ownership rules that currently cap TV station ownership to 39% of U.S. TV households. The FCC’s calculation of Sinclair-Tribune’s reach will be far lower than 72% due to Ajit Pai’s decision to restore the UHF discount rule from the 1980’s. That rule essentially states that some of Sinclair’s stations are only considered at half of their actual market size (at least when determining whether a media company has hit that 39% cap). In order to make sure that they don’t hit that cap, Sinclair has been divesting from multiple stations to ensure the deal goes through (an issue that will be discussed further later on).

Sinclair CEO Chris Ripley, in a sign of the company’s confidence after announcing the Tribune transition, said his company was optimistic on regulatory approval because of Pai’s leadership. As a result, the FCC Inspector General agreed to the request of two Democratic lawmakers to start an internal investigation into Pai to see “whether FCC Chairman Ajit Pai and his aides improperly pushed for rule changes to benefit Sinclair Broadcasting in the company’s attempt to purchase Tribune Media,” according to a FCC press release.

However, in an interesting turn of events, Pai announced on July 16th that he has “serious concerns” about the deal. A draft order by the FCC said that “Sinclair’s actions here potentially involve deception.” A lot of the FCC’s concern came from how Sinclair was selling off some of its stations to stay within that 39% government ownership limit. Some of those stations that Sinclair divested from were being sold to companies that were close to Sinclair or its executives. For example, in Houston and Dallas, the buyer is Cunningham Broadcasting Company- a company controlled by the estate of the mother of Sinclair’s executive chairman.

Simply stated, the FCC feared that Sinclair would still be the de-facto owner of these stations even if they weren’t officially owned by Sinclair. As a result, Pai announced that he would subject the deal through a lengthy process with an administrative law judge. This move has caused serious doubts that the deal will actually go through. The FCC had done the same thing in 2015 to stop the Comcast-Time Warner merger, which the companies ultimately decided to abandon.

In response, Sinclair announced Wednesday morning that they were stopping the sale of some of these local stations to ease the concerns that the FCC had. Moreover, in a statement by Sinclair spokesperson Ronn Torossian, they announced that “Sinclair intends to request permission from the FCC to put the Dallas and Houston stations into a divestiture trust to be operated and sold by an independent trustee following the closing of the Tribune acquisition.”

It remains to be seen how the FCC will respond to this counteroffer by Sinclair. However, Pai’s sudden opposition to Sinclair is surprising, as his proposed policies seemed to be aligned with Sinclair’s interest. However, it is intriguing to note that the Trump-appointed Ajit Pai’s opposition to Sinclair comes a week after Sinclair Broadcast Group announced a streaming TV service that would include round-the-clock local news and national programming, creating direct competition to Fox News- a known favorite of President Trump. This issue regarding competition with Fox News becomes even more likely consider Sinclair was surprised to hear Pai’s announcement, noting that “at no time has anyone at the FCC ever raised any concerns that Sinclair was being less than candid with the FCC or asked us to provide any back-up or further information to explain the financial aspects of the sales of the Dallas, Houston or Chicago stations.”

Although Pai has placed a roadblock in the deal, it’s doubtful that the Republican-run government will firmly oppose the growth of conservatively-led Sinclair if these legal concerns are removed. As for Pai’s intentions, it’s entirely possible that Pai is attempting to enforce his newly-created ownership limit rules, but the coincidental timing of the action alongside the announcement of the Sinclair streaming service and the investigation into his history with Sinclair Broadcast Group leaves some room for question.

How do you think the FCC will respond to Sinclair’s new offer? Do you think the FCC will ultimately approve the deal to buy Tribune Media’s 42 TV stations? What do you think is driving Ajit Pai’s sudden opposition? Let us know in the comments down below, we’d love to know what you think.

Finally, make sure to follow us on LinkedIn and Twitter @Hindsight_Sol.

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