Sinclair Broadcast Group and Tribune Media Co. have more to worry about than a basic regulatory review of their proposed merger. Oral argument is set for April 20 in a seemingly unrelated case against the Federal Communications Commission that could make or break their deal.
The case is ostensibly about whether the FCC flouted administrative procedure when it voted last year to allow big TV companies like ION Media Networks and Univision Communications Inc. to discount half of their high numbered broadcast channels from a cap on media ownership. Without the discount, those stations fall outside the rule that says no single company can own stations that reach more than 39 percent of the country.
But the biggest winner and/or loser in the case will be Sinclair and Tribune. The combined company would sneak under the 39-percent cap with the discount but be well above the cap without it. The case, brought by media and consumer advocates who want more TV diversity, will be heard by a three-judge panel in the U.S. Court of Appeals for the District of Columbia. The judges for that panel were named last week.
Here’s where the political power comes in. Bloomberg Intelligence recently predicted a slight edge in the case for Free Press, one of the advocacy groups challenging the FCC rule. The reason? Two of the judges on the panel – Patricia Millett and Nina Pillard – are appointees of former president Barack Obama. In theory, they could form a block in a split 2-1 decision against the FCC. That would effectively invalidate the discount that Sinclair and Tribune need to combine. The third judge, Gregory Katsas, was named by President Donald Trump.
If the FCC loses that case, Sinclair and Tribune at best would be dependent on a lengthy court battle over the intricacies of government procedure that coincides with the shift in political power that accompanied President Donald Trump’s move to the White House. How long will they wait? They already put off their target closing date from March 31 to sometime in the second quarter, according to a March 7 Sinclair earnings call.
Bloomberg analysts said there could be “long-term headaches.” They were referring to everything that could happen outside of the merger review itself, which is going forward as normal at the Justice Department and the FCC.
The headaches come from the highly partisan fight over the high-frequency channel discount.
FCC Chairman Ajit Pai, a Trump appointee, and his predecessor Tom Wheeler, an Obama appointee, have both been called arbitrary and capricious (by different critics) for their treatment of the discount. The Democrat-led FCC got rid of it in 2016 over loud protests from the two Republican commissioners – Pai had a four-page dissent. Big TV companies like ION were grandfathered under Wheeler’s action, but they still opposed rescinding the discount because they wouldn’t be allowed to get bigger.
Fast forward one year. Wheeler is out. Pai is promoted to FCC chairman, and Republicans now have a majority on the five-member commission. Again on a partisan vote, the commission reversed the Obama FCC’s action and reinstated the discount.
Broadcasters cheered. Democrats complained and suggested that Pai was in collusion with Sinclair and Tribune because the two companies announced their merger plans two weeks after the FCC vote.
Pai waved off that accusation. He isn’t legally bound to respond to it if Republicans in Congress don’t support Democrats’ queries.
Thus, the fate of a major media merger boils down to who’s in charge.
The Justice Department’s high-profile bench trial to stop AT&T Inc. from merging with Time Warner Inc. enters its second week. Last week saw a few delays because of snow, but the AT&T and Time Warner CEOs still managed to appear in the courtroom to watch opening arguments.
“Time Warner would be a weapon for AT&T.”
--Justice Department attorney Craig Conrath in opening arguments before U.S. District Court for the District of Columbia Judge Richard Leon.
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