FCC Sends Sinclair Mega-Deal to Likely Doom

By Margaret Harding McGill, Politico

17 July 18

The FCC’s decision is a significant blow for Sinclair, which has been a frequent target for Democrats and liberal groups.

CC Chairman Ajit Pai announced Monday he has "serious concerns" about Sinclair Broadcast Group's acquisition of Tribune Media, saying he would send the transaction through a lengthy administrative process often viewed as a deal-killer.

As originally proposed in May 2017, the $3.9 billion deal would see conservative-leaning Sinclair, already the largest U.S. TV station owner, gobble up 42 Tribune stations in key markets like New York and Chicago, adding to its existing footprint of more than 170 stations and giving the company access to nearly three-quarters of U.S. households.

But the regulatory review dragged on for more than a year, as Sinclair revised the deal several times, offering to sell off 21 stations in an effort to gain government approval. Critics took issue with some of the proposed sales, which were so-called sidecar arrangements that would allow Sinclair to keep a stake in the revenue and programming of the spun-off stations, as POLITICO reported on May 30. Another two of the sales would have been to a company with close ties to Sinclair.

Pai said "certain proposed divestitures" were a sticking point for the agency.

"Based on a thorough review of the record, I have serious concerns about the Sinclair/Tribune transaction," the chairman said in the statement. "The evidence we’ve received suggests that certain station divestitures that have been proposed to the FCC would allow Sinclair to control those stations in practice, even if not in name, in violation of the law."

FCC officials said one problematic deal was the plan to sell Chicago station WGN to Steven Fader, a Maryland business associate of Sinclair Executive Chairman David Smith who oversees car dealerships. Others that raised alarm were the deals to sell stations in Dallas and Houston to Cunningham Broadcasting, a company with close ties to the Smith family.

The FCC's decision is a significant blow for Sinclair, which has been a frequent target for Democrats and liberal groups disturbed by reports that it favors President Donald Trump in its coverage via "must-run" segments pumped to its network of stations.

It’s also a surprising turn of events for Pai, who was nominated for the agency's top post by Trump. The chairman had earlier revived a regulatory loophole known as the UHF discount seen as critical to the Sinclair deal. It permits broadcasters to count only half the reach of some stations when calculating their national reach — and allowed Sinclair to avoid vastly exceeding federal limits on media ownership with the deal.

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.

But on Monday, it was a different story, as Pai announced an administrative law judge would review the station spinoff issues. The FCC takes that step when companies fail to persuade it that a transaction, even with conditions, would be in the public interest.

The agency used the same move in 2015 with the Comcast-Time Warner Cable deal, which the companies abandoned rather than go through the hearing process.

Sinclair representatives did not immediately respond to a request for comment.

Democratic Commissioner Jessica Rosenworcel, who has criticized Pai's media policy changes as being "custom built" to help Sinclair, said she has voted to approve Pai's plan.

"With this hearing designation order, the agency will finally take a hard look at its proposed merger with Tribune," Rosenworcel said in a statement. "This is overdue and favoritism like this needs to end."

Questions about Sinclair's coverage flared around the 2016 presidential election. The Washington Post reported Sinclair "gave a disproportionate amount of neutral or favorable coverage to Trump during the campaign" while airing negative stories on Hillary Clinton. That followed POLITICO's reporting on a boast by Trump's son-in-law Jared Kushner that the president's campaign had struck a deal with the broadcast group for better media coverage. Sinclair disputed the characterization, saying it was an arrangement for extended sit-down interviews that was offered to both candidates.

Sinclair has also drawn fire for mandating its stations carry conservative content, including regular commentary from former Trump campaign adviser Boris Epshteyn. Earlier this year, the company faced heavy criticism from Democratic lawmakers and others for directing local anchors to read a script on the threat of “fake news,” widely seen as a Trump-style broadside aimed at mainstream press outlets.

Critics ranging from congressional Democrats to Sinclair's conservative media rivals like Newsmax have warned the Sinclair-Tribune merger would give too much power to a single company to control the airwaves. But Sinclair argued that broadcasters must get bigger to effectively compete in the modern media ecosystem.

Further complicating the merger’s prospects was the legal challenge to the FCC’s decision to reinstate the UHF discount. The discount gives broadcast companies the ability to reach up to 78 percent of U.S. television households without technically violating the 39 percent cap. Judges on the D.C. Circuit Court of Appeals expressed skepticism about the decision to bring back the loophole during oral arguments in April.

A simple tie-up would have seen the combined companies reach more than 72 percent of TV households. Under the deal structure Sinclair proposed most recently, with the 21 station sell-offs, the post-merger company would have reached about 59 percent of American TV households before factoring in the UHF discount. Critics said even that scaled-down deal would have given Sinclair an unfairly broad reach in light of the sidecar arrangements freeing the company to maintain close ties with certain divested stations.