FCC Eliminates UHF Discount, Existing Combinations Grandfathered

Commissioners Ajit Pai and Mike O’Rielly issued dissents condemning the order and questioning FCC authority to eliminate the discount. “The Commission has refused to review whether the current national ownership cap rule is sound or whether there is a need to make it more stringent, which is precisely what this Order does,” said Pai.

Under the UHF discount, UHF TV stations counted only 50 percent as much as VHF stations against the national ownership cap, which bars any single broadcaster from providing content to more than 39 percent of U.S. households. Without the discount, broadcasters Univision, Ion and Trinity will be over that cap, broadcast analysts told us. Although those combinations were in existence Sept. 26, 2013, when the NPRM was issued, the grandfathering rules will require them to “comply with the national audience cap in existence at the time of the transaction,” if they attempt to sell or buy any stations. “Station groups such as ION and Univision have been good for competition in the video market by facilitating the creation of new broadcast networks to challenge established networks,” Pai said. “I do not see what harm would be alleviated or purpose would be served by requiring these station groups to be broken up in the event of a sale.” The companies didn’t comment.

The affected broadcasters will likely challenge the discount’s elimination in court, broadcast attorneys told us. Since the ownership cap was created by congressional statute, it can be argued the FCC doesn’t have the authority to alter it, O’Rielly said. The FCC recent loss on media ownership in the 3rd U.S. Circuit Court of Appeals also points to a legal path to challenge the order, since it can be argued the FCC should have reviewed the ownership cap holistically before eliminating it. “Having apparently learned nothing from past efforts to prematurely change attribution rules for JSAs before the Quadrennial Review of media ownership rules was complete, the Commission is replicating the same flawed approach,” O’Rielly said, speaking of joint sales agreements. “This item stubbornly plows ahead in a similar cart-before-the-horse scheme to tinker with a calculation methodology without any consideration of the current validity the overall rule it modifies.”

Pai took particular issue with the order pegging of the grandfathering rules to the 2013 issuance of the NPRM. By announcing that policy along with the NPRM, the order was effectively in place before it was approved, Pai said. “Following the adoption of the Notice, the private sector behaved as if the UHF discount had already been eliminated,” Pai said. “No company sought to purchase any television station that would have put it above the 39% cap as calculated without the UHF discount.” Several broadcast attorneys agreed with Pai, and told us the NPRM put a damper on transactions that could run afoul of the discount’s elimination. In its application to buy Media General, Nexstar said the deal would leave it still under the ownership cap if the discount were eliminated. The FCC said broadcasters had ample warning the elimination order was coming. “Today’s action should come as no surprise to industry participants,” the order said.

The agency has “the statutory authority to revisit its own rules and revise or eliminate them when it concludes such action is appropriate,” the order said. “Notably, commenters in this proceeding have not presented evidence of any existing technical limitations that render digital UHF stations inferior to digital VHF stations.” Since there haven’t been any transactions since the NPRM that would create a combination over the ownership cap without the UHF discount, there’s no effective difference between pegging the grandfathering to the date of the NPRM and the date of the order, the FCC said. Not allowing grandfathered combinations to be sold “strikes the appropriate balance between avoiding imposition of the hardship of divestiture on owners of existing station combinations” and “moving the industry toward compliance with current rules when owners voluntarily decide to sell their stations,” the order said.

The FCC should have “holistically” revised media ownership rules before eliminating the discount, an NAB spokesman said. “While other industries are allowed to innovate without stifling regulation, when it comes to broadcasters, the FCC acts as if we still live in an era of ‘I Love Lucy,’” wrote the spokesman. “It’s time for the FCC to look at broadcast ownership rules in a manner that reflects the current marketplace.”