DC Circuit and FCC Spar on Sinclair-Tribune Merger

WASHINGTON (CN) — A panel of the D.C. Circuit on Friday asked the Federal Communications Commission some tough questions about a rule change that would allow broadcasters to skirt a 39 percent cap on how many local TV stations they can own — a key question in the Sinclair Broadcast Group’s quest to buy Tribune Media for $3.9 billion.

Sinclair — which drew scrutiny recently for ordering its TV news anchors to read a script about the dangers of fake news — owns 173 U.S. TV stations. Acquiring Tribune would give it another 42, expanding its reach to 72 percent of U.S. households: far exceeding the FCC’s 39 percent cap.

The issue before the D.C. Circuit on Friday was the FCC revival of the so-called UHF discount, a relic of its national television ownership rule. The rule, designed to ensure localism, diversity and competition in broadcast news, has evolved, but in 2004 Congress codified the cap. That means TV station owners’ broadcasts cannot exceed 39 percent of the national audience.

The UHF discount emerged back when UHF stations had weaker signals than the three major networks, leaving them disadvantaged compared to their VHF counterparts.

That disadvantage was alleviated in 2009 after the digital transition, so the FCC – under a Democratic majority – repealed the UHF discount in 2016.

But in May 2017, the FCC revived it.

FCC attorney James Carr told the DC Circuit panel Friday that the FCC brought the discount back to life so the FCC could review the ownership rule, which is under way now.

Carr denied that any particularized harm to competition arose from the discount, which remained in place for seven years after the digital transition.

That prompted some tough questions from D.C. Circuit Judge Patricia Millet, who drilled into the obsolescence of the discount, and pointed out that the FCC’s own records show it was allowing owners to have up to a 78 percent national reach.

“Isn’t that important?” Millet asked.

Carr said that eliminating the discount led to a tightening of the cap, but Millet replied that the FCC kept the cap at 39 percent — it did not tighten it.

“The problem had been that with the transition to digital, and the sudden preference for UHF, that in fact people could blow right by it and are doing it by buying up more UHF channels,” Millet said. “So the 39 percent thing was becoming, you know, like the speed limit in D.C. – people wave as they go by.”

Carr insisted that repeal of the discount tightened the cap, and that the FCC might determine whether the cap needs to be raised.

Millet wondered whether there is any world in which the UHF discount might be kept.

Carr said one issue The FCC is looking at in its current rulemaking process is whether there is any reason to keep the discount.

Millet said that because the reconsideration order for the UHF discount does not undo the FCC’s findings that the discount is obsolete, any rationale would need to be consistent with those findings.

“It doesn’t seem that there’s any option for keeping it in its current form,” Millet said. “And if you’re just going to throw it away at the end when you’ve got a new number, then what is the point of carrying this UHF discount forward? — this sort of moribund body. You’re going to keep it on life support.”

Carr said the FCC justified the discount’s revival because in 2016 it had failed to consider whether the public interest would be served by repealing it.

According to Carr, the FCC believes the 39 percent cap might need to be raised now, given changes in the marketplace.

But eliminating the UHF discount without adjusting the cap could result in blocking transactions that could serve the public interest, he said.

That argument fell flat with Judge Millet.

“The FCC has been perfectly content until 2017 to leave the national cap as it was,” Millet said.

Carr reiterated: “Just as technological changes might have justified eliminating the discount, market place changes may well justify adjusting the cap.”

While the panel appeared skeptical of Carr’s arguments, they did not go easy on Andrew Schwartzman, representing Free Press and other advocates of press freedom.

Questioning the Georgetown University Law Center attorney, the judges zeroed in on whether the groups have standing to challenge the FCC revival of the UHF discount.

Schwartzman argued that the FCC’s revival of the rule “in the absence of any factual record” was arbitrary and capricious.

On reconsideration, “the FCC didn’t dispute – much less disprove – the following short sentence in the commission’s 2016 decision: ‘the UHF discount serves only to confer a factually unwarranted benefit on owners of UHF television stations that undermines the purpose of the national audience reach cap,’” Schwartzman said.

But he deflected when asked pointed questions about lack of specificity in his brief on whom the rule harms.

For the D.C. Circuit to proceed with its review, Schwartzman will have to show injury to his clients’ members.

“For standing purposes, don’t you have to make some showing that whoever your listeners are, are in markets where it is likely that, unless you prevail, diversity will be lessened?” D.C. Circuit Judge Gregory Katsas asked.

Schwartzman said that that level of detail is unnecessary because the discount more generally harms the public’s right to diverse media sources, and changes the way local news is covered.

He said that that type of injury is difficult to trace to a single person.

That assertion drew a sharp comment from D.C. Circuit Judge Cornelia Pillard.

“I’m very confused,” Pillard said. “Step one on associational standing – from the mouth of the Supreme Court – is to demonstrate that at least one member would have standing to sue in their own right.

“Now if you’re arguing that no individual member would have standing, it’s too diffuse an injury, then you just talked yourself right out of associational standing.”

Schwartzman said the organizations can simply say they are acting on behalf of their members.

But Pillard said he should have made some representation about a single member’s injury or concern about loss of diversity.

Schwartzman said that revival of the UHF discount is not assured. Given years-long delays at the agency, he suggested the discount could wreak havoc on diversity long before the FCC completes the rulemaking process, if it ever does.

“If this court affirms, the FCC has almost no incentive to do anything with that rulemaking because broadcasters will have all the headroom they need for many years to come,” Schwartzman said.

Still, Katsas said more than once, the FCC could complete its review of the ownership rule before the D.C. Circuit can rule on the matter.

While Carr could not provide the judges a timeline on when the FCC might wrap up its rulemaking, delay at the FCC was a common theme.

“As one of the commission’s lawyers, I’d love it if the commission acted more promptly than it does in most instances,” Carr said.

Schwartzman too had something to say about it to Katsas: “The FCC, if it has one talent your honor, is delay.”

Neither the FCC nor Free Press responded to requests for comment.

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