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2017-05-02 10:44:03
TV Station Owners Rush to Seize on Relaxed F.C.C. Rules

The media industry has been rife with consolidation in recent years: Cable companies, film studios and telecommunications firms have all been bought and sold at a rapid clip.

Now, local television stations are at the center of the deal-making frenzy.

Last week, a day after the Federal Communications Commission eased regulations over how many stations an owner may have, Sinclair Broadcasting, the largest local broadcast group in the country, said it would buy 14 New York-based stations for $240 million.

The timing of Sinclair’s deal may not have hinged directly on the change, but it demonstrated a demand for broadcast station mergers. Sinclair did not reply to requests for comment.

And now, a bidding war has begun over Tribune Media, the owner of WGN America and, in New York, PIX 11.

The Blackstone Group appears to be working with 21st Century Fox on a bid for Tribune. And Sinclair is also circling that company.

“The F.C.C. has basically said: ‘Game on. We’re going to let you consolidate further than anyone had imagined,’” said Richard Greenfield, a media analyst at BTIG.

Consolidation of local broadcast stations could lead to more expensive fees for consumers as providers pass on ever-higher fees from broadcasters and content creators to subscribers. But to media companies, the mantra of late has been that bigger is better.

For broadcast station companies in particular — including Sinclair, Fox and the Nexstar Media Group — owning more stations increases their power over cable companies, which pay to retransmit the stations.

Fox’s motive for pursuing Tribune, which has more Fox affiliates than any other station owner, largely appears to be blocking a deal with Sinclair. It plans to form a joint venture with the Blackstone Group, an investment giant, in which Blackstone would provide the cash for a deal while Fox would provide its own television stations, according to people briefed on the plans who were not authorized to speak publicly about the matter.

If successful, Fox would then reduce its direct exposure to local television stations, Mr. Greenfield said, while still holding on to a piece — and while stymieing a rival.

Details of the potential joint venture were unclear, as were the precise reasons that Fox was turning to Blackstone. Tribune is a relatively small company, with a market value of about $3.4 billion.

But for companies like Fox and Sinclair, consolidation is also a defensive move, shoring them up at a time when online rivals like Netflix and Hulu are commanding more viewers. Content providers like CBS and the Walt Disney Company are also pushing for bigger fees from broadcasters.

And local television advertising sales, excluding political ads and the Olympics, were roughly flat last year, according to the research from Magna Global, with expectations that 2017 will be even tougher.

Getting bigger through station acquisitions, then, is meant to help these companies drive harder bargains. And smaller operators have emerged as potential takeover targets: The stock prices of two other broadcast companies, E. W. Scripps and Gray Television, are both up sharply this year.

Underpinning broadcasters’ dreams of expansion is the hope that Ajit Pai, the F.C.C.’s new chairman and a Republican, will let through the kinds of deal making that had been held up during the Obama administration.

“Companies are talking about deals now because they have reason to believe the F.C.C. will relax all the ownership rules,” said Paul Gallant, an analyst at Cowen and Company.

The first tangible step came with a 2-to-1 vote by the F.C.C. last week to reintroduce the so-called UHF discount.

Longstanding rules prohibit companies from covering more than 39 percent of American households, but the UHF discount allows station owners to exclude certain stations that operate in ultrahigh frequencies. With the reinstated discount, according to calculations by Fitch Ratings, Sinclair’s household coverage percentage has fallen to about 25 percent, from 38 percent, while Nexstar’s has dropped to 27 percent, from 39 percent, opening the door to new mergers and acquisitions.

“This represents a rational first step in media ownership reform policy allowing free and local broadcasters to remain competitive with multinational pay TV giants and broadband providers,” Gordon Smith, the president of the National Association of Broadcasters, said in a statement.

The F.C.C.’s rule change followed pressure from industry groups. One week before the vote, Mitch Rose, NBC Universal’s senior vice president for government relations, visited the office of the other Republican commissioner on the F.C.C., Michael O’Reilly, urging him to reinstate the UHF discount.

And in February, Tribune Media’s general counsel, Edward Lazarus, met with Mr. Pai’s chief of staff, Matthew Berry, and lobbied for the change in rules.

Mr. Pai has long been critical of strict broadcast ownership rules. He has said that online media companies such as Google, Facebook and Netflix are competing for audiences that were once served only by television. He has also been skeptical of rules against broadcast ownership limits, given that the agency has approved mergers in competing industries, including Charter’s purchase of Time Warner Cable and AT&T’s purchase of DirecTV.

At the annual National Association of Broadcasters convention in Las Vegas last week, Mr. Pai announced his intention to re-examine other media ownership rules. Broadcasters hope that one limit that may be removed is a prohibition on owning more than two stations in a local market.

Consumer groups and Democrats in Congress and at the F.C.C. warn that the changes will lead to great industry consolidation, giving a few companies great influence over news and public opinion.

The action “will actually harm the public interest, by reducing diversity, competition and localism,” Mignon Clyburn, the sole Democrat at the F.C.C., said after the UHF discount vote.

In a letter to Mr. Pai last month, Democratic House members argued against both the UHF discount and a union of Sinclair and Tribune. Such a merger, they contended, could lead to higher cable fees because Sinclair charges cable companies more than Tribune does to retransmit its broadcasts.

“These were mergers that could never have been contemplated a year ago,” Mr. Greenfield, of BTIG, said of the deals that might blossom under the new F.C.C. “You’re enabling the impossible in many ways, so people are saying, ‘Let’s take a shot at this.’”