FCC Plans Rule Change Before Court Can Upend Sinclair Bid, Sources Say

A bird flies past satellite dishes on the roof at Inmarsat Plc’s headquarters in London, U.K., on Thursday, Feb. 16, 2017. Inmarsat Plc awarded Arianespace SA a contract to launch a satellite that will bring Wi-Fi to airplanes because its original partner Space Exploration Technologies Corp. is still recovering from an explosion in September. Photographer: Chris Ratcliffe/Bloomberg

The Federal Communications Commission intends to update limits on television station ownership in July, acting before judges can rule in a case that could affect Sinclair Broadcast Group Inc.’s proposed purchase of Tribune Media Co., two people briefed on the matter said.

FCC Chairman Ajit Pai is poised to schedule a July 12 vote on altering rules that cap broadcasters’ reach at 39 percent of the national audience, according to the people, who who spoke on condition of anonymity because the proposal hasn’t been made public.

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The U.S. Court of Appeals for the D.C. Circuit in Washington is considering a challenge to the existing rules and a fresh set of ownership restrictions could derail that case, which threatens the $3.9 billion Sinclair-Tribune deal.

Proposals from Pai, an appointee of President Donald Trump, are all but certain to pass with votes from the Republican majority he leads. Pai hasn’t publicly recommended a new limit and details of his proposal could not be learned.

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Sinclair told the FCC its proposal to buy Tribune’s 42 stations and sell others would leave it reaching almost 59 percent of the national audience. That share shrinks to less than 38 percent when counting just half the audience for some stations, as the FCC now allows, using a counting methodology that is under court challenge, Sinclair said in a filing.

A National Presence

The acquisition would leave Sinclair with more than 200 stations and give the Maryland-based broadcaster known for its conservative views a national presence, with stations in major cities such as New York and Los Angeles.

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If the FCC abandons the special counting technique that discounts the audience of former UHF stations and chooses a new limit under 59 percent, Sinclair could be forced to sell more stations than it currently proposes, Gigi Sohn, a former Democratic FCC official and critic of the deal, said in an interview.

Any limit above 39 percent would itself draw a court challenge, Sohn said. “That’s going to be appealed right away,” she said.

Whether the FCC may let companies count just half the audience is under challenge before the Court of Appeals, where judges who questioned the technique during an April hearing are expected to issue a decision during July or August. A decision disallowing the technique would leave a combined Sinclair-Tribune above the limit.

Sinclair Chief Executive Officer Chris Ripley told investors May 9 that he expects the court will affirm the counting rule. If not, Ripley said the decision could be appealed. He also discussed the FCC’s consideration of changes to the national ownership limit.

The agency in December asked whether to retain or change the national limit, and the discounted audience-counting, without saying how it wanted to rule. Pai, a skeptic of media ownership rules, has long called for raising the national cap, for instance in 2013 saying that step is “long overdue.” The agenda for the July 12 meeting is to be made public on June 21, and Pai’s under no obligation to include the national cap.

Tina Pelkey, an FCC spokeswoman, declined to comment.

In filings at the FCC, some broadcasters have argued for raising the limit to 50 percent.
Sinclair asked the FCC to eliminate the cap. Rebecca Hanson, senior vice president for Sinclair, declined to comment.

The audience-counting rule in question was eliminated by a Democratic FCC chairman in 2016. It was a relic of days when UHF stations — broadcasting on channels 14 and higher — used signals that didn’t reach as far as stations assigned lower-numbered channels. That disadvantage has disappeared as broadcast technology changes.

Pai reinstated the discount in April of last year. Sinclair proposed its deal the following month.

The case is Free Press v. Federal Communications Commission, 17-1129, U.S. Court of Appeals, District of Columbia Circuit (Washington).

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