Want To Innovate In Broadcast? Ask The Media Bureau First.

The Federal Communication Commission (FCC) Media Bureau issued a Hearing Designation Order to refer the pending broadcast license transfer request from Standard General, TEGNA, and Cox Media Group to its administrative law judge (ALJ). The order claims that a hearing is needed on potential impacts to retransmissions fees and jobs.

The transaction review represents the longest ever for a broadcast television station, doubling the agency’s own shot clock of 180 days and includes an unprecedented three separate Public Comment Processes. Standard General offers $5.4 billion to acquire TEGNA’s 61 TV stations and 2 radio stations with a goal to modernize the news network with an on-demand model and compete head on with leading news outlets. The company vowed to challenge the FCC’s delay and called the action a regulatory subterfuge designed to lengthen the approval process beyond the parties’ deadline and thus disqualify the transaction while absolving commissioners the responsibility to vote. Never has a broadcast merger of this size been referred to the ALJ in lieu of a vote. The normal process is for the commission to vote to approve or deny the license transfer. That the vote is delayed or scuttled sends a distress signal to investors and innovators that M&A review is off the rails.

Media Bureau’s Concerns: Fees and Jobs

The Media Bureau inquires whether retransmission consent fees would rise and whether this is the result of a competitive market or the structure of the transaction arbitrages pre-existing contracts. The relevant multichannel video programming distributor (MVPD) policy allows the retransmission of signals from broadcast TV station on cable and satellite networks either for free or a fee. Such fees are an important source of revenue for TV stations, particularly as advertising away from broadcast to online platforms.

It is unlikely that end user prices on cable/satellite networks would increase from the transaction. The unassailable trend of consumer pricing in these industries has been downward for two decades; cellular wireless broadband has brought greater competition, lower prices, and cord-cutting pressure. It is more likely that cable and satellite parties exploit the M&A process to improve their own profitability. It’s rational that a company would lobby the FCC for price control merger remedies, but the FCC granting them would distort prices, thus harming consumers and competition. In any event, the issue was already addressed in December 2022 when Standard General waived its contractual rights and allowed MVPDs to opt to continue with their current TEGNA contracts.

The Media Bureau itself claims, “Labor matters are handled and enforced by federal agencies other than the Commission. We do not depart from that precedent here.” It recognizes Standard General’s statements under oath that there are no intentions to reduce station news, journalism jobs, or staffing. Standard General has provided business plans precisely to invest in local news, purchase of capital equipment and technology, and supplement newsrooms with human capital to run a digital model. On-demand business models has been recognized by media scholars for more than two decades as essential for broadcast industry survival.

Notably Standard General has already committed to maintain current newsroom staffing for at least two years following the closure of the transaction. Ironically, the Media Bureau’s action is very likely to lead to layoffs at TEGNA given the fact that media companies everywhere are reducing staff. TEGNA employees face a very uncertain future without the jobs guarantee.

Innovation perspectives: politics trumps policy

While it was likely not what Congress intended, the M&A process has become a rent-seeking free-for-all. Outside parties use the review process to win concessions they could not achieve from the market. The transaction record shows continued intervention by unions and the cable and satellite industries. Joe Biden campaigned on “Strengthening Worker Organizing, Collective Bargaining, and Unions.” It follows this could inform policy under his administration. Hence, in an unprecedented way, the FCC will feature the NABET-CWA union at the hearing (while ignoring the many state and local government officials, think thanks, organizations, academics, and others which have filed in support of the public interest benefits of the transaction); this union has 10,000 members of the CWA’s larger 700,000.

The political value of communicating a seeming win to labor unions (while conveniently absolving FCC commissioners of voting accountability) likely trumps the consumer welfare which would be enjoyed by millions of Americans in more than 60 cities who stand to gain from greater competition and innovation in local news. The value of unions appears to further trump Democrats’ goal of diversity as the deal would create the largest minority-owned and woman-led broadcast company in America.

Time to restore transparency and predictability to M&A process

For all the talk of “permissionless innovation”, few appreciate that regulatory staffers—generally un-elected bureaucrats—control who is allowed freedom to innovate through their ability to grant licenses and approve mergers. The Media Bureau chief can fast-track reviews or put them in purgatory. The Revolving Door Hypothesis at the FCC (1979) suggests that a variety of personal and political factors are at play as bureau officials tend to seek employment in industries for which they have developed favorable policy.

The M&A process already lacks transparency and predictability. FCC Commissioners could restore credibility by taking a vote quickly. They already have more information than they can ever consume. Moreover, the public interest demands accountability above party goals.