Allegations of quid-pro-quo between Trump, FCC and Sinclair emerge

The FCC’s polarizing chairman, Ajit Pai, is in the midst of an extremely aggressive revamp of some of the core tenets of the FCC’s regulatory spirit, and in doing so Pai has garnered serious suspicion from members of Congress.

Pai has pushed a handful of controversial agendas that will dramatically change the telecommunications landscape in the US. Those agendas range from loosening media ownership rules, killing Obama-era net neutrality protections, re-instating the UHF discount measure, and even downgrading the definition of “broadband” from 25 Mbps to 10 Mbps. But critics argue that some of Pai’s recent proposals will give one station group owner, Sinclair Broadcasting Group, a significant advantage.

From the outside, it appears that Pai’s FCC has been surprisingly complaisant to the idea of Sinclair, which is the largest local broadcast station group in the US, acquiring the second largest station group Tribune Media in a $3.9 billion deal. The merger has drawn stinging criticism from congress members, experts, constituents and even celebrities, a la John Oliver – but has wide support from station owners and the US broadcasting body NAB.

A peek under the covers indicates that complaisant may not be a strong-enough word. Seventeen Democrat senators sent a total of two letters to FCC inspector general David Hunt last week calling for an open investigation into the “independence and impartiality” of the regulatory body, in light of Pai’s actions as head of the FCC. One of the letters called for Pai to be recused from the FCC’s review of a proposed merger between Sinclair and Tribune.

“We have strong concerns that the FCC’s ongoing review of the proposed merger of Sinclair Broadcasting and Tribune Media may be tainted by a series of actions and events that raise questions about the independence and impartiality of the FCC,” the letter said.

It outlined a timeline of events that the senators say indicate an unsavory quid-pro-quo relationship between Sinclair, president Trump and FCC chairman Pai. Those events include the unusual deal the Trump campaign struck with Sinclair for “better media coverage” during the 2016 presidential campaign; a subsequent undisclosed meeting Pai had with Sinclair executives before being appointed head of the FCC by Trump; and a series of meetings held between Pai, Trump and Sinclair representatives, one of which that – according to public record – revolved around reviewing the FCC’s restrictions on joint and shared service agreements in broadcast mergers. These meetings spanned just a few weeks in January 2017.

This is where the timeline gets interesting. The joint and shared service agreement restrictions was one of two rules that would have made any possible broadcast group mergers unlikely. Pai was appointed Chairman of the FCC on January 22, and soon thereafter the FCC’s Media Bureau announced it would no longer consider joint and shared service agreements in broadcast mergers, thereby removing one of the big obstacles Sinclair might face if it wanted to acquire other station groups. It’s important to note that, by this time, Sinclair had not publically announced any intentions to acquire any other station groups.

The second big obstacle to broadcast group mergers revolved around the UHF discount. Back in September 2016, the FCC – under former chairman Tom Wheeler – voted to eliminate a measure that gave UHF broadcast stations a 50% “discount” in audience reach. Under FCC rules, broadcasters’ national audience reach is capped at 39% of the total population, but in 1985 the FCC implemented a UHF discount that allowed UHF broadcasters to count only half of their potential audience towards the cap, under the assumption that UHF broadcasting technology was inferior to VHF broadcast in terms of reach. Wheeler’s vote to remove that discount was strongly opposed at the time by Sinclair and other broadcasters. Without the UHF discount, Sinclair’s acquisition of Tribune Media would be legally barred.

In April 2017, Pai’s FCC voted to re-instate the discount, removing the second big obstacle to Sinclair’s acquisition ambitions.

Later that month, Sinclair announced plans to acquire Bonten Media Group, which owned 14 stations in eight markets and had joint sales agreements with four more stations. The FCC’s new position on reviewing such agreements paved the way for this acquisition – and though Sinclair did divest seven of the Bonten stations, it was allowed to keep the joint sales agreements in place. And in May, Sinclair announced plans to acquire Tribune Media for $3.9 billion.

If the Tribune deal is approved, Sinclair will have grown its market share considerably: the resulting broadcast giant would reach up to 72% of the US with more than 200 local stations in 108 markets. It’s exactly the type of merger that the FCC should careful scrutinize and measure against the public good. The independence of local broadcast stations is a facet of media that has been staunchly protected in the US, until recently.

And there are wider political implications – and perhaps even driving reasons – for Sinclair’s business ambitions that should not be ignored by the FCC. One of the “public good” problems with consolidating local media in this way is that it creates an opportunity for syndicated content to spread across local markets.

During the 2016 election, local stations in the Midwest were being forced to run syndicated opinion segments, espousing conservative views on American politics, by the station owner. That station owner is Sinclair.

And once again, Sinclair has received an extra dose of support from Pai. In October of this year, Pai led a vote to remove what’s called the broadcast main studio rule – a measure that was designed to precisely stop the type of content syndication that Sinclair is now engaging in.

The FCC’s review of the Tribune merger is about halfway through now, with minimal objections being raised to the consolidation of broadcasting power and potentially influence into the hands of one station group.

Despite these questionable actions, broadcasters are in support of Pai and his revision of the broadcast regulations. Amid linear TV viewership declines and fragmented audiences, local broadcasters are struggling just as much as their national counterparts in reaching large audiences. Consolidation among the local station groups will give broadcasters the ability to pool audiences in order to sell ad inventory – and so, too, do those joint sales agreements.

The NAB and other broadcast groups see the FCC’s media ownership philosophy to be outdated, and Pai seems to agree. So much so, in fact, that Pai has also proposed changing the greater media ownership rules that currently prevent one company from owning multiple broadcast stations in one market. (See elsewhere in this issue).

“Put simply, this timeline suggests a disturbing pattern of a three way quid-pro-quo involving Sinclair, the Trump administration and Ajit Pai,” the senators’ letter stated. “We are gravely concerned that Chairman Pai may have engaged in a pattern and practice of activity related to the Sinclair-Tribune transaction in a way that imperils the independence and public interest mission of the FCC.

An FCC spokesperson called the claims “completely baseless.” NAB president Gordon Smith also released a statement in defense of Pai, “The actions proposed by Chairman Pai and supported by the NAB and scores of broadcasters have industry-wide implications with a profound impact that is broader than any one company. For decades, the broadcast industry has asked the FCC to modernize its media ownership rules, and NAB itself petitioned the FCC to allow broadcasters to innovate and voluntarily employ a Next Gen TV standard (ATSC 3.0), advocated for the elimination of the main studio rule and urged a holistic approach to the UHF discount.”

But Pai’s actions have even caused concern among other FCC commissioners. In October, Democrat commissioner Jessica Rosenworcel testified before the House Energy and Commerce Committee, voicing her suspicions about Pai’s motives. “If you look at the series of media policy decisions that have been made by this commission, they all seem to serve Sinclair Broadcasting’s business plans,” Rosenworcel said. “I think it has reached a point where all of our media policy decisions seem to be custom-built for this one company, and it is something that merits investigation.”