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Sinclair-Tribune Merger Faces Roadblock as Court Puts Hold on FCC Station Ownership Rule

Variety logo Variety 6/2/2017 Ted Johnson
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A federal appeals court put on hold the FCC’s plans to restore a key media ownership rule that allowed major station groups to expand through mergers and acquisitions. The ruling could prove to be a roadblock to Sinclair Broadcast Group’s pending $3.9 billion acquisition of Tribune Media TV stations.

The D.C. Circuit Court of Appeals issued a stay to the FCC’s decision in April to restore the so-called UHF discount, which has allowed major media companies to exceed restrictions on the number of stations that they can own. The court said that the stay will give them an opportunity to review the merits of the case.

A source close to the situation noted that the temporary stay granted on Thursday extends through June 7, and the real test will come next week after the review is completed by a three-judge panel. Reps for Sinclair and Tribune declined to comment late Thursday.

By FCC regulations, no single entity can amass station holdings that reach more than 39% of the country, but for years the FCC allowed media companies to count their UHF stations as covering just 50% of their service area. That made it possible for major media companies like ION Media Networks, Univision and Tribune Media to exceed the 39% cap without having to sell off stations.

In the wake of the FCC’s decision, Sinclair Broadcast Group on May 8 announced plans to purchase Tribune, a deal that would create a broadcast colossus with more than 200 TV stations. Although the combined company would reach about 72% of the country, with the discount Sinclair would be much closer to being in compliance with the 39% ownership limit.

The UHF discount was put in place in 1985, as a nod to the fact that the signal in the UHF band was so poor compared to that of VHF stations. But the transition to digital TV eliminated those differences. Last year the FCC, then under a Democratic majority, got rid of the UHF discount amid fierce opposition from station owners.

The FCC’s balance of power changed with the election of Donald Trump. FCC chairman Ajit Pai and commissioner Michael O’Rielly voted to reinstate the discount in April, arguing that the agency’s decision last year was made in haste. Pai said that the FCC will review the discount and other ownership restrictions later this year.

A number of public interest groups, including Free Press and the Institution for Public Representation, challenged the FCC’s decision to restore the discount. In a court filing, they argued that it “reinstates a concededly obsolete rule that, not only does not serve the public interest but undermines the public interest goals of diversity, competition and localism.”

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