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Sinclair Will Come Under Scrutiny as It Seeks Approval for Tribune Merger

Variety logo Variety 5/9/2017 Ted Johnson
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On a call with investors on Monday, Sinclair Broadcast Group CEO Chris Ripley said that he doesn’t foresee many regulatory hurdles in its $3.9 billion deal to acquire Tribune Media.

But there will be a lot of noise around the massive station merger, as Sinclair seeks to own 223 TV stations serving 108 markets, including 39 of the top 50, and to cover about 72% of U.S. households.

Public interest groups were quick to criticize the deal and question the companies’ ties to the Trump administration.

Sinclair’s ambitions to become a national TV player have long been that talk in lobbying circles in Washington, and the deregulatory environment of the Trump-era FCC only seems to have paved the way for such growth to be possible.

Last month, the FCC voted 2-1 to restore the so-called “UHF discount,” which allows station groups to only count 50% of the audience reach of their UHF station footprint. Without the discount, the combined Sinclair-Tribune is way above the 39% nationwide threshold for media ownership. With it, Sinclair would fall much closer to that number.

Sinclair said that it may have to sell certain stations to comply with FCC rules and antitrust regulations, and Ripley told investors that regulator concern was most likely to be in the Wilkes-Barre, Pa., St. Louis, and Salt Lake City markets. Overall, Sinclair has stations in 14 markets that overlap with those of Tribune.

“We don’t think we need to sell any of them,” Ripley said. “They really have no impact on overall competition, and we hope that the regulators will agree with us.”

Sinclair’s executive chairman, David Smith, who stepped down as CEO last year, is regarded as a well-connected prolific donor. In the most recent cycle he gave to Republicans and Democrats, including $30,000 to the National Republican Senatorial Committee and $33,000 to the Democratic Senatorial Campaign Committee.

Confident as they are about regulatory approval, the proposed transaction is likely to be held up by public interest groups and critics as the FCC reviews whether to further relax its media ownership rules.

Even before the deal was announced, Democrats were sounding the alarm of such a combination. House Minority Leader Nancy Pelosi wrote to FCC Chairman Ajit Pai that a Sinclair-Tribune merger meant that consumers would “lose an independent voice in their media market,” and that cable bills go up because Sinclair charges more in retransmission consent fees than Tribune.

“By tying together multiple markets in retransmission consent negotiations, companies like Sinclair are able to demand higher payments for their signals,” said John Bergmayer, senior counsel at Public Knowledge. “Consumers ultimately foot the bill.”

The Department of Justice likely would review the transaction for its compliance with antitrust law, while the FCC will review whether it is in the public interest. The DOJ’s review takes place in private, but rivals to Sinclair could confidentially express their concerns to antitrust attorneys. The FCC’s review will allow for the public to file comments for and against the transaction.

That’s likely to raise not just issues of size, but scrutiny of Sinclair’s ties to conservative politicians and causes. There’s been speculation that Sinclair’s growth is the prelude to the launch of its own conservative news network. It recently hired Boris Epshteyn, a former Trump spokesman, as chief political analyst.

Craig Aaron, the president and CEO of Free Press, called the transaction a “scandal.”

“Sinclair — the Trump-favoring broadcast mega-chain — gets some FCC rules changed and expects others to be erased. All so that Sinclair can air its cookie cutter newscasts to nearly 70% of the country’s population in local markets across the country,” he said in a statement.

After the deal was announced, Free Press quickly pointed to a Politico story from December that Jared Kushner, President Donald Trump’s son-in-law, boasted that he struck a deal with Sinclair for better coverage during the presidential campaign.

Sinclair disputes the story, and noted in December that their news division offered the same deal for access and airtime to Hillary Clinton’s campaign.

Bloomberg reported in March that Pai spoke at a Sinclair company conference in November just days after Trump won, in what his spokesman said was arranged before the election.

Pai had yet to be appointed FCC chairman by Trump. Pai championed the restoration of the UHF discount, albeit it will come under review again later this year along with other media ownership regulations. He also opposed his predecessor Tom Wheeler’s effort to crack down on shared service agreements, in which Sinclair and other station groups provide programming or ad sales services to a rival in the same market.

Another potential snag for Sinclair could be in a court challenge to the FCC’s effort to relax ownership rules.

Andrew Jay Schwartzman of Georgetown’s Institute for Public Representation said that he is considering filing a legal case against Pai’s move to reinstate the UHF discount. He says that there is no justification for it to still be on the books, given that digital TV has erased the differences between the UHF and VHF bands.

“I think there will be a lot of battling” over the Sinclair-Tribune merger, Schwartzman said. “But the bottom line is that this FCC is going to be more than willing to approve any transaction that they can possibly can. They never met a merger they didn’t like.”

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