Analysis of the Sinclair Broadcast Group / Tribune Media and Its Impact on the St Louis DMA

An Analysis of the proposed merger of Sinclair Broadcast Group and Tribune Media and impact on the St Louis television market are the subject of this Big B File.

On May 6^th, 2017, it was announced that Sinclair Broadcast Group had agreed to purchase Tribune Media for approximately $3.9 billion plus the assumption of approximately $2.7 billion in net debt.  This will make Sinclair the largest TV broadcasting company in the country by far. The proposed purchase of Tribune Media by Sinclair is pending approval by both the Federal Communications Commission (FCC) and the United States Department of Justice Antitrust Division (USDOJ)

Several groups on the right and left, media organizations, politicians, and others have come out in opposition of this deal. This deal is so huge in fact that the FCC itself put a temporary hold on the agency’s normal 180-day window for reviewing broadcast applications…...which is not done very often, if at all.

Because of this deal, there are several Television markets across the country where both Sinclair Broadcast Group and Tribune Media both own TV stations. In this Big B File, I am going to focus my analysis on the impact of this deal in the St Louis Designated Marketing Area or DMA. St. Louis, MO is currently the 21^st largest television Market in the United States right now…. which is considered a large Market.

In the St Louis DMA, this deal impacts three television stations. Currently Tribune Media owns KTVI FOX 2 and KPLR 11 while Sinclair Broadcast Group owns KDNL ABC 30… all in St Louis.

Under current FCC rules, a single broadcaster is not limited in the number of television station owns as long as the combined stations’ coverage areas does not cover more than 39% of the entire country.  In local television markets, a single broadcaster cannot own more than two television stations in a single television market, with both of the television stations being in the top four stations in the market ratings wise, and that there are at least eight other TV stations in the same Market that are not owned by the broadcaster that owns the two stations in that local market. This local TV ownership rule comes with two conditions as outlined by the FCC:

The service areas – known as the digital noise limited service contour – of the stations do not overlap

At least one of the stations is not ranked among the top four stations in the DMA (based on audience share), and at least eight independently owned TV stations would remain in the market after the proposed combination.

You can read more about the Radio / TV / Newspaper ownership rules by clicking here. It should be noted that on November 20, 2017, the Federal Communications Commission (FCC) released an Order on Reconsideration and Notice of Proposed Rulemaking (FCC 17-156) that got rid of the rules regarding  Newspaper/Broadcast Cross-Ownership and Radio/Television Cross-Ownership respectively and revised the Local Television Ownership Rule. The FCC says that the rule changes will go into effect 30 days after publication of a summary of the Order in the Federal Register and that additional information on the changes adopted in the Order can be found by clicking here.

Currently, the St. Louis DMA has a total of 8 full power stations and several low-power stations. According to Economists Incorporated, in order to count for purposes of the current 8 Voice Rule, those stations may be either commercial or non-commercial but must be full-powered…. St Louis has exactly that… 8 full power stations. Those stations are KTVI FOX 2 and KPLR 11 (both owned by the Tribune Media Company), KMOV channel 4 (owned by Meredith Corporation), KSDK 5 On Your Side (owned by Tegna Corporation), KETC-TV  9 Network of Public Media (owned and operated by St. Louis Regional Public Media), KNLC TV channel 24 (recently acquired by Weigel Broadcasting), KDNL ABC 30 (owned by Sinclair Broadcast Group), and WRBU Ion 46 (owned by Ion Media Networks).

Under current FCC Rules, Sinclair Broadcast Group couldn’t own are KTVI FOX 2, KPLR 11, and KDNL ABC 30 because under the current 8 Voice Rule, there would be only 5 stations not owned by Sinclair.

As I said just a minute ago, the FCC voted to get rid of the rules regarding Newspaper/Broadcast Cross-Ownership and Radio/Television Cross-Ownership respectively and revised the Local Television Ownership Rule…...which includes the 8 Voice Rule.  The FCC basically modified the Top-Four Prohibition…retained the underlying prohibition, while adopting an option for applicants to seek case-by-case review of a transaction in order to account for circumstances in which the strict application of the Top-Four Prohibition may be unwarranted. The FCC also eliminated the rule attributing certain television Joint Sales Agreements (JSAs), saying that it preserves “an important source of financing and tangible public interest benefits, particularly in small and medium-sized markets.” There is no change, however, to the FCC Rules regarding Shared Service Agreements or SSAs.

Before I give the Big B Files analysis of the proposed merger of Sinclair Broadcast Group and Tribune Media and impact on the St. Louis television market (DMA #21), allow me to give you a little background on two previous transactions in two other TV markets that will have at least some bearing on the St. Louis DMA Situation. The two previous transactions in two other TV markets I am referring to that took place in the Peoria- Bloomington-Normal, IL Market (DMA #118) and the Terre Haute, IN Market (DMA #155) respectively.

First, we’ll look at the Peoria- Bloomington-Normal, IL Market (DMA #118) transaction. On February 28, 2013, Sinclair announced that they had agreed to purchase all the Barrington Broadcasting stations which included WHOI-TV. Because Sinclair Broadcast Group already owned WYZZ FOX 43 and had for years, the current TV ownership rules (which were in effect in 2013) did not allow Sinclair to own both WYZZ and WHOI at the same time. To comply with those very FCC rules (or to get around them as some might say) as the Peoria DMA has only six Full Power stations…. Sinclair Broadcast Group sold WYZZ FOX 43 to Cunningham Broadcasting Company, which is basically a subsidiary of Sinclair Broadcast Group.

One little note…... WHOI is operated by WEEK, channel 25 (owned by Quincy Media, Inc.)  through a shared services agreement while WYZZ is operated by WMBD Channel 31 (owned by Nexstar Media Group) under a local marketing agreement with Sinclair.

Next, we’ll look at the Terre Haute, IN Market (DMA #155) transaction. The Terre Haute, IN market legally cannot have any duopolies as there are only three full-power stations in the Market…. WTHI-TV Channel 10 (CBS on 10.1 & FOX / MyNetworkTV on 10.2), WTWO-TV NBC 2, and WAWV-TV Channel 38 (ABC).

On May 9, 2004, Bahakel Communications Sold WBAK-TV to Mission Broadcasting, which is essentially a sister company to Nexstar Media Group. After Mission Broadcasting purchased WBAK (now WAWV-TV), they entered into a shared-services and sales agreement whereby Nexstar's NBC affiliate WTWO-TV handles the ad sales and operations of WBAK-TV, the local Fox affiliate. In other words, this allows Nexstar Media Group to operate both WTWO-TV NBC 2, and WAWV-TV Channel 38 (ABC) as a de facto duopoly….operating the stations as if Nexstar owned both stations outright, even though they don’t in the eyes of the FCC.

And now for the Big B Files analysis of the proposed merger of Sinclair Broadcast Group and Tribune Media and impact on the St. Louis, MO television market (DMA #21). I believe that the FCC and USDOJ will approve the Sinclair broadcast group Tribune media merger. With that said, I believe one of the three following scenarios will occur…. going from least likely to most likely to occur. The three scenarios are as follows:

• Scenario number 1 – The FCC Grants Sinclair’s application to purchase are KTVI FOX 2 & KPLR 11, and as a result, would own are KTVI FOX 2, KPLR 11, and KDNL ABC 30 outright…. Meaning that Sinclair Broadcast Group would own three stations in St Louis under the Sinclair name.
• Scenario number 2 – The FCC grants Sinclair broadcast group’s application to own are KTVI FOX 2, KPLR 11, and KDNL ABC 30. Sinclair, intern, what then sell one or two of the stations to a completely independent broadcaster. According to Fierce Cable website, there are three broadcasters are interested in some of the Tribune Media stations. As I said on my Facebook page on December 25, 2017 at 8:08pm....the only one of those broadcasting companies listed in the story that can buy the stations in St. Louis is Nexstar Media......here's why:
  • Tegna currently owns KSDK and Meredith Corporation owns KMOV. If either broadcaster were to buy KTVI and KPLR-TV, these two broadcasting companies would be in the same exact situation as Sinclair is now and therefore could not own all three stations outright.
• Scenario number 3 – This is the most likely scenario that I think will take place regarding the Sinclair / Tribune merger. The FCC will grant Sinclair Broadcast Group’s application to purchase KTVI FOX 2, KPLR 11 while continuing to own KDNL ABC 30. To stay in compliance with the TV ownership limits set by the FCC, Sinclair will then sell either KPLR 11 or KDNL ABC 30…with KDNL ABC 30 being the most likely to be sold by Sinclair… to Cunningham Broadcasting, which is base essentially a subsidiary of the Sinclair broadcast group. Sinclair with then turn around and operate all three stations under either a Time Brokerage Agreement (TBA) or shared services agreement (SSA) or some other agreement along those lines. This would be the first de facto triopoly in the history of the St. Louis, MO television market (DMA #21).

Like I said before, the most likely scenario to happen is scenario number 3. Remember the two previous transactions that took place in the Peoria- Bloomington-Normal, IL Market (DMA #118) and the Terre Haute, IN Market (DMA #155) respectively that I mentioned just a little bit ago? The reason I believe that the third scenario is the most likely to occur… Even after the FCC’s relaxing of the ownership rules for television stations… is because the precedent was set under the current rules when the Peoria TV transactions occurred and is most likely to occur here in St Louis along the same lines as what happened in that took place in the Peoria- Bloomington-Normal, IL Market (DMA #118).

We should know within the next two months or so what the FCC and USDOJ decides and which of the three scenarios mentioned above happens.

……And that’s the Big B Files.  Click on the comments link below and tell me what you think……I’m Bryan V. Hewing.