Salina yes, Salinas no! FCC approves Newport TV with conditions and over Copps' protest

"No one should be under any illusion that Clear Channel's sale of its 35 full-power television stations strikes a blow for de-consolidation," thundered FCC commissioner Michael J. Copps in his dissent to the approval of the sale of those CCTV stations to Newport Television.

Whether Copps likes it or not, however, the deal is done, as was announced late Thursday. So now the Fox station serving 70 percent of Kansas, as well as stations serving some two dozen other markets from coast to coast, will fall under the control of Newport TV, which will manage the stations for Providence Equity Partners out of its new Kansas City headquarters. The deal is subject to multiple and confusing conditions, but it appears Newport has six months to divest TV stations in California and elsewhere that put it in violation of the FCC's cross-ownership ban.

There will be more to hash out next week as details become clearer and I'm able to get a word with Sandy DiPasquale of Newport TV. But for now here's what I know.

***

For those of you who enjoy reading legalese, here is the full FCC M&O authorizing the transfer and the conditions under which Providence Equity Partners — let's call them PEP like the commission does — may take control of the stations and manage them through Newport.

The key paragraph is at the end, explaining the conditions. I don't claim to understand any of this except to note that the stations I've bolded are in play:

IT IS FURTHER ORDERED, that the applications for consent to assign the licenses of the stations listed in the Appendix ARE GRANTED, SUBJECT TO THE FOLLOWING CONDITIONS: (1) Newport Television LLC shall come into compliance with the local television ownership rule in the Bakersfield, California; San Francisco-Oakland-San Jose, California; Santa Barbara-Santa Maria-San Luis Obispo, California; Salt Lake City, Utah; Fresno-Visalia, California; San Antonio, Texas and Monterey-Salinas, California markets within six months of consummation of the proposed transaction by Providence Equity Partners, Inc., either divesting its interest in Univision Communications, Inc., or the post-merger Newport otherwise divesting those broadcast station licenses necessary to come into compliance with the local television ownership rule in the above seven markets. To ensure that Newport and/or PEP has brought itself into compliance with the local television ownership rule in the above seven markets following expiration of the six-month period, the parties must ensure either that: (A) within 60 days of release of this order, PEP files evidence of a binding commitment to transfer its interest in Univision to a divestiture trust within 6 months of consummation, including a copy of the trust agreement, if full compliance with the local television ownership rule has not been achieved within six months of consummation; or (B) within 60 days of release of this order, Newport files applications seeking to assign those broadcast licenses necessary to come into compliance with the local television ownership rule in each of the affected markets to a divestiture trust, along with a copy of the trust agreement, which the Commission shall entertain, if full compliance with the local television ownership rule has not been otherwise achieved within six months of consummation; (2) Newport shall come into compliance with the local television ownership rule in the Jacksonville, Florida, market within six months of consummation of the instant transaction by divestiture of either station WAWS(TV), Jacksonville, Florida, or station WTEV-TV, Jacksonville, Florida. To ensure that Newport does not hold television stations in violation of the local television ownership rule in the Jacksonville market following expiration of the six-month period, Newport must file an application seeking to assign the license of either station WAWS(TV) or WTEV-TV to a divestiture trust, along with a copy of the trust agreement, within 60 days of release of this order, which the Commission shall entertain if full compliance with the local television ownership rule has not been otherwise achieved within 6 months of consummation; and (3) PEP must come into compliance with the condition placed in the 2007 Univision Order, 22 FCC Rcd 5842, 5860 (2007), prior to consummation.

We also learned why PEP filed for an extension of time on Oct. 31, sending tremors through the investment market (and, no doubt, the offices of Newport TV, which had already signed a lease to move from Wichita to KC). Turns out that it was unable to unload its interest in Freedom Newspapers, which would violate the cross-ownership rule in seven markets, "due to extraordinarily volatile conditions in the credit market and the newspaper industry in general." Tell me about it!

Interestingly, as John Eggerton notes, a key advisor to PEP is former FCC chairman (and son of Colin) Michael Powell, who tried to get rid of the cross-ownership ban. Not that it matters, but I'm all in favor of getting rid of that rotten old regulation. I mean, if our sales managers in the 1950s hadn't committed criminal antitrust, my newspaper would still own the city's oldest TV license and two of its strongest radio signals. C'mon, if a rule like that was so necessary, why would they grandfather in the Tribune Company?

***

Here is Copps' dissent in full:

No one should be under any illusion that Clear Channel’s sale of its 35 full-power television stations strikes a blow for de-consolidation. After this transaction closes and all divestitures have occurred, Providence Equity Partners will have attributable interests in a whopping 86 television stations and 99 radio stations in the United States, as well as interests in media companies around the world such as MGM studios (largest shareholder), Yes Network, Hallmark Channel, and Warner Music Group. You will search this Order in vain, however, for any mention of the scope of Providence’s holdings or how they potentially affect our public interest analysis.

What makes this case particularly different than other license transfers from one media giant to another is the fact that this one involves private equity. In the Univision Order last March, I urged the Commission to examine the impact of private equity on our ability to ensure that licensees protect, serve and sustain the public interest. Unfortunately, that has not happened. Instead, we close our eyes and pretend that nothing has changed. We proceed without knowing how segments of the conglomerate are controlled and managed. How, amid such murky shadows, does a regulator protect the public interest? Why doesn’t the Commission have enough curiosity to even ask?

I don’t claim to have all the answers here, but I have plenty of questions. What are the financial and public interest implications of private equity investment? Can our attribution rules can keep up with these complex and opaque ownership structures? Why haven’t we studied what happens to long-term investment in communications when a private equity firm takes control? Do such entities usually take the longer view because they are not subject to the pressures of Wall Street, or are we beginning to see more of a “strip it and flip it” pattern? How will a purchaser’s assumption of massive amounts of debt affect its stewardship of the airwaves? For broadcast stations, what happens to newsgathering and other programming of local interest? There are many other questions. Our lack of answers to them, coupled with Commission willingness to plunge ahead in spite of its appalling unawareness, is chilling. When we proceed without adequate information to approve this new kind of media consolidation, we are heading into dangerous waters.

Doing our job depends on our ability to assess who actually influences licensees’ editorial decisions and financial strategy. As Chairmen Dingell and Markey noted in a July 12, 2007 letter to Chairman Martin:

History also suggests that private equity ownership is marked by a management structure that is not overly transparent and by fluid asset management where actual holdings and control may vary significantly, as properties are bought and sold. These historical styles may not be consistent with many of the core public interest and localism values that Congress has assigned to local media and may implicitly undermine the Commission’s media ownership rules.

We need to heed such counsel. Many industries, not just communications, have gotten themselves into serious difficulties by heading off on seemingly promising and fashionable tangents without asking the questions they should have asked. The outcomes have often been disastrous to the businesses themselves, to customers, and to the country’s well-being. It’s time to get serious about this. Because we proceed down such a blind alley, I must dissent from today’s decision.

More reporting next week as people in the know help me chew this. Comments, as always, are most welcome.

Earlier: KC business community alive with pleasure over Newport

Comments

[John Rotert]

I find it amusing that the the logo says FOX KANSAS when the proposed headquarters location is in Kansas City, MISSOURI

[Mark Roberts]

The body of the MO&O explains the cross-ownership violations that need to be resolved. The essential point is that Newport has a 19% ownership interest in Univision, as part of the private-equity consortium that took Univision private earlier this year. In turn, Univision has an "attributable interest" (partial ownership that is enough to constitute some form of meaningful control) of Entravision. Since PEP is the owner of Newport, there is a conflict in both Univision and Entravision markets.

Thus, in the Clear Channel television markets where there are stations owned by Univision and Entravision, Newport/PEP has to resolve the cross-ownership issue. PEP can do this by (1) selling its interest in Univision, (2) converting its interest into a non-attributable interest, or (3) selling the stations acquired from Clear Channel. On a smaller scale, The Santa Barbara-Santa Maria-SLO and Monterey-Salinas conflicts could be resolved by Univision's selling its interest in Entravision.

I am not taking into account the pre-existing requirement for divestiture involving the Univision acquisition and stations owned by Freedom Communications. As best as I can determine, only the Albany station is affected by that requirement (paragraphs 12 & 13 of the MO&O).

With the current state of the markets, options #1 and #3 would seem hard to pull off right now. Perhaps the ownership interest will be converted into some form of debt (which probably would satisfy option #2) .

[Mark Roberts]

By the way, even if the Star had not been found guilty in the 1957 restraint-of-trade case, a divestiture still would have been required when Cap Cities bought the newspaper in 1976. (Or was that 1975?) Going down the what-if path, Cap Cities might have instead kept the TV station, which might eventually have caused an affiliation flip with KMBC in 1986 or so, and which would have forstalled the 1994 WDAF-KSHB affiliation swap! Does your head hurt yet?

[Aaron]

Actually, if the Star had not been found guilty, I contend that the cashflow from WDAF-AM-FM-TV would have been more than sufficient to withstand the economic hardships imposed by the environmental cleanup at the paper plant in Wisconsin owned by TKCS which forced it to look for an outside buyer after more than 40 years of employee ownership.

My view is not unanimously shared, but the way TV and radio stations were throwing off money in the 1970s, a $10 million cleanup woulda been no problem, and we'd be employee owned to this day.

[Mark Roberts]

I knew about the paper plant, but my understanding was also that the whole printing plant was badly out of date and the EPSOP (or however it was structured) couldn't raise the capital to update it. The paper didn't look noticeably any better after the Cap Cities purchase, and it was notorious for years for having terrible photographic reproduction. Good content (sometimes very good content) but not so great to look at. So my recollection may not be accurate; I'll have to look at the 1980 centennial edition (which still resides in my garage) to see what it has to say. The Star's printing quality finally got better in the early 1990s, and I'll have to say that I have not seen the paper (or have even been in KC) since the new printing plan came on-line.

It's also possible that Nixon could have gone after the Star the way he went after the St. Louis Post-Dispatch and Pulitzer's TV stations. It's a fun what-if exercise for me, at least, since I grew up with all those papers and stations.

[Aaron]

We limped along with the same 1960 printing presses until May 2006. Now it looks like a dream.

Cleanup was what killed us. The sale to Cap Cities occurred slightly later than you recall, but in the official history it was triggered by the EPA mess. Nixon wouldn't have bothered with the Star, as it was solidly Republican back then.

[Mark Roberts]

Something in the printing plant had to have changed around 1985-ish. It was sometime in the mid-1980s that the Star switched from letterpress to offset.

I wouldn't say the Star was solidly Republican, though it definitely was more moderate than the Post-Dispatch was at the time.

[Aaron]

Anyway...

I should note that the headline is inspired by a typo I found while reading the M&O: At one point, the name of the central Kansas town is spelled "Salinas."

Salina, btw, may only have one network affiliate but it's got a first-rate community access TV facility: http://salnet.org

[frank lee written]

Perfect way to prove the El-Rush-bo and all the other right wing radio talk show hosts "gas bag's of hot air" [[lies]] wrong [as usual]. They say "liberal media" like its something true and obvious! The only thing obvious is the total and complete lie of the obvious facts.....This so called sale and getting rid of other stations changes nothing of the true fact "nothing about 99.9% of all media ownership" is anything but right wing owned. This company is not any where near being a liberal media owner! If the lemmings that repeat "liberal media" as some kind of mantra before the orgasm of hate exiting their mouths would just "disrepect their radio god's" and go look up the facts on fcc.gov they would faint after finding out how they been duped by the best [worst] talk radio hoax's [host's] ever! but no the sheep just keep repeating "no i wont believe im gonna be food" over and over.

so let the slaughter of the morons [sheep] continue any one for lamb chops!

bon appetite

[Mark Jeffries]

Person who doesn't have the guts to use his real name:

And what in the sam hill does that have to do with Newport buying Clear Channel's TV stations?

Do you honestly think that every single businessman and corporation owner in the U.S. is a wingnut wacko?

And this calling the public "sheep" is the exact same sort of crap that has made the Democratic party lose elections. How do you expect people to vote for you when you continually insult them? The right may not care for the average citizen that much, but they do a good job of hiding it. Meanwhile, for every Keith Olbermann who gets it we have an Amy Goodman preaching to the looniest of the choir and turning off the sort of people who do want an alternative to the O'Reillys and Limbaughs of the world.

[Mark Roberts]

The great thing about broadcast regulation in the United States is really that there's not all so much of it. As long as you, the station owner, sell cheap time to political candidates, keep the paperwork in order, make sure the tower lights are lit, and cover up any titties, the FCC will leave you alone and you can air whatever you think people want to watch or hear. Kevin Martin's boner about obscenity is an aberration that will eventually go away. Imus is a creep, but let the marketplace decide. If he turns off too many people, they'll turn him off, he'll be a commercial flop, and he'll go away.