Biden Victory Could Limit Broadcaster Gains in Supreme Court

11/25/20 11:06AM EST

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Biden Victory Could Limit Broadcaster Gains in Supreme Court  - 11 25 2020 11 05 10 AM

The Presidential transition is underway and the shift to Democrat control of the Justice Department and the FCC could diminish the benefit of winning media ownership deregulation under the Trump Administration. 

Currently, the Trump Justice Department backs the FCC's effort to overturn a court ruling that invalidated loosened media and broadcast ownership restrictions.  The case is now before the Supreme Court and the next Administration could shift its position before the case is argued. 

It could even withdraw its appeal, reducing legal momentum in favor of the FCC's deregulatory position.

The bottom line:  We believe the Supreme Court will still decide the case in favor of broadcasters, but the change in FCC leadership could dilute the follow-through benefits of the decision. 

The FCC, on a 3-2 partisan vote in 2017, discarded decades-old newspaper and broadcast ownership restrictions, implementing a statutory mandate to repeal outdated media ownership limits the Commission deems unnecessary due to market competition. 

Noting the impact of cable, satellite and the Internet on news and information sources, the FCC concluded it could fully repeal the newspaper/broadcast ownership restriction and revise television station ownership rules to allow further consolidation within markets, including the possible combination of two of the top four stations in the same local market.

The U.S. Court of Appeals for the Third Circuit, in a 2-1 ruling, struck down the FCC order, explaining that the FCC failed to analyze in sufficient detail the impact of its order on female and minority ownership of broadcast properties. 

The same appellate court, several years earlier, ordered the FCC to conduct such an analysis when it struck down a previous FCC media ownership order.  The FCC asked for Supreme Court review and the Court took the case at the beginning of its current term.  It will likely be decided in the second quarter of next year.

Generally, the fight over media ownership regulation splits along partisan lines.  The FCC adopted the order now on appeal on a 3-2 vote, the two dissenting Democrats contending the order will diminish diverse viewpoints and news reporting at the local level.  One of the dissenters was former Commissioner Mignon Clyburn, now speculated as a possible Biden pick to head the FCC.  

Watch the Biden Justice Department:  The briefing in the Supreme Court case will be completed before President-elect Biden takes the oath of office in January, and the Justice Department's briefs will support the FCC's media ownership order.   We would be surprised, however, if the new Justice Department under President Biden maintains the same substantive position by the time the case is argued a few months from now. 

Even if the next DOJ withdraws the appeal or reverses its position, a separate appeal brought by the broadcast industry would remain before the Court, allowing the Court to render a decision in the case.  

Losing DOJ support, if indeed that happens, would be disappointing to the broadcast industry but we continue to believe a Supreme Court majority will vote to overturn the lower court and reinstate the FCC order.  The statute requiring FCC review of ownership regulations instructs the Commission to repeal regulations rendered obsolete due to market competition.  The statute does not require an assessment of impact on minority and female ownership of broadcast stations. 

The appellate court decision did not quibble with the FCC's determination that competition from cable, the Internet and other news sources justified repeal of the ownership restrictions.  Although the FCC order explicitly addressed possible impacts on minority and female ownership, the lower court concluded the analysis was insufficiently detailed.

Because the statute specifies market competition as the only explicit factor driving media ownership determinations, we expect the Court will side with the current FCC and reverse the lower court.  Our sense is that a majority of the Justices will be uncomfortable with the lower court's imposition of deregulatory criteria beyond the explicit requirements of the statute.  This would benefit broadcast station groups by allowing them to engage in transactions that strengthen their position in selected local markets.  Broadcast groups participating in this appeal include Sinclair Broadcast Group (SBGI), Nexstar (NXST), Gray Television (GTN) and Fox Corporation (FOXA).

Impact of FCC Leadership Change:  Assuming the Supreme Court, despite a potential shift in the DOJ/FCC position after President-elect Biden takes office, reinstates the FCC order, new leadership at the Commission would probably limit the upside of one of the order's key modifications -- allowing two of the top four stations to consolidate in the same local market.  Although there was some interest in an outright repeal of the top-four television station ownership restriction, the FCC stopped short of repeal and adopted a case-by-case framework to determine when such consolidation would be allowed. 

The criteria for granting relief was not clearly spelled out, but the order suggested ratings and revenue shares as important criteria along with particular market conditions, essentially putting a "benefits vs. harms" balancing judgment in the hands of the FCC for future cases.  Avoiding the top-four restriction is still possible, but station groups will need to be realistic about the prospects for obtaining relief.

Separately, Supreme Court reinstatement of the FCC ownership deregulation order would eliminate restrictions on joint sales agreements (JSAs), arrangements authorizing joint brokering of station advertising avails in a local market. 

The FCC previously limited such agreements by treating stations as mutually owned when brokering exceeded a threshold level (15 percent).  This would trigger station ownership restrictions, foreclosing implementation of agreements that could provide greater operational efficiency in certain markets.  If the Supreme Court overturns the Third Circuit, the FCC's repeal of JSA restrictions would go into effect, a potential boost for station groups.

The order, if reinstated, also fully repeals the newspaper-broadcast cross-ownership restriction. The Commission has granted waivers of the restriction in the past, but outright repeal would discard regulatory impediments to transactions that could aid the survival of newspapers.

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