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Proposed station sales preserve Sinclair's power, say observers

Sinclair Broadcast Group Inc.'s recently outlined plan to divest a number of stations in connection with its pending Tribune Media Co. purchase may be as much about preserving the station group's power as it is about resolving regulatory concerns.

As originally contemplated, Sinclair sought to buy Tribune's 44 television stations in a transaction valued at $6.6 billion, a combination that would have given Sinclair unprecedented reach and put it in violation of the Federal Communications Commission's media ownership rules. Although Sinclair initially sought to keep all of its own stations as well as those from Tribune, after encountering regulatory resistance, Sinclair now plans to sell stations in nearly a dozen markets. But those sales, according to industry experts, have been carefully crafted to keep the broadcaster in the prime seat as it grows its overall footprint.

In particular, Sinclair has reached sale agreements for WGN-TV, an independent station in Chicago, and WPIX-TV, a The CW (US) affiliate in New York, with undisclosed buyers. The company also intends to sell Tribune station KSWB, a FOX (US) affiliate in San Diego.

Volker Moerbitz, an analyst with Kagan, a media research group within S&P Global Market Intelligence, said that although Sinclair will lose three stations in major markets, he sees this as "the least damaging option." He explained that neither WGN nor WPIX are Big-4 affiliates in that they do not have network affiliations with the big four broadcast networks: ABC (US), CBS (US), FOX and NBC (US).

"Losing the FOX in San Diego must hurt, but I couldn't find another option there either. It would have to be a comparable market in which they only own one station — preferably not a Big 4 — or two smaller markets with one station each, and I couldn't find a combination matching those criteria," Moerbitz said in an interview, adding Sinclair "did their homework" before submitting this plan.

"If the FCC agrees with their calculations — and I think they will — this really seems to be the smartest option," Moerbitz said.

A Sinclair spokesman did not respond to a request for further comment about the proposed divestitures, but the company noted in an FCC filing that the sale of these stations will put the Sinclair/Tribune entity in compliance with the national ownership cap, which prohibits a single broadcast station group from owning TV stations that together reach more than 39% of U.S. TV households. The cap includes a recently reinstituted UHF discount, which allows stations broadcasting in the UHF spectrum — or on channels 14 to 51 — to attribute just 50% of TV households in their designated market areas toward a station group's overall cap.

With the sale of stations in New York, Chicago and San Diego, Sinclair said the combined Sinclair/Tribune entity will have a national audience reach of approximately 37.3%, including the UHF discount.

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In addition to the three stations in major markets, Sinclair's recent FCC filing also includes plans to sell stations in eight markets where the company overlaps with Tribune. Without any divestitures, Sinclair/Tribune together would own two top-four rated affiliates in 10 markets. While the FCC's local television ownership rule previously included a prohibition on any single entity owning more than one top-four rated station in a single market, the agency in 2017 under Republican FCC Chairman Ajit Pai loosened the rule by moving to a case-by-case review of station combinations.

Separately, Variety recently reported that 21st Century Fox Inc. is nearing a deal with Sinclair to buy stations in six markets, including one CW affiliate in Miami, and five FOX affiliates in Seattle; Denver; Salt Lake City; Cleveland; and Sacramento, Calif.

Yet the details around Sinclair's proposed divestitures are already drawing some scrutiny as the broadcaster "intends to enter into an option and services agreement" for several of the stations being sold, including the stations in New York and Chicago.

Under shared services agreements, station groups may share administrative, technical, sales or programming support. Such an agreement would potentially give Sinclair more negotiating power in certain designated marketing areas.

Asked about this during a Feb. 22 press conference, FCC Commissioner Jessica Rosenworcel, a Democrat, said that while shared services agreements can "sometimes be really useful, particularly in small towns," these agreements are less necessary in larger markets where the economics of owning and operating a broadcast station are better.

"So I find the request to make shared services agreements available in large cities inherently more complex," Rosenworcel said.

Gene Kimmelman, president of public interest group Public Knowledge, urged the FCC to open a full public review of Sinclair's proposed divestitures, saying, "The proposal falls far short of remedying the enormous dangers to competition and diversity of media voices that would be harmed by combining Sinclair with Tribune."

Howard Weiss, a veteran broadcast lawyer who has spoken out against the deal, also believes there needs to be more public scrutiny of the proposed transaction terms, especially given the recent news from Democratic lawmakers that the FCC inspector general is investigating whether the FCC has shown preferential treatment toward Sinclair or whether Pai and his staff improperly coordinated with Sinclair on the commission's recent media rule changes.

"This is not just your typical FCC proceeding where you are not necessarily going to like the result on policy grounds," Weiss said in an interview, adding that the inspector general investigation should be resolved before the commission votes on the Sinclair/Tribune deal.

A spokesman for the FCC, meanwhile, has denied any allegations of preferential treatment, saying, "The accusation that [Pai] has shown favoritism toward the company is absurd."