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FCC fines and favoritism claims plague Sinclair/Tribune deal review


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FCC fines and favoritism claims plague Sinclair/Tribune deal review

As 2017 comes to a close, the pending deal between Sinclair Broadcast Group Inc. and Tribune Media Co. remains a major piece of unfinished business at the Federal Communications Commission, leaving some both inside and outside the agency looking for signs as to what may happen in the new year.

Sinclair and Tribune are waiting on regulatory approval to close the $6.7 billion transaction, which would create a combined entity that owns more than 200 full-power TV stations nationwide covering U.S. homes across 108 markets. Democrats in Congress and at the FCC who are critical of the deal have argued several recent moves from the commission seem designed to facilitate the successful closing of the combination, charges the FCC's Republican leadership has vehemently denied. The latest regulatory action drawing scrutiny is a proposed $13.4 million fine against Sinclair.

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The fine relates to allegations the broadcaster aired sponsored programming from the Huntsman Cancer Institute without disclosing that the Huntsman Cancer Foundation paid for the content. According to the FCC, the programming included 60- to 90-second sponsored stories that were made to look like independent news stories and 30-minute paid television programs. The programming was broadcast on 77 different Sinclair stations 1,723 times.

Under FCC rules and federal law, broadcast stations must identify any sponsored programming so as to distinguish between paid broadcast material and independent news coverage or editorial content.

The proposed $13.4 million penalty is the largest fine the commission has ever sought for a violation of its sponsorship identification rules. Even so, Commissioners Jessica Rosenworcel and Mignon Clyburn, both democrats, argued that based on the number of violations and the overall size of Sinclair, the fine should be larger.

"Contrary to what the FCC majority would have you believe, the nearly $13.4 million fine levied against Sinclair Broadcast Group represents a mere slap on the wrist," Clyburn wrote, noting that the fine proposed for Sinclair represents 0.5% of the company's 2016 revenues, which totaled $2.7 billion. She said the FCC "routinely" fines other companies between 3% and 8% of their gross revenues for "egregious violations."

Sinclair, for its part, said in a statement the fine is "unreasonable" and "unwarranted." It explained: "Any absence of sponsorship identification in these public service segments was unintended and a result of simple human error." The company said it will contest the fine.

FCC Chairman Ajit Pai, a Republican, defended the size of the penalty on both fronts, saying it was neither too small nor too large. He noted $13.4 million is more than 3x the size of any previous penalty for violating FCC sponsorship identification rules. As a comparison, he pointed to the commission's two most recent sponsorship identification actions: A $540,000 fine imposed on Cumulus Media Inc. in 2016 for 178 violations, working out to $3,000 per violation; and a $115,000 penalty imposed on Journal Broadcast Corp. in 2014 for 27 violations, or $4,250 per violation.

The $13.4 million proposed fine against Sinclair for 1,723 violations works out to more than $7,700 per violation. Pai said that while this figure is higher than previous fines, it is nevertheless "appropriate."

Rosenworcel argued Sinclair's "unprecedented volume" of violations "deserves an unprecedented response," saying that the FCC should have sought the maximum fine allowable. Under FCC rules, the base forfeiture for sponsorship identification violations, which the commission can adjust up or down depending on the circumstances, is $4,000 for each violation or each day of a continuing violation. The maximum forfeiture is capped at $48,114 per violation.

Pai said that in seeking the maximum penalty, his democratic colleagues had wanted a penalty of more than $82 million, or 3% of Sinclair's 2016 revenues. "Their position deviates so wildly from our precedent that it will no doubt strike reasonable people as suspicious," Pai said.

Rosenworcel argued that a fine representing only 0.5% of 2016 revenues represented an instance of the FCC showing Sinclair "unreasonable and suspicious favor."

This is not the first time the Democrat commissioner has accused the FCC's Republican majority of handling Sinclair with kid gloves. During an Oct. 25 Congressional hearing, Rosenworcel told members of the House Communications and Technology Subcommittee, "I think it has reached a point where all of our media policy decisions seem to be custom built for this one company, and I think it's something that merits investigation." She expanded on that position after the FCC's November open meeting, pointing to decisions to loosen the agency's media ownership rules, allowing further consolidation among broadcasters, and to revive the UHF discount, which allows stations broadcasting in the UHF spectrum — or on channels 14 to 51 — to attribute only 50% of their TV households in their designated market areas toward the 39% national audience reach cap. The overall cap, which the FCC plans to review in 2018, prohibits a single broadcast station group from owning TV stations that together reach more than 39% of U.S. TV households.

Including the UHF discount and without any divestitures, a combined Sinclair and Tribune would exceed the 39% national audience reach cap by about 6.5%. Without the UHF discount, a combined Sinclair/Tribune would greatly exceed the cap, with a reach covering 72% of U.S. homes.

Concerns about Sinclair receiving preferential treatment led a group of Senate Democrats to send a letter to Pai in November asking the FCC to "immediately halt its work" on the Sinclair/Tribune deal. For his part, Pai has repeatedly denied any allegations of favoritism.

The FCC's decision on the Sinclair/Tribune deal is expected relatively soon. The commission tries to follow a 180-day shot clock when it comes to reviewing and completing action on a pending deal. As of Dec. 27, the commission was on day 158 of the review.