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Indianapolis could be key to FCC approval of Nexstar-Tribune merger

The U.S. Department of Justice has conditionally approved Nexstar Media Group Inc.'s pending purchase of Tribune Media Co., but the proposed transaction must still gain approval from the U.S. Federal Communications Commission, which may be assessing market dynamics in Indianapolis.

The Justice Department requires the combined entity to divest TV stations in 13 markets. Nexstar-Tribune has already reached spinoff station deals with E.W. Scripps Co. and TEGNA Inc., calling for the sale of Big Four affiliates in 12 markets. Proposed Big Four network affiliates divestitures were not on the docket in Indianapolis, where the Justice Department gave its assent to Circle City Broadcasting I Inc. buying Nexstar's WISH and WNDY, affiliated with The CW (US) and MyNetworkTV (US), respectively.

Big Four affiliates carry programming from FOX (US), NBC (US), CBS (US) and ABC (US).

Justin Nielson, an analyst at Kagan, a media market research group within S&P Global Market Intelligence, said the FCC might still need to grant Nexstar a two-station, Big Four duopoly waiver in the nation's 28th largest TV market of Indianapolis. Nielson also said the combined company may have to sell either Tribune's FOX affiliate WXIN or CBS affiliate WTTV to meet FCC conditions — and that could hold up agency approval.

The deal has been expected to close late in the third quarter.

In granting conditional approval July 31, the DOJ wrote that Nexstar's WISH has a higher-than-usual market share for a CW affiliate, owing to its strong local news programming. Until 2014, WISH had been the CBS affiliate in the Indianapolis designated market area, before those ties were transferred to Tribune's WTTV.

Circle City Broadcasting I is controlled by DuJuan McCoy, who began his media career as an account executive at WTTV. Efforts to reach Circle City and McCoy were unsuccessful. The FCC also would not provide comment, though a spokesperson confirmed the agency is reviewing the deal.

There had been concerns that the union of Nexstar-Tribune would put the combined entity in violation of the current rule restricting a station owner's reach from exceeding 39% of all U.S. television households. However, the companies have made moves to allay those fears.

For instance, Scripps has entered into agreements to buy Tribune's CW affiliates WPIX in New York and WSFL, serving the Miami-Fort Lauderdale, Fla., market. Via another pact with Scripps, Nexstar will exit the Phoenix market through the divestiture of KASW. Together, those deals put the merged company below the aforementioned 39% national threshold.

Wolfe Research analyst Marci Ryvicker said there were not "any surprises out of the DOJ" as far as expected concessions are concerned. The analyst noted Nexstar had been working closely with regulators to figure out which stations had to be divested in advance.

The proposed Nexstar-Tribune spinoffs could generate $1.36 billion, with the proceeds earmarked to help fund the acquisition and reduce debt.

In addition to Indianapolis, the other 12 markets targeted for divestitures by the DOJ are Davenport, Iowa; Des Moines, Iowa; Fort Smith, Ark.; Grand Rapids, Mich.; Harrisburg, Pa.; Hartford, Conn.; Huntsville, Ala.; Memphis, Tenn.; Norfolk, Va.; Richmond, Va.; Salt Lake City; and Wilkes-Barre, Pa.

The pending merger is a point of contention in a retransmission consent dispute that has kept more than 120 Nexstar stations dark on AT&T Inc.'s DIRECTV, U-verse TV service and streaming platform DIRECTV NOW since early July. Pay TV operators pay retrans fees to broadcasters in exchange for permission to carry local stations' signals. AT&T has accused Nexstar of seeking fees for stations and a cable network that it does not yet own, a reference to Tribune's WGN America (US).

Nexstar Chairman, President and CEO Perry Sook said on the company's first-quarter earnings call that Tribune stations will become part of the company's new distribution rates and will be a key component of its continued rise in retrans revenue growth in the years to come.

Nexstar's second-quarter earnings call is scheduled for Aug. 7.

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