The video market has changed dramatically over the past quarter century.  No longer dominated by just a few television stations affiliated with major broadcast networks, consumers now have a cornucopia of cable networks, streaming services, and even online video entertainment options (e.g., YouTube) from which to choose.  Faced with rising competitive pressures, television broadcasters are scrambling to preserve their two primary sources of revenue: advertising and retransmission fees that they charge cable and satellite companies for carrying their signals.

Several television broadcasters have apparently settled on national consolidation as the solution to their declining revenue problem.  National consolidation seeks to increase operational efficiency, reduce competition for advertising dollars, and increase market power in retransmission fee negotiations. 

But standing in the way of this consolidation is the national ownership cap contained in Section 303 of the Communications Act.  Originally enacted as part of the Telecommunications Act of 1996 and modified by the Consolidated Appropriations Act of 2004, Section 303 expressly prohibits a single firm from owning, directly or indirectly, broadcast television licenses that reach over 39% of the “national audience.”  At present, several firms are already near this threshold, even with the FCC’s UHF discount where broadcasters get to count each UHF station at only 50% of TV households toward the 39% national cap.  According to recent data, without the UHF discount Nexstar reaches about 70% of the national audience and approximately 39% after the discount, Gray reaches about 39% without the discount and 25% after the discount, and Sinclair reaches about 38% of the population before and 24% after the discount.  Given this statutory cap, the recently announced Nexstar/Tegna deal (with Tegna at 30% share with the UHF discount) and the rumored potential deal between Sinclair and Scripts (a combined share of 49% with the discount) should be dead in the regulatory water.

Yet in today’s hyper-political environment, where adherence to the law is often viewed simply as a minor inconvenience, it should come as no surprise that some have argued the Federal Communications Commission can somehow “waive” the statutory 39% national ownership cap in order to allow these deals to go through.  As the Supreme Court has previously chastised the FCC for improperly attempting to waive the Communications Act absent express congressional authorization, accepting these arguments would require some dubious legal gymnastics by the FCC.

The language of the Communications Act is unambiguous: while the statute imposes no limitations on the physical number of television stations that a firm can directly or indirectly own nationwide, the statute imposes upon firms owning television licenses a strict 39% cap on national audience reach.  To send a forceful message that this 39% cap on national audience reach is absolute, Congress took the additional step of expressly prohibiting the Commission from using its limited authority contained in Section 10 of the Communications Act to forbear from the application of the cap.  Given this clear statutory language, the fact that people are arguing with a straight face that the FCC can somehow “waive” the 39% cap, irrespective of its supposed merits, defies credulity.

[Readers’ Note:  An interesting question is why Congress chose to include a specific reference to Section 10, as this statute only allows the Commission to “forbear from applying any regulation or any provision of this chapter to a telecommunications carrier or telecommunications service, or class of telecommunications carriers or telecommunications services, in any or some of its or their geographic markets” (i.e., activities which are covered by Title II of the Communications Act), and broadcast licenses (which are governed by Title III of the Communications Act) do not fit within these jurisdictional activities.  Is this reference to Section 10 merely hortatory to add emphasis or just sloppy legislative draftsmanship?  It is hard to tell, but in the end irrelevant because the FCC lacks any authority to forbear from any provision contained in Title III of the Communications Act.]

Still, if FCC Chairman Brendan Carr ultimately decides to adopt a “damn the torpedoes” approach to force these deals across the finish line (so far he has kept his cards close to his vest), there might be some regulatory “Hail Mary” to avoid the cap: the FCC could seek to redefine the term “national audience reach.”  For purposes of these deals, however, this option is fraught with peril. 

To begin, the FCC cannot simply redefine “national audience reach” on a whim.  Due process requires the FCC to institute a formal rulemaking proceeding—complete with a Notice of Proposed Rulemaking (including an opportunity for public comment), issuing final rules, and potential subsequent judicial review.  Such a rulemaking process takes time, a luxury that perhaps the merging parties in the Nexstar/Tegna deal simply do not have.  Compounding the problem, the FCC would have to engage in some very creative economics to come up with a plausible formula that would allow the major broadcast license owners to merge and still satisfy the 39% cap.  As companies such as Nexstar, Gray, and Sinclair barely fit under the cap themselves even with the controversial UHF discount, this will be a very tall analytical order indeed.

Which brings us, ultimately, to the great policy oxymoron of these national consolidation efforts.  A key pillar of broadcast policy has always been the promotion of the concept of “localism.”  While never truly defined or enforced (for example, the FCC gave local affiliates one hour of “prime time” for community programing, but local affiliates simply chose to use that time to run profitable syndicated shows like Wheel of Fortune, Jeopardy, and Seinfeld re-runs), the concept of “localism” still makes for a great political slogan.  (See, e.g., FCC Chairman Brendan Carr’s frequent claim that he wants to “empower” local broadcasters as “localism is one of the key guiding stars of our media policy.”)   We must ask, therefore, how does increasing concentration on the national level lead to increased localism in individual markets?  It is difficult to square that analytical circle.

By reasonable accounts, the statutes and implementing regulations covering television broadcasters may be a relic of a bygone era.  Encouraging Congress to revisit this regime (including ownership limits, must carry and retransmission consent, and other policies regulating broadcast television in the video marketplace) is a discussion worth having.  Until that time, however, the FCC is obligated to faithfully enforce the laws currently on the books.  And in the case of broadcast television consolidation, not only did Congress make clear that it wants a national ownership cap of 39%, but it expressly and unambiguously stated that the FCC has zero authority to waive or modify this statutory requirement.  The fact that we are even having this debate to permit these mergers is a waste of everybody’s time and scarce FCC (and, should the FCC go through with any waiver, ultimately judicial) resources.

Lawrence J. Spiwak is the President of the Phoenix Center for Advanced Legal & Economic Public Policy Studies (www.phoenix-center.org), a non-profit 501(c)(3) research organization that studies broad public-policy issues related to governance, social and economic conditions, with a particular emphasis on the law and economics of the digital age.