Sinclair Draws Scrutiny Over Growth Tactic
TV-Station King Uses "Sidecars" to Skirt Ownership Limits
COLUMBUS, Ohio—A modest brick building surrounded by parabolic dishes here by the Scioto River sports three signs: WSYX, WTTE, WWHO.
Federal law requires these television stations to have separate owners, and they do. But one company runs all three to a significant degree, in a type of arrangement that regulators allow but is drawing fire from critics of media consolidation as big broadcasters use it to expand their reach.
In the brick building, one general manager and one sales director run all the stations, which share operations staff. Most staff report to Baltimore-based Sinclair Broadcast Group Inc., which owns WSYX but runs many aspects of all three and collects most of their revenue
The two stations Sinclair doesn't own are controlled by former bankers to its chief executive, David Smith; one was controlled by his mother until she died last year.
Federal Communications Commission rules tracing to the 1940s prohibit anyone's owning more than one TV station in a market like Columbus'. But Sinclair can run major aspects of all three because of an approach the FCC allowed 22 years ago that lets a company manage stations it doesn't own. Companies that outsource station management are sometimes called "sidecars."
Sinclair is America's biggest station owner and operator, thanks in part to sidecar agreements.Gannett Co. and TribuneCo. have proposed to expand, in part, through sidecar agreements, which have become widespread in the industry.
Opponents of media consolidation say broadcasters use sidecar agreements as loopholes that let them violate the spirit of FCC ownership rules, which the agency says promote "competition, localism and diversity."
When one owner manages multiple stations in a market, they say, it reduces local-news quality and variety, and drives up pay-TV bills.
The FCC allowed these agreements to help struggling stations reduce costs, not to help companies gain turf, says former FCC Commissioner Michael Copps, a consolidation critic. "This is a shell game and an end run around the media-ownership rules."
The FCC, as part of its regular review of media-ownership rules, has asked for comment on its sidecar policy, an FCC spokeswoman says. Former FCC-Chairman Julius Genachowski, before he stepped down this spring, privately pushed for stricter rules for sidecar agreements, say people familiar with his proposals. Mr. Genachowski didn't respond to requests for comment.
Some broadcasters have recently seen Justice Department inquiries for deals including such agreements. Anticonsolidation groups and cable operators have petitioned the FCC to block acquisition plans that include operating nonowned stations. And the Government Accountability Office has begun to study competitive effects of these agreements.
The Columbus stations show how sidecar deals work. In the glass-encased lobby, side-by-side TV screens show programming from two of the stations. Fox and ABC news vans share the parking lot. The Sinclair-owned WSYX, an ABC affiliate, runs significant aspects of WTTE, a Fox affiliate owned by Cunningham Broadcasting Corp. Sinclair's WSYX news anchors here also appear on WTTE newscasts.
"We share our news backroom and reporting talent," says Sinclair Chief Financial Officer David Amy. He says the structure boosted news viewership and that "the beneficiaries of that have been the viewers."
Mr. Amy says most staff running the stations report to Sinclair.
Sinclair has used similar sidecar agreements as it expands nationwide. Including pending deals, it has agreed to run 45 stations it doesn't own, in addition to the 118 it will fully own.
Sinclair's critics say its use of sidecars blazed a trail. "The fact that the FCC didn't crack down on Sinclair is an indication to the rest of the industry that it's a model it can exploit," says Craig Aaron, CEO of Free Press, an anticonsolidation advocacy group.
The Justice Department this year reviewed Sinclair's plan to sell WSYT in Syracuse, N.Y., to Cunningham to meet FCC ownership limits. The review led Sinclair to abandon the deal, Sinclair and Cunningham executives say.
In September, the American Cable Association, Free Press and Jesse Jackson's Rainbow PUSH Coalition asked the FCC to block all or parts of Sinclair's $985 million agreement to buy Allbritton Communications Co.'s eight TV stations, objecting to Sinclair's plans to sell some overlapping stations to buyers close to Sinclair. The FCC's response is pending. Sinclair declined to comment on the matter.
This month, Sinclair said it received a so-called second request for information from the Justice Department on station deals in two markets—part of its Allbritton acquisition—where advocacy groups objected to sidecar arrangements. Sinclair and Allbritton declined to comment on the request.
Advocacy groups and pay-TV concerns such as Time Warner Cable Inc. and DirecTV Group Inc. petitioned the FCC to block some station transfers in Gannett's $1.5 billion agreement to buy BeloCorp.'s 20 stations and Tribune's $2.7 billion agreement to buy Local TV LLC's 19 stations, alleging that they were using "shell" companies to skirt ownership limits. Belo declined to comment.
Gannett and Belo said in August that the Justice Department made a second request for information on their deal. Gannett and Tribune spokesmen say their deals meet FCC rules.
Sinclair's Mr. Smith says that FCC ownership rules are "crystal clear" and that Sinclair obeys them. "I can walk right up to that line and look right at that line," he says. "I have no hesitation about doing that—philosophically, intellectually or otherwise."
The sidecar debate is riding a consolidation wave in broadcast TV, in which a half-dozen owners have committed most of the $10 billion involved in broadcast-TV acquisitions in the past year and a half, according to SNL Kagan, a research concern. Driving the consolidation are growing fees that cable and satellite-TV companies must pay to carry broadcasters' signals. A broadcaster that runs more stations has more muscle to negotiate these fees.
Another driver: the tech onslaught. Local television remains Americans' primary news source. But local-TV viewership among adults under 30 fell to 28% in 2012 from 42% in 2006, according to Pew Research Center.
Sinclair's Mr. Smith says broadcasters compete with Web, cable, satellite and phone companies in ways that FCC rules never anticipated. Deals with nonowned stations level the playing field somewhat, he says.
Running more stations lets Sinclair reduce costs by eliminating overlapping jobs and facilities, says Mr. Amy, Sinclair's CFO. Sinclair also gets more clout in negotiating programming-licensing deals and retransmission fees.
Wall Street has cheered the consolidation, which helped Sinclair's revenue grow 26% in its 2013 first half, driving its stock price up nearly threefold this year.
Mr. Smith and his brothers founded Sinclair in 1986 with a strategy that would turn the Baltimore TV station their father started into a consolidating force. An obstacle: From television's early days, the FCC let a broadcaster own only one station in a market.
Sinclair found a work-around. In 1991, it borrowed an arrangement the FCC already allowed to help struggling radio stations: One station could run significant aspects of another in a market without owning it. The FCC reviewed Sinclair's plan and allowed it to proceed.
In 2001, PUSH argued that Sinclair illegally controlled Glencairn. The FCC ruled that "Sinclair exercised de facto control over Glencairn" in violation of the Communications Act, but determined it wasn't likely such violations would continue, given Ms. Smith's assumption of control from Mr. Edwards. It allowed the acquisitions, fining Sinclair and Glencairn $40,000 each. The FCC cited, among other things, Mr. Edwards's inaccurate memory of some financial details, which Mr. Edwards calls "an oversight." Sinclair's Mr. Amy declined to comment on the matter.
Glencairn later changed its name to Cunningham, a family name with rich resonance for Mr. Smith. Among his holdings is a group of Baltimore restaurants that get supplies from his Cunningham Farms, located on a 200-acre estate, Cunningham Manor.
Sinclair is similarly intertwined with Manhan and Deerfield, owned by Mr. Mumblow. Mr. Mumbow says he named them after rivers near his Christmas-tree farm but declines to discuss their business relationships with Sinclair.
Deerfield owns, or has agreed to buy, 12 stations Sinclair helps run. Sinclair guarantees Deerfield's debt and consolidates Deerfield's results on its balance sheet, filings show.
Among Sinclair's recent sidecar deals is with Howard Stirk Holdings, owned by conservative commentator Armstrong Williams. It agreed this year to buy three stations Sinclair would run. Sinclair is guaranteeing the deals' financing.
Mr. Williams, an African-American, praises Sinclair for giving minorities the opportunity to own stations. "There is a closeness between Howard Stirk and Sinclair because David Smith is one of my best friends in the world," he says.
Relations were too close in one case. When Sinclair this year had to divest WSYT, the Syracuse station, it hoped to sell to Howard Stirk, Mr. Williams says, but the Justice Department "said it wouldn't work," because "it would still be like a duopoly."
Sinclair also abandoned efforts to sell WSYT to Cunningham, choosing another buyer after Justice Department resistance, says Cunningham's Mr. Anderson. "They were not comfortable yet," he says, "and in the interest of time, Sinclair went to Plan B."
http://www.wsj.com/articles/SB10001424127887323623304579057251488006852
TV-Station King Uses "Sidecars" to Skirt Ownership Limits
COLUMBUS, Ohio—A modest brick building surrounded by parabolic dishes here by the Scioto River sports three signs: WSYX, WTTE, WWHO.
Federal law requires these television stations to have separate owners, and they do. But one company runs all three to a significant degree, in a type of arrangement that regulators allow but is drawing fire from critics of media consolidation as big broadcasters use it to expand their reach.
In the brick building, one general manager and one sales director run all the stations, which share operations staff. Most staff report to Baltimore-based Sinclair Broadcast Group Inc., which owns WSYX but runs many aspects of all three and collects most of their revenue
The two stations Sinclair doesn't own are controlled by former bankers to its chief executive, David Smith; one was controlled by his mother until she died last year.
Federal Communications Commission rules tracing to the 1940s prohibit anyone's owning more than one TV station in a market like Columbus'. But Sinclair can run major aspects of all three because of an approach the FCC allowed 22 years ago that lets a company manage stations it doesn't own. Companies that outsource station management are sometimes called "sidecars."
Sinclair is America's biggest station owner and operator, thanks in part to sidecar agreements.Gannett Co. and TribuneCo. have proposed to expand, in part, through sidecar agreements, which have become widespread in the industry.
Opponents of media consolidation say broadcasters use sidecar agreements as loopholes that let them violate the spirit of FCC ownership rules, which the agency says promote "competition, localism and diversity."
When one owner manages multiple stations in a market, they say, it reduces local-news quality and variety, and drives up pay-TV bills.
The FCC allowed these agreements to help struggling stations reduce costs, not to help companies gain turf, says former FCC Commissioner Michael Copps, a consolidation critic. "This is a shell game and an end run around the media-ownership rules."
The FCC, as part of its regular review of media-ownership rules, has asked for comment on its sidecar policy, an FCC spokeswoman says. Former FCC-Chairman Julius Genachowski, before he stepped down this spring, privately pushed for stricter rules for sidecar agreements, say people familiar with his proposals. Mr. Genachowski didn't respond to requests for comment.
Some broadcasters have recently seen Justice Department inquiries for deals including such agreements. Anticonsolidation groups and cable operators have petitioned the FCC to block acquisition plans that include operating nonowned stations. And the Government Accountability Office has begun to study competitive effects of these agreements.
The Columbus stations show how sidecar deals work. In the glass-encased lobby, side-by-side TV screens show programming from two of the stations. Fox and ABC news vans share the parking lot. The Sinclair-owned WSYX, an ABC affiliate, runs significant aspects of WTTE, a Fox affiliate owned by Cunningham Broadcasting Corp. Sinclair's WSYX news anchors here also appear on WTTE newscasts.
"We share our news backroom and reporting talent," says Sinclair Chief Financial Officer David Amy. He says the structure boosted news viewership and that "the beneficiaries of that have been the viewers."
Mr. Amy says most staff running the stations report to Sinclair.
Sinclair has used similar sidecar agreements as it expands nationwide. Including pending deals, it has agreed to run 45 stations it doesn't own, in addition to the 118 it will fully own.
Sinclair's critics say its use of sidecars blazed a trail. "The fact that the FCC didn't crack down on Sinclair is an indication to the rest of the industry that it's a model it can exploit," says Craig Aaron, CEO of Free Press, an anticonsolidation advocacy group.
The Justice Department this year reviewed Sinclair's plan to sell WSYT in Syracuse, N.Y., to Cunningham to meet FCC ownership limits. The review led Sinclair to abandon the deal, Sinclair and Cunningham executives say.
In September, the American Cable Association, Free Press and Jesse Jackson's Rainbow PUSH Coalition asked the FCC to block all or parts of Sinclair's $985 million agreement to buy Allbritton Communications Co.'s eight TV stations, objecting to Sinclair's plans to sell some overlapping stations to buyers close to Sinclair. The FCC's response is pending. Sinclair declined to comment on the matter.
This month, Sinclair said it received a so-called second request for information from the Justice Department on station deals in two markets—part of its Allbritton acquisition—where advocacy groups objected to sidecar arrangements. Sinclair and Allbritton declined to comment on the request.
Advocacy groups and pay-TV concerns such as Time Warner Cable Inc. and DirecTV Group Inc. petitioned the FCC to block some station transfers in Gannett's $1.5 billion agreement to buy BeloCorp.'s 20 stations and Tribune's $2.7 billion agreement to buy Local TV LLC's 19 stations, alleging that they were using "shell" companies to skirt ownership limits. Belo declined to comment.
Gannett and Belo said in August that the Justice Department made a second request for information on their deal. Gannett and Tribune spokesmen say their deals meet FCC rules.
Sinclair's Mr. Smith says that FCC ownership rules are "crystal clear" and that Sinclair obeys them. "I can walk right up to that line and look right at that line," he says. "I have no hesitation about doing that—philosophically, intellectually or otherwise."
The sidecar debate is riding a consolidation wave in broadcast TV, in which a half-dozen owners have committed most of the $10 billion involved in broadcast-TV acquisitions in the past year and a half, according to SNL Kagan, a research concern. Driving the consolidation are growing fees that cable and satellite-TV companies must pay to carry broadcasters' signals. A broadcaster that runs more stations has more muscle to negotiate these fees.
Another driver: the tech onslaught. Local television remains Americans' primary news source. But local-TV viewership among adults under 30 fell to 28% in 2012 from 42% in 2006, according to Pew Research Center.
Sinclair's Mr. Smith says broadcasters compete with Web, cable, satellite and phone companies in ways that FCC rules never anticipated. Deals with nonowned stations level the playing field somewhat, he says.
Running more stations lets Sinclair reduce costs by eliminating overlapping jobs and facilities, says Mr. Amy, Sinclair's CFO. Sinclair also gets more clout in negotiating programming-licensing deals and retransmission fees.
Wall Street has cheered the consolidation, which helped Sinclair's revenue grow 26% in its 2013 first half, driving its stock price up nearly threefold this year.
Mr. Smith and his brothers founded Sinclair in 1986 with a strategy that would turn the Baltimore TV station their father started into a consolidating force. An obstacle: From television's early days, the FCC let a broadcaster own only one station in a market.
Sinclair found a work-around. In 1991, it borrowed an arrangement the FCC already allowed to help struggling radio stations: One station could run significant aspects of another in a market without owning it. The FCC reviewed Sinclair's plan and allowed it to proceed.
In 2001, PUSH argued that Sinclair illegally controlled Glencairn. The FCC ruled that "Sinclair exercised de facto control over Glencairn" in violation of the Communications Act, but determined it wasn't likely such violations would continue, given Ms. Smith's assumption of control from Mr. Edwards. It allowed the acquisitions, fining Sinclair and Glencairn $40,000 each. The FCC cited, among other things, Mr. Edwards's inaccurate memory of some financial details, which Mr. Edwards calls "an oversight." Sinclair's Mr. Amy declined to comment on the matter.
Glencairn later changed its name to Cunningham, a family name with rich resonance for Mr. Smith. Among his holdings is a group of Baltimore restaurants that get supplies from his Cunningham Farms, located on a 200-acre estate, Cunningham Manor.
Sinclair is similarly intertwined with Manhan and Deerfield, owned by Mr. Mumblow. Mr. Mumbow says he named them after rivers near his Christmas-tree farm but declines to discuss their business relationships with Sinclair.
Deerfield owns, or has agreed to buy, 12 stations Sinclair helps run. Sinclair guarantees Deerfield's debt and consolidates Deerfield's results on its balance sheet, filings show.
Among Sinclair's recent sidecar deals is with Howard Stirk Holdings, owned by conservative commentator Armstrong Williams. It agreed this year to buy three stations Sinclair would run. Sinclair is guaranteeing the deals' financing.
Mr. Williams, an African-American, praises Sinclair for giving minorities the opportunity to own stations. "There is a closeness between Howard Stirk and Sinclair because David Smith is one of my best friends in the world," he says.
Relations were too close in one case. When Sinclair this year had to divest WSYT, the Syracuse station, it hoped to sell to Howard Stirk, Mr. Williams says, but the Justice Department "said it wouldn't work," because "it would still be like a duopoly."
Sinclair also abandoned efforts to sell WSYT to Cunningham, choosing another buyer after Justice Department resistance, says Cunningham's Mr. Anderson. "They were not comfortable yet," he says, "and in the interest of time, Sinclair went to Plan B."
http://www.wsj.com/articles/SB10001424127887323623304579057251488006852
