During a conference call with investors to discuss their quarterly results, Sinclair Broadcasting execs faced the inevitable question of how their discussions with Washington about acquiring Tribune Media have been going.
The $3.9B consolidation, announced 10 months ago, is large not just in size but in terms of ramifications for the industry and for broadcast journalism. After opposition began flaring up in various quarters in recent months, the review has started to move more slowly after initial optimism that it would speed through to win rapid approval.
Analyst Marci Ryvicker of Wells Fargo asked the executive team to respond to “noise in the press” that “conversations have been difficult” with regulators. “I would say they are business as usual,” CEO Chris Ripley said of the discussions. “If anyone thought the DOJ would play favorites with Sinclair, I can tell you that’s unequivocally not true. They’ve scrutinized this transaction very closely, more than any transaction we’ve done in our history. But nothing more than normal in terms of the way they view the markets. And we’re just awaiting the final answer of their process.”
The Department of Justice and the FCC are pursuing separate reviews of the deal, which would create a local TV giant of unprecedented concentration and reach to more than 70% of U.S. homes. (That initially elephantine reach number has been declining as Sinclair has agreed to shed stations.) The Republican-controlled FCC, led by Chairman Ajit Pai, has moved quickly to eliminate many rules that had limited Sinclair from enlarging its already vast scale, prompting an independent probe of Pai’s communication with the station group. At issue is the 39% cap on household reach, which Sinclair is aiming to squeeze under. In case it can’t quite reach its target weight, the FCC is also reviewing the cap as part of its sweeping effort to update media regulation for today’s complex, multi-platform media age.
Station owners, including Sinclair and other large groups, argue that traditional regulatory policy does not account for the fact that stations compete with tech companies and social networks and should therefore be allowed to bulk up in order to compete. On its last quarterly call, in fact, Sinclair’s executive chairman David Smith, the company’s longtime CEO before Ripley took the helm last year, made several forceful comments on that theme, urging regulators to “pay attention to what’s happening in the modern world.” This quarter, the tone on the call was much more restrained, an unspoken acknowledgement that the DOJ, as its 11th-hour lawsuit against AT&T proved last fall, isn’t always a rubber stamp.
While the call covered a lot of other ground, one area of exuberance was the ongoing connection between Sinclair and 21st Century Fox. The two companies are politically aligned and also are leaders, respectively, among network-owned stations and overall stations by revenue and volume. Sinclair has more Fox affiliates than any other kind and Sinclair has sold stations to Fox during the process of optimizing its projected post-Tribune portfolio. As Rupert Murdoch has said since Disney announced its plan to buy most of 21st Century Fox’s assets, stations will continue to be a major priority, unsexy as they may be to much of Hollywood.
Asked for a reaction to Fox’s winning bid for NFL Thursday Night Football in a five-year deal, Steven Marks, EVP and COO of Sinclair, said, “We’re thrilled about that. … Given the fact that Fox has been struggling with its prime-time shows, putting in football should be a huge plus for the Fox network.”
Ripley added, “Getting it away from CBS and NBC is a positive, not only in terms of exposure, but also it reduces payments … so it’s a win-win. I’m very excited by what I’m seeing from Fox in general in terms of their aggressiveness as a network post-Disney deal.”
The CW’s recent addition of Sunday night programming, similarly, should be a boon to Sinclair, he added. “If you look at what we’ve billed in that time period, it’s been zero. So I see nothing but upside.”