FCC CHAIR BLAZES TRAIL
ed by Smith and his company. Hundreds of pages of emails and other documents obtained under the Freedom of Information Act reveal a rush of regulatory actions has been carefully aligned with Sinclair’s business objectives.
The moves, which include easing a cap on how many stations a broadcaster can own, have opened up lucrative opportunities for Smith, among them a $3.9 billion bid to buy Tribune Media, another large owner of stations.
Pai’s deregulatory drive has also helped win him a following as a champion of pro-business, conservative causes — even leading some Republicans to approach him since he was first named to the FCC in 2012 about running for elected office.
An examination of the FCC records shows that the Smith-pai alliance does not follow the familiar script of a lobbyist with deep pockets influencing policy. Instead, it is a case of a powerful regulator and an industry giant sharing a political ideology, and suddenly, with the election of Trump, having free rein to pursue it — with both Smith, 66, and Pai, 44, reaping rewards.
Neither Pai nor Smith would comment for this article.
Associates say both men believe that local television stations, which fall under the commission’s rules because they broadcast over federally owned airwaves, are at a disadvantage when competing against cable companies and online streaming services such as Comcast and Netflix.
Tina Pelkey, spokeswoman for Pai, said the new chairman had not taken steps to help Sinclair specifically; his concerns relate to the broadcast industry generally.
“It has nothing to do with any one company,” Pelkey said.
Other broadcast companies, as well as the National Association of Broadcasters, have pushed for some of the same changes that have benefited Sinclair.
Loosened regulatory requirements, Sinclair executives said, will help even the playing field and benefit millions of Americans who rely on broadcast stations for news and entertainment by allowing the companies to invest in new equipment and technology.
“Thankfully we’ve got Chairman Pai, who’s launched an action to look at antiquated rules, which we think artificially tipped the playing field away from TV broadcast,” Christopher S. Ripley, who became Sinclair’s chief executive in mid-january, said in a speech in June.
Critics say the rollback undermines the heart of the FCC mission to protect diversity, competition and local control in broadcast media. It also gives an increasingly prominent conservative voice in broadcast television — Sinclair has become known for its right-leaning commentary — an unparalleled national platform, as television remains the preferred source for most Americans of news, according to Pew.
A merger with Tribune would transform Sinclair into a media juggernaut, with reach into 7 of 10 homes through more than 200 stations in cities as diverse as Eureka, California, and Huntsville, Alabama. The company would have a significant presence in important markets in several electoral swing states, including Pennsylvania, Ohio and North Carolina, and would gain entry into the biggest urban markets: New York, Los Angeles and Chicago.
The result would illustrate the realworld stakes of the Trump administration’s headlong pursuit of dismantling regulations across government. The rollback at the FCC, a microcosm of the broader effort, pleases business interests and many Republicans who complain that regulators are heavy-handed and hostile in their approach, while it raises alarms among free-speech advocates and many Democrats who say consumers suffer without aggressive oversight.
“I worry that our democracy is at stake because democracy depends on a diversity of voices and competition of news outlets,” said Rep. Frank Pallone Jr. of New Jersey, the top Democrat on the House Energy and Commerce Committee.
If Sinclair’s past is any guide, the changes for viewers could be profound.
The company has a history of cutting staffs and shaving costs by requiring stations to share news coverage, in that way reducing unique local content. And it has required stations to air conservative-leaning segments.
Opposition voice rises
Though Sinclair is not a household name like the conservative cable TV channel Fox News, it has been a powerful operator in Washington, with a decadeslong history of courting Republicans and Democrats even as regulators accused it of flouting broadcast rules.
Sinclair was founded in 1971 by Smith’s father, Julian Sinclair Smith, an electrical engineer with a deep curiosity about new broadcasting technology. At the time, the company consisted of a radio station and a single UHF station in Baltimore, but it wasn’t long before it embarked on an ambitious growth strategy.
With more stations, Sinclair could command more lucrative advertising, and later, higher fees from cable and satellite companies that retransmitted its broadcasts.
Sinclair helped pioneer a range of creative growth techniques that the company insisted were both legal and good for television viewers.
Most notable was its use of joint sales agreements, which allowed it to work around ownership rules that prevented any one company from owning multiple top-rated channels in a single market.
The practice started in 1991 in Pittsburgh as a game of ownership hot potato, when Sinclair sold its station there to an employee, Edwin Edwards, and retained ownership of a second station. The two stations then shared resources and programming, but on paper they remained under separate ownership. David Smith’s mother, Carolyn Smith, later helped fund Edwards’ company and took a stake in it.
Consumer advocates long complained about the maneuver, and by President Barack Obama’s second term, regulators at the FCC, then led by Democrats, were taking a hard look at it.
That is when, records show, Pai first met with Sinclair’s top lawyers.
Pai quickly became a dependable opponent to regulations created by the FCC’S Democratic majority. He promised to take a “weed whacker” to regulations if he ever became chairman.
“The commission,” he told the broadcast executives, “can do a better job of focusing on what’s important to broadcasters.”
Alliance is forged
Just seven months into Pai’s tenure, in December 2012, he welcomed a group of visitors to his office: Barry Faber, Sinclair’s general counsel, and two of the company’s Washington-based corporate lawyers.
“Television stations have utilized JSAS for at least 10 years,” Faber told Pai according to records of the meeting filed with the FCC, referring to the joint sales agreements that Sinclair utilized in Pittsburgh and elsewhere.
Faber added that “to his knowledge, not a single example of harm to program diversity or competition for viewers resulting from JSAS has been documented.”
Pai, the records show, aggressively picked up the company’s cause in opposing the commission’s crackdown on the disputed agreements.
In two follow-up visits with Pai’s chief of staff, Matthew Berry, in January and February 2014, Sinclair sent Rebecca Hanson, a lobbyist for the company who had just left a job at the FCC.
Hanson was not senior enough at the FCC to be subject to federal lobbying restrictions. Agency records show that she met with Berry and shared data that showed the benefits to consumers of joint sales agreements.
Pai inserted the information, almost word for word, in his formal legal argument when voting against the FCC measure. He then echoed arguments made by broadcasters like Sinclair that opposed the move in a series of speeches, remarks before Congress and in social media.
Hanson said the meetings were entirely appropriate, and they were disclosed as required under FCC rules.
Pai also made appearances on conservative media, extending Sinclair’s arguments beyond telecommunications circles to the broader Republican audience.
Harold Feld, a senior vice president at the left-leaning consumer advocacy group Public Knowledge, said Pai had translated his visibility “into enormous influence and a much brighter future” in GOP circles.
Still, Pai’s advocacy did not improve Sinclair’s plight during the Obama years, when rulings repeatedly went against the company. Sinclair also faced two investigations into rule violations.
In July 2016, the FCC announced a $9.5 million fine against Sinclair for violating “good faith obligations” when negotiating fees from cable and satellite companies that retransmit its broadcasts.
A second investigation, which is continuing, deals with commercials aired on Sinclair stations that were broadcast as news stories on some stations without viewers’ being alerted to the fact that they were paid content.
Together, winning
“Exciting times, to say the least!” said the email to Pai’s assistant days after Trump’s victory in November. It was from Hanson, the Sinclair lobbyist. “I am sure the commissioner will be in increasing demand in the coming weeks.”
Pai was widely seen as the top contender to take over as FCC chairman under a Republican administration, and Hanson had already invited him to speak at a gathering Nov. 16 of general managers from Sinclair stations at the Four Seasons Hotel in Baltimore.
Now that Trump had been elected, she was adding another request: “Would he have time to meet with our CEO, David Smith, for a few minutes after his session?”
The answer was yes, and Pai and Smith, then Sinclair’s chief executive and chairman, met in private at the end of the event.
Smith and Pai met for a second time in January, just before Trump’s inauguration. Smith was joined by Armstrong Williams, a business partner and Sinclair conservative talk show host, and Ripley, Sinclair’s newly named chief executive, who later expressed confidence that the FCC under Pai would enact sweeping regulatory changes.
“We do expect this new FCC to tackle the ownership rules,” Ripley said on an earnings call with investors in February. “We’re very optimistic about this new FCC and the leadership of Ajit Pai.”
Smith had already made clear his expectations. “If Donald Trump is as deregulatory as he suggests he is,” Smith said at a media industry conference just after the election, according to Thestreet. com, “we’re going to be the first industry in line to say, ‘We are the most over-regulated industry that exists in the United States.’”
Neither Sinclair nor the White House would say if Smith had recommended Pai for the chairmanship. Either way, Pai did not disappoint.
In one of his first actions as chairman, he struck down an effort to rein in the use of joint sales agreements, the issue he had discussed with Smith in January.
Pai also froze a program for broadband subsidies for low-income families and began a rollback of net neutrality rules that ensured internet traffic was equally available to all consumers, acting on regulatory issues that will reshape other multibillion-dollar businesses under his watch.
Pai then introduced his most stunning action to date, easing the cap on ownership for broadcast television stations.the order allowed Sinclair to count just half its UHF stations against the national limit.
Almost immediately, Sinclair took advantage of the relaxed regulation, announcing the purchase of Bonten Media, an owner of television stations, and Tribune.