Sinclair alters Tribune bid, but regulators order review

Sinclair Broadcast Group, the largest local television operator in the United States, tried to placate federal regulators on Wednesday regarding its proposal to buy a rival TV group.

But the Federal Communications Commission still voted unanimously to have a judge review aspects of the deal, a potentially ominous sign for the merger.

The company, known for amplifying the Trump administration’s talking points in commentary segments that air on numerous local newscasts, is seeking to buy Tribune Media for $3.9 billion.

The deal would put Sinclair, based in Maryland, in control of broadcasters reaching seven in 10 households across the country, including in New York, Chicago and Los Angeles.

To satisfy rules that forbid a single company to own airwaves on such a dominant scale, Sinclair previously proposed selling 23 TV stations after the deal was completed. But several of those stations would still effectively fall within its operational control.

The FCC chairman, Ajit Pai, said on Monday that he had “serious concerns” with those planned divestitures.

He asked the agency’s four commissioners to hand off its review of the merger to an administrative law judge to determine the legality of Sinclair’s original proposal.

The company said in a statement on Wednesday that it would now sell off two of the stations in question, one in Dallas and another in Houston, through an independent trust after the closing of the deal with Tribune.

A third station, WGN in Chicago, which Tribune owns, would be sold outright to Sinclair to make who controls the station more transparent.

But Sinclair’s amended plans apparently had no effect on the FCC’s decision regarding Pai’s order, which the agency was to release to the public yesterday.

Sinclair is trying to create a conservativeleaning news operation to rival Rupert Murdoch’s Fox News. If the company succeeds in buying Tribune, it will control more than 200 stations reaching 62% of households.

Sinclair’s divestiture plan came under scrutiny because several of the stations it planned to sell would effectively remain within the company’s control through contractual agreements known as “sidecars.”

The broadcast giant planned to sell the Chicago station to a Maryland businessman, Steven Fader, who has ties to Sinclair’s executive chairman, David D. Smith.

Sinclair would get $60 million in the sale, but it would continue to sell advertising and provide programming for the station. The company would also take 30% of the station’s revenue in fees for that service.

Sinclair also agreed to sell the Dallas and Houston stations to Cunningham Broadcasting, a privately held company that is controlled by Smith’s family, according to securities filings.

Three other stations that Sinclair plans to sell also include sidecar agreements. The company has not changed its plans to sell those stations.

“These contracts effectively provide regulatory cover by transferring the FCC license to another company, or name, while still allowing the seller to operate the business,’’ said Craig Aaron, president of the consumer advocacy group Free Press.

Sinclair’s purchase of Tribune is being challenged on other fronts. Government rules forbid one company to reach more than 39% of the TV audience, but Sinclair is taking advantage of a newly relaxed loophole that allows the company to get under that cap through what is known as the UHF discount.

The discount allows some TV stations to deduct half of its audience in areas where it broadcasts on the UHF standard, which emits a weaker signal. For decades, broadcast companies, in a bid to expand their business and compete with upstart cable channels, exploited this technicality, allowing broadcast groups to consolidate.

The FCC closed the loophole under the Obama administration, which argued that the switch to digital television — mandated by the agency in 2009 — dissolved any difference between broadcast standards, rendering the UHF designation a naming quirk of an outdated technology.

Pai reopened it last year as part of a larger effort by the incoming Trump administration to relax regulations. He has also eased a restriction on television stations sharing advertising revenue and other resources.

The FCC’s change to the UHF discount, however, is being challenged in the US Court of Appeals for the District of Columbia by consumer advocacy groups. They have asked the agency to suspend its review of the Sinclair-Tribune deal until after that case has been decided.

Sinclair, however, could still complete the deal before any court ruling and argue that the acquisition should be grandfathered in.

If the court sides with the FCC, that could open the door to other broadcasting mergers, and the four major broadcasters — CBS, ABC, Fox and NBC — could seek to buy more local affiliates, particularly in swing states where political ad spending surges during election years.