The FCC has fined Nexstar Media Group, Inc. and Mission Broadcasting, Inc. $1.8 million after finding Nexstar exercised de facto control over Mission’s Station WPIX (TV) in New York without FCC consent.
The FCC also found that Nexstar’s control over WPIX means Nexstar owns stations that serve more than 39% of the total households in the US, which violates the FCC’s 39% national television ownership cap. The FCC said Mission would have to sell WPIX to a third party within 12 months. It could also sell WPIX to Nexstar, but then Nexstar would have to sell a sufficient number of its stations to avoid exceeding the 39% national audience cap.
The case took many in the industry by surprise because appeared to be inconsistent with the FCC’s past treatment of similar programming and shared services relationships between broadcasters.
WPIX is the flagship station of the CW Network, which is 75% owned by Nexstar. Nexstar and Mission operate so called “virtual duopolies” in 25 markets. Typically, Nexstar provides sales, marketing, and other services to, and holds an option to acquire, the Mission station in each of those markets. Nexstar also guarantees Mission’s senior secured debt and has an option to acquire all of Mission’s stock. Nexstar and Mission entered into an option agreement when Mission acquired WPIX in December 2020. Because Nexstar did not own another station in the New York market, Nexstar and Mission were also able to enter into a local marketing agreement (LMA) under which Nexstar supplied all programming to WPIX. Those arrangements were disclosed in the application Mission filed with the FCC when it acquired WPIX. The FCC granted that application in 2020.
Unauthorized Transfer of Control
The FCC found that the overall financial and operational arrangements between Nexstar and Mission, as documented and as implemented, resulted in Nexstar assuming de facto control of WPIX without FCC authorization. The FCC focused on several factors:
- When it approved Mission’s purchase of WPIX, the FCC was aware that Nexstar provided all programming for WPIX under an LMA and held an option to acquire WPIX. In its decision, the FCC nevertheless found that those arrangements were relevant to a totality of the circumstances analysis of the unauthorized transfer of control.
- The FCC was not aware that, in addition to the LMA and option, Mission had also delegated authority to Nexstar to negotiate retransmission consent agreements for WPIX on Mission’s behalf. The FCC found Mission’s delegation of that authority to Nexstar to be an important indicator of Nexstar’s control.
- The FCC traditionally looks at unauthorized control issues in the context of three factors: programming, personnel, and finances. Certain aspects of the relationship between Nexstar and Mission regarding those factors led the FCC to find that Nexstar had taken control of WPIX.
- Programming
- Mission’s right under the LMA to preempt Nexstar programming and substitute its own programming was subject to restrictions that created disincentives for Mission to exercise that right.
- Mission never exercised its program preemption and substitution rights during the term of the LMA.
- Mission took no affirmative action to communicate with Nexstar as to the programming supplied or how it would best address local issues.
- WPIX displays the Nexstar logo and not the Mission logo on its programming and online marketing materials.
- Personnel
- Mission maintained only two part-time employees for WPIX, a station in the largest TV market in the U.S.
- Nexstar held itself out to the public as hiring, promoting, and supervising WPIX employees.
- Finances
- Because Nexstar received all revenues from the operations of WPIX, Mission obtained no economic benefits based on the station’s performance and had no economic interest in its operations.
- Mission would realize no financial upside from a sale of WPIX to Nexstar upon exercise of the option, and therefore had no economic interest in the performance or profitability of WPIX.
- Mission’s delegation to Nexstar of its rights to negotiate retransmission consent agreements was a strong indicator of Nexstar’s control of WPIX.
Attribution of WPIX to Nexstar under EDP Rule
The FCC also found that, independent of the unauthorized transfer of control, WPIX was attributable to Nexstar under the FCC’s equity-debt plus (EDP) rule, which provides that an entity which holds more than 33% of the total asset value (i.e., equity plus debt) of a licensee and is also (1) a program supplier to the relevant station, or (2) has an attributable interest in another TV station in the same market, is deemed to hold an attributable interest in that licensee. Because senior debt of Mission was guaranteed by, and cross collateralized with the debt of, Nexstar, the FCC found that Nexstar holds an attributable interest in WPIX which also triggers a violation by Nexstar of the 39% national audience cap.
Forfeitures
The FCC imposed a total of $1,837,185 in penalties: $612,395 to each of Nexstar and Mission for the unauthorized transfer of control violation, and $612,395 on Nexstar for the national audience cap violation.
Nexstar and Mission have until April 20, 2024, to pay the monetary forfeitures or file a response requesting a reduction or cancellation of the forfeitures. To collect the forfeiture, the Department of Justice must bring a suit in the U.S. District Court. The decision of that court could then be appealed to the U.S. Court of Appeals. Nexstar issued a public statement that it intends to vigorously dispute the FCC’s decision.
Takeaways
There are some important takeaways from the FCC’s decision, particularly for TV licensees that have joint sales and shared services agreements with other stations.
- The decision marks a significant departure from how the FCC has historically viewed arrangements such as the one Nexstar and Mission had for WPIX. While Nexstar is unusual among TV station groups in having a national audience reach of 39%, the FCC’s findings relating to the unauthorized transfer of control could potentially impact a larger group of broadcasters. Broadcasters with local marketing, time brokerage, joint sales and services and/or option agreements should review the manner in which they are implemented in light of the standards the FCC applied to Nexstar and Mission.
- The FCC focused on the delegation of retransmission consent negotiation authority as an indicator of control, although it stated that such delegation by itself was not determinative of control. Prior to the FCC’s decision, it was generally believed in the industry that delegation of a station’s retransmission consent negotiations to a party which did not own a station in the same market was an acceptable practice.
- The FCC’s EDP analysis could have serious implications for Nexstar and Mission, and perhaps other broadcasters with similar shared services agreements. The Nexstar and Mission senior debt facilities are apparently structured as, in effect, a single credit facility with guaranties and cross collateralization/default provisions. Under current FCC policy, collateralized guaranties are treated as debt in the licensee held by the guarantor to the extent of the value of the collateral for EDP attribution purposes. Application of that policy more broadly would appear to impact Nexstar and Mission in other markets where they both own TV stations.
