Why This Matters: Broadcasters seeking more scale should band together on strategy related to ownership regulation.
Adonis Hoffman currently heads up his own strategic communications policy research firm, Business in the Public Interest, but his resume includes a span as chief of staff to former Democratic FCC chair Mignon Clyburn, as well as stints as a top Capitol Hill legal adviser and counsel to the American Association of Advertising Agencies.
Hoffman talked with B&C about why media deregulation is good for both competition and diversity, his belief that broadcasters need to heavy up to keep up, and why Sinclair Broadcast Group’s stubbornly hardball approach to its merger with Tribune Media is about principle, not politics. An edited transcript follows.
Remind us what Business in the Public Interest does?
I provide research and analysis on policy issues important to businesses in the communications, finance and technology sectors.
Clearly, one of those important policies is broadcast deregulation.
Yes.
You have said a ‘dangerous factionalism’ has developed in the push for media ownership deregulation, specifically related to the 39% national cap on a broadcast group’s national audience reach.
We had two different solutions being put forth on the national cap. One is the position of Sinclair, Nexstar and some others that calls for elimination of the cap. They make a compelling case based on changed market conditions, rampant competition from FAANG [Facebook, Apple, Amazon, Netflix and Google] and the fact that if the limits remain, broadcasters cannot grow, but need scale to survive in this media environment.
The other position is that a 50% cap on national ownership is sufficient. That allows for growth and is better than 39%. My sense is also that the FCC commissioners are grappling with how to balance these competing interests.
Now, maybe the cap isn’t raised all at once. Maybe the 50% is a first step or interim step, but my view is that based on those FAANG developments, the cap should be eliminated now.
But why is it dangerous?
What I mean is, a unified broadcast industry arguing for deregulation of a specific rule would be much more powerful and much more effective if they were behind one position.
So the danger is that they are working against their own best interests.
Exactly.
You were chief of staff to FCC commissioner Mignon Clyburn, who was definitely opposed to broadcast deregulation, but you are very definitely for it. You are also concerned about ownership diversity, as was she. What do you think the impact of more deregulation would be on diversity?
On the one hand, I favor deregulation because I believe in a free and independent market, so that whether you are an entrepreneur or you are a big business you have an opportunity to innovate and strike deals without government intervention.
On the other hand, government has been very effective pushing for progress on diversity, particularly on ownership. But with all that [pushing] there are only four African-American owners of full power television stations in the country after many years.
Ownership of broadcast properties is a capital-intensive business. Unless the government is prepared to provide the kind of incentives we saw in the 1970s and 1980s, then let’s not have the pretense; let’s just leave it to companies, and encourage companies to strike deals with entrepreneurs.
For example?
There is no shortage of minorities, whether it is African-American, Latino or Asian, who want to get into the business of media and broadcasting, but they often lack access to capital. If there is no regulation in terms of how much companies can support those kinds for efforts, you can have a scenario where a company could provide some full-scale guarantees, or could incubate a minority firm.
The conventional wisdom is governmental oversight in the mechanics of ownership is a good thing and will ultimately lead to more minority ownership and more diversity. I’m not so sure that’s the case if you look at the track record. I think that if we provide enough marketplace incentives, those should be sufficient without requirements or limitations on the majority firms. If you open up the opportunities for minority entrepreneurs there is no shortage of innovation, of desire, and certainly of capability to get in there and strike their own deals.
Is there any role for government?
Government can remind them. That is what the Democrats did when [former FCC chairman] Tom Wheeler was around and Clyburn, who kind of reminded them to do these deals. But they didn’t have a hammer to make them do these deals. So, government can remind and encourage, but I don’t think they should compel them.
But why not incorporate some groups serving lower income individuals into transformative deals like Sinclair-Tribune or Raycom-Gray? That is what we try to do at Business in the Public Interest, to make sure these companies understand they have great opportunities to do great things.
So, should the government not even use a ‘velvet hammer,’ as it were?
No, I think they should. The only fine line I am drawing is that government should not have specific regulations mandating specific percentages [of minority participation]. Mandates don’t work, but if you encourage companies, then leave them to their own devices, they may just end up doing more than the government expected or could have compelled.
Why is Sinclair playing such hardball with the Tribune deal? Most folks suggest it could have gone through without some of the sidecar deals or efforts to keep stations in some markets.
At least from the conversations I have had with Sinclair, their point of view is that the market has changed and that the government, particularly the Justice Department, should recognize that, in the incontrovertible evidence that was put forth even before the AT&T-Time Warner decision, the market had changed.
When you put the FAANGs of the world and the broadcasters of the world in two columns and you look at all the numbers — and this is an argument that I have heard time and again from Sinclair — they cannot accept the fact that DOJ does not acknowledge that market reality. And I think they keep putting that reality in front of the DOJ to say, ‘When are you going to take the blinders off? When are you going to recognize that things have changed but there is no regulation on the competitors but there is on the folks who are trying to grow?’ It is a fairness argument, I think.
I’m not going to question the wisdom of a company that has been bold and innovative, that has come up with a new standard for broadcasting with ATSC 3.0. They do what they do and they’ve been very successful at it.
But they are stubborn. They want regulators to see the world from their point of view. Now whether that is prudent in this context, that is for somebody else to determine.
You see this as a matter of principle for Sinclair?
Yes, I think so. They have a worldview, and that view is that competition is good, but it should be fair [regarding] how regulators lay out a fair path to competition when broadcasters can only go up to a 39% [national audience].
We have to look at the media marketplace differently than we did in the 1990s and the 2000s, where we were looking at broadcasters in a silo. There are no longer silos in the industry.
[Multichannel video programming distributors] and broadcasters and over-the-top players are all in the business of television. Anytime a company like Netflix has a budget of something like $30-$40 billion just to develop original content, how can [broadcasters] compete with that?
At the end of the day, you’re talking about eyeballs of the American viewer and lots of competition in this space. Elimination of the rules will allow for more competition. If the FCC decides not to go in that direction, a 50% cap would be a decent fallback position with the proviso that it gets reviewed in a year or two.
