The U.S. Court of Appeals for the D.C. Circuit Friday (April 20) heard oral argument in the Free Press v. FCC challenge to the FCC's reinstatement of the UHF discount.
While the judges appeared to favor Free Press' arguments, which would not bode well for Sinclair, an attorney familiar with the oral argument, speaking on background, said he was not so sure. He suggested the judges had a lot of issues with the standing of the challengers to bring the suit, though added if the court gets past that bar, he liked Free Press' chances.
According to audio from the argument, the judges clearly had concerns about not having statements from individual members of the associations challenging the rule establishing particular harms, though one judge suggested Free Press et. al could still submit them. But the judges also clearly had issues with the FCC's restoration of a discount that seemed to have clearly outlived its usefulness.
A politically divided FCC under chair Ajit Pai voted back in April 2017 to reverse the previous Democratic majority's decision to eliminate the discount. That discount meant TV station group owners only had to count half of the audience to their UHF stations towards the 39% national audience reach cap. It dated from the days of analog TV when UHFs were weaker than VHFs, and its restoration paved the way for Sinclair to try and buy the Tribune stations.
Pai has long opposed repealing the discount without also considering adjusting the audience reach cap in the same proceeding. The FCC reinstated it in response to a petition to do so by Ion Media, a major UHF station group.
A coalition of nonprofit media consolidation critics including Free Press, Common Cause, the National Hispanic Media Coalition and Prometheus Radio Project, laid out the case to the D.C. appeals court in their opening brief last September for why the decision to reinstate the discount was arbitrary and capricious and not in the public interest.
Related: Prometheus: Court Should Deny Broadcaster Motions
They said the decision to reinstate the cap is arbitrary and capricious—and thus violates the Administrative Procedure Act—because it is premised on a move—reconsidering the 39% cap—that the FCC does not have the authority to make because the 39% figure was established by Congress.
The previous Democratic-led FCC had eliminated the discount as an outmoded artifact of the analog TV era. The FCC responded in its brief that it was reasonable to reinstate the UHF discount immediately while it considers adjusting the national audience reach cap, that it has the authority to adjust that cap, and that the discount and the cap have to be considered together because the UHF discount is meaningless except in relation to the cap.
The FCC’s decision to restore temporarily a settled framework that had previously been in place for three decades rests well within its discretion under the Administrative Procedure Act, other Congressional enactments, and its own rules," the FCC told the court in asking it to reject the various groups' challenges.
The case could throw a wrench into the Sinclair-Tribune deal given that without the discount a Sinclair-Tribune combo would far exceed the 39% national ownership cap. According to sources, Justice is vetting Sinclair's latest spin-off proposal, but the deal can't get a final decision until the FCC has put the latest iteration of the deal out for public comment of at least 30 days, with at least seven days more for responses to those comments, then renders its decision. Justice vets it for antitrust issues, while the FCC looks beyond competition to a deal's positive or negative impact on the public interest.
So, if the deal did not close before the court rendered a decision, and the decision reversed the FCC and eliminated the discount, the deal could not get done. But if the deal closed before a decision eliminating the discount, it could not be unwound by a court decision vacating the FCC's reinstatement of the cap--unless the FCC had conditioned the deal on the outcome of the court case.
Oral argument was 15 minutes per side--beginning at 9:30 a.m. It was the first case on the docket for the three-judge panel of Judges Patricia Millett, Cornelia Pillard, and Gregory Katsas.
Coincidentally, this week also marked the deadline for comments in the FCC's review of the 39% cap and UHF discount. The fact that the discount helped Sinclair was one of the talking points of MVPDs opposed to raising the 39% cap, including de facto raising it via the discount.
Rep. Tony Cárdenas (D-Calif.), no fan of the proposed merger, says the FCC should wait until the court renders a decision before it renders its decision on Sinclair-Tribune, arguing that to allow the deal if the court then eliminates the discount would create "FCC-sanctioned" dominance of the broadcast space by Sinclair.
