“Acquiring and operating television stations is a particularly capital-intensive business. It requires millions of dollars to buy them and millions more to keep them running. While there have been many minorities interested in buying stations, few have assembled the necessary financing experience and partnership to make it work.” -Armstrong Williams
Owning a broadcast television station is a great privilege in America. It gives the owner the opportunity to bring news, weather, entertainment and other important stories to thousands of local communities throughout our nation. Local television is often the first place Americans look when there is a natural disaster or, God forbid, catastrophes like bombings, mass shootings or terrorist incidents.
Local TV is also the place we expect to see coverage of our high school football and basketball games and the celebration of our neighbors’ milestone birthdays, anniversaries and good deeds.
Along with this great privilege comes tremendous responsibility. I have had the good fortune of becoming one of the largest minority broadcast television owners in the United States, with stations in South Carolina, Alabama, Pennsylvania, Michigan and Nevada. Over a decade, I have built a series of TV stations that are dedicated to bringing relevant news, documentaries and feature stories to all viewers in those communities.
Of course, none of this would have been possible without the commitment, character and partnership of a major broadcaster who made a corporate decision to help advance minority media ownership and diversity. Acquiring and operating television stations is a particularly capital-intensive business. It requires millions of dollars to buy them and millions more to keep them running. While there have been many minorities interested in buying stations, few have assembled the necessary financing experience and partnership to make it work. Today, there are only four African-American owners of television stations in the U.S.
Marshall vs. Nexstar
The sorry state of affairs for minority ownership makes the case of Marshall Broadcasting Group vs. Nexstar Media Group, filed earlier this month in New York state court, very troubling. Pluria Marshall, Jr. is an African-American entrepreneur who bought three television stations from Nexstar Broadcasting in 2014 for about $59 million. Nexstar, at the time, was the nation’s second largest owner with nearly 160 stations. The sale to Marshall was part of a much bigger deal in which Nexstar was acquiring other stations and was forced, by law, to divest a few to come within the limits on TV station ownership set by law. These smaller sales to legally conform the larger purchases with the law and rules of the FCC are routinely referred to as “sidecar deals.”
Nexstar proposed to sell Marshall the stations in a sidecar deal and used a routine contractual framework of joint sales agreements (JSAs) and shared service agreements (SSAs) that allowed the minority-owned stations to leverage the scale of the group owner’s national marketing and advertising sales and station operations. These JSAs and SSAs have been used for a decade or more, and have provided one of the few effective ways to advance under-represented community broadcast ownership and diversity, vital goals the FCC has been advocating for years.
In my case, JSAs and SSAs with the Sinclair Broadcast Group allowed me to obtain access to capital that would have otherwise been unavailable, and access to capital is the single biggest obstacle to minority ownership.
I suspect the same was true for Marshall.
But Tom Wheeler, the Democratic chairman of the FCC under President Obama, had other plans back in 2014. While JSAs and SSAs had been specifically designed to comply with the Commission’s ownership (duopoly) rules, chairman Wheeler nevertheless rammed through rule changes making JSAs attributable to the larger group owner under the FCC’s ownership rules, effectively killing the opportunity to advance diversity and minority and under-represented community ownership. Even after chairman Wheeler’s JSA attribution rules were struck down in 2016 for failing to properly consider the public interest, litigation my company was involved with, Howard Stirk Holdings, LLC, et al. v. FCC (US 3rd Cir.), the FCC nevertheless reinstated the JSA attribution restriction. It wasn’t until November 2017, when Ajit Pai became FCC chairman, that chairman Wheeler’s ill-fated and minority-harming regulation was finally done away with.
Unfortunately for Marshall his deal with Nexstar was done under Wheeler’s reign, and the larger Nexstar merger was approved on the condition that the sale of stations to Marshall have unique features that placed extraordinary pressure on Marshall and Nexstar. In essence, the Wheeler FCC forced a lose-lose proposition on both the minority broadcaster and the larger broadcaster. Wheeler’s plan established a framework for unreal expectations by Marshall, which appear to have metastasized and form part of the basis for its lawsuit against Nexstar.
The timing of the lawsuit is also interesting. Nexstar is on the verge of becoming the largest TV station group owner in the United States by virtue of its proposed acquisition of Tribune Broadcasting. After the merger, Nexstar will own 211 television stations in 118 markets in the U.S.
Marshall has hired noted litigator David Boies to bring the case against Nexstar in New York. Boies is noted for, among other things, representing Al Gore’s failed attempt to overturn the 2000 Florida presidential election results for George Bush.
Tragic Failure of Our System
What saddens me most about this case is that it represents a tragic failure of our system. The FCC, which is supposed to advance the public interest and increase pluralism and diversity among broadcast license holders, failed to do so for Marshall. Instead, it looks to have acted to advance the political views of then-Chairman Wheeler in place of plain old-fashioned business judgment.
There are several lessons to be learned here.
First, the aspersions cast by Marshall against Nexstar are serious, which go to the core of trust, fairness and goodwill. Let’s hope they are not true, because they bode poorly for what will become the nation’s largest local broadcaster.
Second, the lawsuit speaks volumes about the disconnect between market aspirations and market realities, especially in the television business. Marshall may have had highly unrealistic expectations about what an owner of three television stations could earn in the market.
Third, we cannot overlook the outsized role of the FCC in creating a structure that would collapse under its own pressure.
While the current FCC has reversed the rule changes that killed JSAs and shared agreements among broadcasters, years were lost in the meantime and there are still far too few minority broadcast owners in the country. It is too scary to contemplate that broadcast television may go the way of the newspaper industry, which the FCC could have assisted and allowed to survive if, as countless business and community groups urged 20 years ago, it had removed its outdated regulation against cross-ownership, which prohibited broadcast and newspaper co-ownership in a market.
Like newspapers then, the local broadcast industry today is significantly challenged by declines in its primary revenue stream, local advertising, as well as other profound changes in the media ecosystem. These challenges include the consolidation and presence of multichannel video program distributors (MVPDs) with nationwide or virtually nationwide footprints; the consolidation of national programming network; the rapidly increasing cost of programming, including from national broadcast networks; the fragmentation of viewership, and the entry of massive, unregulated competitors, such as Apple, Google, Netflix and Facebook, into the programming space.
I hope the government learns from the past and truly recognizes that as the market changes, the industry must be allowed to change with it. When it doesn’t, real people and businesses get hurt, the public interest suffers, and we end up with tragic cases like Marshall Broadcasting Group v. Nexstar.
At the end of the day, television station ownership is both a privileged and pricey proposition. The more we can incentivize big companies to assist smaller and minority firms to acquire media properties, the better we all will be. Government’s role should be limited to a light-touch regulation, and private parties should be free to contract in good faith.
Armstrong Williams is the sole owner and manager of Howard Stirk Holdings, Inc.