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Published in Economic Development

Future of local TV stations uncertain as Tribune agrees to $4.1 billion deal with Nexstar

BY Friday, December 07, 2018 01:55pm

GRAND RAPIDS — The proposed mega-merger between Chicago-based Tribune Media Co. and Texas-based Nexstar Media Group Inc. could mean changes ahead for West Michigan TV stations.

Nexstar (Nasdaq: NXST) has agreed to buy Tribune (NYSE: TRCO), the owner of Fox 17 WXMI in Grand Rapids, for about $4.1 billion, marking the continuing consolidation of station groups nationwide and creating uncertainty for the local Fox affiliate.

Nexstar already reaches nearly 39 percent of all U.S. television households with more than 170 stations, including West Michigan’s NBC affiliate, WOOD-TV 8.

Through the proposed all-cash transaction valued at $6.4 billion, Nexstar would collect 42 locally operated stations, WGN America, “equity ownership” in the Food Network and Cooking Channel, and the assumption of Tribune Media’s $2.3 billion outstanding debt, according to a statement. The company proposes to acquire all outstanding shares of Tribune Media for $46.50 per share.

The media giants formally announced the agreement Monday morning, but the deal ultimately hangs on the consent of the U.S. Department of Justice and the Federal Communications Commission (FCC).

If the deal gets approved, Nexstar would be the nation’s largest local television broadcaster, unseating Hunt Valley, Md.-based Sinclair Broadcast Group Inc., which tried unsuccessfully to buy Tribune Media last year.

“The Department of Justice looks at it under the antitrust laws and the FCC looks at it under this broader public interest standard,” said Adam Candeub, professor of law and director of the Intellectual Property, Information & Communications Law Program at Michigan State University.

According to Candeub, the antitrust laws focus on economic harms and “damage or injury to consumers” from one company holding too much economic or market power.

“The FCC is more interesting,” he told MiBiz. “It gets its power not from the antitrust laws but from its power to approve the transfer of licenses.”

After months of uncertainty, the sale between Sinclair and Tribune Media unraveled in August because of regulations restricting the number of broadcast licenses a firm can hold in each geographic market, as MiBiz previously reported. The FCC unanimously decided not to approve the merger after allegations that Sinclair misled the agency about its efforts to sell off stations, according to reports at the time.

“The FCC generally does not turn down most mergers. The Sinclair situation was really quite extraordinary with fake companies that weren’t really divested,” said Candeub, who previously worked as an attorney and adviser for the FCC. “Generally, regulators are fairly understanding.”

Because WOOD-TV and Fox 17 are both based in Grand Rapids, for example, Nexstar will face the same review from the FCC under its proposed acquisition of Tribune Media’s properties.

In Michigan, Nexstar also owns stations serving audiences in Battle Creek, Lansing, Jackson, and Marquette.

“For people who follow this, you always like to see how individual markets shake out, to see where the places that the FCC will allow Nexstar to take a dominant position and perhaps why the compromises were made where they were,” Candeub said.

In a conference call with analysts and investors on Monday morning, Nexstar acknowledged the company plans to divest of certain “non-core” Tribune Media stations to comply with FCC regulations, without specifying which stations may be considered. One or more of the Grand Rapids-based stations and about $1 billion of assets in up to 15 other markets are likely on the chopping block, according to reports.

Representatives for Fox 17 and Tribune Media declined to comment.

In these decisions, the higher revenue station may seem like the obvious choice to keep, but it’s more complicated than that, said sources familiar with the matter. Future overhead, equipment assets, viewership demographics, network affiliation, and a range of other factors will come into play.

“It will be a robust process,” Nexstar CEO Perry Sook said in the conference call. Within just a few hours of the 7 a.m. announcement, Sook said he had received interest in the stations from four potential buyers.

The number of mega mergers among media companies seems to be intensifying after last year when FCC Chairman Ajit Pai eliminated decades-old rules meant to protect local coverage and diversity in media voices. According to Candeub, this acquisition will be the first test after that deregulation.

Broadcasting companies may be pairing up in the hopes that their size will help ward off market threats from pay and streaming services like Netflix, which are not scrutinized by the government.

“These are really antique rules trying to catch up to the digital age, and that’s the argument for why they should be scrapped,” Candeub said.

At this point, local station staff may be feeling emotionally drained from the continued uncertainty, said sources familiar with the matter. New ownership likely will lead to different priorities, philosophies of ownership and messaging, and a wide spectrum of monetary support — or lack thereof — for local broadcast stations.

“It seems as if regulators have bought the story that you have to be big to survive,” Candeub said. “But there very well may be a bad effect on local news, because you have companies that are at the scale that doesn’t quite fit with local political jurisdictions, and there may not be incentives for these companies to produce good local news.”

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