Federal Communications Commission Chairman Ajit Pai put a major roadblock in the way of the proposed merger of Sinclair Broadcast Group and the Tribune Media Company this week. The Chairman said Monday he had “serious concerns” about the deal, which would create a local broadcaster with the potential to reach nearly 75 percent of U.S. households with televisions, and proposed it be reviewed in a hearing by an administrative law judge.
“The evidence we’ve received suggests that certain station divestitures that have been proposed to the FCC would allow Sinclair to control those stations in practice, even if not in name, in violation of the law,” Pai said in a statement. “When the FCC confronts disputed issues like these, the Communications Act does not allow it to approve a transaction. Instead, the law requires the FCC to designate the transaction for a hearing in order to get to the bottom of those disputed issues.” Other big deals, including the proposed Comcast-Time Warner merger, collapsed when facing legal uncertainty in similar circumstances.
But Pai’s decision to throw a wrench into Sinclair’s plans surprised many industry watchers because, as Politico reported last year, after he took over as head of the agency, Pai successfully pushed for the revival of a regulatory loophole, known as the “UHF discount,” that made the deal practical.
The UHF discount is a rule that affects how the agency polices media ownership to prevent market monopolies. Under a market-share limit set by Congress, no single company is supposed to control local television stations that reach more than 39 percent of U.S. households. But the UHF discount—which was previously eliminated because it was considered technically obsolete—gives companies a “discount” by not fully applying broadcast channels numbered 14 and above towards that cap. Without the return of the loophole, the Tribune merger would have required Sinclair to sell off control of a lot more stations to stay under that cap, making the deal much more difficult from a business perspective.
The rule reversal fueled questions about coordination between Pai and Sinclair from Democratic legislators and advocacy groups who are concerned about giving a larger platform to the company’s conservative-leaning coverage. In February of this year, The New York Times reported that the FCC’s Inspector General was investigating if any improper activity occurred related to the rule change. President Trump, who appointed Pai to lead the communications regulator, also voiced support for Sinclair in a tweet disparaging the network’s competitors as “Fake News” this April—a comment that raised eyebrows since the Tribune deal is still before the FCC.
But even with Pai’s apparent concerns, the deal could still go through: In a statement reported by Variety Wednesday, Sinclair spokesperson Ronn Torossian said that any suggestion the company misled the FCC was “unfounded and without factual basis.” However, Sinclair plans to make further adjustments to its proposal in a bid to win the FCC’s approval, the statement said.