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Fresh from its partial spin-off from AT&T, satellite cable provider DirecTV is taking aggressive steps to bring down carriage rates—the retransmission fees they pay to reproduce the content found on local airwaves. A disagreement between DirecTV and media giant Nexstar over carriage for local television stations, one of the few areas where cable has competitive advantages over streaming companies, has snowballed into an antimonopoly trial.
The case tests whether there is any might left to the station ownership caps the Federal Communications Commission (FCC) has gradually rendered obsolete. In the process, the dispute has revealed the lengths broadcasting giants are willing to go to to own a market.
Increased broadcast deregulation over the past two decades has created station ownership conglomerates that hold large shares of stations in highly concentrated metro television markets. This de facto ownership is giving station owners the power to demand much higher carriage rates from cable providers than in years past.
With cable television increasingly a wasteland of reruns, local stations have grown in importance, and their controlling owners can command a bigger premium for access. But cord-cutting has led cable companies to retrench, seeking to lower carriage fees just as the station owners want to surge them higher.
These disputes have led to a series of so-called “blackouts” as DirecTV negotiates carriage rates with each broadcast conglomerate, the most recent of which is an ongoing blackout involving 64 stations owned by mammoth broadcast company Tegna, across 51 different media markets.
Last March, one such dispute led DirecTV to challenge de facto ownership schemes—known as service agreements—in federal court.
The dispute, filed in the U.S. District Court for the Southern District of New York, alleges that Nexstar, the nation’s largest television station owner, has circumvented federal broadcast ownership laws by exerting de facto control over White Knight and Mission Broadcasting Corporations—two legally independent entities whose stations are all entirely controlled by Nexstar through service agreements. In addition to recycling content and sharing staff, DirecTV alleges that Nexstar has gone a step further in exploiting this loophole by effectively negotiating the carriage rates for the stations it informally controls at White Knight and Mission as a package with the stations it formally owns.
Journalist and media expert Matthew Keys told the Prospect that “Nexstar has to report income from Mission and White Knight on its SEC reports because they’re so intertwined.” Keys suggested there are a number of other red flags suggesting legal gimmickry, such as the fact that the headquarters for Mission—a broadcast group that allegedly runs 26 separate stations—is located in a strip mall in rural Texas. Representatives for Nexstar Media Group and Mission Broadcasting did not reply to a request to comment for this article.
In interviews with the Prospect, University of Delaware professor Danilo Yanich explained that while service agreements are valid under current FCC regulations, the impact of the coordination DirecTV is challenging is evident throughout the industry. In a working paper titled “Repackaging Reality” that Yanich authored with fellow University of Delaware professor Benjamin Bagozzi, the pair demonstrate that the ownership schemes enabled by the deregulation of service agreements in the last two decades have led to substantial increases in duplicated content across stations controlled by the same corporation. In fact, according to Yanich and Bagozzi’s data, stations under service agreements are more likely to duplicate the content of other stations within a broadcaster’s sphere than stations that are owned outright under traditional legal structures.
The FCC’s Democratic majority could take a harder line on business schemes that violate the spirit of ownership caps.
After reviewing the relationship between Nexstar and Mission—which has several stations under de facto control of Nexstar through service agreements—Yanich told the Prospect that 80 percent of those stations duplicated content from other Nexstar stations during a window in late 2019 leading up to the primary election season. Yanich reviewed the full suite of stations Nexstar controlled under service agreements and found that the result was no outlier—73 percent of those indirectly controlled stations also duplicated content during that window.
Whether the case is allowed to proceed depends on whether presiding judge Paul Crotty believes a resolution of the individual carriage dispute that prompted legal action removes DirecTV’s standing, as Nexstar’s attorneys argued in a filing in October. DirecTV has countered that the resolution of the dispute does not constitute a full redressal of service agreements’ past and future harms. Judge Crotty’s decision is due any day. If he allows the case to proceed, we are likely to get a full discovery process, meaning the public will get new insight into the way broadcast giants are leveraging service agreements to capture the industry.
While Yanich is unsure whether DirecTV’s legal arguments will be successful in court given the decades of deregulation of the industry, he told the Prospect there is “a strong public interest” in allowing the case to continue, in order to learn more about the ownership structure that increasingly defines American media markets. “A small number of American station groups control a large number of stations through these service agreements—almost a shell game,” he explained. “But this reality is unknown to the viewing audience.”
Even if the case is dismissed, the issue is likely to find its way back to the courts soon. On Saturday, DirecTV competitor DISH (which has itself pursued a potential merger with DirecTV several times over the years) posted an update on its website about a similar carriage agreement dispute with White Knight and Mission and similarly pointed to Nexstar’s operation of the stations to explain the impasse.
But Yanich stressed that the FCC could make cases of this nature moot if it wanted to. Ownership rules and caps are an area where the commission has broad jurisdiction. The body’s Democratic majority, newly minted since the confirmation of Anna Gomez last September, could take a harder line on business schemes that violate the spirit of ownership caps. Yanich described FCC rulemaking as “the simplest route to deconsolidating broadcast stations,” though he noted the commission’s previous attempts to do so in 2014 were overridden in 2015.
FCC Chair Jessica Rosenworcel has shown some skepticism of broadcast megadeals, namely when she used regulatory maneuvers to effectively kill a deal between Tegna and the hedge fund Standard General last year. The move aligned with the Biden administration’s whole-of-government mandate to “promote competition” across the American economy. While the commission nixed an effort to further deregulate the industry last month, Rosenworcel has given little indication that, aside from the blockbuster issue of net neutrality, she has any intention to revisit regulations from the Obama or Trump eras.
During that stretch, commissioners from both parties led efforts to weaken media ownership rules. In addition to enabling the shared service agreement framework—allowing station groups to effectively bypass all functional limits on local ownership—the FCC also weakened foreign investment rules, and relaxed investment disclosure requirements. A spokesperson for the commission did not respond to a request for comment.
If the commission were to act, it could quickly issue new standards forcing station owners to dissolve shared service agreements in overconcentrated markets, or to create benchmarks for the allowable amount of content shared between stations. This would significantly disrupt the relationship between Nexstar, White Knight, and Mission, as well as other stations operating under service agreements with broadcast giants.
The FCC could also update reporting requirements and make the available data on service agreements more accessible, so broadcast television watchers can see which corporations control the airwaves in their area without piecing together the messy paper trail left by the husks of defanged ownership regulations.
