The Supreme Court Will Reshape TV’s Megamerger Future

Supreme Court Will Reshape TV’s Megamerger Future
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In Washington, when the future of TV comes up, talk often turns to the future viability of local news outlets, whose reporters are needed to serve their communities, especially during a pandemic. But there’s another reason Beltway power brokers care about local newscasts: The streaming giants don’t. For some in the broadcast industry, Netflix and Hulu aren’t just competitive threats; they’re the entities that legitimize bold dealmaking of the type that could combine historic TV rivals. Picture ViacomCBS and Fox Corporation under one roof, or Comcast’s NBCUniversal merging with PBS. The next time a media corporation seeks government approval for a megamerger, expect to hear “Save Local News” as the rallying cry.

The future of M&A in the industry figures to be impacted by a coming decision from the Supreme Court. On Oct. 2, the justices announced why they would grant a petition from the FCC, led by chairman Ajit Pai, and major broadcasters to hear a case about media ownership rules. The case nominally focuses on the FCC’s attempt to lift a ban on any company owning both a newspaper and TV station in a single market, but it will impact broadcast regulation broadly. After all, the Supreme Court’s choice to take up the case comes as the FCC prepares to make its own decision on the worth of other rules that have lasted decades, including a prohibition on any merger between or among the Big Four broadcast networks, ABC, CBS, Fox and NBC.

The FCC reexamines its ownership rules every four years and must repeal or modify any rule that is no longer “necessary in the public interest as the result of competition.” The public interest standard means that courts needn’t necessarily defer to the FCC’s calls without proper justification, which helps explain why a lower appeals court has spit in the FCC’s eyes any time the agency has attempted deregulation during the past two decades. “Here we go again,” wrote 3rd Circuit Judge Thomas Ambro in a decision that ordered the FCC to do a better job of studying how proposed rule changes would impact ownership of TV and radio stations by women and minorities.

But what exactly is in the public interest — and who gets to decide? That will be under consideration in the Supreme Court's next term when it tackles the cases of FCC v. Prometheus Radio Project, et al. and National Association of Broadcasters, et al. v. Prometheus Radio Project, et al. To some advocates, public interest means doing something about the fact that women control just 73 of 1,368 commercial TV stations or that racial minorities hold majority voting interest in just 26 of them, according o FCC data. “[T]he reality that women, racial and ethnic groups control less than 10 percent of commercial AM, FM or broadcast television stations should provide the FCC a clear reason for the failing grade it earned from the Third Circuit,” wrote Seattle University communications professor Caitlin Ring Carlson on a public policy site in April.

But the Trump administration sees it differently. In the petition for high court review, the government essentially argued that the FCC should have latitude in fulfilling its mandate to preserve competition and ensure viewpoint diversity. This needn’t mean guaranteeing that minorities own stations. The Solicitor General’s Office reprimanded the 3rd Circuit, saying that it “flouted bedrock administrative-law principles that require judicial deference to agency policy choices, as well as this [Supreme] Court’s repeated FCC-specific admonitions that courts must respect the Commission’s reasonable judgments about what measures will best serve the public interest.”

At the coming hearing, TV broadcasters will have the opportunity to argue, too. They will take the position that today’s marketplace requires flexibility from hard ownership rules and that stations can only deliver local news and good jobs if they’re strong enough to take on the Netflixes of the world. “To be clear, local broadcasters are committed to diversity,” stated the brief from a coalition of CBS, Fox and NBC stations. “But those commitments to diversity will be for naught if broadcasters’ businesses cannot succeed. Without healthy, economically viable broadcast businesses, no opportunities for women or racial minorities to own, operate or invest in local broadcast businesses will exist at all. Whatever the data reflecting ownership of local broadcast stations by women and minorities, the Commission’s [existing] ownership rules inevitably disserve female and racial minority ownership if local stations cannot provide successful career opportunities to women, minorities or anyone else because their businesses can no longer remain competitive.”

The case could provide a vehicle for the type of landmark decision from the Supreme Court’s ascendant conservative thinkers that might shape regulation of entertainment and media for quite some time. Says communications attorney John Garziglia, “I believe the court may ultimately focus on the constitutionality of the FCC’s race- and gender-skewed policies in regulating broadcasting.”

This story first appeared in the Oct. 7 issue of The Hollywood Reporter magazine. Click here to subscribe.