Today’s Therapy: Trust and Sharing

Today television stations KLCS and KJLA released a comprehensive report on their channel sharing pilot in Los Angeles.

For broadcasters, the results are not a surprise. The report confirms that channel sharing is technically feasible. Many broadcasters have been doing it for years through multicasting. In fact, the challenges for channel sharing will primarily be on the business side, as there are complex financial and legal arrangements that must be addressed.

We are already hearing great fanfare from the FCC regarding the report. It’s a chance for FCC Chairman Tom Wheeler to continue to encourage broadcasters to channel share – having one’s cake and eating it too, as he puts it – in order for the FCC to reclaim additional spectrum for its upcoming incentive auction.

Most interesting, however, is that, at the same time the chairman is making a big channel sharing push, he is working to eliminate another kind of sharing arrangement on which broadcasters have come to rely. Specifically, on Monday the FCC is scheduled to vote on a proposal that will no longer allow television broadcasters to enter into sharing arrangements called Joint Sales Agreements (JSAs). Not only will the new rule prohibit such agreements going forward, but the chairman also seeks to apply the rule retroactively, quashing the scores of sharing arrangements the FCC has been steadily approving for years.

It doesn’t take a Wall Street baron – which local broadcasters certainly are not – to recognize that approach is dead wrong.

In fact, it’s not hard to see the inconsistency, if not the irony, in the FCC’s channel sharing push in the incentive auction context as it concurrently votes to, well, prohibit sharing. The chairman is essentially saying he wants to see broadcasters share facilities, including transmitting equipment and towers, because that is a once-in-a-lifetime opportunity, but that broadcasters must unwind agreements they voluntarily entered, with Commission approval, regarding sharing other resources, because that’s bad.

Now of course these types of sharing are not exactly the same thing, but at least one thing inextricably links them: in order to feel comfortable enough to channel share in the incentive auction, broadcasters and investors have to have confidence that the rules won’t be changed down the road.

The natural question then becomes how can broadcasters be assured that the goal posts won’t be moved after the game has started? In fact, how does this retroactive order help build trust for any facet of the auction, let alone any other rules promulgated by the Commission?

The fact is they can’t. Given the proposed action on JSAs, can broadcasters have any certainty that channel sharing rules won’t be altered too? You were promised must-carry rights if you channel shared? Oh, we’re sorry, it’s now 2017 and we’ve changed our minds.

And let’s be clear, on the heels of the pending JSA order, broadcasters’ concerns with the auction will extend far beyond channel sharing. They will wonder about the costs of participating in the auction in the first place.

For the auction to be a success, it is essential that broadcasters who are would-be participants have complete trust in the agency overseeing the process, and that the rules won’t change on the fly.

There is nothing that erodes confidence in a regulatory agency more than uncertainty. Now the chairman has said he is providing certainty with the new rule. What he is really doing, however, is creating massive uncertainty. How can any business count on what the FCC says anymore? You now have to wonder, will the FCC change its mind on something it told you was lawful? How can you plausibly continue to invest based on the Commission’s word?

The JSA crackdown has created tremendous doubt in many broadcasters’ minds. Broadcasters who might be willing participants in an auction are now asking: Are we going to get “JSA’d?”

The Commission must avoid this impression at all costs. One start would be to pull, or at the very least amend, the JSA proposal. There is simply no compelling need to undo deals that the Commission has already blessed.

The next step is for the FCC to truly work collaboratively with broadcasters. Demonstrate not through words, but actions, that it is reliable and that it respects our industry. That it doesn’t merely see us as yesterday’s technology buried by a broadband revolution.

I keep hearing that the single most important facet of the auction is broadcaster participation. That is true, and the right level of participation may still be possible. But if the Commission takes more actions like the one on JSAs currently before it, I fear the auction will be an unfortunate waste of everyone’s time.