How Poor Ownership Rules Will Help the Incentive Auction Cripple Broadcasting

I have argued in my comments with the FCC (especially here) that the commission should, at the very least, hold off on the broadcast incentive auctions until it completes its ownership review and determines what the rules will be for the post-auction landscape; the fact that the auction process is currently slated to begin at the end of March, but the FCC doesn’t plan to wrap up its ownership review until June, is to me just one more piece of evidence that the FCC is trying to shove the auction down broadcasting’s throat before people catch on to just how valuable it can still be. Recently I saw something that puts in stark relief just why this is so, and makes me realize just how much the incentive auction could terminally cripple broadcasting.

A week ago the RabbitEars site I’ve written guest posts for in the past posted a rundown of what companies and stations have signaled their participation in the auction. Most of it was information available elsewhere and much of it I had seen earlier piecemeal, but it was still stunning to see it all in one place. Three of the four major broadcast networks have plans to participate in the auction to some degree, and most of the other largest station owners are at least considering either a channel-share or full-fledged participation. I might have been willing to accept the incentive auction if the only stations surrendering spectrum turned out to be a small handful of operations that weren’t doing much of worth anyway, causing the whole thing to come crashing down and forcing the FCC to reassess, but that possibility now looks decidedly remote.

One thing many of the big station group owners considering participating have in common are their heavy interests in duopolies. In many large markets, CBS owns both its own station and a CW or independent station; Fox owns its own station and a MyNetworkTV station; and NBC owns its own station and a Telemundo station. Any of these companies could easily surrender one station and effectively keep running it on the signal of the other station, as could Univision in markets where it owns both its own station and a UniMas station, or companies like Sinclair that could effectively make its “virtual duopolies” legal by merging them into a single signal, something that’s already started. Indeed, a company like Sinclair could, completely legally, control four times the amount of spectrum as a smaller outfit that elected to channel-share; the only downside would be that they would have must-carry rights for only two of them, but if they had valuable enough content on the channels that would mean little as they could pressure cable operators to carry them anyway. Big station group owners, in other words, could come away from the auction with that much more of an advantage than they have now.

Since a single station could either take up an entire channel’s width or share with another station, and because wireless providers are going to be voraciously gobbling up as much spectrum as they can to the point of potentially taking different amounts of spectrum in different markets, the effect would be to “lock in” the competitive landscape that’s in place now, regardless of how priorities might change, if for example the FCC decides the post-auction landscape should be governed by ownership rules based on the amount of spectrum controlled instead of the number of “stations”, or if Congress passes legislation that has the effect of weaning broadcasting off its dependence on retransmission consent and thus makes it more viable for a small station owner to exist and compete with larger owners. But by that point, the structure of how spectrum is divvied up will effectively favor whoever owns multiple stations, for whatever reason, right now, effectively making it impossible to break up today’s oligopolies; if someone decides they have a better programming concept than what’s on the air right now (and our vision for broadcasting allows it), it’s not clear there will be any room to launch a new station, and I doubt a station that’s taking up a full channel’s width can be subdivided and turned into a channel-share operation even if the incumbent owner is willing to do so and even if the programming in the leftover space used to be a separate station to begin with – at best, the new owner might find themselves having to rent the space from the old. Even if the current consolidation trend continues, it’s going to be much harder to make it work after the auction, when existing station combinations are neatly combined onto a single signal, but potential new duopolies could be on very different parts of spectrum or even sharing with different stations, and it may be impossible to turn one signal in and reap the benefits from owning one licence.

That’s just one way the incentive auction could make it much harder for broadcasting to compete and claim its full value should it realize just what that value is; it’s not clear broadcasting ends up being viable at all given the interference potential of the variable band plan and the effect the lack of flexibility will have on broadcasting’s ability to improve its reach that’s currently based on unrealistic expectations of what equipment people would be willing to acquire and what the future use of broadcasting actually is. It is one of the bigger ways, however. Perhaps more than anything else, it contributes to the sense that as far as the FCC and most parties that aren’t broadcasters themselves are concerned, the incentive auction is about carving out a little niche for those legacy fossils that aren’t willing to take our gracious check to cease their wasteful, spectrum-hogging, outdated activities, allowing them to keep going as long as they want to and as long as it remains viable, but with the expectation that it’s only a matter of time before they end up bailing out too. If this assumption turns out to be wrong, if those legacy fossils turn out to be performing a critical service that the auction has left underprepared and inefficiently organized and that people that might not have given it a second look or even gotten out of the business now want a part of, it’s going to be very difficult if not impossible to correct for it. The FCC has promoted the auction by proclaiming it a once-in-a-lifetime opportunity, that there will not be another auction once this one is over. But that also makes it the FCC’s one and only chance to set the post-auction landscape, and right now they look set to make a number of huge mistakes on that front it’ll be impossible to correct later – and I fear it may already be too late to convince them of such.