Rule change shakes up local television deals
A new federal rule approved last week by the Federal Communications Commission caused the owners of two Grand Junction TV stations to modify the agreement between them that allows one station to operate the other.
At its most basic, the new rule makes it more difficult for one company to operate two television stations in a single market, which is the current situation in Grand Junction.
KKCO Channel 11, owned by Gray Television, operates KJCT Channel 8, owned by Excalibur Broadcasting. Gray operates both stations under the terms of a joint services agreement.
The two stations maintain virtually identical websites, frequently broadcast the same news video and share on-air talent.
Even though the agreement between Gray and Excalibur does not specifically violate the new rule, the FCC advised Gray to eliminate a clause in which Gray guarantees financing for Excalibur’s broadcast license purchases, among other provisions, Gray officials said in a news release.
RULE DISCOURAGES DUOPOLIES
The FCC voted March 31 to prohibit contracts between two television stations that allow one station to sell 15 percent of the other station’s advertising time. The new rule also requires broadcast companies to unwind any joint services agreement they may have within two years, the FCC reported.
The vote was expected after the commission decided to take a closer look at joint services agreements, which are often abused by large broadcasting companies trying to circumvent anti-monopoly rules, industry observers reported.
The new rule is intended to preserve competitive markets and prevent “duopolies,” in which one company owns and controls two stations, the FCC said.
The rule allows the agreements to continue on a case-by-case basis if station owners are able to show their arrangement serves the public interest, according to the FCC.
Presumably, the modified agreement between Gray and Excalibur could be terminated in two years under the new rule unless the FCC decides to exempt it.
The agreement between Excalibur and Gray does not contain the offending advertising provision. It does, however, give Gray significant leeway to operate the station Excalibur owns, corporate records show.
For example, Excalibur pays Gray $75,000 a month plus performance bonuses to operate KJCT.
KJCT leases office space, equipment, studio furnishings and business facilities from Gray for an additional $25,000 a month.
Excalibur is allowed to keep whatever revenue KJCT earns minus costs.
If Excalibur doesn’t have enough money to pay KJCT’s salaries, utilities, or property taxes each month, Gray pays the difference.
In other words, for $100,000 a month, Gray assumes most of the risk that Excalibur would lose money on the KJCT station.
The modification to the agreement announced last week eliminated a clause that obligated Gray to pay off the Wells Fargo loan Excalibur took out to buy the KJCT license.
It was unclear what impact, if any, the modification would have on Excalibur’s ability to fund the purchase of its KJCT license.
Don Ray, president of Excalibur, did not return a telephone message requesting comment.
GRAY LICENSES APPROVED
In related news, the FCC’S Antitrust Division approved all of Gray’s broadcast license transactions involving television stations across the West and Midwest, including its purchase of KREX Channel 5. In all, Gray had 20 license approvals pending.
Gray purchased the KREX license late last year and then sold it to another broadcast company earlier this year.
Excalibur purchased the broadcast licenses for KJCT and KFQX, but those purchases have not been approved by the FCC, possibly because of FCC rules governing joint services agreements.
FCC officials did not respond to telephone calls requesting comment.
“Gray cannot predict when the FCC might grant the Excalibur applications,” company officials said in a news release. “In light of the FCC uncertainty, Gray is exploring alternative arrangements that may facilitate the creation of the efficiencies, public interest benefits, and expanded advertiser opportunities that were proposed in the still-pending Excalibur applications.”
Gray officials also did not respond to telephone calls seeking comment.