UHF discounts unlikely to be reinstituted, analyst says

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With the incentive auctions nearly over and broadcast TV ownership rules expected to change, broadcasters are anticipating more consolidation. But it may not be that easy, according to one analyst.

Barclays analyst Kannan Venkateshwar wrote in a research note that broadcast regulations may not shift to the degree many are hoping.

“While we do not disagree that some regulations are likely to change, we believe a bit of historical context will help put a better framework around what is possible relative to the upside scenarios now being considered,” Venkateshwar wrote.

Specifically, he noted that both Republican commissioners at the FCC agreed with the decision to eliminate the UHF discounts and if ownership caps are lifted, “it is tough to see UHF discounts being eliminated, which would limit the size of deals that can happen.”

Of course, ownership caps being lifted isn’t a certainty either.

Barclays said that a Republican-majority Senate voted to support a “resolution of disapproval” on the FCC’s previous move during the Bush administration to raise the ownership cap and that some of the Republicans who voted on this resolution are still in Congress.

Venkateshwar said that since Congress put in the place the 39% ownership cap, than it’s possible that only Congress can modify the cap. The report cited Republican FCC Commissioner Michael O’Rielly as a supporter of this idea.

Meanwhile, local ownership rules could be slow to change. Barclays said that the last time that the courts looked at these rules in detail in 2004), the conclusion reached was that neither cable nor internet news could substitute broadcast as a source of viewpoint diversity.

“A Republican FCC in 2004 concluded as a part of its submissions to the third circuit that ‘...it had to limit allowable station combinations to those that would not create excessive market power...’ The FCC may need to defend itself against previous precedents, as a result of which, it may need to approach this issue with more caution,” Venkateshwar wrote.

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But if the ownership rules are revised, broadcasters like Tegna—which is the only broadcaster that Barclays covers—could see significant synergies. But with the increased competitiveness in the deal environment, synergies and deal terms could be less than attractive

“Therefore, while it is likely that Tegna and other local broadcasters could try to take advantage of a deregulatory environment, the process would likely take time and the benefits could fade faster than prior cycles,” Venkateshwar wrote.