THE SUDDEN DEMISE OF SINCLAIR’S MERGER WITH TRIBUNE

In the 14 months since Sinclair Broadcast Group announced its plan to acquire Tribune Media, the biggest deal in local broadcasting has been met with intense scrutiny and mounting concern.

If approved, the $3.9 billion transaction would increase Sinclair’s market share substantially, leaving the conservative local-news giant with 233 television stations and an unprecedented 72 percent household penetration in the United States. In order to stay under the Federal Communications Commission’s 39 percent national ownership cap—a safeguard for media diversity across the country—Sinclair planned to sell some of Tribune’s stations and some of its own, totaling 23 in all.

But in orchestrating these station sales, Sinclair has become a victim of what many analysts have come to see as its own arrogance.

On July 16, Ajit Pai, the chairman of the Federal Communications Commission, performed a surprising about-face, expressing “serious concerns” about Sinclair’s divestiture plans. Sinclair’s deals were sketchy to say the least, orchestrating problematic sidecar agreements that would allow them to control certain stations even without owning them, he said. For instance, a sidecar deal would see the Chicago broadcasting powerhouse WGN sold to the Maryland car salesman Steven Fader, a business associate of the Sinclair chairman David Smith. Sinclair would still provide programming and ad sales, and would have a buy-back option, the Chicago Tribune reported in March.

Pai’s reversal saw the FCC vote 4–0 to send the merger to an administrative judge—a potentially grueling uphill battle for any corporate aspirant in Sinclair’s shoes. Sinclair submitted a revised plan last Wednesday as a last-ditch effort to get the Commission to change its mind. Unless that happens, Sinclair-Tribune is staring down a slow and painful death. The Republican commissioner Michael O’Rielly called the vote a “de facto merger death sentence.”

In sending the Sinclair merger to an administrative judge, Pai’s order went so far as to suggest Sinclair demonstrated a “lack of candor” in representing itself to the FCC, a harsh and uncommon accusation—a violation of the FCC’s “character qualifications” in licensing—that could result in harsh penalties for the company, including license revocations.

Barry Faber, Sinclair’s executive vice president and general counsel, responded in a now-public July 18 email. “I understand that if Sinclair has not been completely truthful and forthcoming with regard to these proposed sales, abandoning them would not eliminate such unacceptable behavior,” he wrote. “I point out, however, that as we discussed yesterday no evidence exists that Sinclair has mislead the FCC or been anything other than completely candid with respect to our relationships with the proposed buyers and the terms of the transaction.”

Until he came out against the merger, Pai seemed to favor Sinclair’s acquisition plan. His tenure at the Commission had seen a number of deregulatory steps that appeared custom-made for Sinclair. The archaic UHF discount has been restored, which allows broadcasters to only count half the coverage area of their higher-frequency stations, an insignificant distinction in the era of digital TV. The “main studio” rule has been eliminated, which mandated that broadcasters own a studio or office near the area where they hold a license. And, most importantly, there’s been serious discussion of raising the national ownership cap—a change that would allow the biggest broadcasters to get even bigger.

The FCC spokesman Brian Hart denied that the chairman made an about-face on Sinclair. In an email to The Atlantic, he said Pai’s statement expressing “serious concerns” was the chairman’s only public comment on the merger.

President Trump, who had previously expressed support for Sinclair, tweeted to criticize the FCC decision for the first time on Tuesday night. “So sad and unfair that the FCC wouldn’t approve the Sinclair Broadcast merger with Tribune,” Trump tweeted. “This would have been a great and much needed Conservative voice for and of the People. Liberal Fake News NBC and Comcast gets approved, much bigger, but not Sinclair. Disgraceful!”

Pai, a Trump nominee who has previously attracted public ire and even death threats, has championed deregulatory causes in the FCC, most prominently by rolling back net-neutrality safeguards set during the Obama administration. But now, in an odd twist, Trump’s crosshairs are focused on his own handpicked chairman, though the commission operates independently of the White House.

Until last week, Pai had been caricatured by critics as an enthusiastic advocate for Sinclair. As a result, congressional Democrats have jump-started an FCC inspector-general investigation into Pai, which is still pending, alleging that Pai has illicitly pushed for rules changes that specifically benefit Sinclair.

Sinclair, known for its conservative, often pro-Trump commentary, stood to benefit from a merger-friendly FCC and Justice Department prior to encountering opposition over its divestiture plans.

Controversy over the Sinclair-Tribune merger snowballed after Deadspin published a satiric video featuring scores of Sinclair newscasters dictating a common “fake news” diatribe to their respective audiences. The company’s directives to its local station managers that they “must run” certain content do not demonstrate a clear violation of FCC rules, analysts said, but they do violate established norms of editorial independence in local TV, a medium that has retained relatively high levels of public trust in recent years. Additionally, Sinclair stations rely heavily on national content, including “must-run” political commentary from Trump allies such as Sebastian Gorka and Boris Epshteyn, who works as Sinclair’s chief political analyst. Critics say that Sinclair does not broadcast in the public interest, a long-standing but vague imperative in broadcasting that’s even older that the FCC.

Pai’s liberal critics, still confused, are celebrating the chairman’s decision to reverse course on Sinclair. Rosenworcel, the FCC’s lone Democrat following Mignon Clyburn’s resignation in April, has long been critical of Sinclair and Pai’s actions, which she feels favor the company.

“For too long I was the only one at the FCC complaining about the favoritism this agency has shown Sinclair,” Rosenworcel said in an email to The Atlantic. “Over my objections, the FCC twisted far too many of its media policies simply to serve the business plans of this company. But I am glad that my colleagues now share my concerns and appreciate their support for the hearing designation order that halts the company’s proposed merger with Tribune.”

“First, we had to pick ourselves up off the floor because Ajit Pai’s record being FCC chair, really up until a week ago, was to do everything he could to advantage and favor Sinclair,” Aaron said in a phone interview. “This definitely is a 180 from where the FCC leadership was basically the entire Trump administration until the last week.”

Sinclair’s tactics have created enemies on the right, as well. Chris Ruddy, the CEO of Newsmax, a rival to Sinclair in providing conservative news, has previously said the merger would be “destructive to the Republican Party and conservatives.” Ruddy, known as a friend and close advisor of President Trump, has reportedly met with the president and with Pai to express opposition to the deal.

Rupert Murdoch might be the biggest beneficiary, as Fox News Channel is the national leader in conservative news. “Anything that weakens Sinclair would seem to be positive for Rupert Murdoch,” said the media analyst Rich Greenfield to Politico last week. Murdoch’s 21st Century Fox will be doubling down on news and sports, selling its entertainment properties to Walt Disney in a deal for which the Trump administration has cleared the way.

Some media observers said that Pai’s decision last week was not out of left field, however. “It was such a long process that obviously the commission, early on in their discussions with Sinclair, expressed concerns about some of the side deals and how they were going to comply with the national and local ownership rules, so I don’t think it’s much more than that,” said Mark Fratrik, the senior vice president and chief economist for BIA/Kelsey, a media and advertising consultancy that lists Sinclair as a client.

But Fratrik said he was surprised about Pai’s decision because it made economic sense for Sinclair to scale up and tap into a larger advertiser base that can compete with national networks.

While Pai’s decision may hurt broadcasters’ abilities to devise sidecar agreements—agreements he has previously supported when used appropriately—his stance on Sinclair could smooth the way for his regulatory agenda. For better or worse, deserved or not, the Sinclair story was intertwined with nearly all of Pai’s ambitions. While this decision will help ameliorate allegations of corporate favoritism toward Sinclair—the subject of the ongoing inspector-general investigation—it may also clear away scrutiny if Pai embarks upon a serious crusade to, for instance, raise the national ownership cap this fall.

“It’s sort of logical in the longer arc of conservative thought on these issues,” said Aaron. “But it is surprising, in some ways, especially given the fact that Sinclair has essentially been a propaganda outlet for the Trump administration. But you would argue that Ajit Pai may be thinking a little longer-term about where he wants to be seen on some of those questions.”

With Pai now able to move beyond the public ire over the Sinclair case, the conservative chairman could succeed in implementing many of the deregulatory moves that looked so promising for Sinclair this time around. And if that is the case, Pai’s tenure could mark a legitimate conservative push for media deregulation in the coming years.