Watchdog Groups File Opposition To Tribune License Transfer

The FREE PRESS, the MEDIA ALLIANCE, NABET/CWA, IATSE, IBEW, the NATIONAL HISPANIC MEDIA COALITION, the OFFICE OF COMMUNICATION OF THE UNITED CHURCH OF CHRIST, INC., and CHARLES BENTON have all filed a Petition to Deny the assignment of TRIBUNE's broadcasting licenses from debtor-in-possession status back to the company.

"Many of the same creditors that contributed to the ill-advised transaction that buried the TRIBUNE COMPANY in debt now seek unprecedented waivers to allow them to complete their looting of the assets of one of the nation’s major media companies," charged the organizations. "Their applications should be dismissed or denied. They subordinate the interests of the public to the private interests of the creditors, and do not come close to meeting the evidentiary standards required for waivers of the Commission’s ownership rules."

In the filing, the groups charge that "the circumstances leading to the proposed transaction are self-inflicted wounds. TRIBUNE went bankrupt because of unwise financial decisions. The properties involved are profitable on an operating basis, and salable as free-standing entities."
The challenge also noted that "as of this time, the ownership interests of the various TRIBUNE creditors in the newly reorganized company have yet to be determined. Although TRIBUNE maintains that changes in the exact identity of the future owners are 'immaterial,' the Commission cannot now make the necessary determinations as to how to apply its ownership rules."

On the company's CHICAGO newspaper-radio-television situation, the parties said that "TRIBUNE’s application does not meet the FCC’s criteria for presuming that the cross-ownership is in the public interest.

None of the properties are 'failed' or 'failing' within the meaning of Commission policy. The broadcast stations remain on the air and the CHICAGO TRIBUNE is still in circulation.

Tribune’s bankruptcy was voluntary, not involuntary. Moreover, WGN-TV’s audience share exceeds 4%, and TRIBUNE does not even attempt to claim that the station has ever had a negative cash flow, much less that it has been negative for three years.

Finally, and importantly, TRIBUNE has made no attempt to sell its properties to other buyers; it simply asks the Commission 'to assume' that the properties cannot be sold except at an artificially depressed price.

While the stations may not be salable at the unreasonably high price that the prior ownership team unwisely agreed to pay, the test is not whether the sale is at a loss, but whether the price would be artificially depressed.

Many of the same creditors that contributed to the ill-advised transaction that buried the Tribune Company in debt now seek unprecedented waivers to allow them to complete their looting of the assets of one of the nation’s major media companies.

Their applications should be dismissed or denied.

They subordinate the interests of the public to the private interests of the creditors, and do not come close to meeting the evidentiary standards required for waivers of the Commission’s ownership rules.

Because these applications are the first to be considered under the Commission’s recently-revised cross-ownership rules, public interest groups and the industry will be watching closely to see if the Commission is serious about enforcing its rules.

In order to promote localism, competition and diversity in the marketplace of ideas, Commission policy contemplates that common ownership of newspapers and broadcast stations in the same community should be terminated upon the sale of the broadcast properties to a new owner.

Tribune nonetheless seeks permission to assign its newspaper/broadcast combinations in five markets, and to hold two TV stations in Hartford. The circumstances leading to the proposed transaction are self-inflicted wounds. Tribune went bankrupt because of unwise financial decisions. The properties involved are profitable on an operating basis, and salable as free-standing entities.

The proposed transaction seeks even more expansive waivers than those granted by a sharply divided FCC in 2007.

Significantly, a meritorious petition for reconsideration and a judicial challenge to that earlier decision remain pending, so the Commission’s 2007 waiver decision is non-final and subject to reversal.

A fundamental underpinning of the FCC’s licensing policies is that an invalidly granted license cannot be assigned. Before the Commission acts on the new requests for waivers, it should complete its reconsideration of the 2007 decision. This would allow the Commission to ensure that the Tribune cross-ownerships are broken up so as to promote diversity, competition and localism.

The applications for transfer are defective on their face, and cannot be granted on the basis of the information submitted to the Commission. Specifically, as of this time, the ownership interests of the various Tribune creditors in the newly reorganized company have yet to be determined.

Although Tribune maintains that changes in the exact identity of the future owners are “immaterial,” the Commission cannot now make the necessary determinations as to how to apply its ownership rules.

In particular, the Commission cannot currently ensure that the new ownership complies with the citizenship requirements in Section 310(b). For the same reason, the Commission cannot lawfully grant Tribune’s request for an unprecedented waiver allowing future transfer of the cross-owned properties in “tandem” to yet another new owner.

Indeed, the fact that the assignees are already contemplating a future resale of the properties raises serious questions as to their commitment to provide service in the public interest, as opposed to “dressing up” their balance sheets to prepare for the next transaction.

Tribune argues that principles of comity require the Commission to subordinate its policies to those of the Bankruptcy Code. However, the agency’s policy is to coordinate the two bodies of law, not to place the interest of private parties ahead of the public. Sale of the cross-owned Tribune properties as a package is not required to assure comity with the bankruptcy laws; the Commission can require sale of the broadcast stations and the newspapers to different owners without in any way undermining the bankruptcy laws.

A substantial portion of Tribune’s waiver requests consists of attacks on the factual, statutory and constitutional underpinnings of the Commission’s newspaper/broadcast cross-ownership (“NBCO”) rules.

These claims are utterly without merit, but the Commission need not consider them at all, since Tribune itself created unequivocal case law that challenges to the validity of the NBCO rule can only be brought in a rulemaking context.

Tribune’s arguments are not unique to the five markets where Tribune seeks waivers, and it is free to present them (as it has) in pending rulemaking proceedings, and the Third Circuit’s pending review of the Commission’s 2006 Quadrennial Review decision.

Tribune’s request for assignment of its Chicago properties represents the first time the Commission has been asked to apply its new NBCO rules. Tribune’s application does not meet the FCC’s criteria for presuming that the cross-ownership is in the public interest. Nor has Tribune made a showing sufficient to reverse the presumption.

The broadcast stations remain on the air and the Chicago Tribune is still in circulation. Tribune’s bankruptcy was voluntary, not involuntary. Moreover, WGN-TV’s audience share exceeds 4%, and Tribune does not even attempt to claim that the station has ever had a negative cash flow, much less that it has been negative for three years.

Finally, and importantly, Tribune has made no attempt to sell its properties to other buyers; it simply asks the Commission “to assume” that the properties cannot be sold except at an artificially depressed price. While the stations may not be salable at the unreasonably high price that the prior ownership team unwisely agreed to pay, the test is not whether the sale is at a loss, but whether the price would be artificially depressed.

Nor has Tribune met the Commission’s “substantial news” test. Indeed, inasmuch as this is a transfer of an existing combination, Tribune cannot qualify for a waiver under this standard. Even if the Commission overlooked that fact, Tribune threatens to reduce, rather than increase, the amount of news it intends to present.

Because Tribune cannot qualify for a presumption in favor of a waiver in Chicago, its request must be considered under the Commission’s “four factor” test. It meets none of the factors as it does not propose to increase the amount of local news, the operations of Tribune’s cross-owned properties are currently integrated and not independent, the HHI for Chicago is high, and none of the properties are, standing alone, in financial distress.

Similarly, Tribune has not made sufficient showing to obtain waivers of either the NBCO rule or the TV duopoly in Hartford. It would require both waivers to transfer the Hartford Courant and the two Hartford TV stations in tandem. The only reason that Tribune has all three properties now is that it failed to comply with two prior FCC orders directing it to come into compliance with the NBCO rule within 6 months. Commission action to require compliance with its ownership rules is long overdue.

Tribune has failed to show that WTXX(TV) in Hartford is either a “failed” or “failing” station that would justify a waiver of the TV duopoly rule. WTXX(TV) has not gone dark and is not in involuntary bankruptcy. Nor has Tribune shown any efforts to sell the station to an out-of-market buyer since .2006.

Tribune’s effort to rebut the presumption that a waiver of the NBCO rule for Hartford would not serve the public interest is similarly inadequate. It fails to meet the Commission’s “four factor” test.

First, Tribune has not promised any increase in the amount of local news in the market. In fact, Tribune has significantly degraded newsgathering capacity in Hartford, and does not intend to reverse that practice.

Second, as in Chicago, Tribune boasts about the degree to which it has integrated the Hartford newsgathering operations, rather than show that the newsrooms are operated independently.

Third, Tribune’s analysis of the market concentration overstates the extent of actual competition, and finally, it makes no showing about the financial condition of either the Hartford Courant or WTIC-TV.

Finally, even if the Commission determines to grant any temporary waivers to Tribune, they should not be for the extended duration requested by Tribune.

Tribune’s request for a waiver of indeterminate length tied to the pendency of litigation should be rejected out hand since it violates clear Commission policy and would amount to a permanent waiver as litigation is continuous.

Moreover, even for a waiver of specific length, six months, rather than 18 months, is ample time under Commission precedent to allow for the orderly disposition of media properties.

Tribune Company Sale and the Public Interest - Benton Foundation Report

http://www.benton.org/node/7187

In August 2007, Tribune shareholders approved a plan to take the company private for over $8 billion. In a mind-numbingly complex series of transactions, Chicago real estate mogul Samuel Zell will come to control Tribune. Zell, a new investor in the company with little background in media(1) and none in journalism, will contribute some 300 million dollars and will receive board representation and warrants for 40% of the outstanding common stock.

In Chicago, Tribune’s newspaper/broadcast cross-ownership of WGN, WGN-TV and The Chicago Tribune is grandfathered under the FCC’s newspaper broadcast cross-ownership rule. Although according to FCC rules this privilege is not transferable to a new owner – as in the case of the sale to Zell – Tribune is seeking a temporary waiver to permit the transfer of WGN and WGN-TV pending final action on the FCC’s review of media ownership rules.

Tribune is seeking similarly extraordinary waivers in four other cities including New York and Los Angeles.(2)

A number of public interest groups are currently asking the FCC to deny Tribune’s waiver requests because they violate the newspaper broadcast cross-ownership rule and Tribune advances absolutely nothing even purporting to demonstrate that grant of its requested waivers will benefit the public. An FCC decision on Tribune’s waiver request is pending.

There are a number of ways the Tribune sale could impact the public:

The sale will result in $13 billion debt load, generating economic pressures that may result in layoffs. The media industry has established a pattern of targeting news departments for downsizing when they restructure, making it ever more difficult for news departments to thoroughly and accurately cover the stories that matters to local communities.

In fact, shortly after announcing the sale, Tribune announced 250 job cuts in Chicago and Los Angeles. Allowing the waivers will further jeopardize the Tribune's ability to deliver quality news and information.

The sale represents a complex corporate restructuring that would allow Tribune to eliminate most of its corporate taxes. If a similar structure had been in place in 2006, Tribune would have avoided $348 million in taxes.

Tribune will not have employee representation on the board of directors. According to Teamsters President, "If given a chance, Tribune employee-owners could play a crucial role in enhancing localism and diversity for the benefit of the public served by the Tribune."

According to the Chicago Tribune, Zell has “little background in media and none in journalism,” which could negatively impact how the media empire is run.

Public interest advocates find that since allowing Tribune to own both WGN and the Chicago Tribune promotes neither diversity nor competition, the only argument left to support a waiver is that the benefits of common ownership outweigh the reduction in diversity and competition.

Tribune has attempted to argue that its common ownership of WGN and the Chicago Tribune has allowed it to produce in-depth news specials and provide better news coverage. But a small increase in local news falls short of the extraordinary benefits that might justify waiving the rules.

Moreover, the reported “benefits” illustrate how common ownership actually decreases the diversity of stories available to the public. By time-shifting newscasts, viewers are simply receiving news from one voice, rather than an independent voice.

Moreover, to the extent that there may have been benefits in relying on and collaborating with Chicago Tribune’s news staff, it is unlikely to continue considering Tribune’s downsizing of the Chicago Tribune.

Further, by sharing resources and collaborating, instead of reporters deciding what stories to cover and gathering news on their own, they end up reporting the same stories already being covered by the paper or the broadcaster.

Moreover, to establish this type of relationship there is no pre-requisite that the two entities be commonly owned. Finally, the various “public service projects,” such as promoting events and participating in food drives that many other businesses engage in are simply irrelevant to a waiver analysis.

The public interest advocates are urging the FCC to deny the requested waivers. As long as the cross-ownership rule stands, they argue, Tribune should not get special treatment. Upon transfer of ownership, they recommend, the FCC must ensure that the Tribune breaks up its holdings in cities where it is in violation of the cross-ownership rules. Requiring the break up of these combinations will promote diverse views by allowing new owners.

The Benton Foundation works to ensure that media and telecommunications serve the public interest and enhance our democracy. We pursue this mission by seeking policy solutions that support the values of access, diversity and equity, and by demonstrating the value of media and telecommunications for improving the quality of life for all.

Source: In the Matter of Applications for Consent to the Transfer of Control of Tribune Company from Shareholders of Tribune Company to Samuel Zell (MB Docket 07-119) Petition to Deny at page 29. June 11, 2007. http://www.mediaaccess.org/filings/Tribune%20Petition%20to%20Deny.pdf

1. Zell once owned radio-network Jacor Communications until it was sold to Clear Channel in 1999. See Zappone, Chris. “Zell buys Tribune Co., Cubs to be sold.” CNNMoney.com April 3, 2007 http://money.cnn.com/2007/04/02/news/companies/tribune_zell/index.htm

2. Tribune also seeks a permanent waiver of the local-TV ownership rule to retain ownership of two Hartford TV stations and The Hartford Courant.

Bondholders Oppose Transfer, Too

Bondholders of the company have also filed a Petition to Deny the transfer. WILMINGTON TRUST CO., representing the dissident bondholders, said that the transfer "is a sham. The warrants (being given lenders in the reorganization) will be worthless to the prospective holders, who will, by definition, be non-U.S. citizens."