FCC ownership cap vote faces legal challenges
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The FCC's move to lift the 39% national broadcast ownership cap last week is already facing legal challenges, potentially throwing a wrench into broadcasters' consolidation plans.
Why it matters: Legal experts argue there's a real chance the agency loses in court, creating significant uncertainty for deals premised on the change.
- Benton Institute senior counselor Andrew Jay Schwartzman tells Axios he estimates the FCC has a "better than 50/50 chance" of losing, while stressing the outcome would depend heavily on which circuit court takes up the appeal.
The big picture: The central legal question is whether the FCC has the authority to change the cap at all, an issue even Republicans are grappling with.
- Former House Majority Leader Tom DeLay wrote in an op-ed last week that Congress deliberately codified the 39% broadcast ownership cap in 2004 to prevent the FCC from raising it on its own, and that FCC chairman Brendan Carr must go through Congress.
- Senate Commerce chairman Ted Cruz said last month he is "skeptical a change can be made absent an act of Congress."
State of play: So far, Free Press is the only group to challenge the ruling, but more appeals are expected, per Schwartzman.
- "I would be surprised if there are fewer than half a dozen — maybe as many seven or eight — appeals," he said.
- Potential challengers are likely weighing when and where to challenge the FCC's decision.
- Which circuit ultimately takes up the appeal or consolidated appeals could impact the outcome. A more conservative court is more likely to side with the FCC.
Zoom out: The uncertainty is especially consequential for Nexstar, which closed its $6.2 billion takeover of rival Tegna in March, right after federal regulators blessed the deal.
- An antitrust case filed by state attorneys general and DirecTV has forced the TV giant to keep Tegna operating independently under a preliminary injunction while litigation proceeds.
- Schwartzman says there is a "non-trivial chance" Nexstar could ultimately be required to unwind the transaction and sell the Tegna stations. Because Tegna shareholders have already been paid and its top executives have departed, he argues those stations could fetch considerably less in a forced sale than Nexstar paid for them.
- Last week, a federal judge blasted Nexstar for installing its own executives on Tegna's board despite an order to keep the companies separate, calling the maneuver "entirely disingenuous" and ordering its executives off the board.
What to watch: To date, Carr and Republican commissioner Olivia Trusty have had to include commissioner Anna Gomez, the lone Democrat, in votes, as the law requires at least three FCC commissioners to establish a quorum. But that could change.
- Danielle Thumann Severs, a longtime aide to Carr, was nominated by President Trump on Friday to fill one of the agency's two vacant seats.
- If confirmed by the Senate, Thumann Severs would make it much easier for the Republican-led FCC to hold and pass votes unilaterally without any Democratic friction.
The bottom line: For broadcasters planning their next round of dealmaking around a relaxed ownership cap, an FCC vote may be the beginning of the fight, not the end.
