A U.S. District Court recently issued a preliminary injunction that blocked the $6.2 billion merger of Nexstar Media Group and Tegna after the deal had cleared the approval process at both the FCC and the Department of Justice. The injunction came at the request of eight state Attorneys General and DirecTV, which filed suit to stop a transaction that federal regulators had already vetted and approved.
This series of events augurs poorly for the near-term future of the American media industry, which has been rapidly consolidating to take advantage of economies of scale to better compete both in the U.S. as well as across the globe. Movies and television shows produced domestically are a major export for the economy.
The transaction approved by federal regulators--whose job it is to evaluate market competition, consumer welfare, and the public interest--has been effectively frozen at the behest of a satellite television company that is larger than the new media company being created.
The eight Attorneys General’s main objection is that the combined media company will operate stations that reach roughly 75 percent of the nation's households, and the FCC currently prohibits any entity from being able to reach more than 39 percent of U.S. households. However, the FCC's notion of broadcasting reach is outdated and antithetical to its mission of fostering competition, which is precisely why it is in the process of changing this threshold.
The notion that a large national reach somehow translates into consolidation in individual markets has never made any sense: The relevant metric is how many different news providers exist in each market, and the merger won’t materially change that. Conflating a national market and regional markets is little more than a ruse.
DirecTV’s complaint is that the combined firm will have more market power at its disposal when it comes time to negotiate retransmission rights. While that’s certainly true--and one reason why the merger makes sense for the combined companies--that doesn’t imply antitrust perfidy of any sort. There are a wide number of content providers in the market--besides the carriage bundles such as Disney/ESPN, NBC/Universal, and Warner Bros./Discovery, there are many independent networks as well.
In fact, the current market--and the regulatory apparatus constructed by the FCC--is predicated upon the assumption that there will be a small number of distributors (that is, DirecTV and the other distributors) negotiating against a small number of content providers in what economists refer to as a bilateral monopoly.
The suggestion that a broadcaster gaining scale to negotiate effectively is somehow illegal turns the purpose of that system on its head. DirecTV is a private equity-owned company with greater market capitalization than Nexstar and Tegna, and is not a victim of leverage: It is a competitor using the courts to attempt to preserve some of its market power.
This transaction matters because the future of local broadcasting is shaky. Cord-cutting has gutted the advertising base that once sustained local newsrooms. Digital platforms run by tech giants have captured the audiences and ad revenues that local TV used to own. Retransmission fees, the very revenue stream opponents want to constrain, are one of the last viable funding mechanisms keeping local stations on the air. Hobbling a broadcaster's negotiating leverage does not protect viewers: it accelerates the revenue collapse of the stations broadcasting local news.
If the courts were to reject this merger, the precedent would be felt far beyond Nexstar and Tegna. If a deal can be blocked based on speculative projections about future fee negotiations after FCC approval and DOJ clearance, then the calculus of every future transaction in this space will be altered, and fewer investors will have the appetite to acquire local stations.
The other problem with this court ruling is that it would effectively eviscerate federal preemption if it stands. Congress has granted the FCC power as the exclusive federal authority over broadcast licensing, spectrum policy, and the public interest obligations that govern the airwaves. Allowing a coalition of state AGs and a competitor to effectively veto that determination would fundamentally change how federal law governs federal airwaves.
Local journalism is in trouble because the business model that sustained it for fifty years has been hollowed out by forces that no court ruling can reverse. The Nexstar–Tegna deal is an attempt to build something durable enough to survive in a market that has already left legacy broadcasters at a disadvantage.
Blocking it would not preserve the status quo--it would merely accelerate the decline and signal to the next company considering a similar bet that the road to a deal is now extremely uncertain.
