Local marketing agreement

In North American broadcasting, a local marketing agreement (LMA), or local management agreement, is a contract in which one company agrees to operate a radio or television station owned by another party. In essence, it is a sort of lease or time-buy.

Under Federal Communications Commission (FCC) regulations, a local marketing agreement must give the company operating the station (the "senior" partner) under the agreement control over the entire facilities of the station, including the finances, personnel and programming of the station. Its original licensee (the "junior" partner) still remains legally responsible for the station and its operations, such as compliance with relevant regulations regarding content. Occasionally, a "local marketing agreement" may refer to the sharing or contracting of only certain functions, in particular advertising sales. This may also be referred to as a time brokerage agreement (TBA), local sales agreement (LSA), management services agreement (MSA), or most commonly, a joint sales agreement (JSA) or shared services agreement (SSA). JSAs are counted toward ownership caps for television and radio stations. In Canada, local marketing agreements between domestic stations require the consent of the Canadian Radio-television and Telecommunications Commission (CRTC), although Rogers Media has used a similar arrangement to control a U.S.-based radio station in a border market.

The increased use of sharing agreements by media companies to form consolidated, "virtual" duopolies became controversial between 2009 and 2014, especially arrangements where a company buys a television station's facilities and assets, but sells the license to an affiliated third-party "shell" corporation, who then enters into agreements with the owner of the facilities to operate the station on their behalf. Activists have argued that broadcasters were using these agreements as a loophole for the FCC's ownership regulations, that they reduce the number of local media outlets in a market through the aggregation or outright consolidation of news programming, and allow station owners to have increased leverage in the negotiation of retransmission consent with local subscription television providers. Station owners have contended that these sharing agreements allow streamlined, cost-effective operations that may be beneficial to the continued operation of lower-rated and/or financially weaker stations, especially in smaller markets.

In 2014 under chairman Tom Wheeler, the FCC began to increase its scrutiny regarding the use of such agreements—particularly joint sales—to evade its policies. On March 31, 2014, the commission voted to make joint sales agreements count as ownership if the senior partner sells 15% or more of advertising time for its partner, and to ban coordinated retransmission consent negotiations between two of the top four stations in a market. Wheeler indicated that he planned to address local marketing and shared services agreements in the future. The change in stance also prompted changes to then-proposed acquisitions by Nexstar Media Group and Sinclair Broadcast Group, who, rather than use sharing agreements to control them, moved their existing programming and network affiliations to digital subchannels of existing company-owned stations in the market, or a low-power station (which are not subject to ownership caps), and then relinquished control over the original stations by selling their licenses to third-parties, such as minority-owned broadcasters.

History and background

Due to the FCC's limits on station ownership at the time (which prevented the common ownership of multiple radio stations), local marketing agreements in radio, in which a smaller station would sell its entire airtime to a third-party in time-buy, were widespread between the 1970s and early 1990s. These alliances gave larger broadcasters a way to expand their reach, and smaller broadcasters a means of obtaining a stable stream of revenue. In 1992, the FCC began allowing broadcasting companies to own multiple radio stations in a single market. Following these changes, local marketing agreements largely fell out of favor for radio, as it was now possible for broadcasters to simply buy another station outright rather than lease it – consequentially triggering a wave of mass consolidation in the radio industry. However, broadcasters still used local marketing agreements to help transition acquired stations to their new owners.

The first local marketing agreement in North American television was formed in 1991, when the Sinclair Broadcast Group purchased Fox affiliate WPGH-TV in Pittsburgh, Pennsylvania. As Sinclair had already owned independent station WPTT (now MyNetworkTV affiliate WPNT) in that market, which would have violated FCC rules which at the time had prohibited television station duopolies, Sinclair decided to sell the lower-rated WPTT to the station's manager Eddie Edwards, but continued to operate the station through an LMA (Sinclair eventually repurchased the station – then assigned the call letters WCWB – outright in 2000, after the Federal Communications Commission began permitting common ownership of two television stations in the same market, creating a legal duopoly).

Sinclair's use of local marketing agreements would lead to legal issues in 1999, when Glencairn, Ltd. (since restructured as Cunningham Broadcasting) announced that it would acquire Fox affiliate KOKH-TV in Oklahoma City, Oklahoma from Sullivan Broadcasting; Glencairn subsequently announced plans to sell five of its 11 existing stations that were operated by Sinclair under LMAs to that company outright. As the family of Sinclair Broadcast Group founder Julian Smith controlled 97% of Glencairn's stock assets (which remains the case under its Cunningham structure) and the company was to be paid with Sinclair stock in turn for the purchases, KOKH and Sinclair-owned WB affiliate KOCB (now a CW affiliate) would effectively constitute a duopoly in violation of FCC rules. The Rainbow/PUSH coalition (headed by Jesse Jackson) filed challenges against the sale with the FCC, citing concerns over a single company holding two broadcast licenses in a single market and argued that Glencairn was masquerading as a separate minority-owned company (Edwards, who served as Glencairn's president, is African American) when it was really an arm of Sinclair that the company used to gain control of the stations through LMAs. After the FCC updated its media ownership rules to allow a single company to own two television stations in the same market in August 1999, Sinclair restructured the deal to acquire KOKH outright. In 2001, the FCC issued a $40,000 fine against Sinclair for illegally controlling Glencairn.

In 1999, the FCC modified its media ownership rules to count LMAs formed after November 5, 1996 that cover more than 15% of the broadcast day toward the ownership limits for the brokering station's owner. Even still, the related joint sales and shared services agreement structures became increasingly common during the 2000s; these outsourcing agreements proliferated between 2011 and 2013, when station owners such as Sinclair and the Nexstar Broadcasting Group began expanding their portfolios by acquiring additional stations in an effort to drive scale as well as to gain leverage in retransmission consent negotiations with cable and satellite television providers.

Uses

Consolidation

The most common use of an LMA in television broadcasting is to create a "virtual duopoly", where the stations operated under the agreement are consolidated into a single entity. The operations of the stations can be streamlined for cost-effectiveness through the sharing of resources, such as facilities, advertising sales, personnel and programming. Many broadcasters that engage in the practice believe that such agreements are beneficial to the survival of television stations – especially in smaller markets, where the overall audience reach is considerably less than that of markets that are centered upon densely populated metropolitan areas, and the cost savings achieved through the consolidation of resources and staff may be necessary to fund a station's continued operation.

Sharing agreements may also be used as a loophole to control television stations in situations where it is legally impossible to own them outright. For instance, FCC regulations only allowed a single company to own more than one full-powered television station in a given market if there are at least eight distinct station owners, and also prohibits the ownership of two or more of the four highest-rated stations (based on total day viewership) in a market. An LMA or similar agreement does not affect the ownership of the station's license, meaning that they do not require the approval of the FCC to establish, and the two stations are still legally considered separate operations from a licensing standpoint. Both Tribune Media and the Gannett Company

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