(Bloomberg) — The transfer of the Fox network’s Boston TV affiliate, WFXT, from one private equity giant to another is raising red flags about the potential for soaring pay-TV bills.
Shortly before it completes its $5.4 billion acquisition of TV station operator Tegna Inc., the private equity firm Standard General LP plans to buy the Boston station from an affiliate of Apollo Global Management Inc., which is helping to finance the larger deal.
According to Altice USA Inc, a major cable operator, the sale of that single station could pave the way for Standard General to increase rates for pay-TV customers in markets far beyond Boston.
Public-interest groups are also complaining about the deal.
Fees will climb “much sooner than the next three-year negotiation cycle if these transactions are approved,” the consumer advocates Common Cause and the United Church of Christ of Media Justice Ministry said in a June 22 filing with the US Federal Communications Commission, which must approve the sale.
On Tuesday the commission extended the period for outside comments on the deal until Aug. 1.
At issue are the so-called retransmission fees that cable and satellite TV distributors pay station owners for their programming.
In some cases when stations are acquired, the buyers can impose higher retransmission fees without renegotiating the deals with distributors.
The Tegna acquisition is unusually complex. Standard General is selling four TV stations it owns to CMG Media, formerly Cox Media Group, before the Tegna deal is consummated, according to merger documents.
Apollo, which owns 71% of CMG through one of its funds, is also among those buying $925 million worth of non-voting, preferred stock to help Standard General finance the Tegna deal.
Further complicating matters, Standard General is first buying the Boston station and then adding Tegna’s 64 stations to its lineup.
“Why would applicants go through this many hoops?,” Altice wrote to the FCC.
“One possibility is that they seek to apply Cox retransmission consent rates to new Tegna stations — even though Cox isn’t buying Tegna. The argument might be that, technically, Cox’s former Boston station is buying Tegna.”
Standard General said in a response to Bloomberg News that it believes there is “significant untapped potential at Boston’s WFXT station, which has underperformed its local peers over the last several years.” The investment firm said it believes it has the expertise to unlock growth across the Tegna stations.
“This transaction is not about retransmission synergies,” Standard General said.
Apollo declined to comment. Tegna did not respond to requests to do so. The parties said in an FCC filing last week that higher retransmission fees wouldn’t necessarily boost consumer cable bills, and that the FCC shouldn’t interfere with fee arrangements that were “freely negotiated.”
Retransmission fees are a big and growing business.
Industrywide, fees are projected to rise to almost $14 billion this year, compared with $9.5 billion in 2017, according to data compiled by Bloomberg Intelligence. The contracts between station owners and distributors aren’t public and terms are closely guarded.
They normally are set in negotiations every two to three years.
In 2020 while seeking board seats at Tegna, Standard General said the company’s retransmission fees “have historically lagged” those charged by broadcasters Nexstar Media Group Inc., Sinclair Broadcast Group Inc., and Gray Television Inc.
In their filing last week the companies called the proxy contest “completely irrelevant to the transactions at issue.”
It its June 22 filing, Altice said the FCC shouldn’t allow the companies to raise prices “through financial engineering and should condition any approval accordingly.”
In past rulings on broadcast mergers, the agency has declined to act on warnings about possible fee increases.
In 2017 under a Democratic chairman, it found “no apparent reason” to step in to modify the effects of clauses negotiated outside a merger.
In 2019 under a Republican leader, the agency said that “we do not believe that an increase” in the rates “is necessarily a public interest harm.”
Tegna shares have traded down in recent weeks and are now about 19% below the $24 in cash price that Standard General agreed to pay, suggesting investors see risk the deal won’t be approved.
The agency is in a 2-to-2 partisan split as a nominee who would give Democrats a majority awaits Senate confirmation.
The agency is led by Chairwoman Jessica Rosenworcel, a Democrat selected by President Joe Biden, whose administration has criticized mergers that lead to “excessive concentration.”
Rosenworcel declined to comment on the Tegna transaction, or to say whether she considered fees charged by broadcasters to be too high, when asked during a June 8 news conference.
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