Local Marketing Agreements: Appearances are Important


John PelkeyBy John M. Pelkey, Garvey Schubert Barer

Once a buyer has signed an agreement to purchase a broadcast station, it will be anxious to start operating that station as soon as possible. In non-broadcast deals, it is not at all uncommon for the parties to sign the purchase agreement and close immediately. Even in large transactions that require clearance from the antitrust authorities, the parties may be able to close within 30 to 60 days of the execution of the purchase agreement. Broadcasters are not so lucky. Obtaining final consent from the FCC for the purchase of the station usually will take 90 to 120 days. During that time, the buyer will understandably be anxious to start operating the station. It is seldom the case that anything good comes from delay. Rattled by the potential change in ownership, the staff starts looking for other jobs, advertisers question the desirability of continuing to buy time on the station and station maintenance may be delayed.

The usual response to the buyer’s anxiety is for the parties to enter into a local marketing agreement or “LMA” that permits the buyer to program the station prior to the closing. The FCC permits the buyer to program the station pending the closing, but subject to the requirement that the licensee continue to maintain control over the station’s programming, personnel and finances. A well-drafted LMA will include the talismanic language ensuring that, on paper at least, the licensee will continue to maintain control over these three areas of station operation. The parties’ observance of the mandates and restrictions included in the LMA with respect to station programming, personnel and finances is a necessary condition to compliance with the FCC’s rules and policies. The inclusion of such talismanic language in the LMA is not sufficient, however. Appearances are important and it is essential that the parties understand their importance if they are not to inadvertently provide support for a claim that there has been an unauthorized transfer of control of the station.

1. The buyer and the seller should each have a single point of contact responsible for fielding questions concerning the LMA.
Especially if the station is an important factor in the market, the press will want to know about the arrangement. If the station’s general manager provides one explanation of the way that the LMA works and the program director provides a second explanation and the business manager provides yet a third explanation, those three explanations will almost assuredly conflict. Equally assuredly, at least one of the responses will be misleading or just plain wrong. That will lead to a story in the local paper that inaccurately describes the operation of the station under the LMA.

Because newspaper reporters are working under time pressure and cannot be expected to understand the nuances of each of the businesses on which they report, the reporter is likely to file a story using concepts that both the reporter and the paper’s readers can readily understand. Frequently, the result is a newspaper article that mistakenly reports that the buyer has already purchased, and is operating, the station.

If the market in which the station is located is resident to a litigious competitor, that newspaper article and the assertions made in it can find themselves included in a complaint filed with the FCC. In that case, the parties will find themselves spending time and money explaining away the incorrect information provided by the station staff. While it is impossible to guarantee that the newspaper article will accurately reflect the differences between an LMA and a sale, the use of a single point of contact by each of the parties will help increase the chances that the reporter will be accurately informed of the essential characteristics of the arrangement.

2. The designated points of contact must be sensitive to the fact that the station is still the licensee’s station.
Until the FCC has granted its consent to the sale and the deal has closed, the station belongs to the seller and both the seller’s and the buyer’s designated points of contacts must keep that fact uppermost in mind in responding to any inquiries concerning the operation of the station during the LMA period. They should not say that the seller has “leased” the station to the buyer. They should not say that the buyer now “owns” the station. They should not say that the buyer is now “in charge of” the station. The buyer is simply providing programming to the station in accordance with an FCC policy that is now more than two decades old.

3. The station’s main studio must pass the “look, smell and feel” test.
If the main studio that has traditionally been used by the station will continue to serve as the station’s main studio during the LMA period, it will be less likely to cause confusion concerning the current ownership of the station. The studio will already bear signage reflecting that it is the station’s main studio. It usually will already have a phone number listed under the station’s call sign. It will also be likely to have adequate staffing so that anyone visiting the studio will come away with the impression that the studio really is the station’s studio. In other words, the studio will look, smell and feel like a broadcast station main studio.

Sometimes, however, it is not possible or desirable to continue to use the station’s main studio as the official main studio during the LMA period. The buyer may wish to relocate the station’s main studio to the building already being used by the buyer’s other stations in the market. The main studio that had been used by the station may no longer be available because the lease has expired or the rent has become so high that the station cannot be viably operated from the station’s traditional main studio. The LMA’d station may be a startup that has not yet established its main studio.

Whenever a station that is being programmed pursuant to an LMA uses a studio that has not traditionally been used by the licensee as the station’s main studio, the parties must pay careful attention to the location and appearance of the main studio so that it maintains the requisite “look, smell and feel” of a main studio being used by the LMA’d station.

The parties must make sure that the main studio is located such that it complies with the Commission’s requirements. It must be in the LMA’d station’s community of license, within 25 miles of the reference coordinates of the center of the station’s community of license or at a location within the principal community contour of any AM, or FM TV station licensed to the station’s community of license.

The station must be staffed fulltime by two employees, one of whom must be a managerial-level person who, although not required to be at the main studio at all times, must use the main studio as his or her base of operations. From an appearances perspective, the most flagrant LMA staffing faux pas is to leave the main studio unstaffed during normal business hours. Convincing the Commission that the long-abandoned gas station on Route 66 really is the LMA’d station’s main studio becomes awfully difficult if a representative from the Commission’s Field Office spent two hours waiting for someone from the station to show up at the gas station, especially if the inspector drove for three hours to get there.

There should be a sign with the station’s call letters on it on the outside of the building or in the lobby and another such sign should be on the door to the studio suite. If the main studio for the LMA’d station is also the main studio for the buyer’s other stations, there should be an additional sign with the station’s call letters on the door of the office reserved for use by the licensee’s employees. That sign should also list the titles of those licensee employees.

There should be a phone book listing for the studio that is in the name of the licensee, the call sign or the marketing name of the station and there should be at least one phone line reserved for the licensee’s use. That phone should be answered with the name of the licensee, the call sign or the marketing name of the station. The temptation will be to answer that phone with the buyer’s name. That should not be done.

Finally, the studios must be capable of originating programming and getting that programming to the transmitter by some means.

Even taking all the above measures will not protect the buyer and the seller from an allegation that they have engaged in a premature transfer of control of the station. They will, however, help to provide the factual backdrop that can help convince the FCC that such an unauthorized transfer of control has not occurred.

During his more than 30 years as a communications attorney, John Pelkey has done nearly everything that there is to do in the communications field. He co-authored the Supreme Court brief that sanctioned competition in long-distance telephone service. He argued both before the FCC and the court the case that led to the issuance of the nation’s first cellular authorization awarded through comparative hearing. He was co-counsel in the successful federal court proceeding that struck down the Fairness Doctrine. He represents both commercial and noncommercial broadcasters and has handled numerous broadcast sales transactions. He can be contacted at [email protected].