United States of America v. Sinclair Broadcast Group, Inc.

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
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UNITED STATES OF AMERICA, et al., )
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Plaintiffs, )
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v. ) Civil Action No. 14 -cv- 01186 (TSC)
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SINCLAIR )
BROADCAST GROUP, INC., et al., )
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Defendants. )
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MEMORANDUM OPINION
The United States of America and the Commonwealth of Pennsylvania (the
“Commonwealth”) bring this case against Sinclair Broadcast Group, Inc. (“Sinclair”) and
Perpetual Corporation (“Perpetual”) for alleged antitrust violations arising out of Sinclair’s
proposed acquisition of Perpetual. The United States and the Commonwealth allege that the
proposed acquisition would likely substantially lessen competition in the sale of broadcast
television spot advertising in the Harrisburg-Lancaster-Lebanon-York, Pennsylvania Designated
Market Area1 (“HLLY DMA”), in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18.
(ECF No. 1, Compl. 1–2; ECF No. 3, Competitive Impact Statement (“CIS”)).
Pending before the Court is the United States’ Motion and Memorandum for Entry of the
Proposed Final Judgment (ECF No. 14). While the Motion was filed by the United States, the
attached Certificate of Compliance indicates that the Commonwealth, Sinclair, and Perpetual
join in the Motion. For the following reasons, the Court grants the Motion.
1
A DMA is a geographic unit defined by the A.C. Nielson Company for television ratings and advertising purposes.
(CIS 4; see also Compl. ¶ 19).
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I. BACKGROUND
a. Defendants and the proposed acquisition
Sinclair, a Maryland corporation headquartered in Hunt Valley, Maryland, owns or
operates over 145 commercial broadcast television stations in 70 markets in the United States,
including two in the HLLY DMA, known as WHP-TV and WLYH-TV. (CIS 2).2 Perpetual, a
Delaware corporation headquartered in Arlington, Virginia, owns and operates American
Broadcasting Company (“ABC”) affiliated full-power broadcast television stations in six DMAs,
including the only ABC affiliate serving the HLLY DMA, known as WHTM-TV. (Id.). On July
28, 2013, Sinclair and Perpetual executed a Purchase Agreement whereby Sinclair would
purchase all of the outstanding voting securities of Perpetual. (Id. at 3).
b. Alleged harm resulting from the acquisition
Pursuant to Section 2(b) of the Antitrust Procedures and Penalties Act (“APPA” or
“Tunney Act”), 15 U.S.C. § 16(b)–(h), the United States filed a CIS with the Complaint to
explain the anti-competitive impact of Sinclair’s acquisition of Perpetual.
The relevant product market for purposes of Section 7 of the Clayton Act is that of
television spot advertising. (Compl. ¶¶ 13–18; CIS 3). Television stations sell advertising time
during broadcasts to those seeking to reach viewers attracted by television programming. (CIS
3). Advertisers purchase broadcast “spot” advertising to target viewers within specific
geographic markets. (Id.). Spot advertising differs from network and syndicated television
advertising, which are sold nationally by major television networks and by producers of
syndicated programs and broadcast in every market where the network or program is broadcast.
(Id.). Due to its unique combination of sight, sound, and motion, and its expansive reach to
particular geographic markets, television spot advertising has no close substitute for a significant
2
For the sake of simplicity, the Court cites the CIS for information that appears in both the Complaint and CIS.
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number of advertisers. (Id.). Through information obtained during individual price negotiations,
stations can readily identify advertisers with strong preferences for using broadcast television
spot advertising and charge different advertisers different prices. (Id. at 4). With no close
product substitute, a small but significant increase in the price of broadcast television spot
advertising is unlikely to cause enough advertising buyers to switch their purchases to other
media to make that price increase unprofitable. (Id.).
The relevant geographic market for purposes of Section 7 of the Clayton Act is the
HLLY DMA, which is the 43rd largest in the United States and contains over 740,000
households. (Id.). Advertisers, whether located within or outside the HLLY DMA, use stations
within that DMA to reach the most viewers residing there. (Id.). Advertising on stations outside
the HLLY DMA is not a substitute for advertising on stations within the HLLY DMA, because
signals from stations outside that DMA reach relatively few viewers residing within it. (Id.).
Sinclair owns and operates CBS-affiliated WHP-TV and, through an existing agreement
with a non-party, operates CW-affiliated WLYH-TV, and therefore controls the advertising
revenue of two of six broadcast stations within the HLLY DMA. (Id.). Post-acquisition, Sinclair
would control the advertising revenue of three of six broadcast television stations within that
DMA: WHP-TV (CBS), WLYH-TV (CW), and WHTM-TV (ABC). (Id.). The proposed
acquisition would increase Sinclair’s share of broadcast television spot advertising revenue from
21 to 30 percent and would substantially increase the already high market concentration in the
HLLY DMA. (Id.).
The United States found that the proposed acquisition would likely substantially lessen
competition in the sale of broadcast television spot advertising in the HLLY DMA. (Id. at 3).
Competition between WHTM-TV, WHP-TV, and WLYH-TV for the sale of broadcast television
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spot advertising in the HLLY DMA would be eliminated entirely, and therefore the prices for
broadcast television spot advertising within the HLLY DMA would likely increase. (Id. at 5).
The United States also found that the proposed acquisition would both increase market
concentration and result in a highly concentrated market under the Horizontal Merger Guidelines
issued by the Department of Justice and the Federal Trade Commission. (Id.; see also Compl.
App. A).
In addition to increasing market concentration, the United States concluded that the
proposed acquisition combines stations in the HLLY DMA that are “close substitutes and
vigorous competitors in a market with limited alternatives.” (CIS 6). For example, WHP-TV
and WHTM-TV and their affiliations with CBS and ABC, respectively, along with their local
news coverage, offer a variety of competing programming options that are often substitutes for
many advertisers. (Id.). The stations also share strong viewership in the northern counties of the
geographically diverse HLLY DMA and appeal to similar demographic groups. (Id.).
The only local ABC affiliate, WHTM-TV, vigorously competes with Sinclair’s CBS and
CW affiliates (WHP-TV and WLYH-TV, respectively) “for the business of local, regional, and
national firms seeking spot advertising in the HLLY DMA.” (Id.). Direct competition for spot
advertising between WHTM-TV and the Sinclair’s existing two stations benefits advertisers
seeking to target similar demographics since those advertisers can pit the stations against each
other. (Id.). The United States concluded that Sinclair’s acquisition of WHTM-TV and resulting
control over three of the six broadcast television stations in the HLLY DMA would eliminate
this competition and thereby likely enable Sinclair to raise prices unilaterally for spot advertising
on its stations. (Id.).
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The United States also concluded that absent divestiture, any entry or expansion in the
HLLY DMA broadcast television spot advertising market would not be timely, likely, or
sufficient to prevent anticompetitive harm. (Id. 6). A new station, should it first overcome the
hurdle of obtaining an FCC license, would likely not achieve commercial success for at least a
period of years. (Id. at 7). Alternatively, existing stations in the HLLY DMA could not readily
increase their advertising capacity or alter their programming enough to offset a price increase by
Sinclair given their existing programming schedules and contractual commitments with their
affiliated networks. (Id.).
c. Procedural history
On July 15, 2014, the United States and the Commonwealth filed their Complaint,
alleging that Sinclair’s proposed acquisition of Perpetual violates Section 7 of the Clayton Act.
Plaintiffs also filed a proposed Hold Separate Stipulation and Order (ECF No. 2-1) intended to
maintain competition during the pendency of the ordered divestitures, and a Proposed Final
Judgment (ECF No. 2-2) to ultimately ensure Defendants’ prompt divestiture of specific
“Divestiture Assets” and preserve competition for broadcast spot advertising within the HLLY
DMA. On July 21, 2014, the Court issued the Hold Separate Stipulation and Order.
The term “Divestiture Assets,” as used in the parties’ filings and herein, includes all
assets used primarily in the operation of WHTM-TV and are the same assets that Sinclair would
have acquired from Perpetual under the Purchase Agreement. (CIS 7). 3 These assets include
real property, equipment, FCC licenses, contracts, intellectual property rights, programming
materials, and customer lists maintained by Sinclair or Perpetual in connection with WHTM-TV.
(Id.) They do not include assets that are not primarily used in the operation of WHTM-TV but
3
See the Final Judgment, issued this same day, for a complete and operative definition of the Divestiture Assets.
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are instead maintained at the corporate level and used to support multiple stations, such as back-
office systems and other corporate-level assets. (Id. 7–8).
Subject to the Court’s Hold Separate Stipulation and Order, Defendants were permitted to
consummate the proposed acquisition subject to ongoing requirements that Defendants continued
operating WHTM-TV as a competitively independent, economically viable business
uninfluenced by Sinclair, with the effect of maintaining competition in the relevant marked until
divestiture occurred. On August 1, 2014, pursuant to Section VIII of the proposed Final
Judgment, Sinclair notified the United States that it had executed a definitive agreement with
non-party Media General Operations, Inc. (“Media General”) for Media General to acquire the
Divestiture Assets. (Mot. 2). Twelve days later, the FCC approved the assignment of the
WHTM-TV station license to Medial General, and the transaction closed on September 2, 2014.
(Id.).
Defendants filed their Joint Tunney Act Notice of Written or Oral Communications, in
compliance with 15 U.S.C. § 16(g), on July 21, 2014. Pursuant to the Act, the United States
filed the Proposed Final Judgment and CIS with the Court simultaneously with the Complaint,
and published the Proposed Final Judgment and CIS in the Federal Register on July 23, 2014, see
79 Fed. Reg. 42,817 (July 23, 2014). (ECF No. 14-1, Cert. of Compliance 1). Further, the
United States published summaries of the terms of the Proposed Final Judgment and CIS,
together with directions for submitting written comments, in The Washington Post for seven days
between July 22 and 28, 2014. (Id.). The sixty-day period for public comments ended on
September 26, 2014. (Id.). The United States received no responsive written comments. (Id. 2).
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Since divestiture has occurred, the Divestiture Assets are now owned by Media General,
and all requirements of the Tunney Act have been met, the parties move the Court to enter their
Proposed Final Judgment.
II. ANALYSIS
a. Standard of review
The Tunney Act states:
(1) Before entering any consent judgment proposed by the United States under
this section, the court shall determine that the entry of such judgment is in the
public interest. For the purpose of such determination, the court shall consider--
(A) the competitive impact of such judgment, including termination of
alleged violations, provisions for enforcement and modification, duration
of relief sought, anticipated effects of alternative remedies actually
considered, whether its terms are ambiguous, and any other competitive
considerations bearing upon the adequacy of such judgment that the court
deems necessary to a determination of whether the consent judgment is in
the public interest; and
(B) the impact of entry of such judgment upon competition in the relevant
market or markets, upon the public generally and individuals alleging
specific injury from the violations set forth in the complaint including
consideration of the public benefit, if any, to be derived from a
determination of the issues at trial.
(2) Nothing in this section shall be construed to require the court to conduct an
evidentiary hearing or to require the court to permit anyone to intervene.
15 U.S.C. § 16(e).
In making its determination, the Court may not simply “rubberstamp” the government’s
proposal; instead, it must engage in an “‘independent’ determination of whether a proposed
settlement is in the public interest.” United States v. SBC Commc’ns, Inc., 489 F. Supp. 2d 1, 15
(D.D.C. 2007) (quoting United States v. Microsoft Corp., 56 F.3d 1448, 1458 (D.C. Cir. 1995)).
“[A] district court is not permitted to reject the proposed remedies merely because the court
believes other remedies are preferable,” Id. at 15 (citation omitted), and “should be deferential to
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the government’s prediction of the proposed remedies.” Id.; see also United States v. Am. Tel. &
Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) (“[A] proposed consent decree must be approved
even if it falls short of the remedy the court would impose on its own, as long as it falls within
the range of acceptability or is within the reaches of the public interest.”) (internal quotations and
citations omitted). In sum, “the relevant inquiry is whether there is a factual foundation for the
government’s decisions such that its conclusions regarding the proposed settlement are
reasonable.” SBC Commc’ns, 489 F. Supp. 2d at 15–16; 17.
The court may not, however, “make a de novo determination of facts and issues” in
conducting its public interest inquiry. United States v. Western Elec. Co., 993 F.2d 1572, 1577
(D.C. Cir. 1993), cert. denied, 510 U.S. 984 (1993) (internal quotation and citation omitted).
Rather, “[t]he balancing of competing social and political interests affected by a proposed
antitrust decree must be left, in the first instance, to the discretion of the Attorney General.” Id.(internal quotation and citation omitted). The court should therefore reject the proposed final
judgment only if “it has exceptional confidence that adverse antitrust consequences will result—
perhaps akin to the confidence that would justify a court in overturning the predictive judgments
of an administrative agency.” Microsoft, 56 F.3d at 1460 (internal quotations and citation
omitted); see also SBC Commc’ns, Inc., 489 F. Supp. 2d at 15–16 (concluding that the 2004
amendments to the Tunney Act did not address or undermine the deferential standard of review
articulated in Microsoft).
The United States received no public comments in response to the CIS and Proposed
Final Judgment and therefore the parties now jointly seek entry of the Proposed Final Judgment
without further hearings. (Cert. of Compliance 2). For these reasons and pursuant to its
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authority under 15 U.S.C. § 16(e)(2), the Court finds no compelling reason to conduct a hearing
to aid its public interest determination.
b. Public interest determination
In this case, whether the settlement is in the public interest depends on the adequacy of
the divestiture of the WHTM-TV assets. If there is a factual basis for concluding that the
divestiture is a reasonably adequate remedy for the harm alleged in the Complaint, then the
settlement should be approved; if not, it should be rejected. The United States indicates that it
considered no determinative materials or documents within the meaning of the APPA in
formulating the Proposed Final Judgment. (CIS 15). Therefore, the Court focuses solely on the
CIS.
The impact of the Proposed Final Judgment is to eliminate the anticompetitive effect
Plaintiffs allege in their Complaint. That is, the sale of the WHTM-TV Divestiture Assets to
Media General precludes any increase in broadcast television spot advertising in the HLLY
DMA that would result directly from Sinclair’s ownership of three of the six broadcast television
stations in that market. The Court finds that the Proposed Final Judgment includes adequate
provisions in Section X enabling the Department of Justice to ensure compliance and
enforcement, and detailed provisions in Section XI precluding reacquisition and other
detrimental activities short of reacquisition. By its terms, the Proposed Final Judgment will
expire in ten years and the Court shall retain jurisdiction over it for purposes of enforcement,
modification, and violation. Lastly, the Court considers that the parties agreed to the terms of the
Proposed Final Judgment as well as its entry.
Perhaps because divestiture and the Proposed Final Judgment were designed to eliminate
the anticompetitive harm it alleged, the United States has not proposed any alternative remedies
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short of a full trial on the merits. Given the parties’ full compliance with the Tunney Act and the
absence of any public comments, the Court discerns no public benefit to a trial instead of
accepting the parties’ proposed resolution of this matter.
III. CONCLUSION
The Court is satisfied with the parties’ compliance with the Tunney Act and the
consummated sale of the Divestiture Assets. Further, the Court finds on the record before it a
factual foundation for the government’s decisions such that the government’s conclusions
regarding the Proposed Final Judgment are reasonable, and ultimately that entry of the Proposed
Final Judgment is in the public interest.
Accordingly, Plaintiff the United States’ Motion and Memorandum for Entry of the
Proposed Final Judgment (ECF No. 14) is GRANTED. The Final Judgment shall issue
separately.
Date: November 25, 2014
Tanya S. Chutkan
TANYA S. CHUTKAN
United States District Judge
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