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FCC inspector general sticks corruption probe into chairman Ajit Pai amid $4bn media merger

Fine line between free market and favors for pals

Follow the money

The JSAs enabled Sinclair to bypass ownership rules that prevented one company from owning too much of a local media market by reaching an agreement with another party to buy a station and then share resources and programming through the sales agreement. In effect, the company ran two stations while appearing to be only operating one.

The first and most famous example of this strategy was when Sinclair sold a station in Pittsburg to its own employee, Edwin Edwards, while retaining a second station. On paper they were two separate entities but in reality they were both run by Sinclair and accountable to its CEO David Smith. Smith's mother had a significant stake in Edwards' business.

The most relevant current example of this practice comes in the form of Armstrong Williams, an African-American who is the sole owner of Howard Stirk Holdings which owns seven TV stations in Alabama, Michigan, Nevada and South Carolina.

Howard Stirk Holdings is closely affiliated with Sinclair Broadcasting and shares multiple JSAs with the company. In a presentation sent to the FCC in 2014 arguing against the JSA rules, Williams spoke about his "good friend" David Smith, Sinclair CEO, and how he had persuaded him to purchase TV stations.

Most notably, both Williams and Smith were present at a meeting with Ajit Pai on January 19, 2017 – one day before President Trump's inauguration and three weeks before the FCC make its JSA rule change reversal.

As federal law requires, the meeting was registered by the company with a brief description of its intent sent to the FCC by its lawyer. That letter mentions Smith was present – but paints the meeting as being primarily between Williams and Pai, which is unusual given that Smith is effectively Williams' boss and represents a far more powerful media organization.

One version of events

The letter describes Williams arguing that the FCC should "address the continuing paucity of minority and new entrant broadcast ownership" in TV and outlining how his JSA agreements had "helped insure essential access to capital, financing, and successful station operations."

The letter does not record what, if anything, David Smith had to say on the matter or indeed whether any other matters were discussed. But the meeting will be of some interest to investigators digging into whether Pai used his position to further a corporation's goals.

It will also be of interest to investigators whether David Smith used his close relationship with Donald Trump to put in a good word for Pai. Three days after the Williams-Smith-Pai meeting, the president formally named Pai the new chair of the regulator.

Two months later, Pai sat down for one of the very few media interviews he has given since he took over as chairman... to Armstrong Williams. The 20-minute segment saw Williams repeatedly praise Pai. "Where do you find that kind of courage?" he asked him over his plans to deregulate the FCC.

In October, the FCC under Pai voted to eliminate the requirement that the owners of TV stations maintain a physical office in the same area as the station broadcasts.

In November, the FCC under Pai voted to "modernize its broadcast ownership rules and to help promote ownership diversity in the broadcast industry" by changing media ownership rules.

Commissioner Clyburn voted against and began her dissent: "The problems with this Order on Reconsideration are so glaring – both on process and substance, it is truly hard to decide just where to begin."

New standard

And the final piece of usual decision-making by Pai that had a direct, positive impact on Sinclair's business was an unexpected decision by the FCC to authorize the transmission of so-called "Next Gen TV" using the ATSC 3.0 standard.

The standard is controversial since it is not backwards compatible, and FCC Commissioner Jessica Rosenworcel used her first speech as a returning official to slam the decision, complaining that the FCC was "about to rush this standard to market without understanding the consequences for consumers."

"This is not a great boon for consumers," she argued. "It's a tax on every household with a television." She proposed instead that the FCC "go back to the drawing board" and come up with a way to move over to the new standard "that better serves the public interest."

So what was the rush, and why did the FCC push this new standard? It may be no coincidence that one of the biggest advocates for ATSC 3.0 is none other than David Smith, CEO of Sinclair Broadcasting.

Sinclair holds several patents related to the standard – and stands to make billions of dollars if it becomes the default system for TV broadcast in the United States. ®

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