About 20% of the hugely valuable TV spectrum — slated for auction in 2014 — is reserved for noncommercial stations. Only noncommercial stations (mostly owned by universities and community non-profits) can operate on this spectrum and when they sell, they must sell to other eligible noncommercial operators. Two years ago, Congress made the fateful decision to allow noncommercial stations to cash out of their spectrum when it goes up for auction to wireless providers. That means that a university licensee can sell its spectrum and put the proceeds into a gym or a dorm. Or, the licensee can enter into a deal with a commercial entity to split the proceeds in return for subsidizing its operations until that fateful auction day. It’s like this: a nonprofit is granted (at no cost) public land to operate as a park, and then allowed to sell the land on the commercial market, splitting the proceeds with a private equity firm. The park is gone, and the public gets nothing other than more commercial real estate.
Well, not surprisingly, it’s happening. The private equity firm Blackstone is beginning to buy noncommercial stations in large markets in order to get a piece of the auction revenue when these stations are sold. To be clear, what this means is that noncommercial spectrum worth hundreds of millions of dollars will be liquidated, with the assets divided between private equity and the licensee, which can use the cash in an unrestricted manner. This Current story shows the emerging Blackstone footprint,
When the FCC was working with Congress on the auction legislation, the prospect of noncommercial stations cashing out was on my mind. I urged policymakers to consider a rule that accomplished two things: (1) give noncommercial stations enough incentive and skin in the game to participate in the auction if they weren’t using their spectrum efficiently for television or other services; and (2) ensure that the licensee’s share of the auction revenue would go back into community noncommercial media. This could take the form of an endowment not just for the licensee’s digital media productions, but for a broad range of new entrants. Why should a college, which was granted a license in the 1960’s and has often invested very little in its station, get to be the one to pocket the digital dividend — especially when it can be applied to anything, including athletic uniforms? Not surprisingly, there was no constituency for this proposal. Not the incumbent noncommercial broadcasters who want maximum autonomy with respect to their licenses. And not the emerging noncommercial digital media entities that might benefit from an endowment, since they are diffuse and unorganized.
It might be argued that this is no greater a scandal than the fact that commercial broadcasters that participate in the auctions (so far, not too many) are going to get windfall profits from the public airwaves. It’s actually quite different. The commercial entities have, by and large, invested much more in capex and operating funds in their stations. More to the point, we long ago gave up on the idea of commercial stations really serving the public in any non-market way. The commercial spectrum is moving from one commercial enterprise to another. We continue to have hopes, expectations, and rules governing noncommercial stations. And these transactions are a backdoor way of undoing all of that. It’s not too late for the FCC to take a hard look.