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Shell company holds key to Central Coast TV station rollup

By   /   Friday, April 25th, 2014  /   Comments Off

The quest for control of the Tri-Counties’ airwaves comes as federal regulators are souring on deals that give control of multiple stations to one company through cozy arrangements with former executives.

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Lyle Leimkuhler might just be the most important person in broadcast television in the Tri-Counties. But you will never see him on air. In fact, he is a retired finance executive who lives in St. Joseph, Mo.

Leimkuhler, formerly of the News-Press & Gazette Co., is the key man in a pending transaction that would give one group full control over ABC, CBS and Fox affiliates in the region.

News-Press & Gazette owns KEYT and KKFX, the region’s ABC and Fox affiliates. Leimkuhler has asked regulators for approval to purchase KCOY, the region’s CBS station, through VistaWest Media, a shell company.

The quest for control of the Tri-Counties’ airwaves comes as federal regulators are souring on deals that give control of multiple stations to one company through cozy arrangements with former executives. The FCC has blessed such deals in recent years, including one in Idaho masterminded by News-Press & Gazette similar to its efforts on the Central Coast. But in December, the Justice Department blocked an arrangement that would have handed control of CBS and NBC in St. Louis to Gannett Co., a major media player.

Broadcasters say such deals — called sidecar arrangements — are necessary for them to remain viable businesses as viewers flock to the Internet for news and entertainment. Opponents dismiss those arguments. The FCC has long granted ownership waivers for stations in true financial distress, they say.

“They’re sometimes called sidecar agreements, but we just call it covert consolidation because they really are consolidating control over more than one station when the rules otherwise wouldn’t have allowed that,” said Matt Wood, policy director for Free Press, a Washington, D.C.-based group that advocates against concentration of media ownership.

One and the same

To thousands of consumers, the Tri-Counties’ ABC, CBS and Fox stations may already appear to operate as one and the same.

News-Press & Gazette bought Santa Barbara ABC affiliate KEYT for $14.3 million in 2012. Last year, the company also bought KKFX, the Fox station for the region, as part of a $22 million package of California stations owned by Cowles Publishing Co.

KCOY, the region’s CBS station, was also owned by Cowles. It wasn’t included in the package, ostensibly because of federal ownership rules. Instead of buying KCOY, News-Press & Gazette entered a shared-services deal to produce its news. The broadcasts are expected to begin soon.

However, legal ownership of KCOY, along with advertising sales and programming decisions, were kept separate from News-Press & Gazette’s stations.

But shortly after the news deal was announced, VistaWest Media applied to purchase KCOY for a base price of $1.2 million. VistaWest is controlled by Leimkuhler, a 30-year veteran of News-Press & Gazette. The financing for the deal is backed by yet another entity controlled by the Bradley family of St. Joseph, which owns News-Press & Gazette. Under the deal, News-Press & Gazette would have an option to buy KCOY for a nominal sum if regulators gave their blessing.

The VistaWest deal essentially gives control of ABC, CBS and Fox in the Tri-Counties to New-Press & Gazette. Leimkuhler has already executed a similar deal in Twin Falls, Idaho. There, Leimkuhler owns CBS affiliate KIDK and Fox affiliate KXPI, a low-power station, while News-Press Gazette owns ABC station KIFI. The stations produce news together through shared-services agreements.

Reached by phone, Leimkuhler was candid about the intent of the deal.

“The FCC rules preclude one entity from owning two full-power FCC licenses in the same market. KIDK is a full-power license, and so is KIFI,” he said. “If and when the FCC changes the rules, then yes, [News-Press & Gazette] would have the option to buy KIDK, and it would be same for KCOY.”

The FCC declined to comment on either of News-Press Gazette’s ownership deals.

Policy changes

The FCC has enforced ownership restrictions on broadcasters for decades. In general, media companies can’t own both a newspaper and a television station in the same market. They also can’t own more than one full-power television station in small markets. The rules are intended to keep one company from controlling too much of a market’s news coverage and maintain competition in broadcast advertising sales. But perhaps the most important reason for the rules is the citizenry’s access to the airwaves, which belong to the public under U.S. law.

“Can community groups and citizens access their TV stations, or do they have to go through the same people or personnel or corporate philosophy?” said Kent Collins, an associate professor of radio and television journalism at the University of Missouri.

Media companies have found ways around the rules. Some have used joint-sales agreements, where stations team up to sell advertising together. Others have used shared-services agreements, where stations produce news together. And in some instances, the participating stations are covertly owned by the same company.

“The policy issue is sort of a mess,” Collins said. “There are regulations about multiple ownership. Those policies have not been applied very stringently in this relatively recent six or eight years.”

But that could be changing. Last year, Gannett moved to buy media competitor Belo Corp. in a $2.2 billion deal that would have given it control over NBC and CBS affiliates in St. Louis. Initially, Gannett said it would spin the CBS station out into a company called Sander Media, owned by former Belo executive Jack Sander. The Department of Justice intervened and forced the station to be sold to an unrelated third party.

The FCC voted in March to begin reconsidering joint-sales agreements, the deals that let stations sell advertising together. It may unwind some of those deals. The regulators also voted to examine shared-services agreements such as the one between KEYT and KCOY in the Tri-Counties. The National Association of Broadcasters called the move “a punitive crackdown on local TV stations.”

Political advertising

While tri-county television stations have struggled in recent years, they remain the only media with regional reach during campaign season. In the wake of U.S. Supreme Court cases that loosened rules on campaign spending, political ads have become a bright spot for broadcasters. Moody’s Investor Service predicts local TV stations will garner about $2.6 billion in political advertisement spending in 2014.

Political advertising is so tightly regulated on broadcast stations that it’s nearly impossible for owners to overtly favor one candidate’s advertising. Station owners can’t turn away money from candidates and must give all candidates equally favorable rates in the weeks before an election.

But media consolidation is “worrisome” and the public should still be concerned about how many independent sources are collecting “what’s taken to be news,” said Herb Gooch, a political science professor at California Lutheran University in Thousand Oaks.

“The greatest bias is not in media telling you what to think, but what to think about. So the fewer the media outlets, the more the ‘marketplace of ideas’ is narrowed,” Gooch said in an email.

Wood, the anti-consolidation advocate, said that stations also have broad discretion over whether to run political advertising paid for by third parties.

“Stations can fact-check those. What we’ve seen is that stations will very rarely check into the claims of these ads by third parties,” Wood said. “For every minute of news time examining the claims in these interest group ads, you’ll get a thousand minutes of ads. It’s really landslide during the political season.”

Investment in news

News-Press & Gazzetto Co.'s headquarters in St. Joseph, Miss. (Creative Commons photo)

News-Press & Gazzetto Co.’s headquarters in St. Joseph, Miss. (Creative Commons photo)

The Bradley family and News-Press Gazette did not return requests for comment for this story. In an earlier Business Times interview about KEYT and KCOY’s joint news operations, KEYT General Manager Mark Danielson said that the company had invested nearly $1 million upgrading KEYT. He said the company is hiring 11 new journalists and investing nearly $1 million more into beefing up the joint news operation.

Danielson also said that each station will have newscasts distinct to its traditional home turf, with KEYT serving Santa Barbara and Ventura and KCOY focusing on Santa Maria.

“The Bradley family are long-term investors. You can’t put in those kind of resources for the short-term. The days of flipping properties are gone,” Danielson told the Business Times in an earlier interview. “They’re a fourth-generation company. They want to pass it on to a fifth generation.”

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