DirecTV says it opposes WADL sale to Mission, Nexstar

A low-rated, family-owned TV station in Detroit is at the center of a heated dispute at the FCC that has pitted the nation's largest broadcast operator against various industry groups.

A low-rated, family-owned TV station in Detroit is at the center of a heated dispute at the FCC that has pitted the nation's largest broadcast operator against various industry groups.

A low-rated television station in Detroit is the star of a heated battle at the Federal Communications Commission (FCC) that has pitted public interest groups against the largest independent owner of broadcast stations in the country.

On Tuesday, satellite and streaming television service DirecTV became the latest to oppose the pending sale of WADL (Channel 38) to Mission Broadcasting, a holding company whose 30-odd licensed stations are entirely operated by Nexstar Media Group.

DirecTV’s opposition comes as the pay television provider battles Nexstar on two other fronts: a federal antitrust lawsuit filed in March accusing the broadcaster of collusion, and an ongoing dispute over carriage of 160 stations that are wholly owned by Nexstar, which have been unavailable to DirecTV subscribers since early July.

Nexstar is the largest independent operator of ABC, CBS, Fox, NBC and CW Network affiliates in the country. The company says it complies with a federal rule that prohibits any one broadcaster from owning licensed stations that reach more than 38 percent of American households. But opponents say its operational control of stations owned by Mission allow it to circumvent this restriction, and makes it a de facto owner of those stations.

That viewpoint is at the heart of objections made by the American Television Alliance (ATVA) and NTCA the Rural Broadband Association (NTCA) in June, about one month after Mission announced it was acquiring WADL from a small, family-owned company. In briefs sent to the FCC, ATVA and NTCA color Nexstar as a de facto owner of stations licensed to Mission, because it controls nearly all aspects of Mission’s business — and that situation could get worse if Mission is allowed to acquire WADL.

WADL is one of the few television stations in the country that is still licensed to and operated by a family-owned enterprise.

The station was conceived in the mid-1980s by Frank Adell, a businessman who operated an automotive parts retailer. Working with his son Kevin, Adell agreed to take out a reverse mortgage on his Detroit-area home to finance the construction of a new broadcast tower and cover fees related to the application of an FCC television license.

WADL signed on the air in 1989, offering a block of classic movies and retro television shows that were cheap to license and which filled out parts of the broadcast day that was otherwise occupied with home shopping-related programming.

Throughout the years, WADL served as a spillover channel for CBS and NBC network programming that was pre-empted by their main affiliates in Detroit. It also served as the programming distributor for Fox Kids, which helped the station find a footing among younger viewers, who are part of a key demographic attractive to brand marketers and advertisers.

Over the years, the Adell invested significantly in WADL. They green-lit the development of original programs — including a weekly talk show that was hosted by a local reverend — and solicited financial investments from family and friends to keep the station going. The family also disbursed company stock to WADL employees as a form of compensation, giving them equity in the station and the company.

As a private-held company, Adell Broadcasting has never had to disclose how much revenue WADL earned, or whether the station is even profitable. But in filings made with the FCC this summer, attorneys representing Adell and its shareholders affirmed the changing media landscape has not been favorable to the station.

Out of eight full-power television stations broadcasting to Detroit, WADL regularly ranks seventh in the ratings, the company affirmed in a brief filed with the FCC and reviewed by The Desk. Its market position meant Adell did not have the enough leverage to demand fees from cable and satellite companies for carriage of WADL, and instead had to rely on a federal rule that forces cable and satellite companies to offer local TV stations upon request.

The rule, called “must-carry,” has been relied upon by low-rated TV stations and some public broadcasters to extend their reach through cable and satellite, but comes with a significant compromise: Stations that invoke the must-carry rule can’t demand retransmission fees from cable and satellite operators.

For years, the must-carry demand allowed the Adell family to sell advertising against WADL’s presumed exposure to hundreds of thousands of cable and satellite customers in Detroit. But in recent times, WADL’s reach has decreased, due in large part to a significant drop in cable and satellite subscribers.

“The media landscape has changed over the years,” representatives for Adell wrote to the FCC last month. “Now, more than ever, it is difficult to operate as a single-station television broadcaster. WADL is ranked seventh in the market in revenue and audience share. Adell Broadcasting has done the best it can; however, it has struggled to compete for programming and viewers against other broadcast stations in Detroit…and the myriad of new media platforms in the ever-changing television industry.”

For those reasons, it was not hard for the Adell familiy to ignore an invitation made earlier this year by Mission Broadcasting to discuss the future of their station.

The conversations largely centered around whether the Adell family was willing to sell their only full-power TV station to Mission, whose portfolio of 30 broadcast outlets are entirely controlled by Nexstar.

The Adell family had few reservations about the deal. It would allow them to see a return on decades of investments in the station, which would be passed along to WADL’s numerous former employees and other investors. And the offer came at a time when the Adell family was struggling to continue operating WADL: The broadcast industry seemed to tilt in favor of major media corporations like Nexstar, not small, family-owned companies like theirs.

Nexstar needed this deal, too. Last year, the company reached a deal to acquire a controlling stake in the CW Network from Paramount Global and Warner Bros Discovery. Several months later, Paramount announced it would drop CW Network programming on eight of its television stations, including WKBD (Channel 50) in Detroit, converting them to full-time, independent broadcasters.

Nexstar responded by moving the CW Network affiliation to several of its own independent stations in key markets, including KRON (Channel 4) in San Francisco and WPHL (Channel 17) in Philadelphia. It also reached a deal with McKinnon Broadcasting to buy San Diego independent station KUSI (Channel 51), which will serve as the future home of the CW Network there.

But Detroit posed a problem for Nexstar. The company doesn’t own a television station in the market, which means there was no obvious place to move CW Network programming once WKBD dropped their affiliation.

Detroit’s size also made things complicated: The region is the 13th largest television market in the country comprised of more than 1.85 million households. Nexstar could not simply buy a TV station in Detroit without running afoul of federal ownership caps, unless it sold or otherwise divested enough broadcast outlets in other areas to come under the limit.

Which is precisely why Mission, not Nexstar, was discussing the matter with Adell. Though Nexstar handles all business and operational matters for nearly three dozen Mission stations, the stations are technically licensed to Mission, not Nexstar — a loophole that Nexstar and some of their competitors have exploited to come under federal ownership caps in recent times.

In May, Adell announced it reached an agreement to sell WADL to Mission. The deal was valued at $75 million, according to some local media reports. In regulatory filings, legal representatives for Adell said they were fully aware that Nexstar would ultimately operate their station if the transaction closes.

Almost immediately after the sale was announced, the ATVA and NTCA filed informal objections with the FCC, urging the regulator to block the deal on the grounds that it would give Nexstar too much power.

In briefs filed with the FCC, the public interest groups argued that Mission was nothing more than a shell company that allowed Nexstar to exploit inadequacies in the federal ownership laws, which do not expressly prohibit one broadcaster from operating a station licensed to another.

For one, the groups pointed out that Nexstar was fully financing the sale, and that the deal was almost certainly intended to benefit its CW Network, which Nexstar also controls. They also argued that Nexstar would likely change WADL’s “must-carry” status to one where the broadcaster demands fees for distribution on cable and satellite, which could eventually make the channel unavailable to pay TV subscribers in Detroit.

On each individual point, nothing Nexstar was doing was necessarily illegal or otherwise prohibited under the FCC’s rules, the ATVA and NTCA affirmed. But, taken as a whole, it seemed obvious that Nexstar — not Mission — was the benefactor of the proposed transaction involving WADL, and they argued that should be enough to block the deal.

The objections triggered a strong rebuke from attorneys representing Mission, who also count Nexstar among their tenured corporate clients.

“With their challenge to the proposed assignment of WADL, the [cable and satellite TV] interests may have hit their lowest point,” the attorneys wrote in a brief filed with the FCC last month and obtained by The Desk.

Mission’s legal representatives went on to argue that no one with a “concrete interest in the proposal” had actually objected to it — either with the FCC or in public statements — and that alone should be enough to suggest to there was virtually no substantial opposition to the transaction.

“No competitor in the Detroit television market has objected to the sale [of WADL] to Mission,” the attorneys wrote. “No viewer of WADL has opposed it. Not even an actual multichannel video programming distributor…serving the market has lodged a challenge.”

Reached for comment this week, a spokesperson for DirecTV affirmed the company did not file an informal objection with the FCC on its own, but said the ATVA spoke on its behalf as represented by its membership in the group.

“Let’s be very clear: ATVA represents individual MVPD members,” the DirecTV spokesperson said in an email to The Desk. “DirecTV stands behind ATVA’s filing and firmly opposes Mission’s acquisition of WADL-TV as proposed. For years, Nexstar has used Mission as a sham ‘sidecar’ to evade local ownership limitations, and now it is using this same structure to evade national ownership limitations. Unless the FCC blocks these types of transactions, they can be used without limits to evade ownership limitations that are intended to preserve competition, localism, and diversity.”

A few of DirecTV’s closest competitors are also rallying behind ATVA in their push for the FCC to block the sale, according to a source familiar with the matter. Those competitors include Altice U.S., Charter Communications, Dish Network, Frontier Communications and Verizon, as well as the rural cable and broadband cooperative ACA Connects, which is also an ATVA member.

Some of those companies have squared off against Nexstar over the last few years amid demands for higher fees paid in exchange for the right to redistribute Nexstar’s local ABC, CBS, Fox and NBC stations. Last October, Verizon pulled several stations owned or operated by Nexstar from its Fios TV platform over demands for more money. Nearly three months later, Dish did the same, blacking out 30 Nexstar-controlled local stations that are still unavailable to subscribers today.

DirecTV has been particularly aggressive against Nexstar: In March, the satellite company filed a federal antitrust lawsuit accusing Nexstar of illegally conspiring to raise retransmission fees. Three months later, DirecTV was forced to drop nearly 200 local stations owned by Nexstar after a carriage agreement between the two companies lapsed.

Executives at Nexstar do not deny seeking higher fees for their channels; they have even publicly acknowledged the practice as part of their overall business strategy. Nexstar also contends that its operation of stations licensed to other companies is in line with federal regulations, which do not outright prohibit the practice.

While those issues are at the heart of the ATVA and NTCA’s complaints, attorneys representing Mission argue that the objections are irrelevant, and that the FCC should approve the sale of WADL.

“The ATVA and NTCA pleadings are nothing more than the latest in a years-long series of efforts by [cable and satellite TV] advocates to bolster the profits of their members through advocacy for regulatory changes that favor only their constituents and, increasingly in recent years, broadside attacks on broadcast television transactions both large and — as here — small,” Mission’s legal representatives wrote.

Attorneys representing Adell also filed a response, saying the complaints made by ATVA and NTCA “contain nothing more than baseless claims and regurgitated arguments, all made in an attempt to have the [FCC] depart from precedent and change its rules and policies regarding retransmission consent.”

Adell’s legal representatives called the decision to sell WADL “challenging and emotional,” but noted that the station is “ranked seventh in the market” and has struggled as a business due to the ever-changing media landscape. They argue Mission is “well-suited to carry forward WADL and serve the station’s community and the broader Detroit area,” even though Mission does not operate a single television station on its own.

“As the proposed transaction is consistent with longstanding rules and precedent, NTCA’s and ATVA’s filings are merely veiled attempts to circumvent the formal rule-making process and have the [FCC] adopt new rules and policies governing retransmission consent by placing unprecedented conditions on the transaction,” attorneys for Adell said. “The Commission should not allow NTCA and ATVA to use Adell Broadcasting and this transaction as a sounding board to try to advance their policy objectives…there are more appropriate forums if NTCA and ATVA desire to seek changes to the [FCC’s] rules and policies, including filing a petition for rulemaking and engaging with Congress.”

Last week, ATVA filed a new reply brief, rejecting the notion that its informal objection was the wrong approach to take and calling on the FCC to consider the totality of the circumstances surrounding the WADL sale.

“Nexstar proposes to guarantee transaction financing, to negotiate retransmission consent for the station…, to sell all of the station’s advertising, and to at least ‘assist’ Mission with every aspect of the station’s operations,” the ATVA posited. “Nexstar already reports Mission’s stations as its own on its website. It consolidates financial results of Mission’s stations as its own in its SEC reports. Any one or two of these things might be sufficient to raise real party in interest questions; all of them together leave little doubt that Nexstar, not Mission, will control WADL.”

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Correction: An earlier version of this story erroneously referred to NTCA the Rural Broadband Association as “NCTA.”

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