NSR Policy: It’s the Election, Stupid (or Is It?): Comparing Harris and Trump on Media Policy

Between now and election day,[1] the impact of policy on capital markets will largely be a function of which party markets believe will be in control of the White House and Congress for the next several years.  This makes some sense, as the party in control will have the opportunity to dictate policy affecting the stocks we cover.  It also makes sense in that this election presents two widely divergent views of the appropriate role of government in the economy.[2]

But as we discuss in this series of notes—which summarizes the state of play and likely election impact of the policy debates affecting the stocks we cover that are currently in the process of resolution--many issues are not election dependent. Instead, they will be dealt with by the courts, the states, or other government jurisdictions, such as the EU. Still, the election will have a significant impact on market behaviors and specific stocks, though not always in ways that the conventional narrative suggests, as discussed below.

This series will arrive in five parts:

• The first, on telecom policy, addressed how the conventional wisdom on the impact of the election is wrong by looking at what issues affect the revenues, margins, and opportunities for ISPs and which ones don’t (LINK);
• The second, on spectrum policy, discussed the ideological differences between the parties, but how those are likely to be less important than the practical (and political) realities of the Defense Department use of the most coveted spectrum (LINK);
• This third note, on media policy, discusses the sector most likely to feel the impact of policy as it goes through a major restructuring. Those policies, however, will not strictly follow a traditional conservative/liberal analysis;
• The fourth, on tech policy, involves some big differences between the parties, but with the locus of decision making still away from the nationally elected institutions; and
• A fifth that evaluates the nature of leadership, particularly at the FCC, the FTC and the DOJ, and how that plays into the likely policy outcomes.

It is not the purpose of these notes to provide an authoritative dive into any of these issues but rather to provide a broad overview of the different issues the election may impact as well as some broad directional themes that we think are important for investors to understand.  Throughout this fall we will be providing expert calls and more focused notes to provide insight into the likely direction of a policy under different election scenarios.

Part III

Media

Before addressing the election impact on specific issues, we want to highlight what we think are the most important points for investors to keep in mind.

The sector we cover most likely to be affected by the government policy in the next Administration is the media sector. 

• This is not because either party has a clearly thought out or well-articulated policy that seeks to reshape the sector. 
• Rather, it is because market forces are reshaping the sector and stakeholders within the sector want to respond to those changes by business model changes that run up against laws, FCC regulations, and current practices.
• While Congress and the FCC want many things from the media sector, they particularly prioritize the delivery of free local news and sports, while the investors in media, in the inevitable move from the linear television model to streaming, are devaluing local broadcasting and seeking to monetize sports in a different way.

As a general matter, investors should assume that a Republican victory would lead to greater government acceptance of whatever media enterprises want to do, and that Democrats would be more resistant to such changes.  But that is not true in all cases. 

• For example, while a Trump FCC would be more open to broadcast consolidation, we think it unlikely that a Trump FCC (and DOJ) would allow Comcast (and perhaps others[3]) to make any acquisitions.
• Indeed, we think the Trump appointees would review all deals in the media space through the lens of adherence to, or at least non-opposition to Trump political correctness. 
• Some will see this as an exaggeration, and we would not argue that such a review occurred in every transaction during the first Trump term.  Further, the courts would act as a backstop to prevent what one might think of as point-of-view based competition analysis, as the courts did with the Trump Administration’s efforts to block the T/TWX deal.[4]
• Still, we think investors should understand that when it comes to media consolidation, a Harris Administration is likely to view company moves through a policy lens while a Trump Administration is likely to view company moves through a transactional lens.
• Apart from transactions/consolidation, day-to-day operational restrictions (e.g., what some in the broadcast community characterize as “zero-tolerance” enforcement actions) would be expected to be restrained under a Republican-led FCC.

A hands-off government approach will have different impacts on different subsectors in different circumstances.

• The same local broadcasters who want a hands-off approach when it comes to media consolidation will want an activist government to prevent certain actions by the networks and multi-channel video programming distributors (MVPDs) that undercut the value of local broadcasters.

Specific Issues

Broadcast consolidation

• Issue:  Will the FCC rewrite the broadcast media rules to allow either greater broadcast consolidation on a national level or on a local level.
• If Harris wins:  Probably not, though a failure to do so may cause a court to again, attempt to force the FCC to do so.
• If Trump wins: Yes, but while the rules would be more favorable, the allowed transactions will likely primarily benefit those whose news coverage aligns with Trumps’ views.[5]
• Wild Card: While Congress set the National Ownership Cap, the FCC has set the parameters for other rules related to broadcast consolidation.  A court may find the FCC rules invalid under the major question doctrine, the Loper decision removing Chevron deference, or some theory we haven’t thought off, but, as with 5^th Circuit in the USF case, attracts the support of judge or appellate panel.  Further, a court, unlike the court that reviewed the FCC’s treatment of the Tegna deal, might simply decide to take away the FCC’s ability to send a deal to an ALJ.[6]
• Bottom Line:  Here, the election matters but the decline of the value of broadcast television may be greater than any value creation made possible by consolidation.[7]

Cable channel consolidation

• Issue: Will the government allow further consolidation of entities owning cable channels?
• If Harris wins: Depends on the size of the deal, the market power of the specific channels and traditional antitrust metrics.  In addition, Democrats have been concerned about cable consolidation causing an increase in consumer prices for MVPD packages and may object to deals on those grounds.
• If Trump wins: Will be willing to allow deals that Democrats wouldn’t but the deal review bottom line depends on who is asking.
• Bottom Line: As (unlike broadcasting) there are no rules that establish what is acceptable, there is likely to be a philosophical difference between the potential Administration’s DOJ’s, but the benefit to cable channel consolidation that Trump would offer is tempered by a potential point of view analysis of the transaction.

App programming consolidation

• Issue:  Will various streaming services be able to combine not through a merger but through an app, as Disney, Fox and Warner recently tried to do with sports and which a court held, in a motion for an injunction, that the joint venture was likely to be ultimately found illegal. The trial is set to begin early next year.
• If Harris wins: We think a Harris DOJ is likely to support that lower court ruling but that it would allow smaller streaming services with non-sports programming to be able to combine.
• If Trump wins:  We think a Trump DOJ is likely to oppose the lower court ruling, being more lenient toward such efforts, though its intervention may be too late to have an impact on the specific case.
• Bottom Line: We don’t know how the Court of Appeals will view the District Court decision, but we think the ‘consolidation through an app’ strategy is more likely to succeed in a Trump Administration than in a Harris Administration.

Other media related mergers

• Issue: Would other media mergers be allowed?[8]
• If Harris wins: It depends on the specifics of the transaction.
• If Trump wins: It depends on the specifics of who is seeking the transaction.
• Bottom Line:  The election will matter but not in an easily predictable manner.

Retransmission rules

• Issue: Currently MVPDs must gain consent from a local broadcast station before retransmitting its signal, a system known as “retransmission consent.”  However, broadcasters’ current reliance on advertising and retransmission revenues may not be sustainable.[9] In addition, some broadcasters are seeking to obtain potential retransmission revenues from virtual MVPDs.  The question is how the government would respond to efforts to change the current retransmission consent rules.
• If Harris wins: We don’t think the Democrats will want to change the current framework.
• If Trump wins:  We think the Republicans may want to change the current framework to assist the viability of Sinclair, expansion of Nexstar and perhaps assist the nascent Leo effort.[10]
• Bottom Line: While this is not certain, we think local broadcasters are more likely to achieve what they want under Republicans than under Democrats.

Sports Rights Licensing

• Issue: Live sports programming is the most important programming for broadcast television.  But it is increasingly moving to streaming platforms.[11]    Some in Congress agree and have expressed new concerns about national sports leagues migrating their live broadcasts to streaming platforms. This is happening in the middle of a “once-in-a-Cicada’s life” sports renewal rights season.
• If Harris wins: We doubt the government will intervene except to protect some consumers’ access to free local sports.
• If Trump wins: We doubt the government will intervene except to protect some consumers’ access to free local sports.
• Bottom Line: We see this less as a partisan issue and more as an issue involving where to draw a line that protects something very popular in Congress (their constituents’ ability to watch local sports for free) while allowing markets to monetize the value of the most popular programming.

Next Generation Television Standards

• Issue: Broadcasters are working on Next Generation TV involving a new standard that they say will combine the best features of broadcast television and broadband, allowing local stations to better personalize their broadcasts with information and interactive features to give viewers the content that is most relevant to them. While the Next Generation TV standard requires no additional spectrum and no direct government subsidies, broadcasters are seeking technical changes to how the government regulates broadcast television as well as changes that allow greater aggregation of spectrum. While there are some concerns about whether such a standard requires further consolidation, as a practical matter, creating a CONUS footprint by any single broadcaster is unlikely.  A consortium of Sinclair, Nexstar, Gray and Scripps can accomplish the same thing.  The issue is whether the government will “mandate” the standard by broadcasters and its inclusion in devices to receive broadcast signals?
• If Harris wins: The Biden FCC has been slow to resolve the issue because the standard isn't backwards compatible, and the Democrats fear some consumers without TV sets compliant with the new standard might lose access to some Over-the-Air programming unless they buy converters or new sets. Without paired transition channels and free converters some breakage somewhere is inevitable making it difficult for the Democrats to move forward as quickly or fully as the broadcasters would like.  It is possible that a Democratic FCC would approve some of the technical changes, but it is unlikely to mandate the standard unless such a mandate is seen as a national security imperative by providing backup GPS functionality to a vulnerable satellite-based system. That would change the political calculation as it would place broadcasters - as data distributors, not linear programmers - as useful complements in the broader data distribution ecosystem. 
• If Trump wins: We think a Trump FCC would be more sympathetic to what the broadcasters say they need to fully transition but would also be reluctant to impose a mandate for commercial purposes but could, if, as noted above, the mandate is seen as a national security issue.
• Bottom Line: We think the broadcasters would be more likely to accomplish their policy goals under Trump, but we caution that neither wants to create a situation in which it is the hand of the FCC that is seen as responsible for old equipment not working, and further market shifts are weakening broadcasters’ position faster than policy could fix it, if such a policy fix is in fact useful.

Network v. Affiliate Battles

• Issue: There is already a new phase of the long-standing battle between the networks and affiliates over compensation, including issues such as changing to a variable payment model from a fixed reverse-compensation fee, networks moving their content to non-broadcast distribution, or using satellites for national distribution.  If and when the local affiliates appeal to the government to stop certain network actions to “save local programming,” how does the government respond?
• If Harris wins:  This is a line drawing exercise where we think a Harris FCC may be inclined to draw a line more favorable to the national networks.
• If Trump wins: This is a line drawing exercise where we think a Trump FCC may be inclined to draw a line more favorable to the local affiliates in part due to the Trump relationship to Sinclair and Nexstar.
• Bottom Line: A lot depends on the specifics, but we think the starting point will be as described above.  But we note that whatever the FCC does is likely to be second-guessed by courts, that will be skeptical of any government action.

Enforcement Actions

• Issue: Broadcasters are challenging FCC enforcement actions, based on the recent Supreme Court Jarkesy decision.[12]  Would the FCC continue its current enforcement actions?
• If Harris wins: Yes, but a court, under the Jarkesy decision, may materially change the enforcement process.
• If Trump wins: A Trump FCC is likely to change its enforcement practices before a court order.
• Bottom Line:  A Trump FCC is likely to be more lenient in enforcement actions against friendly media companies, but we are not sure that will hold for media entities it does not regard as friendly.

Repurposing Bandwidth

• Issue: Those transmitting data will look at their models through a lens of dollars of profit per MHz. The dollars of profit per MHz for broadcasters are going down.  As noted above in the section on Next Generation TV standards, broadcasters themselves are attempting to repurpose their bandwidth to attract new revenue streams.  Depending on the outcome of those efforts, and the curve of the loss of linear television revenues, at some point, those distributing linear television will reconsider the calculus to determine if bandwidth should be repurposed to higher and better economic uses and then government will have to determine if that repurposing supports (as in facilitating next generation networks) or undercuts (such as in reducing localism) public policy goals.[13] 
• If Harris wins: We think the FCC will largely favor repurposing bandwidth up to the line where there is a real threat to the end of local broadcasting.
• If Trump wins: We think the FCC will largely favor repurposing bandwidth up to the line where there is a real threat to the end of local broadcasting.
• Bottom Line: We see this less as a partisan issue and more as an issue of managing an uncomfortable transition of something very popular in congress (local broadcasting and in particular local broadcasting of news and sports) but that is not very popular with the market.

Incentive Auction 2.0

• Issue:  Will there be another broadcast incentive auction?
• If Harris wins: The FCC will have to start looking more aggressively for spectrum to repurpose and there is no ideological reason not to consider another broadcast incentive auction.
• If Trump wins:  Commissioner Carr has already endorsed the idea but has provided no details.
• Bottom Line: This is less election dependent and more dependent on market factors (such as what is the demand for low-band spectrum)[14] and leadership dependent (such as does the leadership want to take on those broadcasters who would oppose any further effort to reduce the size of the broadcast spectrum band.)[15]  We could see either Democrats or Republicans pushing forward with it but to succeed requires leadership skills that we will have to evaluate when we learn who will lead the next Commission.

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[1] Well, we hope it is only between now and the election, but we concede that there are signs that the winner will not be determined by the usual process of simply counting votes.  That could extend the period of uncertainty.  But for purposes of this note, let’s be optimistic about a fair and transparent process revealing the winner within a day of the polls closing.

[2] Though not divergent in a traditional liberal v. conservative way.  But let’s not go down that rabbit hole here.

[3] As discussed in the footnote immediately below, Trump has previously suggested that news coverage he does not like warrants government action to take away broadcast licenses.  In the wake of this week’s ABC hosted debate both Trump and prominent supporters suggested that ABC should also be on the list of those who should lose their licenses.  The supporters went further and suggested that the ABC moderators be criminally charged for campaign finance fraud.

[4] We recognize that Trump himself might not put it that way but if you consider his views on NBC keeping its licenses, or his understanding of the First Amendment being that it would allow a law that would make it illegal to criticize judges he appointed, and the power of the FCC Chair to block transitions he or she does not like under the Tegna precedent, it is not a stretch to believe, for example, that Fox and Nexstar could be allowed to buy more stations but that Disney/ABC or Comcast/NBC could not.  And for those of you who think that the Trump opposition to the T/TWX deal was based on traditional Republican antitrust principles, we could cite many factors but for here would simply note that traditional Borkian antitrust analysis held that vertical deals were always good and that the T/TWX deal was a vertical deal.  Of course, the Trump DOJ lost at both the District Court and Court of Appeals level, but that deal did not require FCC approval where a Trump FCC Chair could have issued an unreviewable pocket veto.

[5] Again, see footnote above.

[6] This is not the way we would bet, though we could see a good lawyer finding language in the Jarkesy decision to make arguments not available in the Tegna review.  We are simply saying that the spirit of judicial activism, and the language of the Supreme Court decisions undercutting administrative agencies opens the door to a variety of previous unthinkable actions.

[7] We found it interesting that noted conservative activist Leonard Leo has stated he wants to “crush liberals” by investing in local broadcasting.  We don’t doubt that a Trump FCC would allow Leo to buy whatever he wants.  We are a bit skeptical, given the pro-Republican leanings of Sinclair and Nexstar and their already large local broadcast holdings, that buying local broadcasting would be the thing that crushes liberals.  But our point is, the attraction of local broadcasting for Leo is not its upside economic potential but rather its use as a political, rather than say, journalistic, platform.  Of course, he would not be alone in wanting to spend money to send messages rather than earn a return.  See Elon Musk with X, Phillip Anschutz with the Washington Examiner, or Murdoch seeking to make sure his empire stays in the hand of his one child who agrees with his politics. As Bruce Springsteen sang, predicting such behavior, “all men want to be rich/rich men want to be kings/and a king ain’t satisfied/’til he rules everything.”

[8] There are a variety of deals we can think of such as the DBS merger or the deal involving Paramount that don’t fall into the other buckets.

[9] As Sinclair Broadcast recently told the FCC, such revenues are not ‘secure in the long term.”

[10] We mean Leo as in Leonard (see footnote 5), not LEO as in Low Earth Orbiting satellite.  Though given Musk’s interest, we think Republicans will also want to assist LEOs.

[11] As Sinclair’s Chris Ripley recently noted, the migration of big sporting events to streaming exclusively is an issue that government should be looking at.

[12] For example, see this filing by Nexstar.

[13] We note that as a technical matter the cable industry is well on the way of facilitating such a repurposing.  For example, the era of the Cable Card is ending.  This will result in cable set top boxes go away and replaced with streaming boxes that transport everything as internet protocol.

[14] We don’t have a strong view on the demand for low-band spectrum, but we note that in August, TMUS filed comments with NTIA on 6G expressing the view that low band spectrum, like the 600 MHz spectrum that TMUS bought at the broadcast incentive auction, would be very valuable for the carriers in the delivery of 6G.

[15] While Blair, in his role as Executive Director of the National Broadband Plan, floated the idea of the incentive auction, some broadcasters vehemently opposed the idea, saying it was the equivalent of the “Bataan Death March” for broadcasting.  Blair responded that while he was not deeply steeped in the details of World War II, he felt certain that at the end of the Bataan Death March, the Japanese did not give the Allied soldiers multimillion-dollar checks.