Ohio Attorney General Dave Yost announced a deal with Nexstar Media Group that gives the broadcaster the green light to acquire two local television stations owned by TEGNA in that state.
The deal, which takes the form of a “Memorandum of Understanding,” requires Nexstar to maintain separate news operations at WKYC (Channel 3, NBC) in Cleveland and WBNS (Channel 10, CBS) in Columbus. Nexstar already owns WJW-TV (Channel 8, Fox) in Cleveland and WCMH (Channel 4, NBC) in Columbus.
The stations were acquired by Nexstar last month following the company’s $6.2 billion acquisition of TEGNA, which was approved by the Federal Communications Commission (FCC) and the U.S. Department of Justice (DOJ) through an expedited process of scrutiny.
Nexstar is operating TEGNA as a subsidiary business while a legal challenge brought by eight state attorneys general and DIRECTV plays out in federal court. Earlier this month, U.S. District Judge Troy Nunley in Sacramento said Nexstar could not integrate TEGNA’s operations into its own while the lawsuit, based on antitrust concerns, continues to play out. Nexstar is appealing that order.
Ohio is not one of the eight states that sued Nexstar last month, and it is not clear why the state made efforts to secure a Memorandum of Understanding based on the operations of the two TEGNA stations there. In a statement released on Thursday, Yost strongly implied that the state might have joined the lawsuit at some point, but the Memorandum of Understanding reached with Nexstar reduces the likelihood of that happening now.
“Journalistic independence is a cornerstone principle of our democracy,” Yost said. “I’m pleased that Nexstar has committed to upholding local news standards without going to court.”
Through the Memorandum of Understanding, the Ohio attorney general agreed to waive any “antitrust claims, actions or lawsuits concerning the acquisition” of TEGNA by nexstar, “whether based upon facts known or unknown” to the attorney general’s office at the time that the agreement was executed.
But the attorney general’s office also has the ability to monitor Nexstar’s compliance with the Memorandum of Understanding — the agreement can be rescinded if Nexstar doesn’t correct problematic business operations within 90 days of receiving a notice from the state.
That said, the Memorandum of Understanding contains a significant loophole that allows Nexstar to break the agreement if the company experiences undue business hardships, according to a copy reviewed by The Desk. The agreement says Nexstar can make a claim of a “material adverse change” in its business based on “any general economic, financial or securities market conditions, or interest rate or currency fluctuations, that has had, or would reasonably be expected to have, a material negative impact on the acquired stations’ advertising revenue.”
The loophole leaves open the possibility that even the slightest change in the larger economy — including a decision by the U.S. Federal Reserve Board to raise or lower interest rates — could allow Nexstar to exit the agreement without any consequence. Earlier this week, the Federal Reserve Board voted to maintain its benchmark interest rates while leaving open the possibility of a future rate increase based on macroeconomic conditions; President Donald Trump has consistently called for interest rates to be lowered, something that appears unlikely to happen.
Nexstar can also break the deal based on other economic factors that affect its advertising business, including a continued pullback in spending from companies that have shifted their budgets from traditional linear TV in favor of social media and connected TV platforms. Last August, Nexstar executives complained those trends were to blame for a 2.5 percent decrease in core advertising revenue during the second quarter (Q2) of the year.
The Memorandum of Understanding doesn’t supersede the order issued in federal court earlier this month, which still blocks Nexstar from integrating the TEGNA stations into its business. The order, a preliminary injunction, affects all stations nationwide, including the two in Ohio that are at the center of the Memorandum of Understanding.
