Introduction

Sinclair Broadcasting Group is the largest broadcaster in the United States, as it currently owns or operates 173 television stations across the country.¹ Sinclair currently seeks to acquire Tribune Media Company, which owns 42 stations in markets from New York to Los Angeles. The deal, which would expand Sinclair’s reach to 72 percent of U.S. households, is currently pending at the Federal Communications Commission (FCC) and the Department of Justice.² The deal has received public scrutiny for its potential to give Sinclair excessive power over the broadcasting market. In response, Sinclair recently announced plans to divest 23 Tribune stations in 18 markets, although the company could still maintain joint sales agreements with these stations.³ It’s no wonder that the proposed merger has been criticized by Democrats and Republicans alike, including Newsmax CEO Christopher Ruddy and former House Majority Leader Tom DeLay (R-Texas), who warn that the combination of Sinclair and Tribune would harm competition and choice for news across the United States.⁴

Sinclair’s market power in the broadcasting space rests not only on the number of American households served by the broadcasting giant, but also on its ability to dominate the future of broadcast television.

The broadcasting market is on the brink of a major shakeup, and Sinclair is already positioned as a primary beneficiary. The new technology driving these fundamental shifts is known as Next Generation TV, a new transmission standard that promises many new features including ultra-high definition, immersive audio, and enhanced emergency alerts. The new transmission standard serves as an important step forward for the broadcasting industry, allowing it to keep pace with online streaming and over-the-top services.

Sinclair, through a subsidiary, owns key patents for components that serve as the basis for this new broadcast transmission standard. These patents give Sinclair substantial market power and the potential to collect billions in royalties from other broadcasters, equipment manufacturers, and cable companies that are looking to bring their customers the benefits of Next Generation TV. While this market power would only grow if Sinclair’s acquisition of Tribune is approved, Sinclair without Tribune would still hold an anti-competitive advantage over other broadcasters, equipment manufacturers, and cable operators.

When the FCC approved the new transmission standard in 2017, they declined to impose any requirements for patent holders to license their patents in a reasonable and nondiscriminatory fashion. Instead, the FCC ceded its oversight role to the Advanced Television Systems Committee (ATSC), a non-governmental body with ambiguous authority, which calls into question its ability to punish unfair licensing deals. The ATSC is a standard-setting organization whose authority only extends to its members. While the ATSC requires its members to grant licenses to essential patents on reasonable and non-discriminatory terms, the ATSC lacks the mechanisms to enforce this requirement beyond potentially barring participation in the organization’s processes.

The decision to forego a reasonable and non-discriminatory licensing requirement is a gift to Sinclair—and a stark break in precedent from how the Commission handled earlier television transitions. The failure to impose such a requirement leaves uncertainty for entities that would need to pay royalties to Sinclair for access to must-have technology. Sinclair, for example, could gain disproportionate power in the broadcasting market, as the company would benefit from the new transmission standard itself at the same time as it collects royalties from all other parties participating in Next Generation TV as well—royalties at rates that Sinclair has the power to indiscriminately set, unchecked by the FCC.

FCC Chairman Ajit Pai is now reportedly under investigation by the Commission’s inspector general for potentially improperly changing media ownership rules to benefit Sinclair, which raises serious questions about the processes in place to protect consumers from harm in this space.⁵ In this paper, we take a look at how the FCC’s ATSC 3.0 Order gives Sinclair unprecedented power in the new frontier for the broadcasting market.

First, this paper will discuss the importance of the new transmission standard to the broadcast industry as streaming services gain popularity. Next, it will review the importance of strong licensing requirements that bar entities with essential patents from price gouging all other players in the broadcast and cable ecosystem. Then, it will explain why Sinclair’s patent gives the company such a strong foothold to dominate the broadcast industry through Next Generation TV, and how the FCC’s failure to institute conditions mitigating the abuse of this market power will harm competition and consumers. Finally, this paper recommends imposing reasonable and non-discriminatory licensing requirements on Sinclair and other patent owners to mitigate harms to the market and American TV viewers.