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The Honolulu Advertiser
Posted on: Thursday, April 1, 2010

Station owners must reveal merger details

BY Rick Daysog
Advertiser Staff Writer

Hawaii news photo - The Honolulu Advertiser
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The owners of KGMB, KHNL and K5 must disclose much of the financial details behind the newsroom merger involving three of Hawai'i's five largest television stations, the Federal Communications Commission has ruled.

However, the FCC did not order the records to be handed over immediately, and analysts said the public disclosure could take weeks if the companies involved decide to appeal the matter.

The disclosure order follows a Freedom of Information Act request by The Honolulu Advertiser, seeking the business agreements between Raycom Media Inc., which owns KGMB and KHNL, and K5's owner MCG Capital Corp.

In October, KGMB, KHNL and K5 combined their news operations, laid off about a third of the stations' news staff and began simulcasting some news programs.

The financial terms for the newsroom merger, branded as Hawaii News Now, have not been publicly disclosed by Raycom, MCG or MCG's local unit HITV License Subsidiary Inc.

The FCC's chief of video in the Media Bureau, Barbara Kreisman, wrote in a March 29 letter, "We find that Raycom and HITV have not demonstrated that disclosure of the specific items of information ... would result in competitive harm.

"We find further that even if we concluded that competitive harm would result from the disclosure ... there are exceptionally strong policy considerations that warrant their disclosure."

Paul McTear, Raycom's CEO, could not be reached for comment.

The FCC said it is reviewing the joint operating agreement, or shared services agreement, between Raycom and MCG and will rule on the legality of the deal soon.

The Advertiser reported in November that Raycom is obligated to pay MCG $22 million in seven years as part of a loan agreement.

Raycom would not disclose the terms of the loan, saying such deals are confidential and public release of such information would provide an unfair advantage to its competitors.

In its ruling, the FCC said that Raycom and MCG must disclose the amount of quarterly interest payments and quarterly principal payments to be made under the terms of the loan.

The commission said that the station owners also must make public the schedule of fees paid to Raycom for operating the stations along with any details of an asset swap agreement between the station owners.

Raycom also must disclose information about an option agreement it has with Iowa-based Ottumwa Media Holdings LLC to sell K5 in the future, the FCC said.

Media Council Hawaii, which has filed a complaint with the FCC over the shared services agreement, believes that the details of the loan arrangement between Raycom and MCG will show that the newsroom merger is in fact a disguised transfer of ownership of the stations.

The council has argued that the deal violates federal laws barring one company from owning multiple television stations in a single market.

"This will allow us to finally understand what's really happening in the deal," said Angela Campbell, a Washington, D.C., attorney representing the Media Council and director of the First Amendment and Media Law Project at the Institute for Public Representation at Georgetown Law.

"And it will make an even stronger case that this deal is an illegal transfer of control."

Raycom and MCG have said that the shared services agreement does not violate federal laws because the deal doesn't involve a change of ownership.

The station owners also have said that the deal is borne out of economic necessity in an advertising market that has declined by about 30 percent, or $20 million a year.

Under FCC rules, Raycom and MCG have 10 days to ask the FCC's general counsel to review the decision.

If the FCC's lawyers uphold the media bureau's decision, Raycom and MCG can appeal the matter to the FCC's five-member commission.