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The Honolulu Advertiser
Posted on: Tuesday, May 18, 2010

New data cast doubt on news merger

BY Rick Daysog
Advertiser Staff Writer

When the owners of KGMB9, KHNL and K5 television stations launched Hawaii News Now in October, they characterized the deal as a newsroom merger and not as an ownership change.

But documents filed with the Federal Communications Commission indicate Raycom Media Inc., which owned KHNL and K5 before the deal, now controls virtually all of the operational aspects of the three stations. Critics say that violates federal laws that bar one company from owning multiple television stations in a single market.

Records obtained by The Advertiser under a Freedom of Information Act request with the FCC show that Raycom is receiving more than 90 percent of the cash flow generated by all three stations, which exceeds thresholds previously allowed by the FCC in mergers.

Alabama-based Raycom, one of the country's largest broadcasters, not only provides news programming for the three stations but also handles all sales functions, promotions and back-office support, the documents show.

Raycom also pays for the salaries for employees at all three stations, including K5's staffers, who technically are employees of K5's owner HITV License Subsidiary Inc.

"These obscure agreements show that they've taken control of all three stations," said Chris Conybeare, president of Media Council Hawaii, which has asked the FCC to reject the sale. "At almost every level, it's a sale of the station."

Paul McTear, Raycom's CEO, declined comment.

In October, Raycom merged the newsrooms of K5 and local NBC affiliate KHNL with that of local CBS affiliate KGMB, resulting in the termination of a third of the stations' staff and the simulcasting of some news programs.

Raycom said at the time that the merger with KGMB was needed to prevent one or two of the stations from going under as the local television advertising market had fallen by $20 million, or about 30 percent.

HITV, which is owned by Virginia-based investment firm MCG Capital Corp., purchased KGMB for $40 million in 2007 only to see the value of its investment in the local television station plunge by $18 million. The company said the local station's losses were unsustainable.

In a filing with the FCC, Angela Campbell, attorney for the Media Council Hawaii, said the newsroom merger is really a sale since Raycom has "de facto control" of all three stations.

Campbell, director of the First Amendment and Media Law Project at the Institute for Public Representation at Georgetown Law in Washington, D.C., said Raycom disguised the sale through a loan agreement, which obligates Raycom to pay HITV $22 million in seven years.

A copy of the loan agreement, which was obtained by The Advertiser through a FOIA request with the FCC, shows that Raycom will pay HITV about $1.1 million a year in interest payments each year.

In return, HITV must pay 75 percent of K5's monthly cash flow to Raycom as a fee for operating the station.

HITV must pay another 15 percent of its monthly cash flow for leasing the KHNL studio and production facilities in Kalihi.

According to Campbell, most shared services agreements or newsroom joint ventures approved by the FCC in recent years allow the controlling partner to earn between 20 percent and 30 percent of the station's advertising revenues.

In 2007, the FCC approved a shared services agreement between two television stations in Springfield, Mo., that gave the controlling partner, Schurz Communications Inc., 58 percent to 65 percent of the two stations' revenues, she said.

Campbell said the KGMB-KHNL-K5 newsroom merger, which entitles Raycom to more than 90 percent of the stations' cash flow, "goes far beyond any agreements previously permitted by" the FCC. "The unredacted agreements demonstrate conclusively what (the Media Council Hawaii) has asserted all along, that is, that Raycom has acquired de facto control over the station licensed to HITV in violation of ... the Communications Act and the FCC's television ownership rule," she said.

"(As) a practical matter, HITV has sold its station to Raycom for $22 million."