May 26, 2005

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On the cover: Photo by Bob Doran
Sly as a FOX: How Fox 29 dodged FCC rules to build a local broadcasting conglomerate

by HANK SIMS

A FEW WEEKS AGO, Fox 29 began running&nbspnew commercial designed to advertise the wares now offered by Eureka Television Group, the company that owns the station.

Backed by thumping electronic music, the self-congratulatory spot highlights the networks and shows that Eureka Television brings to Humboldt County. Fox -- American Idol, The O.C., The Simpsons. CBS -- CSI, Survivor. UPN -- the Oakland A's, the Sacramento Kings, America's Next Top Model. The WB -- 7th Heaven, The Gilmore Girls. And Univision -- international soccer, Cristina and scores of Latin American soap operas.

The ad was rolled out to mark Eureka Television's takeover of local CBS affiliate KVIQ-TV (Channel 6) late last month, after a protracted battle at the Federal Communications Commission. The company's corporate parent -- Sainte Partners of Modesto -- was not allowed to buy KVIQ outright, as it had hoped, but it was able to arrange a deal through a third party that gave it the right to effectively operate the station, as well as to handle its advertising accounts. Between Fox and CBS, Eureka Television now has rights to eight of the 10 highest rated shows in the country, as ranked in recent A.C. Nielsen polls.

But the ad also gave a taste of some of the new programming that locals who depend on their rabbit-ear antennas will soon be able to enjoy along with their cable-wired neighbors. Eureka Television has been the local outlet for the Spanish-language network Univision for more than a year now, selling ads that are inserted into the network's local Cox Cable feed. Earlier this year, it acquired rights to do the same for the two smaller English-language networks, UPN and the WB. And in a couple of weeks, the company also will start broadcasting UPN and Univision over the airwaves, on channels 31 and 33 respectively, with the WB possibly to follow.

All this might seem a bit perplexing to someone who remembers the battles over the FCC's plan, announced in the summer of 2003, to relax media ownership rules.

A great hue and cry spread across the nation when the commission proposed to allow, for the first time, a single company to own two broadcast television stations in the same region. Groups ranging from the National Rifle Association to Code Pink, a women's antiwar coalition, protested the change, saying the result of the proposed new rules would be to reduce the number of voices on the air. A year later, a federal appeals court overturned the FCC's proposal and sent it back to the commission for revisions.

The commission has not yet acted on the court's order -- as it stands, the rules on media ownership are the same today as they were before June 2003. So how is it that Eureka Television can run not one or two but five broadcast stations in the Humboldt County market?

Answer: By hewing very, very closely to the letter of the law.

The Blue Lake challenge

When Sainte Partners first made its bid for KVIQ -- then owned by Ackerley Media Group, a subsidiary of broadcast giant Clear Channel -- in March 2004, it asked the Federal Communications Commission to grant it special permission to own two stations in the same market. The commission only grants such permission -- known as a "duopoly waiver" -- in certain, extreme circumstances. For one, an applicant to buy a second station must demonstrate that no other potential buyers exist. Also, one or both of the stations in question must be deemed to be on the verge of financial failure.

Sainte's waiver application quickly drew opposition from an unlikely quarter -- the Blue Lake Rancheria. The local tribe, which has launched an aggressive business development strategy since opening the Blue Lake Casino in 2002, argued to the FCC that Sainte's waiver application did not past muster on several counts. In legal papers filed with the commission, the rancheria criticized the financial information that Sainte and Clear Channel provided in their application, saying it did not conclusively demonstrate that the stations were close to going bust.

The rancheria also said that there was another legitimate buyer who wished to purchase KVIQ, one that did not already operate in the market -- the Blue Lake Rancheria itself. The tribe said that it had contacted Ackerley when the station first went on the market, and in its legal briefs it reiterated its desire to buy the station.

In a recent interview, Eric Ramos, the rancheria's chief financial officer, explained why owning a TV outlet in the Eureka market would have been a good business bet for the tribe.

"You hate to always link one of your businesses to another business, but we are already a major purchaser of advertising in Humboldt County," he said, referring to the Blue Lake Casino's large promotional budget. If the rancheria owned a media outlet, it could have spent some of that money on itself.

With the rancheria's objections on file, Sainte's application lingered at the FCC for several months, with attorneys for both sides firing legal arguments back and forth. Then, in December, an FCC staff decision in an unrelated case broke the logjam.

Liz Tieck, a Eureka Television master control operator, mixes the signal for
CBS affiliate KVIQ, which the company acquired late last month.

A precedent in Duluth

In May 2004, just a couple of months after Sainte filed an application to take over KVIQ's broadcast license, the New York-based Granite Broadcasting Corp. and the Malara Broadcast Group of Florida filed an application to acquire KDLH-TV in Duluth, Minn. In their application, the companies made clear that Granite -- which already owned a station in the Duluth area -- would be responsible for running the day-to-day operations of the station, including controlling the television broadcast and handling advertising sales. Malara's responsibilities, apart from simply owning the broadcast license, would be minimal. In addition, the terms of the agreement gave Granite the right to buy out Malara if a future change in FCC rules made it legal for the company to do so.

Two other stations in the Duluth area protested the proposed deal. They argued that it would violate the spirit of the commission's regulations on dual ownership, in that Granite would have such a strong interest in the station that they in fact "owned" it, for the FCC's purposes -- if not on paper then in reality. In spite of their objections, an FCC staff decision in December approved the transaction.

A couple of weeks later, with its KVIQ application still stalled, Sainte Partners reformulated its proposal to reflect the Duluth ruling. It abandoned its own application to buy the station, transferring rights to Raul Broadcasting of Eureka, a hitherto unknown entity owned by Santa Barbara broadcaster Raul Palazuelos, a friend of Sainte Partners owner Chester Smith. In its own reformulated application with the FCC, Raul Broadcasting proposed a deal mirroring the relationship formed by Granite and Malara in Duluth. Raul Broadcasting would own the FCC license; Eureka Television would do nearly everything else.

Charles Naftalin, a Washington, D.C., attorney who represented the stations that protested the Duluth deal, said last week that arrangements like the one worked out between Raul Broadcasting and Sainte Partners were just what he feared would happen when the ruling in his own case was issued.

"We've taken the position that in allowing this kind of transaction the FCC is setting up a blueprint for stations in small markets to make an end run around the ownership rule," he said. "We think they crossed the line that the FCC draws for local common ownership arrangements. Their business, financial and personal arrangements are so close as to represent dual ownership."

And though the FCC's staff approved the Duluth deal, Naftalin and his clients have appealed the decision to the full commission. If the commission decides to reverse the deal, Naftalin said, other companies who have since followed the "Duluth model" -- he knows of one other, in Rochester, Minn. -- may stand to see their own merger deals reexamined and possibly overturned.

Ramos said that he has no hard feelings toward Eureka Television, despite the fact that the rancheria spent upwards of $15,000 on legal representation. But he did speak wistfully about the kind of programming he said he wanted to bring to the community: local news, locally produced history programs and Native American-themed shows.

"If I feel bad about it, it's for a couple of reasons," he said. "No. 1, it's few versus many voices in the community. No. 2, we could have done a lot of things that other people in the market haven't done. Maybe we'll get a shot someday."

Small stations, big coverage

With the consummation of the deal late last month, Eureka Television took over operation of KVIQ in almost every particular. Its sales staff now handles KVIQ accounts. Its master control operators mix the station's signal, putting network shows, syndicated programming and local commercials and public service announcements over the station's airwaves.

That's not all they're doing, though. Since acquiring the rights to the three smaller networks -- UPN, the WB and Univision -- they've also been selling ads and running the switchboard for those stations. Right now, the three networks run only on cable, for which the FCC has a much smaller regulatory role. Cable is a different world. Just as characters on HBO shows like The Sopranos or Deadwood can curse with impunity, without incurring FCC fines, so can companies like Eureka Television sell ads for as many cable channels as they like without fear of running into an FCC limit.

However, Eureka Television has been testing its new transmitters for UPN and Univision, and those stations are scheduled to hit the airwaves full-time next month. And in putting these other stations on the air, Eureka Television is once again sticking to the strict letter of FCC law.

In 1982, the FCC created a new class of broadcasting license for something it called "low power television," or LPTV. Regulations for LPTV are in some ways stricter than regular television broadcast licenses -- broadcasters may transmit at a maximum of 1,000 watts of power. In some ways, though, the regulations are looser. Specifically, there is no limit on the number of low-power stations a single owner may operate.

And "low power" is something of a misnomer, at least as far as the local market is concerned. Coverage maps available on the FCC's Web site show that the signal from Eureka Television's low-power transmitters, which are located at the company's broadcast tower in Kneeland, will reach from Trinidad to Rio Dell, and inland nearly to Willow Creek.

This map, adapted from ones available on the Federal Communications Commission's website,
show the reach of two of Eureka Television's broadcast signals.
The dotted line represents Fox 29, a "high-power" station; the dashed line
represents UPN 31, a "low-power" station. Both stations' signals originate
from the company's Kneeland transmission tower, marked here with a star.

"Our low power is as powerful as our high power," said Don Smullin, Eureka Television's general manager, in an interview last week. [photo below right]

The difference, he explained, lies in the protections offered by the FCC. Eureka Television's "high power" stations -- KVIQ and Fox 29 -- may not be disturbed by signals emanating from adjacent markets. With low power broadcasting, the regulation of the frequency is less stringent. But in an isolated market like Humboldt County, low power broadcasts are unlikely to rub up against other signals anyway.

When UPN and Univision hit the airwaves full-time next month, Eureka Television will own four of the six commercial broadcasting stations in the Eureka area. If the WB follows the other Eureka Television stations to the air, that will change to five out of seven.

Such market domination would seem to have competitors running scared, especially in a small market such as the Eureka area. (Nielsen ranks Humboldt County 192nd in size, out of 210 broadcast areas in the United States.) But last week, representatives from KIEM and KAEF, affiliates of NBC and ABC, respectively, said that they weren't yet concerned about the potential impact on their businesses.

"I don't think it will have much effect at all," said Bob Browning, KIEM's general manager. "Until their plans become more clear, we wouldn't see that much of a difference in terms of the impact on the market."

Sarah Smith, who runs KAEF from her office at the channel's sister station in Redding, said that she was focused more on improving her own product, which will soon include the popular Martha Stewart morning show.

"With products like [reruns of] Friends and ABC's lineup, we've got a good base to start from," she said. "So I'm not nearly as concerned about what the competition is doing, I'm worried about what we're doing."

Power grab or local commitment?

For Don Smullin, the rapid growth of the company he heads offers tremendous benefits to area residents, no matter what critics of media consolidation may say.

One of the arguments made by backers of the FCC's proposed 2003 changes in media ownership regulations was that by allowing stations to merge, they created a stronger, more financially viable operation that could provide greater service to local communities.

Smullin said that is exactly what has happened with Eureka Television's acquisition of KVIQ and its expanded programming lineup. Before, he said, who was offering the sports lineup that his UPN outlet will soon be broadcasting throughout the area? Who put Spanish language programming out over the air, a tremendous feat for such a small market? Only his boss' commitment to the community made such services now possible, he said.

"This is unique to Chester Smith," Smullin said. "He had a choice between running away, like [former KVIQ owner] Clear Channel did, or investing more money in the market."

Smith did not return a call seeking comment on this story.

In regard to Ramos' ambitious plans to produce a variety of in-depth local programming, Smullin said that it's easier to dream about such things than to actually do them -- and with a lifetime in broadcasting behind him, he knows how difficult and costly television production can be. Smullin said that he hopes that Eureka Television would soon get a news broadcast together -- KIEM is the only station to currently offer local news -- but that it would likely be dependent on whether or not the old KVIQ building, which is infested with a toxic mold, can be salvaged.

But Smullin said that whether or not the company is able to get a news operation together, it has a demonstrated commitment to community service and local operation. That's a sentiment echoed by Dave Silverbrand, the former KVIQ newsman who now serves as the station's general manager.

Silverbrand, who works directly for Raul Broadcasting, now shares offices at the Eureka Television building on Seventh Street in Eureka. He said that he had long been dismayed by the declining reputation of the station, which in the end employed only a few people locally, with the programming piped directly into the area from Salinas.

"My job now is to rebuild the image of Channel 6 in this community," he said.

Silverbrand said that there had been many instances in the past where he heard back from advertisers upset that they could not find anyone who could discuss their spots or their bills. Calls to the Salinas headquarters of the station got lost in the shuffle, he said.

That is something Smullin is determined to avoid.

His family was one of the first in the county to jump into broadcasting -- first with radio, when that was the hot new technology, and then with television. He noted that advertisers often call him at home, on weekends, when they have a problem.

Down the street, things are different.

"What's sad for me is to go down to ABC," Smullin said, meaning the KAEF building a few blocks from his own offices. There, he said, you can still see his father's name etched on the cornerstone of the building, alongside the date that the Smullin family founded the station, which is currently owned by a Wichita, Kan., company called Bluestone License Holdings, Inc. It's a large building, but you can count the number of people who work inside it on the fingers of one hand. Everything else is done remotely, from Redding.

That's perfectly legal under FCC rules, too.

Related stories:

APRIL 28, 2005: IN THE NEWS: "KVIQ changes hands"

JULY 22, 2004: IN THE NEWS: KVIQ sale on hold

MAY 20, 2004: IN THE NEWS: "Bold bid: Blue Lake Rancheria competing for KVIQ"

APRIL 1, 2004: WEEKLY WRAP: "KVIQ-TV bought"

JAN. 17, 2002: IN THE NEWS: "And then there was one"

OCT. 11, 2001: IN THE NEWS: "KVIQ sale announced"

JUNE 29, 2000: COVER STORY: "More news, more often! Stations battle for ratings, revenue"

JAN. 20, 2000: COVER STORY: "Making magic"

NOV. 25, 1999: IN THE NEWS: "Neighbors protest tower"

DEC. 10, 1998: NEWSBRIEFS: "Channel 3 debuts early newscasts"

NOV. 12, 1998: NEWSBRIEFS: "Humboldt in media spotlight again"

 

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