The  first is through local broadcast television stations, which provide free over- the-air programming for reception in consumers’ households by television  antennas. This table does not  include information about how joint sales agreements among local  stations and interconnects among MVPDs affect local advertising sales,  which is discussed later in the report. Stations are not required to disclose shared service  agreements in their public files. In  2014, FCC promulgated a final rule declaring that if a JSA provides that  one station sells more than 15 percent of the weekly advertising time of  another station located in the same market, both stations will be counted  toward the ownership limit of the owner of the station selling the  advertising (i.e., the sales-agent station). The 86 JSAs we reviewed generally covered similar terms. FCC officials said they do not monitor the contents of stations’ public files  on an ongoing basis and have not reviewed stations’ JSA filings to ensure  they are complete and up to date. FCC  officials said they typically review compliance with public inspection file  requirements in connection with a station’s license renewal application or  in response to complaints from the public. However, FCC’s approach puts the burden of  discovering the incompleteness of an inspection file on the public, and in  the case of a file that is missing a JSA, it is not clear how a member of the  public would be likely to know that a JSA is missing without undertaking a  review of all stations’ JSA files, as we did, in order to uncover whether  any other station has put a JSA agreement with that station in its file. Interconnects Allow MVPDs in a Local Market to Sell Advertising from a Single Point and Exist in Most Markets, According to Stakeholders

An interconnect involves two or more MVPDs combining a portion of their  advertising time in a local market, creating a single-point for advertising  sales across multiple MVPDs within a DMA (see fig. Through  technological means, these advertisements are then distributed  simultaneously across the MVPDs participating in the interconnect. Some Selected Stakeholders Said That Advertising Agreements Provide Economic Benefits, but Others Raised Concerns over the Market Effects of these Agreements

Some stakeholders that filed comments in FCC proceedings and who we  interviewed stated that local stations and MVPDs benefit economically  from JSAs and interconnects, respectively. However, some stakeholders  expressed concerns with how these agreements may impact local  markets. Station Owners Said That JSAs Allow Stations to Cut Costs, but Other Stakeholders Raised Concerns about Effects on Competition, Diversity, and Localism

According to most of the local station owners that commented in FCC’s  JSA rulemaking and all that we interviewed, a primary benefit of JSAs, as  well as other sharing agreements, is that they allow local stations to cut  costs. Furthermore, two station owners and two financial analysts told us that  stations in smaller markets are more likely to use JSAs than stations in  larger markets because local stations earn less advertising revenue in  small markets than in large markets, while they said their costs are  roughly the same regardless of market size. Specifically, according to some of these stakeholders,  such influence could occur because the agreements create a financial  interest. Furthermore, one MVPD, two public- interest groups, and two labor unions that filed FCC comments, as  well as both of the public-interest groups and one of the two academic  stakeholders we interviewed, said JSAs and other sharing  agreements allow station owners to circumvent FCC’s media  ownership rules. As previously discussed, FCC’s ownership rules limit  the number of local stations an entity can control in a local market. Six of these MVPDs  said this increased reach enables MVPDs participating in interconnects to  better compete with other local media, particularly local broadcast  television stations, since it enables them to have a market reach that is  closer to that of a local station. Additionally, five small MVPD stakeholders and an advertising  representation firm that works with small MVPDs that commented in the  Comcast/Time Warner merger proceeding said that larger MVPDs that  manage interconnects treat smaller MVPDs unfairly—or have the  potential to—by applying conditions to the smaller MVPDs’ participation in  interconnects, such as excluding some smaller MVPDs from  interconnects if the smaller MVPDs use an advertising representation firm  that competes with the large MVPD’s national advertising arm. Recommendation

We recommend that the Chairman of FCC review JSAs filed in stations’  public inspection files to identify stations involved in those JSAs and take  action to ensure that each station involved has filed its JSA as required. Appendix I: Objectives, Scope, and Methodology

The objectives for this report were to examine (1) what available  information indicates about the prevalence and characteristics of  advertising sales agreements among local broadcast television stations  (local stations) or multichannel video programming distributors (MVPD),  and (2) selected stakeholders’ perspectives on the impacts of advertising  sales agreements among local stations or MVPDs. To determine the prevalence and characteristics of advertising sales  agreements—specifically joint sales agreements (JSA)—among local  broadcast television stations (local stations), we obtained and analyzed  all JSAs found in the stations’ public inspection files on the Federal  Communications Commission’s (FCC) website. We  also interviewed FCC officials and the following stakeholders about their  perspectives on JSAs and interconnects: eight local station owners that we selected to represent companies of  various sizes and those that do and do not have JSAs;  five MVPDs selected to represent cable, satellite, and  telecommunications providers and two companies selling advertising  on their behalf;  five media industry associations selected because they represent  broadcasters, large and small MVPDs, and advertising sellers;  two public interest groups and two academic stakeholders selected  because they filed comments in the FCC JSA rulemaking or were  recommended by other stakeholders; and  five financial analysts selected based on our prior work and our  research on their backgrounds.
Why GAO Did This Study

Television stations, which provide free, over-the-air programming, and MVPDs, which provide subscription television services, compete with other local media for advertising revenue. FCC rules limit the number of local stations an entity can own in one market to promote competition and other public interests. Some station owners created joint sales agreements to potentially cut costs. In 2014, finding that such agreements confer influence akin to ownership, FCC adopted rules that require that where such agreements encompass more than 15 percent of the weekly advertising time of another station, they will count toward FCC's ownership limits. MVPDs also have arrangements (“interconnects”) for jointly selling advertising in a local market.
GAO was asked to examine the role of advertising agreements in local media markets. This report examines (1) the prevalence and characteristics of such agreements, and (2) stakeholders' perspectives on these agreements. GAO examined publicly available joint sales agreements and interviewed FCC officials and media, public interest, academic, and financial stakeholders about their views. Stakeholders were selected to represent a range of companies and from those who submitted comments on FCC's rules, among other reasons.

What GAO Found

Agreements among station owners allowing stations to jointly sell advertising—known as “joint sales agreements”—are mostly in smaller markets and include provisions such as the amount of advertising time sold and how stations share revenue. Some of these agreements also included provisions typical of other types of sharing agreements. The Federal Communications Commission (FCC) requires each station involved in a joint sales agreement to file the agreement in the station's public inspection file. According to FCC, these files are meant to provide the public increased transparency about the operation of local stations and encourage public participation in ensuring that stations serve the public interest. GAO reviewed all joint sales agreements found in stations' public files and identified 86 such agreements among stations. GAO also found inconsistencies in the filing of these agreements. Specifically, 25 of these agreements were filed by one station but not by others involved in the agreements. FCC addresses compliance with this filing requirement through its periodic reviews of station licensing and in response to complaints. However, FCC officials said neither of these approaches has identified agreements that should be filed but have not been, and FCC has not reviewed the completeness of stations' joint sales agreement filings. If stations with joint sales agreements are not filing these agreements as required, a member of the public reviewing such a station's public file would not see in the file that the station's advertising sales involve joint sales with another station. Most multichannel video programming distributor (MVPD) stakeholders GAO interviewed said that interconnects exist in most markets. These arrangements allow an advertiser to purchase advertising from a single point to be simultaneously distributed to all MVPDs in a local market participating in the interconnect.
Stakeholders GAO interviewed—including station owners, MVPDs, media industry associations, and financial analysts—said that joint sales agreements and interconnects can provide economic benefits for television stations and MVPDs, respectively. Joint sales agreements allow stations to cut advertising costs, since one station generally performs this role for both stations. For example, some station owners said they used the savings from joint sales agreements and other service-sharing agreements to invest in and improve local programming. Some selected station owners and financial analysts said that stations in smaller markets are more likely to use joint sales agreements because stations in smaller markets receive less advertising revenue while having similar costs as stations in larger markets. Other stakeholders, including public-interest groups and academics, raised concerns about how these agreements may negatively affect local markets. For example, some public-interest groups said that using these agreements reduces competition in the local market and allows broadcasters to circumvent FCC's ownership rules. MVPDs stated that interconnects allow MVPDs to better compete with broadcasters for local advertising revenue by increasing the potential reach of an advertisement to subscribers of MVPDs participating in the interconnect. Some small MVPDs raised concerns that large MVPDs that manage interconnects may impose unfair terms as a condition of their participation in the interconnect. However, large MVPDs said they do not engage in such practices.

What GAO Recommends

FCC should review joint sales agreements filed in stations' public files to identify missing agreements and take action to ensure the files are complete. FCC said it would take action to ensure compliance with its public file requirement.