Conn. network strikes deal with LocusPoint on proceeds from spectrum auction

The Connecticut Public Broadcasting Network plans to relinquish the spectrum assigned to WEDW-TV in Bridgeport, one of four stations in its statewide network, in the FCC’s upcoming auction, according to documents filed with the FCC.

Under its agreement with spectrum speculator LocusPoint Networks, the pubcaster received an undisclosed cash payout from LocusPoint and will share a portion of its future auction proceeds with the company. Financial details of the contract, approved by the network’s board of trustees in June 2013, have been redacted from FCC records due to a mutual confidentiality agreement.

Connecticut Public Broadcasting Inc. is among the sole-service public TV licensees identified in a July CPB white paper warning of the creation of a “white area” — the loss of PTV broadcast service — if pubcasters choose to auction off their spectrum. But that won’t happen in this case, according to officials from LocusPoint and CPBN.

“Connecticut is one of the most cable-penetrated states, so we expect very few households to be affected by relinquishing our over-the-air WEDW signal,” Meg Sakellarides, CPBN chief financial officer, told Current. The network’s research on the deal “focused more on cable must-carry.”

FCC coverage maps show that households within WEDW’s coverage area also receive over-the-air signals from WEDH in Hartford, the network’s flagship channel, and signals from two other CPBN stations. New York–based pubcasters WNET and WLIW also provide broadcast service to the area.

LocusPoint is one of several spectrum speculators active in the noncom market — others include OTA Broadcasting in Fairfax, Va., and NRJ TV in Coppell, Texas — but it is the only one to become an associate member of the Association of Public Television Stations.

APTS, which represents public TV stations before federal policymakers, joined with CPB and PBS to lobby the FCC to protect public TV’s universal broadcast service in the spectrum auction proceeding. The FCC declined to make exceptions for public TV in its May 15 Report and Order.

But as an APTS member, LocusPoint has agreed to handle PTV transactions with care. The firm assured APTS that it will not purchase noncommercial stations for auction in sole-provider markets. In its white paper, CPB lists 19 markets nationwide with PTV broadcast service from a single licensee. They range from Connecticut to San Diego and Portland, Ore., to San Antonio.

LocusPoint “promised us that no market would be left without public TV service as a result of their dealings,” said Pat Butler, APTS president. “LocusPoint has actually played a helpful role in ensuring that stations can pursue the auction strategy they want to pursue without endangering the health of the system at large.”

LocusPoint CEO Ravi Potharlanka told Current that public broadcasting’s mission-oriented educational broadcast service requires special consideration, and his firm is approaching public TV licensees with that in mind.

“We’ve met some of the most passionate mission-driven people,” he said. “They run tight organizations, and they’re fighting daily to raise money. We get it. We feel like, at the end of the day, the system works, with organizations like APTS and CPB keeping it together. We came to the conclusion that anything that disrupts that balance is not good for the system or its organizations.”

Gauging public media interest

CPBN, which also operates a statewide pubradio network, is among 45 pubTV licensees that LocusPoint has approached about the auction, Potharlanka said. Many were simply not interested, he said; others are willing to explore up-front deals that would allow them to establish or bolster endowments, as Connecticut has done.

LocusPoint also has “two active discussions” underway with public TV stations regarding channel sharing, Potharlanka said. Those agreements, which allow stations to auction their channels but to continue broadcasting on a shared frequency, would pair them with commercial partners. Those stations do not want to be publicly identified, he said.

So far in the noncommercial TV arena, according to FCC documents, LocusPoint has purchased student-run WMJF in Towson, Md., from Towson University, for $1.8 million and payments to cover operating costs for two years. It also inked a deal to subsidize the financially strapped KCSM-TV in San Mateo, Calif., for nearly $1 million a year until its spectrum could be auctioned off. Proceeds from the KCSM auction will be shared with licensee San Mateo Community College District.

In CPBN’s case, financial details have been withheld from FCC documents at the station’s request. Janice Wise, commission spokesperson, said stations may request confidentiality for “sensitive information” in broadcast transactions.

The cash payout has been “entirely placed in our endowment for the company’s long-term benefit,” Sakellarides said. When proceeds from the auction come in, CPBN will share an undisclosed portion with LocusPoint.

CPBN’s 2013 financial report shows a $13 million cash infusion to the state network’s $30 million endowment. Sakellarides said the sum includes proceeds from the network’s many licensing deals, such as with Sprint for educational broadband services. She declined to say how much of the $13 million came from LocusPoint.

CPBN leaders pursued the deal as they explored ways to restructure their broadcast operations following the 2009 transition to digital broadcasting. The pubcaster’s TV network, which also includes WEDN in Norwich and WEDY in New Haven, substantially increased its broadcast reach after converting to digital.

The state network wanted to sell its redundant spectrum, according to Sakellarides, and began marketing WEDW and WEDY through a broker.

“We received two offers to sell WEDW and WEDY outright to noncommercial licensees and an option from LocusPoint for WEDW for participating in the auction,” Sakellarides said in a statement. After “many months of due diligence and review,” she said, CPBN’s board of trustees approved the option transaction with LocusPoint last June.

Responsibility for a public asset

Both Potharlanka and his LocusPoint partner, Bill deKay, are veterans of the wireless industry. They became interested in the FCC’s plans to repurpose TV channels for wireless use several years ago, recognizing that freed spectrum could soon grow in value. They sought investors to create a pot of $200 million to buy TV stations in major markets where the FCC seeks to auction spectrum. Blackstone Group, a major private equity firm, owns 99 percent of LocusPoint, according to FCC filings, with the remaining 1 percent split by Potharlanka and deKay.

“We were not focusing on noncom stations initially,” Potharlanka said. But several public TV executives, including representatives of KCSM, reached out to LocusPoint through brokers.

The San Mateo Community College District didn’t want to continue operating the station, he said. “They were going to turn in the license and shut it down. We stepped in to fund the losses in exchange for a share of the auction proceeds.” LocusPoint will receive 35 percent of the auction revenue while the district keeps 65 percent, according to Potharlanka.

The KCSM agreement “added an asset to our portfolio, and we learned a lot through that process about public broadcasting,” he said, adding that the deal “is a very specific situation” and each agreement differs by market.

Potharlanka wants to give public broadcasters options for financing their future service strategies by participating in the auction. “They can continue the mission of serving their community and still be able to take one of their station spectrum assets to auction,” he said. Stations that generate no local programming and serve only as pass-throughs for content “could think about channel sharing and creating liquidity to chart a new course.”

In agreements reached to date with both commercial and noncommercial broadcasters, LocusPoint has spent around $130 million and holds a financial interest in 15 stations, with eight deals pending, Potharlanka said. He estimates the firm will acquire spectrum rights for a total of roughly 25 stations.

Butler of APTS sees LocusPoint as an ally in the complicated FCC proceeding. The firm is “functioning as a financial advisor to stations in a variety of circumstances,” he said. For struggling stations, LocusPoint might provide bridge financing in return for a share of auction proceeds. The firm has helped other stations locate channel-sharing partners, he said. Others, like Connecticut, can monetize surplus spectrum.

“The vast majority of public stations have no interest in participating in the auction,” Butler added, “and LocusPoint hasn’t tried to pressure or seduce anyone to do anything they don’t want to do.”

But others have yet to be convinced. CPB has cautioned station leaders to consider their unique civic responsibility as they ponder such deals. In the July white paper, the corporation said that the value of spectrum held by public media stations on behalf of their communities “goes well beyond the market prices they could well command in this auction.”

CPB noted that “narrow financial calculations cannot measure the value of serving the educational needs of the nation’s children, providing trusted news, reliably delivering emergency alerts, presenting diverse viewpoints that would not otherwise be heard, and numerous other benefits provided today and in the future by the nation’s public media stations through over-the-air broadcasting.”

Some observers outside the system object to the secrecy surrounding the deals, contending that noncommercial spectrum is a public asset and should be held for local communities.

“There’s been so little transparency and public discussion about what happens to the liquidated value of noncommercial spectrum,” said Ellen Goodman, a Rutgers University professor specializing in information policy law. “For entities that channel-share or stay in the business of producing noncommercial media, does the revenue get plowed back into the enterprise? For entities that go out of the media business, what happens to the auction revenues and is there any public interest? And of course, what happens in a community where there is no redundant noncommercial service? These are all questions that should be discussed in a public forum.”

In its July white paper, CPB also said each pubcaster should be transparent about any spectrum deals “because its ethical obligation to its community arises from the fact that they hold spectrum in trust for service to that community.”

But the secrecy around financial details of the CPBN transaction and other deals yet to be completed suggest that local pubcasters are unwilling to reveal how they are managing their assets to the public’s benefit.

Public TV stations are “really concerned” that disclosures of the cash earned from spectrum auction payouts will undercut revenues earned through traditional fundraising, Potharlanka said.

“From our perspective, we have nothing to hide. We’re financially motivated; we don’t make any bones about it. We can provide immediate liquidity and take risk off the table. When we bring an asset into our portfolio, we assume the risk.”