Deal designed to curry favor with FCC and Congress, but undermined Marshall Broadcasting Group’s prospects
ABOVE: Pluria Marshall Sues
Since selling three television stations to Marshall Broadcasting Group (MBG) in 2014, Nexstar Broadcasting Inc. (Nexstar) has actively worked to undermine MBG and its stations, according to the lawsuit in the Supreme Court of the State of New York this morning. The suit seeks to make MBG whole from Nexstar’s disingenuous and damaging actions – bringing to light Nexstar’s effort to sabotage MBG’s business and eventually buy back the stations for pennies on the dollar.
In 2014 Nexstar sold three stations (KPEJ-TV, KMSS-TV, KLJB-TV) to MBG. Nexstar was forced to sell the stations due to Federal Communications Commission (FCC) regulations and chose MBG as a buyer, believing that the FCC would look favorably upon MBG’s status as a minority-owned business. While the FCC was led to believe that the sale would further the commission’s objective of increasing ethnic diversity in ownership of broadcast stations, as soon as the arrangement was inked Nexstar sought to sabotage and undermine MBG’s operations to decrease its worth.
“It has become clear that our only value to Nexstar was diversity optics at the FCC,” said MBG president and CEO Pluria Marshall Jr. “Ever since the deal was signed, Nexstar has gone to great lengths to constantly interfere, undercut our authority and sabotage our business, with little regard for the agreements in place with us or the FCC.”
Despite the FCC’s mandate to make the public airwaves available to all citizens without regard for “race, color, religion, national origin, or sex,” the U.S. broadcast industry suffers from a pitiable shortage of minority owners. As of today, only 12 out of 1,400 full-power, commercial TV stations are black-owned – less than one percent. Since MBG owns 3 of the 12 stations, Nexstar’s efforts to push MBG out of business would remove 25 percent of the black-owned stations on the air today.
“Nexstar’s bait and switch flies in the face of the FCC’s quest for diversity in ownership. If allowed to go unchecked, it could affect ALL minority owned businesses in the telecommunications space,” said Dr. Benjamin F. Chavis Jr., President & CEO, National Newspaper Publishers Association (NNPA). “This behavior is a road map on how to use minority-owned businesses for companies’ own gain and squash diverse programming once the ink on the deal is dry,” continued Chavis. “Failing to act will embolden companies to go after the handful of remaining minority-owned stations and scare away prospective minority owners.”
During negotiations, the FCC expressed concerns that the transaction would leave Nexstar with too much influence over the MBG assets. As such the deal was only approved after Nexstar stated that “MBG shall maintain full control, supervision and direction of” the stations, including the stations’ “management, programming, finances, editorial policies, personnel, facilities and compliance with the FCC Rules and Regulations.”
Contrary to these provisions, and the FCC’s requirements, Nexstar has continuously hampered MBG’s ability to operate its stations independently by:
• Consistently interfering in MBG’s sales and operations in defiance of FCC directives and commitment to Congress for diverse programming.
• Overcharging for its stations at the outset, presenting MBG with a price tag of $58.6 million for the same stations and assets that it intended to sell to another potential buyer for only $42.3 million.
• Trying to drive MBG out of business by attempting to cause MBG to default on its credit facility. As part of obtaining FCC approval, Nexstar agreed to guarantee MBG’s credit facility for 5 years. Nexstar, however, attempted to withdraw its guarantee after 3 and a half years. Nexstar knew that MBG was in no position to refinance its debt without Nexstar’s guarantee. Only after MBG threatened litigation did Nexstar abide by its contractual obligations.
In addition to explaining how Nexstar undermined MBG, the lawsuit outlines MBG’s efforts to work in good faith with Nexstar to try and resolve the behaviors in question and create a strong and prosperous partnership between the two companies. The filing makes clear that the commitment to resolving the issues was not mutual. As such, MBG decided that the only appropriate recourse was through the legal system.
The case is Marshall Broadcasting Group, Inc. v. Nexstar Broadcasting, Inc. and is filed in the Supreme Court of the State of New York, New York County.