Local Media Advertising: FCC Should Take Action to Ensure Television Stations Publicly File Advertising Agreements
Released: 2016-04-11T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: 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.

section_title: What GAO Found
paragraphs: 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.

section_title: What GAO Recommends
paragraphs: 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.

section_title: Letter
paragraphs: Local broadcast television stations (local stations) use public airways to  broadcast their signals and by law must operate in the public interest. The  Federal Communications Commission (FCC), which is responsible for  regulating local stations, has long-standing policy goals to promote the  public interest by encouraging competition, localism, and diversity.  Guided by these policy goals, FCC established media ownership rules  that, among other things, limit the number of local television stations an  entity can own or control in local markets and nationally. FCC is also  responsible for monitoring and reporting to Congress on the status of  competition among companies that provide subscription television  services through cable (e.g., Comcast), satellite (e.g., DIRECTV), or  telecommunications networks (e.g., AT&T), which are referred to as  “multichannel video programming distributors” (MVPD). Currently, there  are no similar ownership limits on MVPDs, although FCC has attempted  to prescribe limits that were overturned by the courts.

Local stations and MVPDs both sell advertising in local markets that also  include newspapers, direct mail, and, more recently, Internet-based  media. Some local-station owners have entered into agreements to share  resources with other stations, which may allow stations to realize  economic efficiencies. One type of these agreements is the joint sales  agreement (JSA), under which one local station sells the advertising time  for another local station, usually within the same local market.  Additionally, in some local markets, MVPDs have also entered into  arrangements known as “interconnects” to pool a portion of their  advertising time to be sold by a single MVPD, often the largest one in the  market. Some policymakers have raised questions about how sharing  agreements such as JSAs may affect competition and programming  among competing local stations.

By statute, FCC is required to review its media ownership rules every 4  years and determine whether any of its rules remain necessary in the  public interest. FCC completed its last such review in 2007, releasing its  decision in 2008. In 2010, FCC initiated but did not complete a review of  its media ownership rules. In 2014, FCC initiated another review of its  media ownership rules into which FCC incorporated the record from the  review begun in 2010. This review is still ongoing. However, in 2014, in  an accompanying ruling, FCC found that a station that entered into a JSA  to sell more than 15 percent of the weekly advertising time of another  station in the same market could exert significant influence over that other  station—influence akin to ownership. FCC therefore adopted the rule that  in such situations, FCC would count the station whose advertising was  being sold toward the ownership limits of the station selling the  advertising. In its order issued with the new rule, FCC stated that JSAs  should not be used to circumvent its local-station ownership rules, which  are designed to protect competition. The new JSA rules are currently in  effect. However, stations with existing JSAs that would result in a violation  of the local station ownership rules have until October 1, 2025, to come  into compliance. Representatives of the broadcast television industry  brought suit against FCC over the new rules in 2014, claiming, among  other things, that FCC acted improperly by promulgating rules that require  that certain JSAs be counted towards a local station’s ownership limits  without determining whether FCC’s ownership rules remain in the public  interest and without considering the public-interest benefits of JSAs. The  lawsuit is ongoing.

You asked us to review issues related to local media advertising markets.  This report examines (1) what available information indicates about the  prevalence and characteristics of advertising sales agreements among  local stations or MVPDs and (2) selected stakeholders’ perspectives on  the impacts of advertising sales agreements among local stations or  MVPDs.

To determine the prevalence and characteristics of JSAs among local  stations, we obtained and analyzed all local television JSAs found in the  stations’ public inspection files on FCC’s website. To provide assurance  that our review of JSAs was as comprehensive as possible, we also  purchased data on JSAs from BIA/Kelsey, a media research and  consulting firm, which we compared with the JSAs we identified in the  stations’ files; we did not identify any additional JSAs that were not  available in the stations’ public inspection files. We assessed the  reliability of using BIA/Kelsey’s JSA data for this purpose by obtaining  information from BIA/Kelsey about how the data were collected and  maintained and determined that the data were sufficiently reliable for this  purpose. We examined the filings of JSAs in stations’ public inspection  files to determine if any JSAs were filed in one station’s folder but missing  from the folder of another station involved in the JSA. We evaluated  FCC’s efforts to ensure completeness of stations’ JSA filings based on  FCC’s rules and stated expectations for stations’ public files and federal  internal control standards related to information and communications. To  determine the prevalence and characteristics of interconnects among  MVPDs, we interviewed FCC officials and the following selected  stakeholders: 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 FCC’s JSA rulemaking or were  recommended by other stakeholders; and  five financial analysts selected based on our prior work and our  research on their backgrounds.

FCC does not regulate nor collect data on interconnects. Further, MVPD  stakeholders told us that the written agreements that identify the terms of  interconnects are confidential. Consequently, our information about  interconnects is largely testimonial. Our interview results are not  generalizable because we did not select these stakeholders using a  representative sample, and some stakeholders we contacted, particularly  public-interest stakeholders, declined to be interviewed.

To determine selected stakeholders’ perspectives on advertising sales  agreements among local stations and MVPDs, we reviewed filings in two  FCC proceedings: 1) FCC’s rulemaking on television JSAs and 2) FCC’s  review of a 2014 proposed merger between Comcast and Time Warner  Cable. We analyzed filings that stated specific benefits or concerns  related to JSAs or interconnects. We also interviewed FCC officials and  the eight local station owners, five MVPDs, five broadcast and MVPD  industry and advertising associations, five financial analysts, two public- interest groups, and two academics previously mentioned about their  perspectives on JSAs and interconnects. Due to the ongoing litigation  related to the 2014 FCC order pertaining to television JSAs and  ownership limits under the broadcast ownership rules, we did not  evaluate FCC’s efforts related to the JSA rulemaking, nor did we evaluate  FCC’s efforts to review its media ownership rules for this report.

For contextual information, we purchased and analyzed local media  advertising-revenue and market-share data from BIA/Kelsey. We  obtained these data for each of the 210 Nielsen-defined local television  markets—known as designated market areas (DMA)—for years 2011 and  2014. We chose these years because 2014 would be the most recent  year of complete data and 2011 would provide a comparison year during  the economic recovery. We assessed the reliability of BIA/Kelsey’s data  for the purpose of providing contextual information about local media  market shares by discussing these data with industry stakeholders and  obtaining information from BIA/Kelsey about how they collect and  maintain the data. We determined that the data were sufficiently reliable  for this purpose. See appendix I for more information about our scope  and methodology.

We conducted this performance audit from April 2015 to March 2016 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: Television
paragraphs: Consumers access television through two principal types of media. The  first is through local broadcast television stations, which provide free over- the-air programming for reception in consumers’ households by television  antennas. Many local stations are affiliated with major broadcast  networks, while others are independent stations that are not affiliated with  a broadcast network. The second platform for accessing television  services is through MVPDs, which are cable, satellite, or  telecommunications companies that provide services through a wired  platform or via satellite and charge their customers a subscription fee.  MVPDs’ programming includes so-called “cable” networks, such as CNN  or ESPN, and also the local stations, which they carry or retransmit  through agreements with the local stations. These two forms of media  have some similarities but also key differences, as described in table 1.

section_title: Television Advertising
paragraphs: Television advertising time may be sold at either the national or local  level. National advertising time is sold by broadcast or cable networks— both of which produce and aggregate programming that will be aired  nationally—to advertisers looking to reach audiences across the country.  The advertisements are inserted with the programming that broadcast  and cable networks provide to local stations and MVPDs, respectively. In  contrast, local advertising time is sold to companies wanting to reach a  local audience. This advertising time may be sold to local businesses— such as a car dealership or restaurant—or it may be sold to a national  business—such as a car manufacturer or a large restaurant chain—that is  purchasing local advertising time to reach a particular local audience.  While local stations or MVPDs often directly sell local advertising time to  local businesses, national advertising sales representatives may arrange  the sale of local advertising time to national businesses.

The amount of advertising time available for a local station to sell during a  given hour depends on the type of program airing at that time.  Specifically, a local station sells all of the advertising time during the  programming it produces, such as local news. In our 2014 report on  media ownership, we found that advertising aired during local news in  particular represents a substantial portion of a broadcast station’s  revenue. A local station also sells a portion of the advertising time  during programming it receives from its affiliated broadcast network,  generally about 2 ½ to 3 minutes per hour, and may sell a portion of the  time during syndicated programming, which is programming such as  game shows and reruns produced nationally but aired on a station-by- station basis. Advertising on cable networks is mostly sold by the cable  networks themselves; however, MVPDs also sell a small portion of the  advertising time on the cable networks that they distribute, about 2  minutes per hour according to MVPDs we spoke to for this report. No  advertising time on the local stations that MVPDs retransmit is available  to MVPDs to sell, nor do MVPDs sell advertising time on premium cable  channels that do not carry advertising, such as HBO. Table 2 presents  example scenarios of how local and national advertising is sold and  shown through both local stations and MVPDs. 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.

Some broadcast stations and MVPDs have entered into agreements  regarding the joint-selling of advertising, which have become more  prevalent in recent years, according to media-industry stakeholders we  spoke to.

JSA: An agreement between local stations in which one station is  authorized to sell advertising time on the other station. We refer to  the station selling the advertising as the “sales-agent station” and the  station that turns over its advertising time to be sold by the other  station as the “customer-station.” JSAs are specifically defined by  FCC rules.  Interconnect: An arrangement among MVPDs in the same market in  which one MVPD—typically the largest MVPD in the market—sells a  portion of the local advertising time for all MVPDs participating in the  interconnect and simultaneously distributes that advertising across all  such MVPDs in a coordinated manner. Although interconnects were  traditionally an arrangement between cable providers, in recent years,  telecommunications and satellite providers have also participated in  them. Interconnects are not defined by FCC.

Some local stations also have other agreements, called shared service  agreements, for sharing other functions such as news production,  administrative, and operational services. For example, stations can enter  into an agreement to share news-gathering resources, such as  helicopters, reporters, and cameramen, or can enter into an agreement  wherein one station produces another station’s local news. Our 2014  report on media ownership found that stations may have several  agreements in place, such as a shared service agreement and JSA, or a  single agreement that includes components typical of different types of  agreements. Stations are not required to disclose shared service  agreements in their public files. However, in 2014, FCC proposed new  rules that would define shared service agreements and require their  filing.

section_title: Other Local Media in Local Markets
paragraphs: In addition to television, there are a number of other outlets competing for  advertisers looking to purchase advertisements in local markets, including  radio, print media (such as newspapers and magazines), out-of-home  advertising (such as billboards or advertising on buses), and Internet- based media (such as advertising through mobile devices or on  websites). Local media advertising generated approximately $136 billion  in revenue in 2014, a slight decrease from the $139 billion (2014 dollars)  in 2011, according to data from BIA/Kelsey, a media research and  consulting firm.

The geographic scope of local media markets are defined by Nielsen, a  company that measures television viewership—a critical metric for  determining advertising rates. Nielsen has divided the country into 210  local television markets, known as DMAs, ranked in size from the largest  (New York, N.Y.) to smallest (Glendive, Mont.). Based on information  from the stakeholders we interviewed about these markets, we will refer  to the 25 largest markets (those ranked 1 through 25) as “large” markets,  those ranked 26 through 100 as “medium” markets, and those ranked 101  through 210 as “small” markets.

section_title: FCC Oversight
paragraphs: FCC assigns licenses for local stations to use the airwaves on the  condition that licensees serve the public interest. FCC’s regulation of  local stations is guided by long-standing policy goals to encourage  competition, diversity, and localism. To advance these policy goals, and  based on statutory requirements to serve the public interest, FCC has  implemented rules that limit the number of stations an entity can own or  control locally and nationally. Under FCC’s ownership rules, a single  entity can own two local stations in the same DMA if the relevant service  contours—the boundary of the area a station serves—do not overlap or, if  they do overlap (1) at least one of the stations is not ranked among the  top-four stations in terms of audience share and (2) at least eight  independently owned and operating full-power commercial or  noncommercial television stations would remain in the DMA. Because  larger markets tend to have more stations, this limit tends to affect smaller  markets more than larger ones, since an owner of a local station  interested in acquiring a second station in a small market would be less  likely to be able to meet these criteria. As previously discussed, FCC is  required by statute to review its media ownership rules every 4 years and  determine whether any such rules remain necessary in the public  interest. FCC’s most recent review related to its media ownership rules  was completed in 2008.

FCC has also noted that arrangements other than outright ownership  could exert similar influence as ownership. To address such issues, FCC  developed attribution rules to determine what interests should be counted  when applying these media ownership limits. In 2004, FCC sought  comment on whether the use of certain television JSAs warranted  attribution—that is whether the customer-station should be counted or  attributed to the sales-agent station that sells advertising for that station  for the purpose of applying FCC’s media ownership limits. FCC sought  additional comment on this issue in its 2010 media ownership review. 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 rule is currently in effect;  stations with JSAs existing at the time FCC issued the rule that result in  violations of FCC’s media ownership limits have until October 2025 to  amend or void their agreements or otherwise come into compliance with  FCC’s ownership rules. As previously discussed, the rule is subject to  ongoing litigation. FCC also has rules for stations to file certain  documents with FCC and to maintain public inspection files that include  documentation about the licensing and operation of each station.  According to FCC, the purpose of the public inspection files is to make  information more readily available that the public already has a right to  access so that the public will be encouraged to play a more active part in  dialogue with broadcast licensees. These rules include requirements for  stations to file JSAs with FCC if the JSA is attributable under FCC’s  attribution rules and to file all current JSAs, regardless of attribution  status, in the stations’ public inspection files. Local television stations’  public inspection files are available online through FCC’s website.

section_title: JSAs Are Mostly in Smaller Markets, but Some JSAs Were Missing from Stations’ Public Files; Some Stakeholders Reported That Interconnects Are Mostly in Medium- to Large-Size Markets
subsections: section_title: JSAs Are Mostly in Smaller Markets and Cover Similar Terms
paragraphs: We found 86 JSAs among local-station owners in our review of JSAs  available from stations’ online public inspection files. A little more than a  third of DMAs had a JSA, with 98 percent of JSAs we identified being  among stations in medium or small markets (see table 3).

The 86 JSAs we reviewed generally covered similar terms. We identified  the following key provisions in our review of these agreements:

Advertising time: The JSAs specified the advertising that the sales- agent will sell. In most cases, this included all of the customer- station’s advertising time, including local advertising that airs during  programming of the local station as well as advertising on the  customer-station’s website. Four of the JSAs were created since FCC  promulgated its 2014 JSA rule, and these JSAs specified that the  sales-agent would sell no more than 15 percent of the customer- station’s advertising time. This 15 percent is the threshold FCC set in  the JSA rule that, if exceeded, would trigger attribution under FCC’s  ownership rules.

Station identification: All of the JSAs identified the owners of both the  sales-agent and customer-stations covered in the agreements and the  call signs of the customer stations. About two-thirds (60) of the JSAs  also identified the call signs of the sales-agent stations, while a little  less than one-third (26) of the JSAs did not identify the call sign of the  sales-agent station. According to FCC officials, FCC’s rules do not  prescribe the way in which parties to JSAs are identified in the  agreement, and it is not required that JSAs specifically identify the call  signs of the stations involved in the agreements under FCC’s rules.

Time frame: The JSAs generally covered 5 to 10 years with  extensions based on the consent of both parties. Stations also  sometimes filed documents indicating their JSAs had been extended.

Revenue sharing: About half (40) of the JSAs indicated that the sales- agent retains 30 percent of the advertising revenue, while some (9)  indicated a different percentage, a flat fee, or a commission. The  remaining 37 JSAs had no information about revenue sharing  because that information was either redacted or not provided.

Control and responsibilities: All of the JSAs specified that the  customer-station retains complete control of the station, including  control over the operations, finances, personnel, programming, and  responsibilities to meet FCC requirements.

Shared service agreement: Some of the JSAs included provisions  typical of a shared service agreement and were characterized as both  a JSA and a shared service agreement. FCC officials and  stakeholders told us that JSAs and shared service agreements  typically go together, and local station owners said it would be  uncommon for a station to have a JSA without an accompanying  shared service agreement. However, one station owner told us that its  station has a JSA and no shared service agreements.

Programming: About one-third (26) of the JSAs reviewed included a  provision for the sales-agent to provide programming for the customer  station, generally up to 15 percent of the customer-station’s broadcast  hours per week.

section_title: Some JSAs Were Not Filed in Stations’ Public Files in Accordance with FCC Rules
paragraphs: While reviewing JSAs filed in stations’ online public inspection files, we  found that some JSAs were not filed in both a sales-agent station file and  a customer-station file, as required by FCC rules. Specifically, of the 86  JSAs we identified, 23 of them were filed in a customer-station file but not  a sales-agent station file and 2 of them were filed in a sales-agent file but  not a customer-station file. In most of these cases (20 of the 25 JSAs),  the stations involved in the JSAs were specifically identified by their call- signs in the JSAs; in the other 5 JSAs, only the sales-agent station’s  owner was identified and we had to determine the sales-agent station by  contacting the other station named in the JSA or by examining  information about station ownership in the same market. Although there  may be legitimate reasons for a JSA to be missing—for example, if the  JSA had been terminated and removed from one file but not yet from the  other—the extent of missing JSAs raises a concern that there may be  JSAs that should be filed that have not been.

As previously discussed, FCC’s rules require that all current JSAs be filed  in stations’ public inspection files, which are available online through  FCC’s website. The purpose of this requirement is to improve  transparency of station operations for the public by making documents  more readily available that the public already has a right to access.  Further, according to FCC, the agency required stations to make this  information available so that the public would be encouraged to play a  more active part in dialogue with and oversight of broadcast licensees.  Consequently, if interested parties look at the public file of a station  involved in a JSA, they should expect to find that document in the file so  that they may learn about how a station handles its advertising sales. If a  station involved in a JSA does not have its JSA in its public inspection file,  the transparency over this aspect of the station’s operations is lost. The  standards for internal control in the federal government state that agency  management should ensure there are adequate means of communicating  with, and obtaining information from, external stakeholders that may have  a significant impact on the agency achieving its goals. As previously  stated, FCC’s media ownership rules are meant to serve the public  interest, and FCC’s recent determination that JSAs are a factor in  assessing whether stations are in compliance with the ownership rules  indicates that JSAs could have a bearing on whether stations are serving  the public interest. Furthermore, in October 28, 2014, following the  enactment of its JSA rule earlier in 2014, FCC released a public notice  reminding stations of their obligation to file all current JSAs in their public  inspection files, regardless of whether the station is the sales-agent or the  customer-station in the agreement. The notice stated that a station’s  failure to comply with this rule may result in FCC taking an enforcement  action.

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. They added that they have never  identified or compiled copies of JSAs from these publicly available  sources, either for attributable JSAs or all JSAs, for this purpose. 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. According to FCC officials,  FCC’s most recent round of license renewal reviews did not turn up any  missing JSAs, and there were no stations self-reporting or petitions from  others alleging missing JSAs. However, if FCC has not compiled a list of  existing JSAs, it is unclear how it would know whether a JSA is missing  when reviewing a file. Additionally, FCC officials said that if they receive a  complaint that a public inspection file is incomplete, FCC may investigate  and take action, such as contacting the station licensee and instructing it  to update the file or issuing an admonishment or fine, as appropriate;  however, FCC officials said they have not received any such complaints.

According to FCC officials, this compliance approach reflects the  agency’s policy objectives of encouraging greater public participation in  broadcast licensing. 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.  Furthermore, FCC officials said that they take seriously the obligation to  ensure that licensees comply with FCC rules and to vigorously enforce  violations of the public inspection file that are identified as a result of self- disclosure, public complaints, discovery by FCC staff, or in connection  with a station’s license renewal applications. FCC officials said that the  public inspection file is meant to assist the public specifically, rather than  FCC. However, without examining public inspection files to determine if  they are complete, FCC may not be fully aware of violations.

If the public is to have the sort of dialogue with and oversight of stations  that FCC suggests, then the public should have access to these  documents through the public inspection files. FCC’s rules specify which  documents should be included in the files, and FCC has the authority to  take enforcement action against stations that do not follow its rules.  Although FCC assured broadcasters that the online public file  requirement would not lead to increased FCC scrutiny of the public  inspection files, FCC has already reminded broadcasters of their  responsibility to file JSAs in public inspection files and that FCC may take  enforcement action if stations do not comply. If a member of the public  is examining the file of a station that is involved in a JSA but the station  has not put the JSA in the file, then it would not be apparent that the  station’s operations involve another station as provided by a JSA.  Specifically, this reduces the transparency around the station’s  advertising sales, which is a principal source of station revenue. Public- interest stakeholders told us that lack of transparency regarding JSAs and  other sharing agreements, particularly over what they do and who is  involved, is a primary concern. If JSAs are missing from stations’ public  inspection files, interested parties may not be able to access this critical  piece of information about how stations operate in local markets.

section_title: Interconnects Allow MVPDs in a Local Market to Sell Advertising from a Single Point and Exist in Most Markets, According to Stakeholders
paragraphs: 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. 1). Through  technological means, these advertisements are then distributed  simultaneously across the MVPDs participating in the interconnect. For  example, MVPDs told us that an advertiser wishing to purchase  advertising time in a local market on a particular cable-network show  could, through a single transaction with an interconnect, arrange for its  advertisement to air simultaneously during that show on all MVPDs in that  market that are part of the interconnect. Without an interconnect, an  advertiser wishing to reach the same audience would have to negotiate  separate advertising time purchases for the same times and during the  same shows with each MVPD in the local market. Although interconnects  were originally created among cable companies, they have expanded in  recent years to include telecommunications MVPDs. Additionally, MVPD  stakeholders we spoke to explained that while satellite-based MVPDs do  not directly participate in interconnects, satellite MVPDs have developed  a way to insert local advertising into the programming they provide  customers and have begun rolling this capability out in a limited number  of markets. Through an arrangement with a cable-industry-owned  advertising representation sales firm, advertisers can take advantage of  this capability to reach satellite subscribers in some larger markets when  purchasing local advertising through interconnects.

Stakeholders including two MVPDs, two MVPD advertising representation  firms, three industry associations, one broadcast station owner, and one  financial analyst provided information on the prevalence of interconnects.  Seven of these stakeholders stated that interconnects exist in most  markets, while two of these stakeholders indicated that interconnects are  found mostly in medium- to large-size markets. According to an  association of MVPD advertising sellers, the number of interconnects has  increased in recent years as MVPDs realized their benefits and  efficiencies, which we discuss later in this report. According to several  MVPD stakeholders, there is no industry-wide definition of an  interconnect. Consequently, there are differences in how the term is  defined, making it difficult to obtain consistent information on the number  of interconnects nationwide.

MVPDs, cable associations, and financial analysts we interviewed  identified the following key characteristics of interconnects:

Advertising time: According to MVPD stakeholders we interviewed,  interconnects cover only advertising and do not cover other services.  Interconnect managers: According to MVPDs, typically the largest  MVPD provider in the market manages the interconnect. For example,  one large MVPD told us that it created and manages about one-third  of the nation’s interconnects and is a participant in interconnects  managed by other MVPDs. This MVPD also said that creation and  management of an interconnect requires significant investments in  personnel and technology. MVPD stakeholders also told us that some  interconnects are managed by national advertising representation  firms.

Revenue sharing: MVPDs said that revenue from the sale of  advertising through an interconnect is generally prorated among the  MVPDs in the interconnect based on the amount of inventory provided  for sale and their number of subscribers in the DMA.

section_title: Some Selected Stakeholders Said That Advertising Agreements Provide Economic Benefits, but Others Raised Concerns over the Market Effects of these Agreements
paragraphs: 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. Stakeholders we selected to interview included local station  owners, MVPDs, industry associations, public-interest groups,  academics, and financial analysts.
subsections: section_title: Station Owners Said That JSAs Allow Stations to Cut Costs, but Other Stakeholders Raised Concerns about Effects on Competition, Diversity, and Localism
paragraphs: 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. As previously discussed, a JSA is generally accompanied by a  shared service agreement, and they are sometimes the same agreement.  Further, in discussing their views, a few station owners told us that while  JSAs provide some cost savings, shared service agreements provide  most of the savings and that it generally did not make sense to talk about  JSAs without also discussing shared service agreements. Consequently,  our discussion of stakeholders’ views is based on comments about the  use of both JSAs and shared service agreements, which we refer to  together as “sharing agreements.”

All of the station owners we interviewed said that the savings from these  sharing agreements help financially struggling stations survive when they  might otherwise go out of business, with some owners saying this is  particularly the case with stations in smaller markets. Some station  owners and financial analysts told us that as local stations are facing  increased competition for advertising revenues from other media, such as  Internet-based media and MVPDs, stations rely on sharing agreements to  cut costs. Our analysis of BIA/Kelsey local advertising revenue data  showed that the market share of Internet-based media increased from 11  percent in 2011 to 17 percent in 2014—a percentage comparable to the  market share for broadcast television, which was 15 percent in 2014 (up  slightly from 13 percent in 2011). This share is higher than the market  share of MVPDs, which was about 5 percent in both years. (For more  results of our analysis of this market data, see app. II.) Most media  industry stakeholders and financial analysts whom we interviewed  consistently identified the growth in Internet-based media as a major  change in local advertising markets in recent years, coming at a time  when market shares for other types of media, such as radio and  newspapers, have been relatively flat or in decline.

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. Our analysis of BIA/Kelsey  estimates of local advertising revenue supports this revenue claim.  Specifically, stations in the 25 largest DMAs had average revenue of  $28.0 million per station in 2014—more than nine times the $3.0 million  average revenue per station in the smallest DMAs (those ranked 101 to  210). According to some station owners and financial analysts, stations  view JSAs and shared service agreements as a means of remaining  financially viable in small markets. In contrast, a local station owner that  has stations in larger markets said that there is no need for JSAs in  markets like Los Angeles or New York.

In addition to cutting costs and helping local stations remain financially  viable, station owners also told us that the associated cost savings from  sharing agreements enable stations to make investments that help them  compete with other local media and provide benefits to the stations and  their communities, thereby supporting FCC’s goals of enhancing  competition, diversity, and localism. Benefits station owners cited include:  Investments in diverse programming: Some station owners filing in  FCC’s JSA rulemaking (6 of 18) and whom we interviewed (4 of 10)  said that sharing agreements allow them to enhance the diversity of  local programming. For example, representatives from Univision, a  Spanish-language network and a station owner, told us the company  has used JSAs and shared-service agreements with another station  owner, Entravision, to establish and expand Univision’s second  Spanish-language network, UniMás. Under this arrangement,  Entravision provides services for Univision’s stations that carry  UniMás programming: According to Univision representatives, the  resulting cost savings have allowed it to launch UniMás in six  markets, growing the network faster than it could have without sharing  agreements.  Increased local news coverage: According to some station owners  that filed comments in FCC’s JSA rulemaking and that we  interviewed, producing local news is expensive and stations find it  financially challenging to produce local news, particularly in smaller  markets. Most station owners that filed FCC comments (10 of 18) and  most that we interviewed (7 of 10) said JSAs and shared service  agreements allow local stations to air local news when they would  otherwise be unable to or to expand or improve their existing news  coverage. For example, one owner of a small-market station told us  its JSA and shared service agreement with a larger station owner in  the same market have allowed both stations to share resources,  thereby reducing costs and improving their news services.  Improved services: Some station owners that filed FCC comments (8  of 18) and that we interviewed (4 of 10) said JSAs enable stations to  improve service quality. For example, one station owner told us that  savings associated with its JSA allowed the station to upgrade its  broadcast to high definition, which helped the station better compete  for advertising dollars, since many advertisers will not buy advertising  unless it is in high definition.

FCC itself has acknowledged that JSAs may have benefits. Specifically,  in the order FCC released with its 2014 JSA rules, FCC stated that  cooperation among local stations may have public-interest benefits under  some circumstances, particularly in small to mid-sized markets. FCC also  stated that JSAs may, for example, facilitate cost savings and efficiencies  that could enable the stations to provide more locally oriented  programming.

Conversely, some stakeholders raised concerns about how JSAs and  shared service agreements may affect local markets. For example, one of  the four public-interest groups that filed comments in FCC’s JSA  rulemaking, as well as the two public-interest groups and one of the two  academic stakeholders we interviewed, said that JSAs do not support the  long-standing policy goals to encourage competition, diversity, and  localism. Stakeholders raised concerns about JSAs in the following areas:

Undue influence: One MVPD association, one labor union, and two  public interest groups that filed comments in FCC’s JSA rulemaking  and one MVPD, both public-interest groups, and both academic  stakeholders we interviewed said that JSAs and other sharing  agreements create the potential for undue influence over station  operations. Specifically, according to some of these stakeholders,  such influence could occur because the agreements create a financial  interest. With JSAs, this is because the sales-agent station sells the  customer station’s advertising, which is a principal source of the  customer station’s revenue. 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.

Reduced competition for advertising: According to most public-interest  groups (three of four) that filed FCC comments and two of the ten  MVPDs, both of the public-interest groups, and one of the two  academic stakeholders we interviewed, local stations’ use of JSAs  effectively reduces competition for advertising dollars in local markets  because, for example, stations within a JSA may combine their sales  forces and no longer compete with each other for advertising revenue.  Some of these stakeholders raised the concern that this reduced  competition may create negative impacts in the market, such as  allowing stations with JSAs to capture more of the local advertising  market, putting other stations without JSAs at a disadvantage.

Reduced diversity: Both public-interest groups and one of the  academic stakeholders we interviewed said that sharing agreements  reduce diversity in local markets, including diversity in terms of  programming or station ownership. For example, an academic  stakeholder told us that the use of such agreements results in the  same entity effectively controlling the content of one or more stations.

Reduced localism: According to one of the four public-interest groups  and the one academic stakeholder that filed FCC comments, as well  as both of the academic stakeholders we interviewed, the use of  sharing agreements can lead to the reduced provision of local news.  For example, an academic stakeholder said in its FCC filing that JSAs  and shared service agreements have negatively impacted the  Syracuse market, because two stations consolidated operations under  these agreements and in the process cut one of the station’s news  operations.

section_title: MVPDs Said Interconnects Allow Their Advertising Time to Reach More of the Local Market, but Other Stakeholders Raised Concerns about Effects on Competition
paragraphs: According to 9 of the 10 MVPD stakeholders we interviewed, a primary  benefit of an interconnect is to aggregate the available advertising time  among various MVPDs in a local market. This enables MVPDs to  collectively reach a greater number of households in that market than any  single MVPD could reach with its advertising time. 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. Further, four MVPDs also told us that this  increased reach makes MVPDs’ advertising time more valuable to  advertisers. According to some MVPD stakeholders, without  interconnects, the reach of each MVPD’s advertising time would include  only that MVPD’s subscribers, which could be a small percentage of  households in the local market. As a result, according to three MVPDs,  sometimes advertisers would not purchase MVPD advertising time. Nine  of the ten MVPD stakeholders said that aggregating advertising inventory  through interconnects also enhances the efficiency of advertising sales by  enabling advertisers to buy advertising time across a number of MVPDs  in a given local market through a single purchase.

MVPD stakeholders we interviewed also noted that interconnects can  reduce costs. Two MVPDs we interviewed and two larger MVPDs that  filed comments in FCC’s Comcast/Time Warner Cable merger proceeding  said interconnects allow some MVPDs to cut costs because one MVPD  manages the advertising sales and technological implementation of the  interconnect for all of the participating MVPDs, whereas without an  interconnect, each MVPD would maintain a sales staff.

In contrast, smaller MVPD stakeholders that commented in the  Comcast/Time Warner merger proceeding and some stakeholders we  interviewed raised concerns about interconnects. Specifically, 6 of the10  station owners we interviewed told us MVPDs have an unfair competitive  advantage over local stations because, for example, FCC regulates  station owners’ JSAs but not MVPDs’ interconnects. Four of these station  owners noted that MVPDs are therefore allowed to take advantage of  efficiencies and savings through their own type of advertising sales  agreement, while local stations face regulatory constraints in doing so.  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. Four small  MVPDs and an MVPD advertising representation firm that submitted  comments in the Comcast/Time Warner merger proceeding said that  excluding MVPDs from interconnects decreases revenue for the excluded  MVPDs. Two larger MVPDs that provided comments in the merger  proceeding, however, indicated that they do not engage in such practices.

section_title: Conclusions
paragraphs: While opinion differ on how JSAs among local stations and interconnects  among MVPDs affect the media landscape, FCC has defined JSAs and  required that they be placed in local stations’ public inspection files.  Moreover, in 2014, FCC issued a rule that requires that where a JSA  encompasses more than 15 percent of another station’s weekly  advertising time, the JSA will count toward the local-station ownership  limit. FCC requires that each broadcast television station with a JSA file  the JSA in its public inspection file, including in the station’s online file on  FCC’s website—regardless of whether the station is the sales-agent  station or the customer station. This requirement is intended to improve  the transparency of local stations’ operations so that the public can have  a more active role in assessing stations’ operations in their local markets.  However, we found that a considerable number of JSAs filed by customer  stations were not also filed by a sales-agent station—and that FCC has  not taken sufficient steps to determine the extent to which broadcast  television stations are complying with this rule. If stations that use JSAs  as part of their advertising operations have neglected to file or update  their JSAs in their public inspection files, interested parties may be  unaware that the stations have such arrangements and therefore lack  insight into this aspect of local television operations. Consequently, the  transparency of local television markets is diminished, preventing the  public from effectively assessing and engaging stations with regard to  local stations’ public interest obligations.

section_title: Recommendation
paragraphs: 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.

section_title: Agency Comments
paragraphs: We provided a draft of this report to FCC for review and comment. We  received written comments from FCC, which are reproduced in appendix  III. In response to our recommendation, FCC stated that it shares our  concern that potential noncompliance with FCC’s JSA filing requirement  could affect the transparency of local television markets. Further, FCC  stated it will take action to help ensure that broadcasters are aware of and  in compliance with their public file obligations regarding JSAs and that  any noncompliance is disclosed to FCC, as appropriate.

As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees, the FCC Chairman, and other interested  parties. In addition, the report is available at no charge on the GAO  website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-2834 or goldsteinm@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix IV.

section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: 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 identified documents  as JSAs if they were labeled as such or if they were a shared service  agreement that included provisions for the joint-sale of advertising. We  excluded duplicate copies of the same JSA in our analysis, a JSA that we  determined had expired according to the date in the JSA, and documents  filed in a JSA folder that were not JSAs, such as local marketing  agreements and shared service agreements that did not have an  advertising component. According to FCC officials, although stations are  required to place copies of their JSAs in their public inspection files, FCC  officials have not independently verified whether each station has done  so, and the officials said that they were not aware of any JSAs that were  mislabeled or misfiled. To provide assurance our review of JSAs was as  comprehensive as possible, we also purchased JSA data from  BIA/Kelsey, a media research and consulting firm. BIA/Kelsey developed  its JSA data by reviewing information in the trade press, analyzing FCC  filings, and through direct contact with television stations to ask for  information such as the presence of JSAs. We compared BIA/Kelsey’s  data against the JSAs we were able to identify in stations’ public  inspection files and did not identify any additional JSAs in this data that  were not available in the file. We assessed the reliability of using  BIA/Kelsey’s JSA data for the purpose outlined here by obtaining  information from BIA/Kelsey about how the data were collected and  maintained and determined that the data were sufficiently reliable for this  purpose. We analyzed the JSAs we obtained from FCC to determine their  characteristics such as which stations and owners were party to the  agreements, their date and duration, and advertising sales provisions. We  also analyzed the filings of JSAs in stations’ public inspection folders to  identify if any JSAs were filed in one station’s folder but missing from the  folder of another station involved in the JSA. Where JSAs did not mention  a specific sales-agent station, we identified the probable station by  reviewing publicly available information about television station owners or  contacting another station involved in the JSA and examined the public  inspection files of those stations. We evaluated FCC’s efforts to ensure  completeness of stations’ JSA filings based on FCC’s rules and stated  expectations for stations’ public files and federal internal control  standards related to information and communications.

To determine the prevalence and characteristics of advertising sales  agreements—specifically interconnects—among MVPDs, we interviewed  selected stakeholders (as listed later in this section) about their  knowledge of the prevalence and characteristics of interconnects. We  attempted to obtain data on the number of interconnects in the United  States from various media industry sources; however, we were unable to  establish the reliability of these data due to differences in the  methodologies between the various sources that made the numbers  inconsistent.

To assess selected stakeholders’ perspectives on advertising sales  agreements among local stations and MVPDs, we reviewed filings in two  FCC proceedings: 1) the proceeding for FCC’s rulemaking on television  joint sales agreements and 2) FCC’s review of a 2014 proposed merger  between Comcast and Time Warner Cable. We analyzed filings that  stated specific benefits or concerns related to JSAs or interconnects. 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.

Table 4 is the list of stakeholders we interviewed.

For contextual information about the advertising revenue and market  shares of local media, we purchased data from BIA/Kelsey on the  estimated local advertising revenue of 12 types of local media: broadcast  television stations, broadcast radio stations, MVPDs, newspapers,  magazines, direct mail, out-of-home (a category of advertising that  includes billboards and other signs in public places), yellow pages, online  (i.e., websites), mobile, email, and Internet yellow pages. Since 2009,  BIA/Kelsey has released nationwide forecasts for local media advertising  with estimates of local advertising for these 12 media categories.  BIA/Kelsey allocated its national estimates to each of the 210 Nielsen- defined local television markets, known as “designated market areas”  (DMA), based on county-by-county demographic and economic data and  BIA/Kelsey’s internal estimates on various media. BIA/Kelsey checked  its estimates with publicly available information on many of the public  companies that are part of its media categories. BIA/Kelsey stated that  the resulting data should be considered as approximate estimates to  provide a general view of local advertising markets and changes in those  markets. We obtained these data for each of the 210 DMAs for years  2011 and 2014. We chose these years because 2014 would be the most  recent year of complete data and 2011 would provide a comparison year  during the economic recovery.

Prior to purchasing the data from BIA/Kelsey, we researched potential  sources of such data by interviewing stakeholders and reviewing our prior  work on media ownership. We solicited proposals from companies that  we identified as potentially having the data we needed and evaluated  these proposals to determine which would meet our requirements. We  assessed the reliability of BIA/Kelsey’s data for the purpose of providing  contextual information about local media market shares by discussing  these data with industry stakeholders and obtaining information from  BIA/Kelsey about how they collect and maintain the data. We determined  that the data were sufficiently reliable for this purpose.

As previously discussed, several broadcast television entities have filed  an ongoing lawsuit against FCC over the 2014 JSA rule. This lawsuit  alleges that FCC evaded its legal obligations by not completing its review  of its media ownership rules and that FCC violated its statutory  obligations by promulgating the JSA rule on the basis of these ownership  rules. Due to this lawsuit, we limited the scope of our review. Specifically,  we did not evaluate FCC’s efforts related to the JSA rulemaking, nor did  we evaluate FCC’s efforts to review its media ownership rules.

We conducted this performance audit from April 2015 to March 2016 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.

section_title: Appendix II: Local Media Advertising Revenue
paragraphs: Revenue from the sale of advertising is earned by a variety of types of  local media. Local media advertising generated approximately $136  billion in revenue in 2014, a slight decrease from the $139 billion (2014  dollars) in 2011, according to data from BIA/Kelsey, a media research  and consulting firm. The market for local advertising revenue includes a  number of different types of media, such as local television and out-of- home venues (which encompasses billboards and ads on buses, among  other things). The percentage of local advertising revenue that goes to  each type of media is referred to as its market share. Recent changes in  the local media landscape have led to some shifts in market share. We  obtained data on local advertising revenue from BIA/Kelsey for 2011 and  2014 for 12 types of local media: broadcast television stations, broadcast  radio stations, MVPDs, newspapers, magazines, direct mail, out-of-home,  yellow pages, online (i.e., websites), mobile, email, and Internet yellow  pages. We analyzed these data to identify differences in the local  advertising market shares among these various types of local media and  how these market shares may have changed in recent years.

According to our analysis of these data, the largest sellers of local  advertising in 2014 were direct mail, broadcast television, and  newspapers, which each have a market share of about 15 percent or  more, based on estimates of their local advertising revenue across all  U.S. local media markets. In contrast, MVPDs’ market share was about 5  percent in 2014, according to the BIA/Kelsey data. When the market  shares of various Internet-based media (mobile, online, email, and  Internet yellow pages) are combined, their market share (17 percent)  rivals that of the largest local advertising sellers (see fig. 2).

Our analysis also revealed some trends in the market shares of these  media when comparing estimates for 2011 and 2014. The most  significant change in market share in these recent years is among  Internet-based media, with a market-share increase from 11 percent in  2011 to 17 percent in 2014 (see fig. 3). Most stakeholders we interviewed  similarly identified Internet-based or “digital” media as having significant  market growth during this time. Broadcast television’s market share grew  slightly between 2011 and 2014, and MVPDs’ market share was relatively  flat between 2011 and 2014, according to the data. Print media  (newspapers, magazines, direct mail, yellow pages) and radio all saw  market-share declines from 2011 to 2014, according to the data, and two  of the financial analysts told us that television market share has flattened  in recent years and may soon decline. According to many stakeholders,  advertisers shifting their business to Internet-based media accounts for  changes in market shares, particularly the declines among print media.

section_title: Appendix III: Comments from the Federal Communications Commission

section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Mark L. Goldstein, (202) 512-2834 or goldsteinm@gao.gov.

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Alwynne Wilbur (Assistant  Director), Amy Abramowitz, Melissa Bodeau, Michael Clements, Leia  Dickerson, Andrew Huddleston, Crystal Huggins, Hannah Laufe, Meredith  Lilley, Grant Mallie, Malika Rice, Kelly Rubin, and Larry Thomas made  key contributions to this report.


Question-summary annotations: questions: question: What are joint sales agreements?
answer: 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.
child_questions: question: What does the FFC require of stations involved in joint sales agreements?
answer: 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.
child_questions: question: What is the purpose of this requirement?
answer: 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.

question: What did GAO find in its review of joint sales agreements in public files?
answer: 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.

question: How does the FCC review compliance of the joint sales agreement rules?
answer: FCC addresses compliance with this filing requirement through its periodic reviews of station licensing and in response to complaints.
child_questions: question: What flaws exist in this review process?
answer: 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.

questions: question: How do joint sales agreements affect stakeholders?
answer: 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.
child_questions: question: How do joint sales agreements affect advertising costs?
answer: 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.

question: What type of stations most commonly use joint sales agreements?
answer: 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.

question: How might joint sales agreements negatively affect local markets?
answer: 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.

questions: question: How do television stations and MVPDs differ?
answer: Television stations, which provide free, over-the-air programming, and MVPDs, which provide subscription television services, compete with other local media for advertising revenue.

question: How does the FCC promote competition?
answer: FCC rules limit the number of local stations an entity can own in one market to promote competition and other public interests.

question: Why were joint sales agreements created?
answer: Some station owners created joint sales agreements to potentially cut costs.
child_questions: question: How can joint sales agreements affect FCC ownership limits?
answer: 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.

questions: question: What was GAO asked to review?
answer: GAO was asked to examine the role of advertising agreements in local media markets.

question: What does this report examine?
answer: This report examines (1) the prevalence and characteristics of such agreements, and (2) stakeholders' perspectives on these agreements.
child_questions: question: How did GAO collect data for this report?
answer: GAO examined publicly available joint sales agreements and interviewed FCC officials and media, public interest, academic, and financial stakeholders about their views.

question: How were stakeholders selected?
answer: Stakeholders were selected to represent a range of companies and from those who submitted comments on FCC's rules, among other reasons.