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Despite recent plans to alter a politically charged documentary critical of Democratic presidential nominee Sen. John Kerry, Sinclair Broadcast Group Inc. may still pay a heavy financial price for the controversy surrounding the film. The company has a petition pending before the Federal Communications Commission to buy five television stations the Baltimore-based conglomerate operates. Sinclair’s ownership of these outlets is important to its business plan. But negative publicity over the company’s plan to run a documentary in which former Vietnam prisoners of war attack Kerry for his anti-war activities could make obtaining the stations significantly tougher. The FCC commissioners must not only face the political consequences of approving the acquisitions but also deal with legal challenges by consumer activists opposed to media consolidation. “Sinclair has invited attention to itself in ways that it had not anticipated and would rather keep in the dark,” a media lawyer said. More than 50 Democratic lawmakers recently sent a letter to FCC Chairman Michael Powell demanding that Sinclair give Kerry equal time on its airwaves. Under increasing political, legal and financial pressure, the company retreated from its plans to air the documentary. It now plans to broadcast only portions of the film in an hour-long special scheduled for Friday. The timing of the flare-up could not be worse for Sinclair. The company’s stock is down almost 50 percent for the year, heightening pressure on management to boost results. One financial analyst also said Sinclair is highly overleveraged, with $1.85 billion in debt for the period ended June 30. The five stations Sinclair wishes to buy are outlets where the media company has an operating business arrangement, known as a local marketing agreement, or LMA. Sinclair operates stations in Baltimore; Charleston, W.Va.; Charleston, S.C.; Columbus, Ohio; and Dayton, Ohio, where it already owns a TV broadcaster. Part of Sinclair’s strategy to improve results centers on buying the LMA stations in these markets. “You want to double up in every place you can, save money in the back office, combine sales offices, re-purpose programming,” the analyst said. LMAs are perfectly legal. They are aimed at helping failing stations or startups share expenses, such as maintenance and advertising, with established owners. The two stations in an LMA must have separate owners. Sinclair petitioned the FCC’s media bureau last year for the right to purchase the outlets. The bureau denied the request, and Sinclair in March appealed the decision to the full commission, a matter still pending. The FCC’s failure to act could lead Sinclair to petition the U.S. Court of Appeals for the District of Columbia for relief. Experts said Sinclair has pushed the outer limits of how LMAs are supposed to be used. The company’s LMA stations are owned by Cunningham Broadcasting Corp., previously known as Glencairn Ltd. Cunningham is controlled by trusts in the name of Carolyn C. Smith, the mother of Sinclair CEO David Smith. That linkage raises questions about whether the ownership is sufficiently different to satisfy the legal requirements for LMAs. Sinclair might have been able to avoid this fight had a federal appeals court in June not blocked revised media merger rules the FCC proposed. Those changes would have let Sinclair buy the five stations outright. The court has subsequently ordered the agency to either re-justify the regulations or develop new rules. The FCC’s media bureau denied Sinclair’s petition to buy the stations because agency rules only allow dual ownership in markets with eight or more independent TV outlets. In Columbus, Charleston and Dayton, Sinclair also would have been in violation of the agency’s prohibition on one company owning two of the top four rated stations in the market. The Rainbow/Push Coalition, a Chicago-based consumer group, has filed a complaint with the FCC urging it to deny the TV station transfers to Sinclair. It also called on the FCC to determine whether Sinclair’s potential abuse of the LMAs makes it qualified to hold licenses to use the public airwaves. FCC media bureau spokeswoman Rebecca Fisher declined to comment because Sinclair’s petition is under consideration. Sinclair spokesman Mark Hyman did not respond to repeated requests for comment. A Kerry victory in November could pose even more problems for Sinclair, observers said. The Massachusetts Democrat would likely appoint an FCC chairman opposed to media consolidation, hurting the company’s chances of absorbing the Cunningham-controlled stations. “Sinclair is doing a high-wire, high-risk act, and they are taking serious risks,” a media lawyer said. “It’s a crapshoot.” Copyright �2004 TDD, LLC. All rights reserved.

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