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Hi there, and welcome back to On Background. I’m writing to you this evening from our Union Square office, shortly before I head to a brownstone in the Fort Greene neighborhood of Brooklyn for a private dinner hosted by the publisher 1440.

Names like Taylor Lorenz and Emily Sundberg, who each have their own standout newsletters, were mentioned as an enticement to attend, although an exact guest list has since mysteriously failed to materialize. All I know for sure is that the evening is set to follow the “Jeffersonian Dinner” format, meaning that we will all engage in one collective conversation. 

The topic? The evolving role of the human in the media industry. I imagine that everyone will be calm and level-headed about this! Follow me on Instagram to follow along.

Below, I dig into four of the most pressing questions surrounding Disney's game of nationally televised chicken with the affiliate networks Sinclair and Nexstar, as well as what the controversy means for the broader digital media ecosystem. But first, a few other stories you should be aware of.

As a reminder, replies to this email go straight to my inbox, so please feel free to reach out with feedback, tips, or extremely good pitches.

MARK STENBERG, SENIOR MEDIA REPORTER, ADWEEK
mark.stenberg@adweek.com   |  @markstenberg

TALKING HEDS

• Wired for Video: When Katie Drummond became global editorial director of Wired two years ago, she brought with her a strategy she’d seen flourish at Vice. With social platforms prioritizing video, reporters would need to embrace the kinds of content packaging influencers adopted years ago. The results have spoken for themselves: Subscriptions are up 94% year to date, Instagram views have climbed nearly 800%, and a YouTube series featuring Wired reporters saw its pilot episode become the best-performing video on its channel last year. Maybe faces for radio are the future of video after all? 

• Cloudflare vs. the Bots: This morning, Cloudflare rolled out a new tool, called the Content Signals Policy, which aims to help publishers better control and monetize their content in the artificial intelligence era. The free product enables a website to tell AI crawlers not only whether they’re allowed to scrape its site, but also what AI firms are able to do with the data once they do. The real test will be to see how Google responds. The company infamously indexes sites for Search and scrapes content to feed Gemini using the same crawler, meaning publishers have not been able to say yes to Search but no to Gemini—until now. “I would imagine Google’s legal team is going to have a busy next few days,” CEO Matthew Prince told me.
• The Dallas Decision: A shareholder vote Tuesday confirmed what I reported two weeks ago: that the Dallas Morning News will now be a part of the Hearst Newspapers family. The final deal valued DMN at $88 million, $20 million less than a competing offer from Alden Global Capital. It also marks—behind Luka Doncic heading to the Lakers and Micah Parsons heading to the Packers—the third major departure Dallas has endured this year. At the bottom of this newsletter you’ll find a conversation with DMN CEO Grant Moise about the deal, including why the  publisher ended its 139-year run of independent ownership.
• Dirt’s Ick: The digital publisher Dirt, whose cofounder Daisy Alioto is one of the most original thinkers in digital media, is launching its second podcast next week, Alioto told me. The podcast, Creative Complaint, will be an extension of Dirt’s Instagram-native magazine, Ick, hosted by Dani Loftus, and distributed through Dirt and its sister site Clone. 
• Status Update: Congratulations to the team at Status, whose pack grew by two this last week with the addition of Brian Lowry and Natalie Korach. Started by CNN expat Oliver Darcy last August, Status has quickly and consistently punched above its weight in delivering scoops about the media industry, and its steady maturation from a solo venture into a proper outfit is an encouraging development. For any sources reading, Korach is a reliable keeper of secrets: I asked her point blank last Thursday about her role at Vanity Fair and she didn’t say a word about her imminent move. 

THE LEDE:

The Four Unanswered Questions of Kimmelgate

First, the bad news: The long, strange saga surrounding the abrupt departure of Jimmy Kimmel Live! from 63 affiliate stations owned by the companies Sinclair and Nexstar is just beginning. In fact, the back and forth between the two parties is best understood as the latest skirmish in a broader campaign.

As of writing, the show is still pre-empted on Sinclair and Nexstar’s networks. And even if they return Kimmel to their airwaves tonight (the broadcasters say they’ve had “productive discussions” with ABC-owner Disney), it would not mark the end of this particular storyline.

Depending on whom you ask, this ordeal could have begun under the Biden administration, whose FCC chair Jessica Rosenworcel delayed the renewal of a broadcast license owned by Fox to be delayed, rankling conservatives who accused the FCC of political overreach. Sound familiar?

But most media analysts will tell you this began last December, when ABC settled a lawsuit brought against it by President Trump by paying $15 million to the president. 

The concession was the first accommodation from a news media company to the Trump administration, and it set a precedent that would soon repeat itself several times over. Since then, Trump and his appointees have taken or provoked legal action against a handful of news outlets, including The Associated Press, News Corp., and The New York Times. 

No matter what point you pin as the specific origin, though, the more important consideration is that this issue will in no way conclude if Kimmel returns to ABC’s affiliates. Instead, the ramifications of this particular episode will simply shape the outlines of the next one, whose contours are already coming into focus.

So, rather than focus on what resolution looks like in the short term, here are four questions I have as this saga unfolds.

When, if they do, will Sinclair and Nexstar resume airing Jimmy Kimmel Live?

Last night, a tactfully contrite Kimmel offered more than enough of an elegy for Sinclair and Nexstar to plausibly consider the issue resolved. 

Still, as of Wednesday afternoon, neither affiliate network has given any indication that they plan to resume airing the show. Nexstar told ADWEEK in a statement that the company is “still evaluating” the show, which will be “preempted while we do so.”

The smart money would suggest that this issue is resolved shortly. It is exceedingly rare for affiliate stations to preempt content from their broadcasters, and they can only do so a limited number of times before they breach their contracts, according to media analyst Paul Farhi.

But there are other, salient timelines to consider here. 

One of the primary if largely unspoken motivations for Nexstar to shelve Kimmel is that the company is in the midst of a merger that requires FCC approval. That merger, announced in August, would see Nexstar acquire Tegna, another local TV operator, for $6.2 billion. 

Critically, an FCC rule prevents any affiliate network from owning more than 39% of the market. With this merger, Nexstar may vastly exceed the limit, entering 80% of U.S. households. For the merger to clear then, the FCC would have to rewrite its rules to change this cap. 

While Nexstar has not acknowledged this dynamic, it made the decision to preempt Kimmel hours after FCC chair Brendan Carr suggested on a podcast that licensed broadcasters should do so in light of the comments Kimmel made on his show about Charlie Kirk.

It just so happens that Nexstar is due to submit the relevant filings for this merger to the FCC by the end of September. Given the delicacy of the situation, Nexstar might be uninterested in bringing Kimmel back on air while the FCC begins the process of evaluating its bid.

Are there still more concessions to be made, from Nexstar, Sinclair, or Disney?

The analysts I have spoken to are split as to which party has the upper hand here. But one thing is clear: Disney has made the concessions it understood to be necessary, but Sinclair and Nexstar have not yielded. 

That introduces the question, as analyst Michael Rosen put it, of what do they want? On that front, there are several potential explanations. 

Disney, which still has a sizable linear business, is reliant on viewership from its affiliates to meet advertising commitments. The longer it’s without Nexstar’s and Sinclair’s audiences, the greater the likelihood becomes that it will have to issue make-goods to compensate for the depressed viewership.

As mentioned above, Nexstar wants its deal with Tegna to be approved by the FCC. Mostly, that means staying in the good graces of the agency, according to media analyst Peter Naylor.

At Skydance Paramount, another media company whose recent merger also required FCC approval, the company made—and continues to make—a number of unsolicited changes designed to bring more conservative sensibilities into the organization. In recent months, it has pursued an acquisition of the conservative outlet The Free Press, appointed conservative operative Kenneth R. Weinstein as ombudsman, and announced plans to sunset The Late Show With Stephen Colbert.

Perhaps Sinclair and Nexstar, in alignment with the FCC, could squeeze Disney to implement similar measures to bring more political parity to its content? Or, more prosaically, the networks might simply use this opportunity to push for lower retransmission fees. Never let a good crisis go to waste!

How will this standoff affect the blockbuster deals these companies are in the midst of?

Nexstar is not the only company involved with a deal on the line. 

Disney has two separate deals of its own, both of which will be subject to governmental approval to some degree.

In August, ESPN announced an equity deal with the NFL, through which the league would take a 10% stake in ESPN in exchange for ESPN taking ownership of the NFL Network and its RedZone Channel, among other media assets. 

ESPN, which is owned by Disney, expects to encounter regulatory hurdles as part of this deal, given that it will give Disney greater control over televised sports carriage and reduce competition. 

Critically, antitrust scrutiny would come from the Department of Justice, not the FCC, meaning Disney is beyond the long arm of the Carr on this one. But given the recent history of President Trump co-opting any division of the government to serve his whims, Disney would like to minimize any opportunity the DOJ might have for opposing the transaction. 

Similarly, Disney has a second deal in the works that might require federal approval. The company announced in January that it was acquiring a 70% stake in Fubo, which has similar hurdles as its ESPN deal with the NFL. Antitrust concerns have already arisen given how much control the merger would give Disney over the distribution of sports rights, especially given that it has a similar offering already in Hulu+ Live TV.

What does this mean for the future of Disney’s broadcast television versus streaming? 

Virtually every element of this melodrama will hasten the move of audiences and attention from linear television to streaming.

Disney is stuck negotiating with Sinclair and Nexstar because its broadcast channel, ABC, offers it a key point of differentiation compared to other media companies, as well as a large viewership that helps it secure the rights to valuable packages, like sports broadcasts. Yes, broadcast audiences are the smallest they have ever been, but it is still better to have one than not.

Still, this headache has undoubtedly made Disney weigh just how valuable that broadcast audience is, according to media analyst Evan Shapiro. Streaming is beyond the purview of the FCC, meaning that content on Disney+, Hulu, and the ESPN app is subject to none of the oversight that its broadcast channel is. Were Disney to simply yank Kimmel from ABC and air his show on Hulu, these problems would disappear.

But Disney’s linear business is still a sizable part of its operations, and continues to subsidize the growth of its streaming operation. Until that is no longer the case, Sinclair and Nexstar will have an outsize influence on its decision-making. 

As the entertainment industry shifts slowly from linear to streaming, affiliate networks like Sinclair and Nexstar will have to account for these dwindling linear numbers, while Disney will focus on growing its streaming audience. In the future, the two parties might have little to do with one another.

PULLED QUOTES

“There’s seemingly a tendency to pick kind of bigger retailers, as opposed to just picking any random small Shopify store.”

— Analyst Juozas Kaziukėnas, describing where ChatGPT refers users with shopping queries

READ MORE

“Especially in an industry like this, where the means to cheat are buried in computer code and algorithms.”

— Assistant New York Attorney General Morgan Feder, in the lawsuit unfolding this week to determine remedies for Google’s monopoly

READ MORE

“What makes these deals different is that they are across multiple platforms. To have the opportunity to establish an editorial line across TikTok, CBS News, and CNN—that’s a new world.”

— Media historian Michael Socolow, on David Ellison’s burgeoning media empire

READ MORE

“Private equity has lost its way."

— Orlando Bravo, managing partner of private equity firm Thoma Bravo, on the looming crisis facing the industry

READ MORE

QUOTE/UNQUOTE

Grant Moise is the chief executive officer of the DallasNews Corporation and publisher of the Dallas Morning News, which was acquired by Hearst for $88 million on Tuesday, ending its legacy of family ownership.

Mark Stenberg: The Dallas Morning News would have been family-owned for 140 years next month. Why sell now? 

Grant Moise: There were several factors, but the impact of artificial intelligence and Google AI Overviews increasingly looked like a serious headwind. One in every three people who visit our site come to us through Google, so we figured we were staring down a massive disruption to our traffic. Plus, we had cleaned up our balance sheet and returned to profitability, so we felt like it was the right time.

Mark: Is there any part of you that mourns losing the legacy of family ownership? 

Grant: Even though we were public, the Dallas Morning News always felt like a family business. I’d be lying if I said there wasn’t a sense of loss that that chapter is behind us. But I and the other board members felt that it was our responsibility to find a sustainable path forward.

Mark: Alden Global Capital very publicly offered more money than Hearst—$20 million more. Why did you turn that down?

Grant: The Decherd family, like the Sulzbergers at The New York Times, created a dual-class structure specifically so that they could protect the business they founded. Robert [Decherd] could say no to any offer that came in. As a result of the governance structure controlling the board, we couldn’t engage with any offer that Robert wouldn’t consider, so we never even talked to them.

Mark: Why Hearst? 

Grant: We said we wanted a buyer who valued us properly and shared our journalistic values. Hearst did both. Plus, with its broader network of news organizations across Texas, we are really excited about what we can do from a collaborative and advertising point of view. Texas is a massive market and growing rapidly, and North Texas—our backyard—is enough to say grace over.