Andrew Kiliment Mihaileanu – ABC’s brief suspension of Jimmy Kimmel Live! and the decision by major affiliate groups Nexstar and Sinclair to keep pre-empting the show, in many markets, spotlights a dynamic intersection of speech law, broadcast regulation, and investor risk. Together, Nexstar and Sinclair reach roughly a quarter of U.S. Tv households, so their programming choices can dent audience reach and ad revenues even if ABC corporate wants the show back on air.
Did the FCC “force ABC’s hand”? That is contested. Reuters reported that FCC Chair Brendan Carr publicly warned broadcasters about potential fines or license consequences. Despite this warning being solidified in public record, Carr later denied that government pressure influenced ABC’s decision. Whether you consider that pressure or merely rhetoric, the legal upshot is the same. The government signaling to regulated entities can chill speech long before any formal order issues.
Legally, the FCC’s power over content is narrower than many assume. The agency licenses local broadcast stations and enforces certain rules, including indecency regulations outside the late-night “safe harbor,” and political advertising rules, too. However, significantly, the FCC is barred from preventing the expression of a point of view on a broadcast. The target of regulation is the station licensee, not the network’s corporate parent. In practice that means affiliates who fear license complications often react first, often more vehemently, as picted by ABC’s suspension of the Jimmy Kimmel Live! Show.
How is the First Amendment implicated? The Supreme Court has been crystal clear that government officials cannot do indirectly, via threats to regulated third parties, what they cannot do directly. In NRA v. Vullo, a unanimous Court held a regulator may not use the “threat of invoking legal sanctions” to coerce private actors to suppress disfavored speech. This concept can be neatly mapped onto broadcast “jawboning” – the use of official speech to inappropriately compel private action.” When a regulator’s warnings can reasonably be understood as coercion because of its licensing power, a constitutional problem arises. Freedom of speech is at risk.
Aside from constitutional implications, the FCC’s statements have significant business implications. Even without a formal FCC action, public jawboning creates a regulatory-overhang risk that affiliates and advertisers’ price in immediately. When affiliates controlling roughly a quarter of ABC homes pull back, national GRPs fall, make-goods rise, CPMs wobble, and corporate finance team’s re-forecast. The impact? Investors notice. As a result, investors, impacting the short-term volatility of Disney’s shares. Moreover, the Jimmy Kimmel Live! Scandal has led to analysts modeling the “policy risk” factor for broadcast assets more broadly. The mechanism is not the FCC “controlling shares”; rather, it is that perceived license risk and station behavior can alter near-term cash flows the market capitalizes on.
The future risk of freedom of speech and market implications is not only limited to ABC. If regulators’ public statements about “public interest” or future license reviews are read as sticks rather than neutral reminders, other media groups could face similar chilling effects the next time a host or program touches a hot political nerve. Consequentially, the industry can expect to see a rise of expect general counsel for television networks keeping contemporaneous records of any “warnings.” Additionally, it is probable that, board directors will analyze stress-test distribution and ad scenarios when affiliates balk. The bottom line is evident: the FCC cannot control Disney’s share price. However, even implied regulatory pressure can cascade through affiliates and advertisers in a license-based ecosystem, creating real business impacts that investors will continue to discount into media valuations.
