Broadcast Law Blog : Broadcast Lawyer & Attorney : Davis Wright Tremaine Law Firm : Broadcast Law Blog : Seattle, Los Angeles, Washington D.C., New York, San Francisco, Shanghai

The FCC last week issued a decision that should make Buyers think twice in determining how sales of broadcast stations are concluded - especially in the days of $325,000 potential fines for indecency violations.  In the case decided last week, the Commission concluded that the licensee of a broadcast station was liable for fines for violations of the public inspection file rules - even though the violations occurred prior to a "long-form" FCC Form 315 application for transfer of control of the station.  In other words, the shareholder who owned the company and been responsible for the violations had, after the violations, sold the stock to new innocent parties who, under the decision, have to bear the costs of the violations.  The Commission did concede that, had the station been sold to a new company via an FCC Form 314 assignment of license, then the fine would not have been borne by the station buyers.

Thus, to fully protect themselves from any prior FCC violations, a sale would have to be conducted through assigning the FCC licenses to a new corporation, rather than by buying the stock of the current licensee.  However, there are often many business reasons that a sale is more advantageous as a transfer of the stock of the company, rather than through a sale of the assets to a new company.  For instance, Sellers of stock in C Corporations often have tax incentives for the sale of stock (e.g. to avoid depreciation recapture).  Thus Sellers often push for the sale of stock rather than the assignment of the license to a new company.  Buyers also have reasons for wanting a stock sale.  For instance, the old company may have certain contractual rights - to tower site leases on advantageous terms, to program contracts or to lines of credit - that are not assignable to a new company, and which buyers may find economically beneficial.  These and other business planning reasons may dictate that the sale be a stock sale, not an asset sale.  But buyers should beware and carefully do careful due diligence to insure that no hidden FCC liability may await when they purchase the stock of a company holding a broadcast station license. 

• Email This
• Print
• Comments

UPDATE  5-29-2008-  Please note, the Commission has revised the dates for submitting comments in this rule making proceeding.  Comments in the proceeding are now due on or before June 30, 2008, and Reply Comments are due on or before July 14, 2008.  This means that interested parties have a couple of weeks less than initially thought to prepare and file comments in this proceeding, so start drafting now.  A copy of the Federal Register correction notice can be found here. 

The FCC has published its Further Notice of Proposed Rulemaking on its efforts to encourage diversity in the broadcast media in the Federal Register, thus setting the dates for public comments.  The FCC is seeking comment on a number of ideas – some to restrict the definition of the Designated Entities that are eligible to take advantage of the rules promote diversity to minority groups and perhaps women, others to expand the universe of media outlets available to potential broadcast owners – including proposals to expand the FM band onto TV channels 5 and 6, and proposals to allow certain AM stations, which were to be returned to the FCC after their owners received construction permits for expanded band stations, to retain those stations or transfer them to Designated Entities.  There are numerous other issues to be considered that we summarized in detail here.  Check out the details, and file your comments, which are due on June 30. 

The Federal Register publication also sets the effective date for the Diversity rules that the FCC did adopt.  These rules will become effective on July 15.  We summarized the new rules here.  While many of these new rules are relatively uncontroversial, allowing certain limited exceptions to the multiple ownership rules for companies that help minority ownership, some have imposed new obligations that, in some cases, are not easily defined.  For instance, while no one would argue with the proposition that parties who discriminate based on race or gender should be penalized, the FCC adopted some rules that may need further clarification.  For instance, the FCC adopted new rules to require certifications that there has been no discrimination in all FCC applications seeking approval for the sale of a station (FCC Forms 314 and 315).  The FCC also adopted rules prohibiting dictates by advertisers that their advertising not run on urban or Spanish formatted stations ('no urban, no Spanish" dictates).  Yet, on neither of these rules did the FCC provide any specificity as to what they were prohibiting, or what the Commission would look at in enforcing these rules.  Watch for potential requests for reconsideration or clarification of these and perhaps other rules - which are due on June 15. 

• Email This
• Print
• Comments (1)