Posted on December 17, 2008 by David Oxenford

Detroit Newspapers Cut Back on Publishing and Home Delivery - What's the Impact on FCC Ownership Regulation?

Yesterday, the Detroit Free Press and the Detroit Morning News, which operate their publication and distribution operations through a joint operating agreement, announced that they will cut back on the physical publication of their papers - publishing full editions delivered to homes only three days a week.  On other days, the papers will publish an abbreviated version, available only on newsstands.  The papers will not abandon news coverage the remainder of the week, but will instead concentrate on their on-line presence, showing the power of the Internet to disrupt traditional media.  As we said years ago in one of our first posts on this blog - New Media Changes Everything, and it seems that this is just another indication of how true that is.  The broadcast media, particularly radio, has often looked at the advertisers served by the daily paper as a ripe source of new business, and may well see the Detroit change as a major business opportunity.  But does it also change the FCC's consideration of the multiple ownership rules applicable to radio and television cross-ownership with newspapers?

The FCC's multiple ownership rules prohibit the ownership of a broadcast station and a "daily" newspaper that serve the same area.  The rules define a daily paper as one that is "published" at least four days each week, and is circulated "generally in the community."  Here, the Detroit papers arguably will not meet that 4 day a week requirement - at least for a publication that is generally circulated throughout the community.  Of course, some may argue that the abbreviated newsstand copy constitutes a daily publication but one would assume that, sooner or later, even that will disappear.  Thus, while there has been so much controversy about the Commission's decision of one year ago (summarized here) deciding that combinations of broadcast properties and newspapers in Top 20 markets were presumed to be permissible, while those in smaller markets were not, one questions whether this still makes any sense in today's marketplace where seemingly few can profitably publish a daily paper in most markets, and no one seems to want to rescue the many papers that have fallen on hard times. 

The rules adopted last year allow newspaper-broadcast combinations in markets smaller than the Top 20, if it can be shown that the broadcaster will add substantial new news programming, or that one of the participants is "failed or failing," FCC speak for operating at a financial loss for a sustained period.  But any such showing takes months if not years to get through the FCC, and the recent economic news from both the broadcast and newspaper worlds makes one wonder if a failing property will be able to wait for such a review - or if the cost and delay are even necessary in today's media environment where on-line media seems to be taking a bigger and bigger chunk of the advertising and viewing pie.  I recently heard a reporter from one of the broadcast trade press outlets ask the rhetorical question - "will the FCC's cross-interest rules banning broadcast-newspaper cross ownership outlast the newspaper industry itself."  Unless the FCC changes course and adapts to today's media reality, that may well be the case. 
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Posted on August 7, 2008 by David Oxenford

Fines for Broadcast Ownership Issues - Remember to File Biennial Ownership Reports and to Seek FCC Approval Before a Transfer of Control

The FCC this week issued fines to two broadcasters for issues in connection with the ownership of their stations - in one case the fine was issued simply because the broadcaster did timely not file three consecutive FCC Form 323 Biennial Ownership Reports .  In the second case, the fine was for not requesting FCC approval for a transfer of control of the licensee of the broadcast station.  These cases serve as a reminder that broadcast ownership is closely regulated by the FCC, that broadcasters need to report that ownership once every two years as required by the rules, and to seek approval before any change in control of any company that holds an FCC license.

The station that failed to file the three ownership reports was fined $6000.  As disclosed on the licensee's license renewal application, the licensee had not filed 2001 and 2003 ownership reports at all, and filed the 2005 report late and did not put it in the station's public inspection file.  Biennial Ownership Reports on FCC Form 323 must be filed by the licensees of AM, FM and TV station licensees once every two years, on the anniversary date of the filing of their license renewal applications by all licensees except where the licensee is an individual or a general partnership of natural persons (as opposed to a partnership that contains corporations or other business entities as partners).  We regularly send reminders to our clients about the filing of ownership reports.  For more details on the requirements for the biennial filing, see our advisory for reports that were due on August 1 here, and see our schedule of broadcast filing dates for the remainder of 2008 to see if your station has a biennial filing deadline this year). 

In the second case, the FCC entered into a consent decree with a licensee which had sold stock resulting in a transfer of control of the licensee company without seeking and receiving prior FCC approval.  The consent decree required that the licensee pay $5000 to the government, and adopt a compliance policy, reviewing its compliance status every 6 months using the Broadcast Self-Inspection Checklist put out by the FCC so that broadcasters can assess their own compliance with FCC rules, and report to the FCC on the results of those self-inspections every year for three years.

Transfers of control (to the FCC, a "transfer of control is a change in control where the licensee remains the same, such as a sale of stock in a licensee corporation, while a sale of a station from one company to another is referred to as an "assignment of license") can be "pro forma," meaning that they result in no real change in control of the licensee.  For instance, if a licensee corporation is owned by an individual, and the individual decides for tax or estate planning purposes to put his stock into a trust he controls or into another corporation that he controls, the individual still controls the licensee but in a different manner.  As only the form of control has been changed, approval for this transaction can be sought on an FCC Form 316 application, which can be approved very quickly - sometimes in a matter of days from its receipt by the FCC's processors.  Pro-forma assignment of licenses (e.g. from one corporation to another corporation owned by the same parties) are also approved through the filing of Form 316.

A transfer of control where actual control changes must be sought on FCC Form 315, e.g. where a majority of the stock of a licensee is sold from one person to another.  Notice of the filing of that form must be released on an FCC public notice, and the public has 30 days from the release of that public notice to comment on the application before the application can be granted.  All in all, FCC approval of such an application usually takes at least 45 days, and sometimes longer.  An assignment of license from one company to an unrelated company is filed on FCC Form 314, and processed in the same way as a Form 315.

As these cases remind you, remember to follow the ownership rules and file the required FCC forms to stay out of trouble with the FCC.

 
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Posted on February 4, 2008 by David Oxenford

FCC Issues Text of Its Multiple Ownership Decision - New Combinations for Newspapers and TV, No Ownership Changes for Radio

The FCC this week released the full text of its decision on the revision of the multiple ownership rules that it adopted at its December 18 meeting.  While the text goes into great detail on the decision to relax the newspaper-television cross ownership restrictions (causing the ruling to be condemned by consolidation critics), the order is very brief in addressing the numerous other issues with the multiple ownership rules that were raised in this proceeding.  Television broadcasters sought greater opportunities to consolidate in local markets, and radio broadcasters requested reconsideration or clarification of various aspects of the Commission's 2003 decision adopting Arbitron market definitions as the basis of the determining how many radio stations are in a particular market.  These requests were all rejected, some summarily.  Will these parties who were denied relief from the FCC protest as loudly as the critics of the decision with respect to the relaxation of the TV-newspaper cross ownership limits?

We summarized the decision with respect to the newspaper television rules here.  That summary was based on the statements made at the December 18 meeting and on the press release issued that day which provided a brief summary of the Commission's decision.  The outline we provided in December was basically accurate, and there were few surprises about the newspaper-television cross ownership rules in the text.  The Commission was very thorough in documenting the basis for its decision that newspapers and television stations could be commonly controlled without adversely affecting the public interest, citing a legion of studies supporting their decision, while carefully refuting the studies supplied by consolidation critics.  However, the remainder of the decision, dealing with other aspects of the multiple ownership rules which the Commission refused to change, contained reasoning which was far more limited.  In some cases, particularly dealing with radio issues, the reasoning was almost absent.

About the only new information found in the text dealing with the newspaper-television cross interest decision  was the details of several waivers granted by the Commission allowing the permanent continuation of certain existing combinations of newspapers and television stations.  The majority decision emphasized several factors favoring those waiver grants, including the economies recognized by these combinations, the increased public service that these economies permitted, and the business stability promoted by the permanent waivers.  This decision prompted significant objections from the Democratic Commissioners arguing that many of the owners who had been granted waivers had entered into the cross-ownership situation knowing that the combinations were not permitted by the rules in effect at the time, so that looking at business stability was rewarding these owners for making a decision that they knew was contrary to the FCC rules (the Commission could not block the purchase of a newspaper by a broadcast station owner, but could later refuse to grant a television station a license renewal if their owners had acquired a newspaper).  The Democrats argued that the standards used to permit these waivers would permit almost any waiver - reinforcing their position that the standards written into the rules would allow far too many combinations to go forward.

The Commission did, however, hold off on grants of certain newspaper-television combinations where the combinations involved more than one newspaper or television station in the same market.  In those cases, the Commission stated that it would hold additional proceedings to determine if these existing combinations should be permitted to continue.  With these waiver decisions, and the Democratic opposition, public interest groups have already indicated that they will appeal the Commission's relaxation for the ownership rules.

What has drawn less attention and, so far, less protest, are the ownership rules that the Commission did not relax.  On the issue of TV duopoly, the Commission was facing a remand from the US Court of Appeals, which had questioned the FCC rules limiting local ownership combinations of television stations to situations where there would be eight separate TV owners in a market after the combination, and prohibited combinations of any of the top 4 stations in a market.   The text of the decision, rather than relying on well-developed analysis of detailed economic showings submitted by the parties (as was done in the analysis of the newspaper-television analysis), the Commission cited some anecdotal evidence submitted by a few parties, and came to the conclusion that it would not change it rules.  No significant analysis is given to arguments that in smaller television markets, to have a viable fourth station, a combination is necessary.

On the TV duopoly issue, there was at least some discussion and analysis.  Radio received even less consideration.  The Third Circuit, in remanding the Commission's 2003 decision, asked the Commission to determine whether its numerical limits on the number of AM and FM stations that one party could own made sense - especially as stations have different coverage areas and different size audiences.  Should all of the stations count the same?  The Commission read the court's question at its most narrow - whether the Commission should allow more AM stations to be co-owned than allowed by the current limits.  The Commission concluded that some AM stations still are successful (again based on a few examples of AM stations that are still rated well rather than an extensive economic analysis of the AM radio segment of the industry), and concluded that the cap on AM ownership should not be relaxed.

The question asked by the Court could be read in a much broader context, that the Commission should consider the relative power and reach of stations before determining how much they should count in any multiple ownership analysis.  At least one party raised exactly that issue - whether a small Class A FM stations should count the same in a multiple ownership analysis as a large Class C FM station.  One example was posed where two Class A stations that are simulcasting in order to cover a geographically large market.  Should those two stations really count twice as much toward a licensee's ownership limits as a Class C station that totally encompasses the area served by the two Class A stations?  The Commission chose not to address that issue, concluding only that the rules that it had adopted had not been specifically overturned by the Court, so there was no reason to revisit them now.

Similarly, several parties asked for reconsideration of other aspects of the radio rules, including the rules dealing with grandfathering of ownership situations that did not comply with the rules adopted in 2003.  The Commission indicated that some grandfathering provisions would be dealt with in the Diversity order decided on at the December 18 meeting (though the full text of what was decided still has not been released).  Other clarifications or requests for reconsideration - including proposals for grandfathering of existing Joint Sales Agreements (or simply reconsidering the decision to make joint sales agreements attributable) were denied, basically with no reason except that the rules were adopted in 2003, not overturned by the Court, and therefore the FCC decided not to revisit the issue now.  As the Commission obviously decided to reconsider some aspects of the 2003 decision (e.g the grandfathering provisions considered in the diversity proceeding), how they can ignore other issues simply based on the fact that the Commission once decided the issue?  The purpose of reconsideration is to give the Commission an opportunity to revisit and review a decision that it made earlier, to consider points not examined or potentially decided incorrectly when the initial decision was made.  To refuse to even address the substance of the issues raised on reconsideration seems to defeat that purpose.

In short, with the issues that were decided, and those that were not, its likely that we have not heard the last of the ownership debate.  Court appeals are probable, and legislative intervention is even possible (Senator Dorgan has reportedly promised to introduce a resolution to overturn the decision).  So keep watching this space.
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Posted on November 13, 2007 by David Silverman

Chairman Martin Proposes His Multiple Ownership Modifications - Only Proposing to Change Newspaper-Broadcast Cross-Ownership

In a Public Notice released today, FCC Chairman Kevin Martin announced his intention to modify only the newspaper-broadcast cross-ownership rule, among all of the multiple ownership rules under consideration.  That rule prohibits ownership of a broadcast station and daily newspaper in the same market.   Somewhat surprisingly, Martin proposes to leave all other multiple ownership rules untouched.  And his proposal only suggests clearing the combination of a newspaper and either a television station or a radio station in the Top 20 markets, and only if the TV station is not among the Top 4 rated stations in the market.  Any other combination would be presumed to be prohibited, though a showing could be made to rebut that presumption. 

As we have previously written, Chairman Martin has long signaled his desire to modify or eliminate the newspaper-broadcast cross-ownership rule.  His specific proposal was also described in an op-ed piece he wrote for today's NY Times, and which is attached to the FCC Public Notice.  It would allow ownership of a daily newspaper and one broadcast station (radio or TV, but not both) in the top 20 DMAs (i.e. TV markets).  Even then, Martin would prohibit common ownership of a newspaper and any of the top four TV stations in that market, and would require that there be at least eight independently owned media voices (daily newspapers and full-power TV stations) following the transaction. 

Martin does not otherwise propose any changes to the other multiple ownership rules currently under consideration, including limits on local TV and radio ownership, as well as the national TV ownership cap that counts UHF stations at 50% of their actual audience.  Martin's editorial makes clear that he would also scrap the Commission's former "cross media" limits that were remanded back to the FCC by the U.S. Court of Appeals in the 2004 Prometheus decision.  The "cross media" limits would have weighted various media within a market to determine what level of media ownership would be permitted in that market.

In the accompanying New York Times editorial, Chairman Martin acknowledges his feeling that "the press is not on my side."  Perhaps that feeling, coupled with the knowledge that he is now a lame duck Chairman, led him to this relatively modest proposal to address only the newspaper-broadcast cross-ownership rule, and to modify it in a relatively minor way.  As Martin notes, this particular rule has been attacked by both Republican and Democratic FCC Chairmen over the years and thus, this is probably the least controversial of the multiple ownership rules under consideration. 

The modest nature of Chairman Martin's proposal also increases the likelihood that the Commission will consider this in December, as Martin had hoped.   He would surely like to be able to say that he acted on the multiple ownership proceeding during 2007.
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Posted on September 21, 2007 by David Oxenford

A New Push to Address Multiple Ownership?

Over a year ago, the FCC released its Notice of Proposed Rulemaking on amendments to the FCC's multiple ownership rules.  Issues from newspaper-broadcast cross-ownership, to local TV and radio ownership limits are all being considered.  Our summary of the issues raised in the NPRM is available here.  The FCC has been holding field hearings throughout the country on its proposals, gathering public comment on the proposals - the most recent having been held in Chicago last night.  Only one more field hearing to go and the Commission will have conducted the six hearings that it promised.  Many, including me, had felt that the timing was such that no decision in this proceeding could be reached until 2008 and, as that is an election year, the decision could quite well be put off until after the election to avoid making it a political issue.  However, there are now signs that some at the FCC are gearing up to try to reach a decision late this year or early next - presumably far enough away from the election for any controversy to quiet before the election.  With this push, others are expressing concern about a rush to judgment on the issues, and may well seek to delay it further.

Evidence of the FCC's increasing attention to the multiple ownership issues include the recent Further Notice of Proposed Rulemaking, asking questions about minority ownership and making proposals on how that ownership can be encouraged (proposals we summarized here).  The FCC has also asked for comment on several studies that it commissioned to look at the effects of ownership consolidation in the broadcast media (the public notice asking for comments is here, and the studies can be found here).  Comments on the Further Notice and the ownership studies are due on October 1, with replies due on October 15.  Some have suggested that this time table is unnecessarily accelerated, especially as certain peer review documents on the ownership studies were just recently released.

At last night's Chicago field hearing, the two Democratic Commissioners expressed their concern about a rush to judgment.  Commissioner Copps, in his Remarks at the hearing, expressed concern over the short time frame given for comments on the issues raised by the Further Notice.  Commissioner Adelstein suggested that the Commission appoint an independent panel of experts to review the ownership studies and report back to the FCC before any decision on the ownership rules is made. 

At this week's Future of Music Policy Summit in Washington, DC, a legal assistant to Commissioner Adelstein expressed concern over this rush to reach a decision, suggesting that the Chairman wanted to see the decision out before his term ended, and was looking for a decision early next year.  Several Congressional staffers on a panel about Capitol Hill activities that affect the music industry, as well as Senator Dorgan of North Dakota, all also expressed concerns about FCC action in this area, and indicated that both the House and the Senate intended to hold hearings on media consolidation this Fall, before any decision can be reached.

With battle lines being drawn, there are likely to be stormy times ahead in the multiple ownership debate.  In 2003, with a Republican-controlled Congress, there were a number of bipartisan Congressional attempts to roll back the FCC's relaxation of the ownership rules before the Third Circuit Court or Appeals blocked most of those reforms.  With a Democratic Congress, who knows what would come of any FCC relaxation of those rules in the coming months.  But we may well see that issue play out - and perhaps become a political football in the upcoming elections.
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Posted on July 23, 2007 by David Oxenford

5 of 6 - The Next Multiple Ownership Public Hearing

The FCC on Friday announced the time and location for the fifth of its planned six multiple ownership hearings.  The hearing will be held in Chicago on Thursday, September 20.  Exact times, location and topics will be announced later.  The public notice does indicate that the meeting will begin in the afternoon and continue through the evening - so the Commissioners look like they are expecting a full day.  As we have written before, this would seem to mean that the last hearing will not be held until late in the year (and a final localism hearing is also expected as well), so any decision in multiple ownership proceeding could not take place until the information from the hearings is reviewed and digested - so that puts a decision into 2008, at the earliest.  With that being an election year, does anyone really expect a potentially controversial decision to come out in the midst of a likely contentious political season?

In 2000, after the last transfer of the Presidency from one political party to another, a multiple ownership ruling was released by the lame duck Democratically-controlled FCC in January, just before the new administration was inaugurated.  Could we be looking at a rerun in late 2008 or early 2009?

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Posted on June 7, 2007 by David Oxenford

Study Released Showing Effects of Broadcast Consolidation - Broadcasters Should Pay Attention

In the last few months, attention of the broadcast press has been focused on the pressing regulatory issues of the day - matters such as content regulation (indecency, violence and junk food advertising), the digital conversion of radio and TV, and the new digital media landscape and its impact on broadcasters (XM/Sirius, You Tube and Internet video, and Internet radio).  Almost forgotten is the multiple ownership proceeding that began in earnest last summer when the FCC issued its Notice of Proposed Rule making (see our summary here), but which has really been pending in front of the Commission since the US Court of Appeals issued its Stay of the FCC's 2003 Order adopting "new" ownership rules.  This week, at least some attention was brought back to the issue following the release by the organization Free Press of a study  that purports to document the effects that consolidation has had on minority and female ownership in the broadcast media.  Coupled with an electronic press conference featuring the two Democratic FCC Commissioners, the report merited an article in the Los Angeles Times and other mainstream press outlets.  It is a study that should be read by broadcasters, as it will likely form part of the debate on this most important issue.

While studies have been issued on and off throughout the debate over the multiple ownership rules, seemingly proving almost whatever the party providing the study wants to prove, this study should not be ignored.  Executive summaries and a full copy of the report can be found here.  The report purports to show that consolidation in the media holds down minority and female ownership.  And, unlike many other studies that have obvious design flaws and seem to be based on faulty assumptions, this one considers many of the obvious objections.  It does not under count minority ownership - in fact it takes the FCC to task for under counting such ownership, and actually reports higher amounts of minority and female ownership than the FCC itself had acknowledged.  The report also addresses the usual response to such studies - that it is a question of access to capital that results in the disparities - by doing a comparison of minority and female ownership in broadcasting to that ownership in other industries, and finding broadcasting very close to the bottom in diverse ownership.

While there certainly are findings in any study that can be disputed - and issues of  that arise whenever anyone tries to assess causality (does consolidation cause a lack of diverse owners, or are there other issues that cause any lack of minority ownership), and no doubt such issues will be found in this study.  But broadcasters should review this study and assess its findings now, so that they can be addressed in the debate on the ownership issues.  As we have written before, ownership is unlikely to be considered in the near term - and very well may be pushed off until after the 2008 elections - but nevertheless the debate will go on throughout the coming year, so broadcasters need to be ready. 
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