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It will be fascinating to watch this procedure unfold.  When one looks at the panels that the FCC has assembled, you will no doubt see positions being staked out that are at opposite ends of the spectrum.  For instance, on the panel of "public interest groups," you will have the former head of the Media Bureau at the time of the FCC's 2003 Multiple Ownership decision which dramatically loosened ownership restrictions, only to have that relaxation overturned by the Courts, on the same panel as several speakers who seem to oppose consolidation reflexively - no matter where it comes up.  How can both poles of the debate be representative of "the public"?  If I had to guess, I would bet that the public really falls somewhere in between - not all that concerned about most consolidation as long as it does not severely affect their media choices.

As we have written before, in today's media world, there has never been so much choice (see, e.g., our articles here and here).  The effect of competition from the Internet and other new media must be taken into account in this analysis as it has so profoundly affected the current media landscape.  While in 2003, the new media was mentioned as partial justification for the relaxation that was fleetingly adopted, who could have imagined only 6 short years ago, the impact that new media could have on "traditional" media, like the newspaper, once the dominant advertising medium in most local markets and now imperiled in many of those same markets.  As we have written before, it is quite possible at this point in time to imagine the rules against media consolidation with newspapers outliving the newspaper itself.  One hopes that this is not true for other forms of traditional media as well, though recent articles about the FCC potentially moving toward limiting or ending over-the-air television so that the spectrum can be freed for other uses suggest that there are other moves afoot that undermine concerns about the power of big media as regulated by the FCC.  This proceeding is one that all broadcasters should watch carefully, and in which they should participate aggressively, to make sure that your voice is heard when the FCC shapes that rules that will affect media ownership in the next five years - years that may well affect the very survival of many traditional media outlets. 

Commissioner Adelstein, on the other hand, was concerned not so much about structural issues of the major investors, but instead about the operational affects of consolidated ownership. He has expressed these sorts of concerns previously in connection with questions of payola and other pay-for-play situations that may exist at broadcast stations, and in connection with the selection of music at radio stations owned by big owners. Here, his concern was about the advertising practices of consolidated owners, and as to whether these practices made it difficult for non-consolidated owners to compete. A petition was filed against the transaction alleging that Clear Channel unfairly competed by giving advertisers who spend 100% of their budget on Clear Channel stations some sort of discount or benefit. While the Commission found no concerns with such discounts (implying that they would be more concerned with a requirement that an advertiser, in order to buy any time on a station, spend 100% of its budget on co-owned stations), Commissioner Adelstein suggested that the Commission should have spent more time analyzing the advertising practices to insure that they were in the public interest.

These comments may provide a hint of where Commission policy will go in the future. Already, the Democratic Commissioners have been incredibly successful for members of the minority party in pushing their agenda at the Commission. If they become a majority, who knows what will happen?

First, all newspaper broadcast combinations will be addressed on a case-by-case basis.  This seemingly means that, while there will be a presumption that combinations of a daily newspaper and either one radio station or one television station (as long as it is not one of the Top 4 stations in a market) in the Top 20 markets in the United States (using DMA market rankings from Nielsen) will be permitted, this presumption could be rebutted if it could be shown that the combination would not be in the public interest.  How a positive presumption could be rebutted was not addressed at the meeting.  Combinations in smaller markets would be presumed to not be in the public interest, unless a showing could be made that overcame the presumption.  Specifics of how that presumption could be overcome were specifically discussed and outlined in detail.

In evaluating requests to rebut the presumption in smaller markets, the Commission will use a multi-part test that will include looking at:

• The level of media concentration in a market
• Whether the combination would increase the amount of local news coverage in a market
• Whether the newspaper and broadcast station would continue to have independent news and editorial staffs
• The financial condition of the combining media outlets, and whether the Buyer is willing to commit to spend money to increase newsroom operations

In addition, the Commission would consider the negative presumption to be overcome in any of the following specific situations:

• Where there was a "failed" station or newspaper, i.e. one in bankruptcy or which had ceased operation for 4 months before FCC approval for the combination was sought
• If there is a "failing station" or failing newspaper - found only in situations meeting a four part test:
  • If the television station in the proposed combination had an audience share of less than 4%
  • If the station or newspaper which is claimed to be failing had 3 consecutive years of negative cash flow
  • If public interest benefits could be shown, and
  • If it can be shown that there is no other out-of-market buyer for the failing outlet
• If the combination resulted in a new news operation at the broadcast station which would include at least 7 hours of weekly local news coverage.

Commissioner Copps derided these conditions,finding it difficult to believe that promises made to receive permission for a combination would be kept.  How, he asked, could it be believed that parties would buy a failing property that no one else wanted and increase costs by investing in news?  Instead, he found it much more likely that any new owner would cut costs by combining staff, leading to less diversity. 

There were also numerous arguments between the Commissioners about whether the process was fair, and whether it gave interested parties a meaningful opportunity to have their views heard and considered.  While Chairman Martin, in his statement appends a long list of the process that was gone through over the last several years in considering the ownership revisions, Commissioner Copps focused instead on the "end game," faulting the Chairman for rushing the decision - for example, by having his proposal published in the New York Times and released in a Press Release by the FCC the day after the last field hearing (meaning that the statements at that hearing could not have been considered in drafting the proposal), and having a draft final decision circulated weeks before comments on the Chairman's proposal had even been received.

We may well have not heard the end of this proceeding.  First, the full text will need to be released, addressing some of the many unanswered questions, including what happened to all the reconsideration requests filed in connection with the already effective 2003 revision of the radio ownership rules, to the question of how the FCC dealt with the US Court of Appeals decision that had found the local television ownership rules (which forbid TV "duopolies" except in a market where there will be 8 independent voices after the transaction, and forbid combinations among the Top 4 stations in a market) to be arbitrary and capricious.  Legal challenges to the final decision may follow.  And many in Congress have been actively opposed to this decision, including 25 Senators who signed a letter indicating an interest in overturning this decision.  So, once again, stay tuned for the next episode in this long running series. 

The one dissent to the approval of the transaction came from Commissioner Copps, who objected to the fact the Commission has not fully evaluated the impact of private equity ownership on the public interest.  Commissioner Copps echoed comments he has made on private equity previously (see our post on those comments here, and on questions asked by Congress on those issues, here), asking questions about whether the Commission had sufficient information about who really made decisions about the operation of the Buying company (the applicant had identified a three member board as making all decisions for the company)  - and suggesting that the Commission conduct a proceeding to determine if private equity was a good or bad thing - whether it freed companies from the problems of public companies having to answer to shareholder whims and analysts expectations on a quarterly basis, or whether the debt load in acquiring the stations would be such that it would require these companies to strip the companies of many of their expenses including those necessary to produce public interest programming.  Of course, this is probably an unanswerable question, as there are no doubt cases where either or both of these scenarios are true, and the same is probably true with any buyer of a broadcast station, no matter where their financing originates.  But, perhaps most importantly, it sheds light on where the Commission might head if there is a change of administration in a year and Commissioner Copps plays even a greater role in FCC decisionmaking.

The approval of the Tribune sale provides perhaps an even better preview of what a change in administration could mean to the FCC.  The sale of the company from its current public shareholders to a company owned by an Employee Stock Ownership Plan (ESOP) and controlled by a single outside investor, Sam Zell, was approved by a three to two vote, along political party lines.  The approval included a permanent waiver for Tribune's ownership of an AM, TV and daily newspaper in Chicago - the majority of the Commissioners finding that the fact that this combination existed since each of the broadcast stations commenced operations, and the myriad of other media voices in Chicago, justified the permanent waiver.  Tribune's other newspaper-television cross-ownership situations were given temporary waivers.  Obviously, as the other waivers included newspaper-broadcast combinations in New York, Los Angeles and Miami, all markets with no scarcity of media outlets, that was not the deciding factor for the difference in treatment.  Perhaps it was the longevity of the waivers, which illustrate exactly what is prohibited by the current newspaper-broadcast cross-ownership rule.  The rule does not prohibit a broadcast company from acquiring a newspaper in the same market in which it has a television station - as Tribune did in these markets (because the FCC has no jurisdiction over the purchase and sale of newspaper companies).  So broadcasters are free to buy a newspaper in their market.  However, in doing so, they take a major risk as the rule prohibits the grant of any FCC application where such a combination would exist.  Thus, in connection with the broadcaster's next license renewal application, or in connection with an application for sale of the broadcast company (both license renewals of these stations and the sale of the Company were before the Commission in the Tribune case), the application of the rule's prohibition is triggered - requiring the consideration of the waivers.

The treatment of the temporary waivers was somewhat unusual, with multiple conditions on the length of the waivers - which was one of the issues to which the dissenting Commissioners objected.  The length of the waivers is first dependent on when the FCC rules on its multiple ownership proceeding.  If new ownership rules are adopted before January 1, 2008, then Tribune's temporary waivers would be for two years (at least for those markets for which a waiver would still be necessary - which would seemingly be only Hartford if the Chairman's proposals, summarized here, are adopted).  On the other hand, if the rules are not adopted by January 1, Tribune would have to come into compliance in 6 months (perhaps putting pressure on Congress to not take steps to block the rule change from occurring at the December 18 meeting).  However, the Commission also held that, should Tribune decide to appeal the Commission's decision (which one would expect), the waiver would last two years or until 6 months after the end of the appeal - whichever date is later.  As it appears that one way or another, the waivers are for at least two years, why didn't the FCC just say so?

One interesting objection dealt with in the decision was that raised by the Teamsters' Union.  The Union argued that the Commission should not permit the transfer of Tribune ownership to the ESOP unless the employees of the company, who would effectively be the majority owners of the company, have some say in its day-to-day management.  As proposed to the FCC, Sam Zell would make management decisions for the Company.  The Commission denied the objection, citing Section 310(d) of the Communications Act which requires that the Commission evaluate the buyer of a station who has struck a deal with the seller for that buyer's basic FCC qualifications.  The statute precludes the Commission from denying a sale because it believes that there might be some "better" buyer who theoretically exists.  Thus, the Commission felt that it was legally barred by second-guessing the corporate structure of the buyer, as long as that structure did not violate any rules of the Commission.

In this case, both Democrats dissented, arguing that the Commission's multi-tiered contingent waivers did not go far enough in forcing the break-up of existing media consolidations.  The Democrats would not even have allowed the Chicago combination to stay in place. 

These cases clearly demonstrate the divisions in the Commission on the question of broadcast ownership.  Initially, in neither case did the Commission seem too concerned about local TV duopolies in markets where there are at least eight owners - not a point of contention in either case.  But in expanding on the application of existing ownership rules, the Democratic Commissioners seemed to draw a line in the sand.   Clearly, if there is a change in administration, we may have a far different FCC, with far different priorities, seemingly one which would favor diversity in media ownership over industry ownership stability. In a little over a year from now, we will see how these divisions play out, and what a new FCC will have in store for broadcasters. 

In this proceeding, the procedure has been somewhat different.  The Commission's Notice of Proposed Rulemaking really did not suggest any proposed rules - instead just asking a number of questions that gave little guidance as to what the Commission was really thinking about doing to reform the ownership  rules (see our summary here).  The original Notice was much more akin to a Notice of Inquiry, which asks for general guidance on a subject, and then usually leads to a more specific Notice of Proposed Rulemaking.  Here, the Chairman's Public Notice was really the public's first look at what the proposed revisions to the rules would look like - and the suggestions seem to be those of the Chairman only, not those of the full Commission (or even necessarily a majority of the Commissioners).  And, instead of providing an opportunity for comments and replies and informal lobbying and advocacy, the Public Notice gives only a single date of December 11 for comments, and then seems to contemplate an FCC decision the next week (leaving no time for informal lobbying after the comment date, as there is a 7 day quiet period, where no lobbying is permitted, before a decision to be made at an FCC open meeting). 

In looking at the specifics of the proposal, one is struck by how many issues it leaves unanswered.  One would think that these issues will have to be addressed in any final order issued by the Commission.  The Notice of Proposed Rulemaking asked about a number of subjects that seem to have been ignored by the Chairman's proposal.  For instance, small market television stations have long been clamoring for some relief from the rules that only allow TV combinations in markets where there are eight separate TV owners.  Small market owners have long contended that in the very small markets the only way to start a station that is not affiliated with a major market is to run it in combination with another station - and certainly the only way to be able to afford local news on one of these stations is to have a second station that can share the costs.  And with the costs of the digital transition fast upon stations in these market, who have a limited revenue base from which to pay for the costs of the digital conversion (costs that are essentially the same as the costs for a large market station with far greater revenue opportunities), many of these smaller stations are hurting economically.  Yet there is no mention of small market duopoly relief in the Chairman's proposal.  Given that the US Court of Appeals, in a case brought by Sinclair Broadcasting, ruled that the Commission needed to provide more justification for its rules limiting TV duopolies to markets where there would be 8 independent owners after any combination, and prohibiting combinations among the Top 4 stations in a market, it would seem that this issue needs to be addressed and justified in any order of the FCC. 

Large market TV operators were also looking for some opportunities.  In the 2003 order, the FCC allowed one entity in the very largest markets to own up to three TV stations.  No such proposal is contained in the Chairman's proposal. 

Radio, too, was hoping for some clarifications of the ownership rules that went into effect in 2004.  The radio rules adopted in the FCC's 2003 Multiple Ownership reform order were the only rules from that order that actually went into effect.   And those rules actually tightened the rules that were previously in effect - determining the number of stations in a market based on Arbitron market definitions rather than by contour overlaps.  As this reduced the number of stations in a number of markets, and the number of stations in a market determines how many stations one party can own, a number of issues were raised.  Many of the issues dealt with grandfathering of preexisting interests.  While the Commission grandfathered most combinations that existed at the time that the rules were adopted, that grandfathering protection would disappear in most cases upon an assignment or transfer.  While the FCC allowed grandfathering to continue if there was a transfer caused by the death of a shareholder, it made no provisions for grandfathering where there is a transfer that takes place over time in employee-owned or other closely-held businesses,  where continuity of ownership remains, though a technical transfer may have occurred.  The rules also forfeited grandfathering protection if there was a city of license change for any station in the cluster - even if that city of license change was from one community in an Arbitron market to another in the same market.  Some parties asked for reconsideration of that rule - again something not addressed, and much more important given the recent Commission decisions easing city of license changes to make it easier for radio stations to improve their technical facilities (see our posts, here and here)).

The 2003 Order also, for the first time, made radio Joint Sales Agreements attributable interests (meaning that stations subject to such agreements count as if they are owned by the party doing the advertising sales in assessing that party's compliance with the multiple ownership rules), and gave parties two years to divest themselves of any JSA which would result in a combination that would exceed the ownership rules.  A number of parties asked for reconsideration of that ruling - asking for further grandfathering of those agreements to preserve the economic benefits of the parties.  Parties also asked for clarification or other relief of situations in some geographically large Arbitron markets, where some parties need two lower power stations to cover a market.  Should those lower power stations count the same as a high power station that might alone cover the entire market.  The Third Circuit Court of Appeals decision which overturned most of the 2003 ownership rules seem to require that the Commission address the rationale for the strict reliance on the number of stations in a market in deciding ownership limitations without any consideration of the coverage or audience of such stations.  Again, there is no mention of any consideration of that issue in the Chairman's notice.  The Notice of Proposed Rulemaking in this proceeding also asked for a permanent definition of a radio market in areas not served by Arbitron - and there certainly has been no specific proposal made in that regard.

Thus, the Chairman's Public Notice would seemingly not signal the end of the ownership debate, as there remain many, many unanswered questions raised in this and other related proceedings.  So, even if the newspaper- broadcast issue is resolved next month, the Commission's multiple ownership work appears to be far from complete. 

While the Commission's direction on newspaper cross ownership seems clear, less certain is the final result on the issues of the local ownership of broadcast stations.  While some television stations have pushed for greater ability to combine the ownership of local television stations, especially in smaller markets where such combinations can now only be established through waivers based on severe financial hardship (which take a very long time to process) or through arrangements that stop short of complete ownership or even direct combination of programming (see our description of one such shared service agreement, here).  With the increased costs of digital operations and other business challenges, many small market stations have been hoping for some regulatory relief, though convincing the Commission to allow less ownership diversity in small markets is always a difficult sell - no matter how good the economic justifications. 

Following the Commission's 2003 multiple ownership decision, the only significant portion of the decision to become effective was the tightening of the radio ownership rules.  While there have been some calls to relax the local ownership rules for radio, these calls seems somewhat muted -especially when contrasted with the calls from newspaper owners to be allowed back into broadcasting, and even when compared with the pleas of small market television for more ability to combine operations.  But, in connection with recent transfers of control of several large radio companies, there are numerous radio stations held in trust, awaiting disposition.  These trusts were formed because, after the 2003 tightening of the rules, certain local radio clusters were no longer in compliance with the rules.  The transfers of control triggered a divestiture requirement.  Could companies look to relief from the divestiture requirements through these upcoming rule changes?  And could the outcome of the proposed XM-Sirius merger affect the decision on local radio ownership?  If the Department of Justice and the Commission allow the merger by finding that these companies are not forming a monopoly in the satellite radio market because they are instead part of a larger market for audio services, wouldn't radio also be part of that greater market, and wouldn't that call for allowing more consolidation?  If one company can own 300 channels in a market, why should another be restricted to 8 (or maybe 13 or 18 should one consider what would happen if FM multicasting in the new IBOC digital radio format becomes more prevalent)?

Already, the anti-consolidation forces are beginning to muster opposition to any rapid resolution of the proceeding.  According to yesterday's Broadcasting and Cable report, the Senate Commerce Committee promised a hearing on the plans to bring the case to a close, while at least two Senators (a Democrat and a Republican) have already written the FCC a letter asking for a delay in the proceeding.   The anti-consolidation forces are also rallying to stop the decision (see the Press Release from the Stop Big Media Coalition, here). 

With so many questions to be answered, and the opposition that is already forming, we will see if the December decision is a real target - or but a trial balloon floated to see if anyone was paying attention.

But indecency and ownership are not the only broadcast issues on the Congressional agenda.  Bills to regulate violence on television are pending (see our post here).  Proposals have been made to regulate the advertising of unhealthy food to children, which have been stayed off temporarily by a government commission to study the issue and suggest voluntary guidelines, but at least one Presidential candidate has suggested (as we wrote here) that legislation is an option if the voluntary reforms don't go far enough and move fast enough.  And LPFM, about which we wrote here, also may rise on the Congressional agenda. 

The FCC may itself feel the heat to do something (almost anything) in the election year, and in the last days of the Presidential term and perhaps the last days of the terms of some of the sitting Commissioners (as there is usually substantial FCC turnover after an election, no matter which party wins).  Many FCC issues, from rumored new rules on payola and sponsorship identification, to old issues long waiting for resolution, like the taping of broadcast programs and the extension of broadcast EEO rules to part-time employees and the return of Form 395 all await action.  So, in the crazy days before the election, watch carefully to see what surprises your government has in store.

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.

It is interesting that the newspaper-broadcast issue still is being considered by the FCC.  In its 2003 Ownership Order, the FCC allowed newspaper broadcast cross-ownership in all but the smallest TV markets.  The US Court of Appeals for the Third Circuit, when reviewing the Commission's decision, seemed to agree that the broadcast-newspaper cross ownership rules were outdated and should be substantially relaxed, but the Court did not like the methodology used by the FCC to consider in which markets such relaxation should be allowed.  Since the Court's order in 2004, the issue has stalled, pending at the FCC with the remainder of the multiple ownership proceeding.

Look for these combinations to stay in place while the FCC continues its consideration of the multiple ownership rules.  As some relaxation seems to be in store, and as combinations once broken up are difficult to reassemble, the Commission would likely not break up these long-standing combinations while rules which would make them permissible are pending.