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The FCC's multiple ownership proceeding was going to be decided at last, before Christmas, or at least that was what was suggested by many news reports as recently as early last week. Published reports suggested that a draft proposal was circulating at the FCC, and that it was expected to be acted on in December – perhaps at or before next week's open meeting. That timetable now seems to be out the window, as the FCC has asked for additional comments on the summaries of the information gleaned from the FCC Form 323 Ownership Reports as to minority and female ownership of broadcast stations released late last month. The summary of those reports showed low levels of minority ownership in many parts of the broadcasting world. As the Third Circuit's remand of the last multiple ownership order (which we summarized here) was based in part on the Commission's failure to address the impact that its minor liberalization of the newspaper-broadcast cross-ownership rules would have on minority ownership, this request for additional comments seems addressed, at least in part, to addressing that perceived deficiency.

The request for comments gives a short deadline, with comments due the day after Christmas, and Replies on January 4. This indicates that there still is a push to get the ownership proceeding resolved early next year. With this push on, it seemed like a good time to review some of the more controversial issues likely to be addressed in the upcoming order.

 

The area where the most arguments seem to be centered, and the one most likely to be impacted by the data on minority ownership, is the cross-ownership rules. In the Notice of Proposed Rulemaking in this proceeding (see our summary here), the Commission proposed dropping the remaining restrictions on radio-television cross-ownership, and relaxing the newspaper-broadcast cross-ownership restrictions, which the FCC attempted to do in 2007, only to be rebuffed by the Third Circuit. We have observed how some pundits in Washington have mused that the newspaper-broadcast cross-ownership restrictions may well outlive the daily newspaper, and that seems to be the debate now, as advocates of relaxation argue that combinations will help economically challenged newspapers, while also promoting more news on broadcast stations in such combinations. Opponents, on the other hand, fear that combinations will lessen minority ownership in markets – either by foreclosing opportunities for minority buyers, or by buying minority-owned stations. 

The other issue likely to be addressed in the proceeding is the treatment of Shared Services Agreements and Joint Sales Agreements for television stations. The question here is whether these agreements should be "attributable", i.e. whether they should count in a multiple ownership analysis so that if you can't own a station, you can't, for instance, have a JSA with it. We warned that this seemed to be a target for public interest groups when this Quadrennial review of the ownership rules first began in 2009, and it is still being debated today as the issues are being considered in concrete form by the Commissioners. Many of the same issues that arise in the cross-ownership debate also arise here – whether the effect on diversity is such that it is more important than the economic efficiencies that are recognized by such operations – as many broadcasters submit that many small-market television stations would cease operations or drop local news but for their relationships with other stations in the market. The NAB has recently pointed out, as well, that MVPDs in many markets have their own joint sales agreements, so it seems unfair not to allow single-channel providers like TV stations to enter into such arrangements.

 

Ways to encourage minority ownership and other diversity in broadcasting is also likely to be addressed in the proceeding. Questions of the promotion of incubators for minority ownership, waivers or certain grandfathering rules, and the return of the tax certificate have all been discussed in this context. See our past article for many of the other proposals to encourage minority ownership that have been raised before the FCC. Given the Third Circuit review, the issue is bound to be extensively addressed by the FCC.

 

There are certain to be other items clarified in the decision as well. The NPRM suggested that the radio sub-caps (limiting the owner to a particular number of AM or FM stations in a market) should at least be reviewed, and the criteria for waiving ownership rules, e.g. in the instance of failed or failing stations, would also be analyzed. So, while the decision is unlikely to be in the Christmas stocking of any of the parties involved in the proceeding, by Valentine's Day participants may well have one more reason to celebrate (or another reason to dread the day depending on your position and the ultimate outcome).

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In 2009, the FCC adopted a uniform deadline for all commercial broadcast licensees to file an FCC Form 323 Biennial Ownership Report.  The due date for that report was supposed to be November 1 of that year, but was postponed until July of 2010 when problems popped up with the new forms.  The next Biennial Ownership reporting date was scheduled to be November 1 of this year (two years after the originally scheduled date for the first report to use the new form) - but the FCC today issued a Public Notice postponing the filing deadline for one month, to December 1.  This delay was justified so as to give broadcasters, especially those with many media interests held in different companies, more time to complete what can be a cumbersome process of filling out all of the reports and exhibits that need to be submitted.  Reports need to be filed by December 1, but all information still needs to be reported as of October 1 of this year - a standard reporting date that will remain constant each year to give the FCC a snapshot of the composition of ownership in the broadcast world.

The revised ownership report filing processwas adopted so that the FCC could get an accurate report on the ownership of broadcast properties by minorities and women, a goal that has taken on added significance in light of the Third Circuit Court of Appeal's recent decision in Prometheus Radio Project v FCC, rejecting the FCC's efforts to diversify ownership in the media through the use of a system giving preferences to qualified entities, i.e. small businesses.  As we wrote last month, the Court found that the FCC's goal was to promote minority and female ownership, which was not fostered by its concentration on small businesses.  One of the issues on which the Court faulted the FCC was the lack of information about the current broadcast ownership interests of minorities and women, so that the FCC could do a "Adarand study" as to whether there are effects of past discrimination reflected in the current ownership of broadcast stations that need to be remedied by affirmative action efforts based on race or gender.  These new ownership reports are designed to help to provide that information.

Noncommercial broadcasters are not yet subject to these new Form 323 requirements and the obligation to submit the reports at the same time as their commercial brethren.  The FCC is still considering whether to put noncommercial broadcasters on that same schedule.  Until that decision is made, noncommercial broadcasters continue to file every other year on the anniversary of the due date for their last license renewal application. 

Commercial broadcasters should be aware of this December 1 date, and make sure to comply with the Form 323 requirements.  As this obligation applies to all commercial broadcasters, and now will have been in effect for two cycles, you can be sure that the FCC will not be too happy about broadcasters who miss this deadline this time around. 

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The Third Circuit Court of Appeals has once again questioned the FCC's determinations on broadcast ownership issues. In a decision just published, Prometheus Radio Project v FCC, the Court reviewed the FCC's 2007 actions relaxing the newspaper-broadcast cross-ownership rules and adopting policies to increase diversity in broadcast ownership.  These FCC decisions had followed a prior decision of the Third Circuit determining that the FCC's 2003 Ownership Order, relaxing many FCC ownership rules, was not adequately justified.  The FCC's subsequent actions on cross ownership were set out in its 2007 order, relaxed the newspaper broadcast cross ownership rules in larger markets through a policy based on certain presumptions that, when met, justified the common ownership of newspapers and radio and television stations in larger markets (and, in some cases, in smaller markets too)( see our summary of this order here and here).  The diversity order, released in 2008 (summarized here and here), adopted a number of rules and policies meant to encourage diversity in media ownership.  In this new decision, the Court found that both the decision as to the newspaper cross ownership rules and the one dealing with diversity policies were wanting, and sent these matters back to the FCC for further consideration. At the same time, the Court upheld the FCC's decisions not to change the local television ownership rules (allowing common ownership of 2 TV stations only when there are at least 8 independently owned stations in a market, and where the combined stations are not both among the Top 4 in their markets) and to retain the sub-caps for radio ownership (the rules that allow one entity to own up to 8 stations in a single market, as long as there are no more than 5 in any single service, i.e. AM or FM).

The discussion of the newspaper-broadcast cross-ownership rules was entirely procedural.  While certain public interest groups had argued that the 2007 revision to the cross ownership rules allowed too many broadcast-newspaper combinations, a number of media companies argued that it allowed too few.  The Court didn't address either contention, instead focusing on the process by which the FCC adopted the rules.  When the Court addressed the 2003 rule changes, it sent that decision back to the Commission questioning the basis for the "diversity index" that the FCC had adopted to measure when transactions resulted in too much concentration in a market, and specifically instructed the FCC to give the public notice and an opportunity to comment on the specifics of any new proposal that was adopted.  The Court felt that there were too many obvious flaws in the diversity index which could have been discovered if the public had been given a chance to review its details before it was adopted.  In asking for comments following the Court's remand, the recent decision concluded that the FCC had given the public only a cursory description of the issues that it would consider on remand with respect to the cross-ownership issue when the FCC issued its request for public comment.  The substance of the Commission's policies which were adopted, setting out presumptions in favor of cross-ownership in larger markets and against it in smaller markets, was not suggested in the request for public comment, but instead was first floated in a newspaper Op-Ed by then FCC Chair Kevin Martin.  While the FCC asked for comment on that proposal, parties were given less than a month to file comments, and a draft decision embodying the proposal was already circulating at the FCC before the comment period had even ended. This process prompted much outcry at the contentious FCC meeting at which these rules were adopted (see our summary here).  The Court looked at this process, and determined that the public had not been given an adequate opportunity to address the specifics of the FCC proposal, and had given the appearance of having pre-judged the outcome of the case.  Thus, this week's decision sent the FCC's 2007 order back to the FCC to seek more public comment, and to develop rules based on those comments. 

In the interim, the FCC rules that were in effect prior to the decision will govern newspaper-broadcast cross ownership issues.  Those rules effectively forbid most combinations.  The FCC has been extending existing combinations that sought waivers while this proceeding ran its course, and has not been flooded with new requests for combinations given the economics of the newspaper (and broadcast) business in recent years.  So effectively little will change while the FCC further considers this matter. As some have observed before, the cross ownership rule may well outlive the newspaper.

On the diversity issue, the Court focused on substance - specifically the FCC's decision to base qualifications for a number of diversity preferences on an applicant being a Qualified Small Business under the rules of the Small Business Administration. The Court felt that the FCC's objectives should have focused more on increasing diversity by adding women and minorities to the ownership of broadcast stations, not on small businesses. The evidence presented to the Court indicated that minority ownership of small businesses was not significantly higher than current minority ownership of broadcast stations, so relying on the small business definition would not appreciably increase minority ownership. The FCC had not used racial and gender classifications, or those dealing with "socially and economically disadvantaged businesses" ("SDBs"), as the Commission felt that there were no constitutionally acceptable basis for determining who would qualify for such preferences. One of the problems, as the Court stated several times, was that the FCC did not have data on the race and gender of broadcast owners to determine if there was a basis for adopting a preference based on those factors.  To pass constitutional muster, a racial preference has to remedy some past discrimination, and the FCC has to know if there is in fact evidence of discrimination in broadcast ownership to even attempt to meet that test.  The new Ownership Reports, as we reported when they were first adopted, are designed to remedy that lack of information.  Because the rules adopted did not result in the goals that the FCC announced - the increase in the diversity of ownership of the broadcast media - the Court determined that the FCC had to further consider these policies.

Both of these issues are headed back to the FCC for further consideration.  How will this consideration take place?  It will be consolidated into the FCC's current quadrennial review of the ownership rules.  We wrote about the questions that the FCC asked in initiating the proceeding here, and we are waiting for the Commission to come out with some more specific proposals for new rules in a Notice of Proposed Rulemaking.  With the guidance from the Court as to the specificity that it deems necessary in any such NPRM, and with the recent announcement that certain academic studies on ownership issues are available for review, that NPRM will no doubt begin to take shape over the next few months.  So, maybe one day (our guess would be late in 2012), the Commission will reach a decision in its 2010 quadrennial review which answers these questions left over from the 2003 Order (though even then, any order will likely not be final).  Ownership arguments are ones that never seem to be completely resolved, so look for us to be writing about these issues far into the future. 

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