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In the second FCC-related Supreme  Court action today, the Court also refused to hear the appeals of the Third Circuit's 2011 Prometheus opinion, affirming most of the FCC's 2008 multiple ownership Order.   The Third Circuit's decision and underlying FCC rules at issue are described here. 

In denying cert., the Supreme Court refused to reconsider the Third Circuit's decision to leave the newspaper/broadcast cross-ownership rule in place.  This particular aspect of the Prometheus case had been appealed by multiple media companies, including the Tribune Company and Media General.  Many have noted that the rule may well outlast the existence of the daily newspaper, but absent an FCC decision upheld on appeal, the cross-ownership prohibition remains in place, except where otherwise grandfathered.

It certainly has been an interesting week for Supreme Court actions in both media-related decisions and otherwise.  (You may have heard that there was some health care related decision this week as well.)  From an FCC perspective, it will be interesting to see what the Commission does now with respect to both indecency and multiple ownership in view of the recent Supreme Court decisions....not to mention an upcoming election in November.

I've seen some speculation in various reports that the new Commission will roll back the 1996 Telecommunications Act broadcast ownership reforms (which are, for the most part, statutory, so that they can only be undone by an act of Congress, not by the FCC), or at least that the Commission will roll back the limited multiple ownership relief granted to newspaper owners in the largest broadcast markets, allowing combinations with broadcast stations in those markets (see our summary here).  Those beliefs seem far-fetched, given the state of the broadcast industry.  And not only far-fetched but unnecessary, as there are few newspaper companies that have the financial ability to buy a daytime-only AM station much less a TV in their markets, and radio group ownership similarly seems to be coming undone by the workings of the market, as many aggregators are selling off stations - many at prices unheard of a year ago.  We've previously quoted the musings of a broadcast trade-press reporter, who stated "I often wonder if the newspaper-broadcast cross-ownership rules will outlive newspapers themselves."  With the news of the cut-backs in the publication of the Detroit Newspapers, the announcements of sales or shut-downs of competitive newspapers in Seattle and Denver, and even an article speculating on the potential bankruptcy of the New York Times (since disputed by the Times ), the fear of the power of the old media simply does not cut it in today's media world. 

In fact, a Commission focused on the future will be looking at what the real state of media competition is and will be in the future.  in the last week, we seen multiple reports from the Consumer Electronics Show, all about the Internet connectivity of all sorts of devices.  New devices, like TVs with built-in connectivity, so that you can watch your YouTube videos (or those from Hulu or other sites with aggregated television programming) on your wide-screen TV, will no doubt further erode the market share of television stations.  Radio, too, was greeted with articles about mobile Internet receivers, bringing Internet radio and other Internet audio sources to cars and even bedside clock radios - meaning more competition.  In this environment - does the FCC need to regulate broadcast localism?  Not when broadcasters will be doing it out of self-defense, as localism will truly be the only way that broadcasters can distinguish themselves from the flood of other media coming to every consumer.  The government does not need to tell broadcasters how to serve their communities - they will be or they will be gone.

So, we too will be hopeful for the future, and will welcome the new Chairman and will here watch the actions that he takes that will help to shape the future of the broadcast industry. 

The FCC will also have to complete the digital transition of TV translators and LPTV stations, which are not bound by the February 2009 conversion deadline. The FCC will need to set a digital conversion deadline – a conversion that many translator and low power licensees are not looking forward to paying for, but which may be necessary to preserve their over-the-air viewership as the analog tuner becomes an historical relic.

Radio, too, has its own technical issues to deal with. The Commission will be faced with resolving proposals for increased power for HD Radio operations (In-Band On Channel or IBOC digital radio), which some broadcasters have opposed as holding the potential for adjacent channel interference. The Commission will also be faced with resolving proposals for making the measurement of AM antenna patterns easier but, on a most fundamental level, it has also been asked to recapture some of the television spectrum, including Channel 6 and possibly Channel 5, and to use that spectrum for new radio stations. While some worry about the increased competition that new radio channels could bring, others see the expanded FM band as a way to eliminate congestion on the current band – giving LPFM stations places to operate without restricting FM upgrades or endangering FM translators – and others have even suggested that some or all AM stations could be moved onto these channels. This is likely to be a long-term project, but one that may get serious consideration this year.

Programming, too, may come in for more review this year. The Commission’s rules, adopted a full year ago, requiring TV stations to document in minute detail their public interest programming on Form 355, has never been implemented, as the form has never been approved by the Office of Management and Budget as being in compliance with the Paperwork Reduction Act. As this form required so much new information, for no appreciable purpose, it seems unlikely that it could survive such a review. Thus, the Form may be revised before being implemented, or it may wait for new FCC programming rules to be adopted as part of the FCC’s localism proceeding, mandating some form of public interest programming, which could then be used to justify the collection of some data requested by the questions on Form 355.

Other aspects of the localism proceeding seem likely to be resolved in 2009. The proposal for a fully manned main studio during all hours of operation, located in the station’s city of license, seems to be less likely to be adopted as regulators realize the costs that such a requirement would impose. Yet requirements for some form of mandatory ascertainment of community needs, plus some enhanced disclosure of public interest programming, seem more likely. Some of the proposals rumored to be on the table include requiring that broadcasters be judged by whether they perform certain tasks set out on a menu of options by which they would demonstrate their service of the public interest. One would hope that any set of menu options would be broad enough to recognize all the diverse ways that broadcasters serve their communities, and not so restrictive as to make every station meet the public interest in the same cookie-cutter way, and thus eliminating diversity in approaches that has allowed the broadcast industry to flourish.

The return of the Fairness Doctrine, which many conservative pundits have predicted, is unlikely because of the constitutional and practical problems of implementation. Yet some fear that  mandated political coverage and issue-responsive programming, which is more likely,  may effectively take the place of the Doctrine. Restrictions on violent programming could also be at the top of the Congressional agenda, as Senator Rockefeller, the new head of the Senate Commerce Committee, has supported such regulation in the past. . 

In the advertising world, the FCC will be resolving its embedded advertising and product placement proceeding, where some “public interest” groups have advocated a total ban on such advertising, while others have suggested immediate sponsorship identification, through a crawl or superimposed caption, of any product for which consideration has been paid for its inclusion. The related issue of video news releases – whether stations have to identify on-air anything given them at no charge (e.g. a script, video footage, etc.) before its inclusion into a news report – will also likely be resolved. Some have also suggested that the Commission may be planning some adjustments to its payola rules, though what those changes would be, and how they would improve on the current rules, is hard to fathom.

There is also real concern that the Congressional committees which oversee the FCC may well push proposals for limits on prescription drug advertising. The new chairman of the House Energy and Commerce Committee, Henry Waxman, has favored a moratorium on such advertising while the industry works out rules that restrict various perceived abuses. If industry voluntary agreements don’t satisfy Congress, new restrictions on advertising directed to children are also possible, especially in connection with ads for food considered unhealthy (however that may be defined).

Copyright issues could also impact the broadcast industry this year – perhaps in ways more fundamental than any of those other issues listed above. For radio, we may see the webcasting royalties issue be resolved one way or the other. Congress has given webcasters and the recording industry until February 15 to settle the webcasting royalty issues and, if that doesn’t result in a resolution of the issue, the pending appeals will be argued this year and perhaps resolved by the end of the year. 

2009 will also bring about a renewed attempt by the recording industry to impose a performance royalty on broadcasters for their over-the-air signals, the “performance tax” as it has been labeled by the NAB. That performance royalty would require broadcasters to pay the recording industry and recording artists royalties for the use of music over the air – in addition to the ASCAP, BMI and SESAC royalties that are already paid to the composers. The recording industry was able to get that proposal through the House Judiciary Committee last year, and will make a renewed attempt to have it adopted by Congress. If such an attempt is successful, this could potentially result in the transfer of billions of dollars from broadcasting to the recording industry.

TV has its own copyright issues, as the law permitting Dish and DirecTV to import local broadcast stations into local markets must be renewed, and some have suggested that this might be the time to reexamine the must-carry and retransmission consent process for both cable and satellite. While nothing firm is on the table, this issue could arise just as retransmission consent fees are beginning to offer television broadcasters a meaningful new revenue stream.

All of these issues seem like plenty - but we haven't even discussed the resolution of the indecency cases currently pending before the Supreme Court that should come this year.  The Commission ended 2008 with several large EEO fines, and this year may bring the resolution of long-pending petitions for reconsideration of the current EEO rules, as well as resolution of whether the Form 395 Annual Employment Report  will make its reappearance and whether the information on the form should be available to the public to judge the EEO performance of broadcasters or should the information be used simply for industry profiling.  Commissioner Adelstein suggested that the information should be public in his concurring opinion on these recent fines.  The FCC's change in its multiple ownership rules to allow some broadcast-newspaper combinations is still on appeal as it becomes increasingly irrelevant (as newspaper companies don't have the money to buy broadcast station, and broadcasters probably don't want to buy newspapers), and other issues as to the local radio ownership rules and the attribution of TV JSAs are still pending and may be resolved one day - perhaps this year.  Even political rules may be revisited in 2009 - as the Commission has never issued rules implementing the BCRA requirements, and it also has a long-pending proceeding to determine how to assess spots sold by on-line auctions for lowest unit rate purposes. 

With these (and other) possible changes in the regulatory landscape, one can only hope that the government regulates with a light touch. While the Democrats who have been on the FCC during the Bush years have advocated tough, detailed regulatory mandates, the Obama administration has offered the hope of a less doctrinaire, more inclusive regulatory process. Given the economic outlook for the coming year, and the costs and likely disruptions of the digital transition, an administration that promises hope should deliver some to broadcasters simply by taking a break from excessive regulation to give everyone a chance to adjust to the new realities of 2009. But stayed tuned to these pages to see what develops in this new year. 

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. 

The broadcast industry is in an interesting position with respect to this decision.  While broadcasters do believe that, given the competitive pressures, there is a need for greater ownership deregulation such as that approved by the FCC in December, many do not believe that the deregulation has gone far enough.  There were some concerns by radio broadcasters that the December decision did not in any way relax ownership even in the largest markets, nor did it correct any of the anomalies created by the switch to a markets based on Arbitron definitions rather than contour overlap for use in computing the number of stations that one party can own in any radio market.

Perhaps most disappointed by the decision were small market TV operators, who were hoping for duopoly relief, allowing owners to operate more than one television station in the smallest markets, where the cost efficiencies of such operations would be the most beneficial.  There is an interesting article in today's tvnewsday, interviewing Bill Duhamel, a television station owner in small market Rapid City, South Dakota, about the operational and economic concerns that arise in that size market.  If the December decision stands, it will take a whole new FCC proceeding and the years of litigation that follow before there can be expected to be any relaxation of the local television duopoly rules in these small markets.

The resolution of disapproval is not the only avenue pending by which the December decision could be changed.  Parties on both sides of the issue have filed appeals and petitions for reconsideration that are still to be resolved.  Thus, no matter what happens in Congress, we have not heard the end of the multiple ownership debate. 

The specific proposals that were adopted, and which will go into effect 30 days after Federal Register publication, include:

• Allowing designated entities to purchase construction permits for new stations that are nearing their expiration dates, and giving the designated entity 18 months after the purchase in which to construct the new stations.
• Modified the Equity Debt Plus rule (which makes an otherwise non-attributable ownership in a broadcast station interest attributable if the interest exceeds 33% of the financial interest - debt plus equity - in the company and either (a) the holder has an attributable ownership interest in another station in the same market, or (b) it provides more than 15% of the programming to a station) to allow that holder to have a financial interest in a designated entity if (i) the interest is less than 50%, or (ii) the financial interest is less than 80% and the holder of the interest has no equity interest, option, agreement, or understanding by which it can acquire an equity interest in the designated entity
• Revived the FCC's distress sale policy by allowing a broadcaster whose license has been set for a revocation hearing or is facing a renewal challenge on basic qualifications grounds to sell to a designated entity to avoid the issues that it is facing.  Ordinarily, if a licensee is facing issues which could lead to a loss of license, it is not allowed to sell the station until the issues are resolved.
• Allowed the sale of existing grandfathered combinations of radio stations which exceed the limits established by the multiple ownership rules (as revised in 2003) to one owner, provided that the owner agrees to sell the stations which exceed the limits to a designated entity within a year
• Provided additional time for spin-offs of broadcast stations in "substantial transactions" if efforts were being made to sell excess stations to designated entities
• Gave a preference to companies which "incubated" companies owned by designated entities (i.e. provided them financing or other similar assistance) if the company was in a situation where the company and another both filed, on the same day, to create a TV duopoly in a market where only one such duopoly could exist (i.e because there must be 8 separately owned and controlled television operators remaining in a market after the permitted combination).
• Adopted a new rule prohibiting discrimination in the sale of a commercial broadcast station on the base of race, sex, religion or national origin.  A certification that no discrimination has taken place will be required in applications submitted to the FCC for approval of station sales.
• Adopted a zero tolerance policy against "ownership fraud," situations where the putative owner of a station is not truly involved in station operations.  The FCC promises to try to resolve any such allegations within 90 days, and also promised to keep confidential, to the extent that it can consistent with the Freedom of Information Act, the names of whistleblowers on such frauds
• Adopted a rule prohibiting any advertising contract containing "no urban" or "no Spanish" dictates, meaning that an advertiser cannot specify in an advertising contract that the ads will not run on stations targeted to the African-American or Hispanic communities.  A certification that no such advertising discrimination has taken place will be required in license renewal applications.
• Agreed to conduct a number of initiatives to promote minority ownership, including conducting a study of the extent of minority and female ownership in broadcasting (and amending the FCC Form 323 Ownership Report to obtain such information), encouraging local banks to lend to the broadcast industry, holding an access to capital summit, and publishing a guidebook on diversity in contracting and ownership.

While some of these initiatives seem to have real promise for designated entities (e.g the sale of expiring construction permits for new stations and the distress sale policy expansion), others seem to be less likely to be used.  Just how often will two television operators file an application to create a duopoly on the same day in a market with just 9 independent television voices?  I don't know that it has ever occurred, and doubt that it will be likely enough to occur in the future to provide much incentive for companies to enter into incubation agreements.

Several other proposals really need more details to avoid being a trap for the unwary, getting broadcasters into trouble for routine practices.  For instance, the Commission does not explain how this would they will insure that there is no discrimination in the sale of a broadcast station, or exactly what circumstances they would consider to be discriminatory.  For instance, to what extent must a seller go to make sure that the station is offered to minority and female prospective purchasers?  If there is a direct sale from one non-minority to another without any advertisement of the availability of the station, has there been some sort of discrimination?  Or if there is a sale of a religious commercial radio station to another person of the same religious affiliation, has there been discrimination?  The Commission does not address these questions. "Ownership fraud" is also curiously undefined.  What will happen to an entity that is found to have engaged in such fraud?  How can the FCC fulfill its promise to resolve allegations of fraud within 90 days - a very quick resolution for what can be a very complex issue?  These questions are unanswered.

Perhaps most surprising is the limited discussion of the prohibition on no urban-no Spanish dictates, as press reports had indicated that members of the advertising community had been visiting the Commission, lobbying on the issue.  But the Commission says nothing more than that there is a prohibition on these clauses in advertising contracts.  But if a broadcast company owns two stations - one a Spanish language station and the other an Adult Contemporary station broadcasting in English, if an advertiser says "run my ads only on the AC station", does that violate the prohibition?  If so, that might actually encourage some groups to avoid programming Spanish and urban formatted stations, to avoid having advertisers specify that their advertising run on only one or two other stations, and perhaps creating an issue even if the advertiser was just trying to reach the unique demographic served by that particular station.

Apparently, these issues will be sorted out through cases or future FCC pronouncements.  But, for now, broadcasters will have to guess what they mean. 

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.

Congress is unlikely to be appeased by anything said at this week's FCC meeting.  One of the real questions is whether Congress will in fact do anything to overturn or block the Commission's December decision to relax the multiple ownership rules, as threatened by Senator Dorgan.  The tensions between Congress and the FCC, and among the Commissioners themselves, are likely to last at least until the November election.  Next year, we will undoubtedly witness the naming of a new Chairman, regardless of who wins the Presidential race, and it remains to be seen how that will affect these ongoing skirmishes.

Some of the new rights approved by the Commission in the Ion case were matters over which the nonattributable owners were given veto rights.  The matters over which the non-attributable owners had to give specific permission (and which the Commission approved as not affecting the attributable status of the investor - NBC - which already owned stations in some Ion markets, and where attribution might also affect NBC's compliance with the national ownership limits) included the following:

• The right to nominate (but not elect) two members to the Board of Directors of the Company
• The right to approve the yearly budget of the Company (provided that the previous budget remained in effect if the new budget was not approved
• The right to approve any action that would permit the interest of the non-attributable owner to become attributable
• The right to approve any change in the size of the Board of Directors
• The right to approve certain significant employment agreements

In addition, the FCC permitted NBC to hold options to acquire additional interests in the company without those interests counting in a current ownership analysis, even where 80% of the exercise price had been paid up front.  The Commission noted that the financial contribution of NBC was still under the 33% limit which would make the interest attributable under the Commission's Equity Debt Plus ("EDP") standard.  Under the EDP policy, the Commission will find an interest to be attributable, even if it is nonvoting and otherwise meets the standards which would normally insure nonattribution if:

1. The investor's financial investment in the company, totaling both equity contributions (including amounts paid for options) and debt, constitute 33% or more of the total financial investment in the company and
2. The investor either (a) has attributable interests in other stations in the market or (b) provides more than 15% of the programming of the station.

As this decision does much to clarify the permissible ownership rights of nonattributable owners, it should be carefully reviewed by those in the investment community who may have interests in multiple broadcast companies which could end up with interests in the same market.  The decision does much to insure that these investors can make their investment, and protect those investments against any significant actions of the company that could adversely affect the integrity of that investment.

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. 

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.

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.