With a possible decision looming on December 18 on the Chairman’s proposal to loosen the newspaper-broadcast cross-ownership rules (see our summary here and here), the FCC this week granted two applications involving the sales of the Tribune Company and of the Clear Channel television stations, where the decisions focused on the application of the multiple ownership rules – and where the Commission granted multiple waivers of various aspects of those rules – some on a permanent basis and many only temporarily. And, in the process, both of the Commission’s Democratic Commissioners complained about the apparent prejudgment of the cross-ownership rules and one complained about the role of private equity in broadcast ownership. Both decisions are also interesting in their treatment of complicated ownership structures and, at least under this administration, evidence the Commission’s desire to stay out of second guessing these structures.
In the Clear Channel decision, the Commission reviewed the proposed ownership of the new licensee by an affiliate of Providence Equity Partners. As there were no objections to the proposed sale, the FCC approval process was somewhat easier than it might have been – though the Commission did seem to be somewhat troubled by the fact that Providence was already a shareholder with an interest attributable under the multiple ownership rules in Univision Communications, which had stations in a number of markets in which the Clear Channel television stations operate. The Commission approved the sale, giving Providence 6 months to come into compliance with the ownership rules – and conditioning the initial closing of the Clear Channel sale on Providence meeting divestiture requirements that it had promised to observe in connection with the Univision acquisition, and had not yet complied with (in fact the Commission recently asked for comments on a proposal by Providence to come into compliance in the Univision case by simply converting their interest in Freedom Communications, which has interests in Univision markets, into a nonvoting interest which would not be attributable under Commission rules)
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.