Investors in broadcast properties often seek to have their interests "insulated" from "attribution" meaning that the interests do not count in a multiple ownership analysis. In other words, if a party has an attributable interest in a company owning a broadcast station, that interest counts in determining whether the party can, under the FCC’s multiple ownership rules, own an interest in another station in the same market. The FCC has extensive case law describing when an interest is non-attributable and does not count in a multiple ownership review. In most cases, a non-attributable interest is one that does not hold voting rights on most company decisions. However, the Commission has always recognized that the non-attributable, non-voting equity owner may retain certain voting rights when dealing with certain fundamental company actions, as necessary to protect the fundamental integrity of their investment. In the recent decision approving the transfer of the Ion Media Network broadcast stations, the FCC clarified some of the permissible voting rights of nonattributable shareholders.
In the past, the FCC has permitted nonattributable owners to vote on certain fundamental actions of a company without threatening the owner’s nonattributable status. Such fundamental actions included changes in the articles of organization or the by-laws of the company, a sale of more than 10% of the assets of the company, a merger or transfer of control of the company, a declaration of bankruptcy, or the issuance of new stock. As these actions could all affect the fundamentals of the economic interests of the nonattributable owners, votes on these actions was permitted. In the Ion Media case, new rights were found to not affect the non-attributable status of their investments
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:
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
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.