We recently wrote about the Federal Communications Commission’s actions in their Diversity docket, designed to promote new entrants into the ranks of broadcast station owners. In addition to the rules adopted in the proceeding, the FCC is seeking comment on a number of other ideas – some to restrict the definition of the Designated Entities that are eligible to take advantage of these rules, others to expand the universe of media outlets available to potential broadcast owners – including proposals to expand the FM band onto TV channels 5 and 6, and proposals to allow certain AM stations, which were to be returned to the FCC after their owners received construction permits for expanded band stations, to retain those stations or transfer them to Designated Entities. The proposals, on which public comment is being sought, are summarized below.
Definition of Designated Entity. The first issue raised by the Commission deals with whether the class of applicants entitled to Designated Entity status and entitled to take advantage of the Commission’s diversity initiatives should be restricted. One proposal is to restrict the Designated Entity status to companies controlled by racial minorities. The Commission expressed skepticism about that proposal, noting that the courts had throw out several versions of the FCC’s EEO rules, finding that there was insufficient justification offered by the FCC to constitutionally justify raced-based preferences. The Commission asked that proponents of such preferences provide a “compelling” showing of needed, as necessary for a constitutional justification for governmental race-based discrimination.
Alternatively, certain parties suggested that the current Designated Entity ("DE") status is too broad, as it could include all sorts of new, small businesses, even including some that are backed by wealthy individuals who do not need government assistance. Thus, if race-based classifications are not acceptable, these groups suggest that the Commission confer DE status only on those groups that demonstrate to the Commission, through a “full file” review, that they are socially and economically disadvantaged. This would be similar to some programs established by university admissions offices to avoid race-based classifications, but still admit minorities and members of other socially disadvantaged groups who might otherwise be overlooked in an admissions process. The Commission asks the proponents of these rules to explain what criteria the FCC would use to determine who is socially and economically disadvantaged, and whether the adoption of such a standard would require a unique review of every applicant who comes before the FCC seeking such status, or if there are objective criteria that could be used to make review easier.
FCC Form 323 Revisions. To gather information about minority ownership, the Commission is also asking if it should revise some of the processes it uses to collect ownership information, particularly ownership information about broadcast ownership by minorities and women. This information is gathered currently on a station’s Ownership Report, submitted every two years on FCC Form 323 (or more often if there has been a transfer of ownership). Rather than filing ownership reports every two years on the anniversary date of a station’s renewal filing, the Commission asks if it should create a single, uniform date for the filing of FCC Form 323 ownership reports by all broadcast stations. The Commission also asks if it should require the filing of reports by stations owned by individuals and partnerships owned entirely by individuals (which are currently exempt from the requirement to file updated Ownership Reports every two years, as the Commission considers any ownership changes in these entities to require the filing of a transfer form, at a minimum a short-form Form 316 pro-forma transfer of control as, under the common law, any change in the partners of a general partnership represented the creation of a new partnership). Also, to insure that ownership information is correct, the FCC asks if it should conduct random audits of the Form 323 reports that are submitted.
Proposals For Changes in FCC Technical Rules to Increase Broadcast Opportunity. The Commission also advanced certain suggestions to make available more broadcast stations for DEs to acquire. These include the following proposals:
- Allowing FM licensees who are multicasting in digital to actually sell one of the multicast channels to a DE, which would be given a separate license for that station, which could itself be sold in the future, separate from the main station with which it is associated.
- Allowing AM licensees who operate an Expanded Band AM station (operating on 1610-1700 on the AM band) to keep both the expanded band AM and their original AM station in the traditional AM band if they are a Small Business, or to sell one of the stations to a DE within a year. Most of these stations were supposed to turn in one of these licenses at some point within the last few years (within 5 years of the commencement of operation by the Expanded band station), but many have been permitted to retain the stations on a temporary basis while this proposal, first advanced two years ago, makes its way through the Commission.
- Reassigning TV channels 6, and possibly 5, for use for new FM stations after the digital television transition. Channel 6, which is immediately adjacent to the FM band, has been kept pretty much vacant under the DTV allocation table, to eliminate interference to FM noncommercial stations which sometimes occurs under current rules. We previously wrote about this proposal, here.
- Allowing the change in city of license of a radio station to any other community within the same radio market (presumably to allow for better coverage of population centers) even if the move would leave the current community without any full-power radio service, if the applicant agrees to finance the construction of a low power FM station in the community that is being abandoned.
- Proving must-carry status to Class A TV stations (presumably enhancing their economic viability). Class A TV stations are LPTV stations that were specially designated as Class A stations in a one-time window in the late 1990s, if they could show that they were originating local television programming and otherwise met all rules applicable to full-power stations (e.g. main studio, public file, children’s television rules). Such stations are given protected status from being bumped off the air by new full-power TV stations or increases in the facilities of existing stations.
Incubator Program. In addition to these proposals, the Commission asked for comments on a proposal to create a trail “incubator program": by which a large broadcaster could receive an exemption from the radio multiple ownership rules so that it could have one more station in a market than would be otherwise permitted if it “incubated” the ownership of another radio station in the same market by providing financing or other assistance to the incubated station.
Proposals to Review Broadcast Transactions for Effect on Minority Ownership. Finally, the FCC asked for comments on proposals that the Commission be able to evaluate any broadcast transaction for its potential effect on minority ownership, to deny temporary multiple ownership waivers in large broadcast transactions which would create temporary ownership holdings in excess of the ownership rules, and to allow minority owners to exceed ownership caps in any market if necessary for those owners to have holdings equal to those of the largest owner in a market (which might have grandfathered holdings).
These proposals include ones that could create opportunities for many broadcasters and for many individuals who are interested in entering the broadcasting industry through the construction of new stations or the acquisition of existing stations. There are, however, potential issues for some broadcasters, particularly in connection with the final proposal to review broadcast transactions for their effect on minority ownership, which could slow the processing of some transactions. Broadcasters should review the entirety of the proposals made by the FCC, and file comments on those issues that most directly affect them.