The FCC’s rules limiting the common ownership of radio and television stations, and of television stations and daily newspapers, are triggered by the Grade A contours of the television station encompassing the city of license of the radio station, or the city in which the newspaper is published.  Since June, there has been one problem with the application of that rule (Section 73.3555) – television stations in the digital world no longer have Grade A contours.  When adopting service contours for digital television, the FCC specified a Noise Limited Service Contour ("NLSC") as essentially the equivalent of the Grade B contour of an analog television signal – the contour at which the majority of people can receive the signal a majority of the time.  The FCC also specified a principal city contour – the signal level that needed to be placed over a station’s city of license.  But the FCC never bothered to specify the Grade A contour, despite the fact that the cross-ownership rules were premised on that contour.  In a case decided last week involving the financial restructuring of a radio company, the FCC’s Media Bureau staff decided that they would use the NLSC as a proxy for the Grade A contour until such time as the full Commission otherwise directed.

This decision actually makes common ownership of television stations and either newspapers or radio stations somewhat more difficult, as the noise limited contour, approximating the old analog Grade B contour, actually extends further than where the Grade A contour would have reached (when a digital station replicated its analog service area).  Thus, using this standard, the owners of a television station could be precluded from having attributable interests in radio stations or daily papers in more communities than would have been the case in the analog world.  As the FCC is now embarking on its review of the multiple ownership rules (as we have written before), the FCC may well revisit this issue in the course of that review.

The context of this decision is interesting, in that the issue arose in the restructuring of Nassau Broadcasting, where its creditors were to take a controlling position in the company in exchange for a release of some of the company’s debt.  However, the new ownership position of its creditors, where their interests became attributable for the first time, required multiple ownership reviews in several markets, as these same investors were owners, or holders of significant debt (triggering an EDP issue) in other companies holding radio or TV licenses in nearby markets.  As more and more broadcast licensees are forced to restructure their companies, in swaps that reduce debt by giving former creditors equity positions in broadcast licensees, these kinds of ownership issues may well arise.  In a Wall Street Journal article published several months ago (subscription required), I discussed with the reporter the possibility of these situations, as many of these deals were structured in more robust economic times when few expected the number of broadcast restructurings that we have had.  This case illustrates that the limits on creditors when they exercise their rights in situations where that exercise can trigger FCC multiple ownership concerns.  It is an issue that will no doubt be of concern in other deals as well, until there is an economic rebound that makes these concerns disappear.