Last week, the FCC issued a declaratory ruling concluding that its long-standing policies on foreign ownership of broadcast stations were misunderstood – “clarifying” its policy to make clear that, if alien ownership exceeds 25% of the holding company of a licensee, it may in fact be permissible. The Commission decided to adopt a case-by-case approach to determine if any proposed alien ownership in excess of 25% is in the public interest. It is unclear why the FCC made a point to say that this was just a clarification of a policy that has been viewed as a strict prohibition on alien ownership of broadcast properties where the indirect ownership was in excess of 25%. In the past, the FCC broadcast prohibition was viewed as all but absolute, even though the governing statute allows for the 25% threshold to be exceeded unless the FCC determined that such excess foreign ownership was not in the public interest and ownership in excess of 25% has been allowed (under the same statutory provision) for nonbroadcast services. Nevertheless, last week’s decision made clear that foreign ownership levels in broadcast holding companies beyond the 25% threshold were possible, but much else was left unclear in the decision.
As stated in the ruling, the foreign ownership limitations were adopted because of concerns that foreign owners who controlled the instruments of communication in a time of emergency could be a security threat. Moreover, in broadcasting, there was the fear that such foreign owners could disseminate propaganda to the citizens of the US. While times have changed and the risk of the dissemination of propaganda by broadcasting seems quaint when there are so many other ways to disseminate what might be called propaganda to the public, the FCC still regards this as a concern that needs to be evaluated in every case. At the FCC meeting where the order was adopted, and in the ruling itself, it was made very clear that, in the event of any application that proposes foreign ownership in excess of 25%, the Executive Branch of government (including Homeland Security) would have to approve the foreign ownership, concluding that it does not pose any threat to the United States. For foreign companies that want to invest in broadcasting, this is not the only question that remains unanswered.
In deciding that the 25% limit would no longer be an absolute, the Commission did not give any indication as to what standards would be used to evaluate proposed foreign investment in broadcast stations. As we recently wrote, the FCC has specific criteria that apply to the computation and evaluation of foreign investment in the non-broadcast industries. Here, however, the Commission left investors with a blank slate, indicating that it would decide whether requests by companies to exceed the 25% threshold should be approved on a case-by-case basis, not based on any pre-determined set of standards. No hint was given on methodologies and assumptions to be used in determining the degree of foreign ownership and influence, an issue that often arises in such cases.
Even the permissible amount of foreign ownership is up in the air. Some have speculated that the FCC would never permit control of a broadcast station to be in foreign hands. But there is nothing in the FCC’s determination itself that leads to such a conclusion. While in the statement of Commissioner Rosenworcel in favor of the policy change says that the Commission is not approving control of stations by foreign owners, the FCC decision does it say that it would never approve control by aliens, if the proper showing was made by an applicant. In fact, there is a footnote citing to the comments filed in the proceeding by one interested party, suggesting that the FCC allow up to 51% alien ownership. The FCC cites that comment, but does not make any statement, one way or the other, favoring or disfavoring the proposal.
So what is an applicant to do if they want to make a proposal for foreign ownership in excess of 25%? Basically, an applicant needs to file a petition for declaratory ruling, asking for FCC consent to an increased level of foreign ownership. The petition needs to detail the foreign ownership being proposed. And the petition needs to set out the public interest benefits of the transaction, setting out why the alien ownership would not jeopardize any of the security interests of the United States. The FCC would allow for public comment, and review by Executive Branch agencies for national security implications, all before the application is granted.
Given this process, especially with the first few applications, the processing will not be quick. The FCC has indicated that, if there is significant interest by foreign investors in investment exceeding 25% in US broadcast stations, it might eventually adopt more definitive standards by which to evaluate such applications. But, for now, the evaluation will be on a case-by-case basis.
The Commission also notes in its decision that it hopes that the perceived liberalization of opportunities for foreign ownership of US broadcast stations would convince other countries to liberalize their ownership rules. This would, the FCC hopes, provide opportunities for US investors to own interests in stations overseas. With this idea of reciprocity on the table, one might see a way for alien control of broadcast stations being permitted, if that ownership comes from a country where US citizens can own media outlets in that country, and if the country is considered a safe security bet. Of course, we would expect that this will not happen quickly, but the possibility is there. Given the right distressed station, who knows what to expect under these new liberalized guidelines?
With the hurdles that still need to be overcome before clarity is delivered on the issues, one can see many non-US investors still being wary of US investments – or coming into deals with less than 25% of the equity with rights to future interests, getting deals closed, and then seeking FCC approval for the conversion of the options or warrants to full interests, without the time pressure of completing a deal. But at least the decision is a step in the right direction – one that might help bring in new sources of capital to the broadcast marketplace.