FCC Chairman Tom Wheeler this week released a “fact sheet” setting out a summary of the draft order now circulating among the FCC Commissioners for review and possible approval. This order, if adopted, would resolve the Quadrennial Review of the FCC’s ownership rules. As we wrote here, the US Court of Appeals for the Third Circuit recently pushed the FCC to quickly resolve this proceeding. The FCC had punted two years ago when it decided that it could not resolve its 2010 Quadrennial Review of the ownership rules and pushed consideration of most of the issues forward to this Quadrennial Review, preliminarily suggesting that few rule changes were necessary. The Chairman’s fact sheet seems to suggest that, in fact, few are being proposed.

• With one exception, despite the proliferation of new media outlets that compete for the revenue and audience of over-the-air radio and television, the proposed changes set out in the fact sheet seem to make the ownership rules more restrictive – not less restrictive. In other words, traditional media is not given any significantly greater leeway to combine operations to compete with its digital competitors. The one exception is a very modest proposal to allow case-by-case waivers of the newspaper-broadcast cross-ownership rule (which some commentators, including us, have suggested may outlive the newspaper), but only where it can be shown that there are economically failing media entities looking to combine. The order addresses basic FCC ownership rules as follows:

TV Ownership: Proposes no changes in the number of stations that one party can own in a TV market. The rules currently allow one entity to own two TV stations in a market only where there are at least 8 independent voices in a market, and only where the two TV stations that are proposing to combine are not, at the time of the FCC application, among the 4 highest rated stations in a market. The proposal suggests the following changes:

Tightening the rules by prohibiting a Top 4 owner from buying a weak second station, and then buying a major network affiliation from a third station owner and importing that to the weak second station.

• The fact sheet says that the proposed rules do not prohibit a station from acquiring a second major network affiliation for a multicast subchannel – an important decision for small market stations which often provide a second network’s programming via multicast to markets which might otherwise not receive that network’s programming.
• The FCC will readopt the prohibition against Joint Sales Agreements between stations that cannot be commonly owned – a rule that was recently thrown out by the Third Circuit and one where Congress has already provided grandfathering protections to existing JSAs (see our article here) and is considering even more relief.
• The FCC will require parties to Shared Services Agreements to file those agreements with the FCC (and to include them in a station’s public file), but will not adopt rules to prohibit those agreements at the current time. It had proposed to do so when it banned JSAs (see our article here), but has apparently decided to pass for now.

Radio Ownership: The FCC is apparently proposing no real changes in the radio ownership rules, except to make minor processing changes, specifically noting two:

• Providing a definition of the radio marketplace in Puerto Rico (which is not a Nielsen Audio market), and
• Adopting a change in how quickly stations that change city of license from one market to another can take advantage of that rule, seemingly adopting the proposal (about which we wrote here) to credit the change in the market for ownership purposes immediately, without any waiting period, only where there is a transmitter site change associated with the city of license change.

Radio-Television Cross Ownership: Seemingly no substantive change is proposed.

Newspaper-Broadcast Cross Ownership: Seemingly proposes no significant change in the prohibition other than to allow for waivers of the rule where there are “failed or failing” entities (presumably either the broadcast station or newspaper that is involved in the proposed combination).

Eligible Entities: Proposes to apply rules that applied to eligible entities – like extensions of expiring construction permits and distress sales (which had been thrown out by the Courts as not having been adequately justified – see our articles here and here) – to small businesses. This is seemingly a reinstatement of the rule that had been thrown out by the Court – but since the rule was thrown out, the SBA definition of a small radio or TV business is now one with less than $38.5 million in annual revenues. The draft order apparently declines to adopt any preferences based on race or gender.

These proposals have immediately drawn fire from Commissioner Pai (“Last month, the FCC had no problem approving not one, but two multibillion dollar cable mergers. Last year, it signed off on AT&T’s acquisition of DirecTV. Yet, it now gets the vapors at the prospect of a newspaper in Scranton, Pennsylvania owning a single radio station.”) and from the NAB (citing the same mergers). There will no doubt be many further lobbying efforts expended before these tentative rules are finalized in the coming months.