Last week, the FCC released its order eliminating the UHF discount. Under this discount, a TV broadcaster, in determining its compliance with the national ownership limit prohibiting any owner from having attributable interests in stations serving more than 39% of the nationwide television audience, would include in its count only one-half of the audience of any market served by a UHF station. This discount originated in the analog world, when UHF stations tended to have smaller audiences as their signals were harder to receive, and yet their operational costs were higher. Three years ago, the FCC proposed to eliminate the discount, as the technical inferiority of UHF stations no longer exists in the digital world (see our post here describing the FCC’s proposed action). This decision, reached in a 3 to 2 vote of the Commissioners, will put several broadcast groups over the national cap, while others will come close to it, limiting their ability to expand into new markets. Did the video distribution marketplace demand this action?

In fact, the Commission’s majority decision really did not examine in any detail the public interest factors justifying this action. Instead, the FCC focused almost totally on the fact that, in the digital world, UHF stations were no longer technically inferior. That was essentially stipulated by all parties, and the Commission viewed the decision as simply being one that was necessary to keep up with technology – as UHF stations were no longer inferior to VHF stations, there was no reason to give owners of these stations a discount in computing compliance with the national ownership limits. The Commission also pointed to the fact that, in the days before the digital transition, it had warned TV broadcasters that an end to the UHF discount was coming. But changes in the media marketplace in the 15 years since many of these statements were made, with the rise of multichannel video program providers and over-the-top television services like Netflix that were not even imagined 15 years ago, are given only a passing reference, as pointed out by the dissenting Republican commissioners.

So, like its decision in its Quadrennial Review reviewing its other ownership rules, the Commission’s majority effectively looked to preserve the status quo – in this case reestablishing what it saw as the intent of the current Congressionally-imposed cap of 39% nationwide audience reach by abolishing the UHF discount, even though that discount had been in place when Congress set the cap. The Commission did grandfather the ownership of station groups that were put in violation by the abolition of the discount, but only so long as the current licensee stayed in place. On sale of a company exceeding the cap, some divestiture would be required to come into compliance with the new limits. This grandfathering applies only to groups whose reach would exceed the 39% cap based on the full attribution of UHF stations. Groups that will not exceed the cap were not grandfathered with their current reach (i.e. their current ownership was not grandfathered with the nationwide ownership reach that would apply if their current UHF stations counted as reaching only 50% of the households in their market). Instead, groups not exceeding the cap must count all stations without relying on any discount, effectively limiting several who get pushed right to the cap by the elimination of the discount from acquiring more stations.

There will likely be an appeal of this decision centering on the issues raised in the dissenting commissioners – whether the FCC had the authority to change the UHF discount as Congress had established the 39% cap knowing that the discount was in place, and whether a full public interest review of the effects of the decision should have been undertaken before it was finalized, looking at today’s media marketplace and determining whether what is effectively a tightening of the ownership rules really is in the public interest. Watch as this issue develops over the coming months.