The FCC’s Order released at the end of August deciding the issues in its Quadrennial Review of its ownership rules is over 100 pages long. The full document, with the dissents from the Republican Commissioners, required regulatory impact statements and similar routine attachments totals 199 pages. The Order addresses many issues. For TV, it declines to change the local ownership rules, readopts the decision to make Joint Sales Agreements into attributable interests (thus effectively banning them in many markets, though making some tweaks to the grandfathering of existing JSAs), and adopts new rules for reporting shared services agreements. The Order retains the newspaper-broadcast and radio-television cross-ownership rules. It takes limited new steps to encourage minority ownership (principally re-adopting the rule that allowed small businesses to acquire and extend expiring construction permits for new stations and to buy certain distressed properties, see our article about that old rule here), but does not adopt any racial or gender preferences for broadcast ownership. It also ends consideration of using TV channels 5 and 6 for the migration of AM radio and other new audio services including those targeted to new entrants into broadcast ownership (see one of our articles about that proposal here). And it rejects most proposals to change the radio ownership rules. Today, with the NAB Radio Show just two days away, we will look closer at the radio rules, and will cover many of these other aspects of the decision in coming days.

Perhaps the biggest “ask” for changes in the rules came from numerous radio groups that requested changes in the “subcaps” that apply to radio ownership. For instance, in the largest radio markets, one owner can hold up to 8 stations, but only 5 can be in any one service (AM or FM). Some parties had hoped to be able to own more FM stations in a market, particularly given the growing levels of competition in the audio marketplace from satellite and online radio. Some AM owners looked to hold more than the current maximum number of AMs in a market as a way to provide economies of scale that might help to preserve and strengthen the struggling AM radio industry. The Commission rejected such changes.

In rejecting the changes, the FCC found that new audio competition, while clearly growing, does not in the FCC’s eyes replace the local service provided by over-the-air radio. On AMs, the FCC pointed to several markets where there are still AM stations that rank as being among the Top 10 stations in their markets. In the Commission’s view, the fact that a few of these stations can still be competitive means that AMs are still a factor in the marketplace, so allowing more consolidation is not necessary. The FCC notes the concern that, the more consolidation, the fewer opportunities for new owners to enter into broadcast ownership. So any change in the subcaps was rejected.

Another issue actually tightens the rules to some degree. Under established precedent, a station can only take advantage of a change in its radio market after a two-year waiting period to prevent owners from gaming the system by moving stations from market to market to take advantage of potential ownership opportunities in nearby markets. The one recognized exception to the two-year waiting period was for city of license changes, where the FCC gave immediate effect to the change of a station’s city of license from one market to another (or to a community outside of all markets). In its Order, the FCC qualified that exemption from the two-year waiting period, deciding that any city-of-license change would be subject to the two-year waiting period unless that change also involved a transmitter site change to a site outside of the metro radio market in which the station previously operated. The Commission did not want to give immediate effect to stations changing city of license for multiple ownership purposes if that change left the station with the same technical service to the market from which it was trying to be removed.

The FCC rejected another proposal that suggested that ownership should not merely be based on the number of signals owned by a company within a market, but instead should consider the power and technical coverage of the stations serving the market. The argument was that some weaker stations, for instance Class A FM stations limited to 6 kw effective radiated power at 100 meters above average terrain, should not be treated the same as 100 kw Class C stations that can operate from antennas as much as 600 meters above average terrain – providing them with vastly superior service areas. As several Class A stations might be needed to replicate the service area of a single Class C station, it was argued that it was unfair to count both stations the same in a multiple ownership analysis. The Commission rejected that argument, concluding without citing any factual data, that Class A stations could in fact compete in a market through better programming and management, and thus structural equilibrium between owner’s population coverage within a market was not something that the ownership rules needed to guarantee.

The Commission also ruled on two separate requests dealing with specific markets – in one case deciding that a market was not a market even though Nielsen said it was, and in another reaching the exact opposite conclusion. In Puerto Rico, the FCC decided that, even though Nielsen considers the island to be a single market, stations on opposite sides of the island don’t really compete with each other as their signals don’t reach the same audiences. Thus, the Commission decided to exempt Puerto Rico stations from the market-based approach to a multiple ownership analysis. Instead, owners in Puerto Rico will be allowed to use the contour-based approach used outside of Nielsen Metro markets to analyze multiple ownership restrictions on these stations based on their actual service area.

However, when the Commission was asked to take a similar approach to stations located in “embedded markets,” it concluded that stations in such markets, even though they don’t really compete in the central market or in other embedded markets in the same larger parent market, still have to assume for multiple ownership purposes that they are all located in the central city because Nielsen says they do. Embedded markets are quirks of the Nielsen radio system, where smaller markets adjacent to significantly larger nearby markets are considered to be home both to their embedded market and to the larger parent market. There are only four areas that are considered to have embedded markets, and only in NY and Washington DC are there multiple embedded markets. Thus, independent markets like Long Island, the Hudson Valley and Monmouth Ocean (NJ) are all considered to be part of the greater New York markets.

While stations in New York City may compete and get ratings in these far-flung embedded markets, stations actually located in the embedded markets themselves are considered to be located in both their embedded market and in the greater New York City market, even though virtually all of their ratings come from their own home market. Thus, an owner of a cluster of stations in Monmouth County, NJ can’t own a cluster in the Hudson Valley even though these stations, like the ones in Puerto Rico, don’t have overlapping signals, because Nielsen says that they are all competing in the greater New York City market, so the owner would be over the limit in New York City, even though the clusters reach entirely different coverage areas. While the FCC said that embedded market stations might be able to seek a waiver for relief from this rule, there was no suggestion that the Commission found the rule to be generally a problem.

So, all in all, the radio rules remain pretty much the same as they were when the review started. Expect these issues to continue to come up in future ownership proceedings as the audio marketplace evolves in the coming years, or in appeals of this decision. We’ll look at the specifics of the Commission’s other rulings in its Quadrennial Review in subsequent articles.

Note: In the interests of full disclosure, I represented parties making some of the arguments described above for changing the radio ownership rules.