With the FCC about to propose changes in its national ownership cap for television at its meeting tomorrow (see our article here), we thought that we would take a look back to the week before Thanksgiving, when the FCC made some important decisions for the broadcast industry – including the approval of the Next Generation TV transmission standard and the change in numerous broadcast ownership rules. We promised to take a deeper look at these decisions when the texts of the orders were released, and here is a look at some of the interesting items in the ownership decision. We will only lightly touch on radio issues here, concentrating primarily on TV matters, as the FCC made few changes that directly affected radio, pushing most to the next Quadrennial Review of the ownership rules, likely to begin next year. We’ll post some thoughts on radio issues at some point in the future.
Certainly, there was plenty of legal discussion about the standards for reconsidering an FCC decision (this reconsideration being a review of the FCC’s ownership order adopted under the last administration in August 2016). While the FCC ultimately concluded that it could review the 2016 decision where it believed that there were substantial errors in the Commission’s initial decision, the legal wrangling over the process for the review is perhaps less interesting to most in the broadcast industry than is some of the other discussion contained in the order and what that may portend for further ownership review by this administration. So let’s look at the FCC’s discussion of the various issues that it faced in the reconsideration order.
Newspaper broadcast cross-ownership – While perhaps the most extensive discussion in the document centered around the abolition of the newspaper broadcast cross-ownership rules, the discussion was pretty straightforward, perhaps as so many people recognize the current state of the newspaper industry and how injurious new technology has been to its business. Even the August 2016 decision recognized that fact, though it allowed new combinations of broadcast stations and daily newspapers serving the same area only when it could be shown that the newspaper had failed or was failing. Now, the Commission’s majority stated that there was no reason to wait for the newspaper to be on its last legs before consolidation would be allowed. It looked at the benefits from more consolidation (better local news coverage and other economies that could be realized from consolidation), determined that the state of the industry and the abundance of new media that was reaching the public allowed for the abolition of the prohibition against newspapers and broadcast stations combining in the same market without any recognizable harm to the public, and perhaps allowing for many public interest benefits from greater resources to cover local news and events.
I had often suggested that the newspaper broadcast cross-ownership rule might outlast the newspaper (see for instance, the article here), but the Commission’s decision proved me wrong. The Commission’s willingness to step in and deregulate ownership before old media is totally decimated by its new media competitors may indicate that the Commission would be willing to take these same steps in other areas where the competitive trends are evident. For instance, radio ownership rules were essentially untouched by the Commission’s actions (as mentioned above), so we could see this logic applied to radio in the Quadrennial Review of the ownership rules that will begin next year.
Radio-TV cross-ownership – The FCC also abolished the rule that had limited combinations of radio and television stations in the same market. The rule had been relaxed in prior years so, as the Commission noted, the question was not a question of whether to eliminate a prohibition on the combination of radio and TV stations as in most markets some degree of cross-ownership was already permitted. Instead, the real question was one of how many stations one company could own in a market. The Commission decided that there was no reason to limit a company from owning up to the maximum allowed for both radio and TV in same market.
Here again there was an interesting analysis of competition in the broadcast marketplace. After concluding that local cable and Internet sources provide much new competition in the marketplace, the Commission noted that radio was contributing less to viewpoint diversity in most markets, as these outlets have less of a role in providing news and information than in the past. The Commission found that the public increasingly looks to other sources for local news coverage, and that the increase in new sources of information about local events more than makes up for any loss of diversity that will occur by allowing more combinations of radio and TV stations.
Local TV ownership – On local television ownership, the Commission decided to abolish the rule that permitted combinations of television stations (without a waiver) only in markets where there were 8 independently owned and programmed stations in the market after the combination. The Commission’s determination that there needed to be eight independent voices in a market, the four networks and four other stations, had been questioned by the Courts in the past, and the Commission said they could find no record evidence that there was anything magic about that number. In fact, the Commission noted that, especially in smaller markets, combinations of stations were in many case necessary for stations to be able to offer any local news and information programming at all.
But, the Commission determined that the local, over-the-air television market was still a unique market in providing local news and information, where competition produced better results. Thus, they were not willing to abolish all local ownership limits. The Commission decided to retain its rule prohibiting the combination of any two of the Top 4 stations in a market for the current time, to develop a better long-term record as to whether further changes to the local ownership rules were appropriate. The prohibition would, however, be subject to waivers on a case-by-case review. In deciding if a particular combination of stations in a market should be permitted, the Commission would look at factors including the following:
- Ratings data – the Commission would be concerned if any combination would result in one party having a significant ratings advantage over the other stations in the market
- Revenue share (including from both advertising and other sources, including retransmission consent fees) – presumably to assess if one party would end up with an unduly large segment of the revenue in the market
- Market characteristics, including the number of other television station competitors – if there were strong competitors outside of the Top 4 stations, a waiver to allow some combination might be in order. One could see this factor becoming important where a Spanish or other specialized station had a significant audience share in a market
- The effect that any combination would have on programs meeting needs of local residents – perhaps if more local programming was created, that might argue in favor of a combination
- Any special circumstances that might exist in a given market (perhaps a combination might be allowed where a competitor had significant newspaper and/or radio holdings in a market)
The Commission promised to further review this rule in the future, including in the next Quadrennial Review, looking at factors including whether the incentive auction had any significant impact on diversity in local television markets.
TV Joint Sales Agreements – The decision overturned prior decisions to make Joint Sales Agreements attributable, finding that there was insufficient proof that these agreements harmed the public interest, and in fact there was significant record evidence to show that many JSAs contributed to more programming choices in the marketplace. The Commission contrasted JSAs in television to those in radio, where they are prohibited if they do not comply with ownership limits, because TV JSAs are not based on fixed fees for the right to sell time on a station, but instead, by a percentage of sales revenue, giving the licensee more incentive to insure the success of their own stations. The Commission also suggested that the television ownership limits were more restrictive than those in radio, so that any further concentration allowed by these JSAs would help TV licensees obtain the necessary scale to compete in the media marketplace. Also, the Commission noted that, in television much of the ad time is sold nationally or provided as part of the network’s programming, so not as much advertising will be controlled by local sales representatives, unlike in radio where a greater portion of the ad time is sold on a local basis.
Many of the arguments against JSAs seemed to be premised on the potential for abuse – either because licensees of stations whose time was being sold by another stations would not be controlling their own programming or because their retransmission consent negotiations would be controlled by the sales agent. The Commission dismissed both as reasons for making JSAs attributable interests – warning broadcasters whose stations are subject to a JSA to make sure that they control their own programming and retransmission consent negotiations.
Shared Services Agreements – the Commission decided to retain the requirement that parties file their shared services agreement with the FCC for review, so that the Commission would better understand what these agreements provide. However, the Commission clarified that these agreements would not require the filing of “ad-hoc” agreements like news sharing of a particular event, or clearly non-broadcast issues like the sharing of the costs of the upkeep of a building or of janitorial services. But agreements dealing with broadcast operations must be submitted, and will be reviewed by the FCC. The decision stated that the filing was not for purposes of regulation, but instead for purposes of understanding the marketplace.
The Commission also agreed to adopt an incubator program to encourage minority ownership, but issued a Notice of Proposed Rulemaking as to what that program would entail. We will write about that program when the comment dates on this NPRM are set.
We will also write on radio issues in the near future as, other than allowing for some waivers in embedded markets, all other radio ownership issues were deferred to the next Quadrennial Review. All in all this was a very interesting order that could have profound implications for the media marketplace in many markets.