At its December meeting, the FCC adopted a Notice of Proposed Rulemaking to review the national ownership cap for over-the-air television, which limits one owner from having attributable interests in television stations reaching more than 39% of the national audience. That Notice was published in the Federal Register on Friday, setting February 26 as the date for initial comments, and March 27 as the date for reply comments. When the FCC last year reinstated the UHF discount (see our article here), one of its justifications for the reinstatement was that the elimination of the discount could not be done without a full review of the national ownership rules – as the elimination of the discount could affect the video marketplace, and any potential adverse effects should be studied before abolishing the UHF discount (the discount counts each UHF station as reaching only one-half the audience of a VHF station). When the FCC reinstated the discount, the Commission promised to initiate this rulemaking proceeding.

The NPRM basically asks two fundamental questions – does the FCC have the authority to amend the cap, and if does, should it use that authority to make changes now? The initial question is based on the fact that the 39% limit is written into statute by Congress. Obviously, this is a fundamental question, and the usual political party divide over the interpretation of ownership rules is not fully in evidence here. Republican Commissioner O’Rielly indicated in his statement supporting the initiation of the proceeding that he believes the FCC does not have the power to change the cap – only Congress can do that, as Congress set the cap and did not provide explicit authority for the FCC to review or amend it. The two Democratic Commissioners also questioned that authority – so one of these three Commissioners would have to change their initial understanding of the law for any change to become effective, or Congress would have to step in.

But even if the FCC does have the authority to change the cap, should it do so? If it does, what kind of change should be made? The Commission asks a series of questions on these issues, including:

• If a change is made, to what level should the cap be adjusted?
• How should compliance with any cap be measured? Should the FCC continue to attribute all the households in a DMA to a station that operates in that market, or would more precise coverage metrics be more appropriate?
• Would a change affect network/affiliate relationships? Or would changes in the marketplace, including the rise of large independent television groups like Sinclair and Nextstar, mitigate any risks that might exist?
• Would a change affect localism – and how should that effect be measured?
• Does greater ownership diversity breed innovation in programming?
• Do recent changes in the dynamics of the video marketplace affect the issues to be considered – as many competing program services (e.g., cable channels, Netflix, etc.) have no national cap, and in fact have a nationwide reach?
• Should there now be a VHF discount, as VHF stations are perceived to be weaker than UHF stations?

In addition, the Commission asks for a cost-benefit analysis of any changes. And, it asks what to do with groups that don’t comply with any new standard. Should their ownership be grandfathered if they own more stations than allowed under any new cap? If so, for how long should any grandfathering last?

Given that the Chairman at least initially seems outnumbered on this issue, it will be interesting to see how this decision plays out. It will also proceed under the shadow of the appeal of the reinstatement of the UHF discount (see our article here), so any court decision in that case may provide some insight on the issue of whether the FCC has the authority to change the cap. There are many moving parts in this proceeding to watch during and after the just-announced comment period.