alien ownership

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In November, the FCC changed its policy regarding the foreign ownership of broadcast stations.  In its decision, about which we wrote here, it agreed to entertain applications seeking “alien ownership” exceeding the 25% limit for foreign ownership of broadcast stations that had previously been in place.  In the modern communications era, with its diversity of media outlets, the Commission determined that the risk of increased foreign ownership was outweighed by the potential for new entrants into the broadcast industry, backed by new sources of capital from outside of the United States.  The FCC did not adopt any blanket rules for permitting higher levels of alien ownership, but instead agreed to consider specific requests for a declaratory ruling on a case-by-case basis to show that foreign ownership of a broadcast station in excess of 25% was not contrary to the public interest.  Despite the invitation to file such requests, as far as we know, none have been filed – until now, and that comes from what is perhaps an unexpected source – Pandora, which is best known as an Internet radio operator.

As we wrote several months ago, Pandora has sought to acquire an FM radio station that operates in the Rapid City, South Dakota radio market.  Its application to acquire the station was opposed by ASCAP, who feared that Pandora would use its status as a broadcaster to ask for broadcaster rates negotiated by the Radio Music Licensing Committee (RMLC) for the public performance of ASCAP music.  ASCAP based its opposition principally on the contention that Pandora had not proved that less than 25% of its stock was beneficially owned or controlled by foreign entities.  Despite Pandora being a company founded in the US by US citizens, headquartered and operating almost exclusively in the US, and traded on the US stock exchanges, ASCAP contended that Pandora had not established that its ownership of a broadcast station would not violate the alien ownership rules.  How could they make such an argument?
Continue Reading Pandora Files First Petition for Declaratory Ruling Under FCC’s Liberalized Foreign Ownership Rules for Broadcast Stations

Last week, the FCC issued a declaratory ruling concluding that its long-standing policies on foreign ownership of broadcast stations were misunderstood – “clarifying” its policy to make clear that, if alien ownership exceeds 25% of the holding company of a licensee, it may in fact be permissible.  The Commission decided to adopt a case-by-case approach to determine if any proposed alien ownership in excess of 25% is in the public interest.  It is unclear why the FCC made a point to say that this was just a clarification of a policy that has been viewed as a strict prohibition on alien ownership of broadcast properties where the indirect ownership was in excess of 25%.  In the past, the FCC broadcast prohibition was viewed as all but absolute, even though the governing statute allows for the 25% threshold to be exceeded unless the FCC determined that such excess foreign ownership was not in the public interest and ownership in excess of 25% has been allowed (under the same statutory provision) for nonbroadcast services.  Nevertheless, last week’s decision made clear that foreign ownership levels in broadcast holding companies beyond the 25% threshold were possible, but much else was left unclear in the decision.

As stated in the ruling, the foreign ownership limitations were adopted because of concerns that foreign owners who controlled the instruments of communication in a time of emergency could be a security threat.  Moreover, in broadcasting, there was the fear that such foreign owners could disseminate propaganda to the citizens of the US.  While times have changed and the risk of the dissemination of propaganda by broadcasting seems quaint when there are so many other ways to disseminate what might be called propaganda to the public, the FCC still regards this as a concern that needs to be evaluated in every case.  At the FCC meeting where the order was adopted, and in the ruling itself, it was made very clear that, in the event of any application that proposes foreign ownership in excess of 25%, the Executive Branch of government (including Homeland Security) would have to approve the foreign ownership, concluding that it does not pose any threat to the United States.  For foreign companies that want to invest in broadcasting, this is not the only question that remains unanswered.
Continue Reading FCC Allows More Than 25% Foreign Ownership of Broadcast Stations – Instructions for Investors are to Be Developed

At its November 14 meeting, the FCC is tentatively scheduled to consider the relaxation of its limits on the ownership of broadcast stations by foreign entities or citizens.  Under the current “alien ownership” limitations, US citizens or entities must own 80% of a broadcast licensee, or 75% of a licensee’s parent company.  In the broadcast world, the 25% alien ownership limit must be analyzed both as to equity and voting interests.  In the modern financial world, where companies are often owned by many diverse investors (or funds with widely diverse ownership), these rules can be very burdensome in assuring compliance and managing the potential investment in US broadcast operations by foreign sources of capital. 

Under the governing statute, Section 310(b)(4) of the Communications Act, the FCC can’t allow a licensee in any service that it regulates to be more than 20% foreign owned.  But the statute allows a parent company of a licensee to be 25% foreign owned, and even allows that parent company to exceed that “limit” unless the FCC finds that the public interest would be compromised by foreign ownership greater than 25%.  Thus, the rules are actually written to presume that the “limit” can be exceeded, unless the FCC sees a problem.  The principal concern that would raise a question under the law would be one of national security – the government does not want crucial communications infrastructure, or the means of dissemination of information to the public, to be controlled or unduly influenced, by foreign interests in the event of some emergency.   As we wrote just 6 months ago, in non-broadcast services, the FCC has routinely allowed foreign ownership to exceed the 25% threshold, and recently made it easier for companies to demonstrate their compliance with the rules.  This clearly shows that national security issues can be addressed in other ways.  How about in the broadcast services?
Continue Reading FCC to Consider Allowing Increased Foreign Ownership of Broadcast Stations at Its November Meeting

Two weeks ago, comments were filed in the Commission’s proceeding examining whether to adopt a more relaxed view of the foreign ownership provisions of the Communications Act (see our article about that proceeding here). While the Communications Act limits foreign ownership in communications licensees to 20% (or 25% of a licensee holding company), the Act also allows the Commission to allow greater foreign ownership if it would not adversely affect the public interest. In areas other than broadcasting, the Commission has routinely allowed ownership of more than 25% of a communications licensee, but the limit has been strictly enforced in the broadcasting world. Many of the comments filed in response to the Commission’s request made exactly that point – that in a multimedia world, why should a wireless company or a cable programmer be allowed to be foreign owned, while a competing broadcaster can’t have foreign investors holding more than 25% of its equity?  In what is perhaps a telling indication of where the FCC is going, the statements of three FCC Commissioners, in connection with a recent FCC decision to further streamline the approval process for alien ownership in excess of the 25% limitations in FCC-regulated areas other than broadcasting, suggested that the relaxation of the limits should also be extended to broadcasting.

Two weeks ago, in relaxing rules on the investment of non-US companies and individuals in common carrier licensees and those in certain other non-broadcast services, the Commission vastly simplified the reporting and approval process for alien ownership in excess of the statutory limits. The Commission already had in place a policy of reviewing potential foreign ownership in non-broadcast companies where, through a petition for declaratory ruling, a company could seek FCC approval for ownership, and even control, of these entities by non-US citizens or companies. In the recent proceeding, the FCC made such investment even easier, in very general terms easing certain reporting requirements for alien ownership where the interest of a specific alien investor was less than 5% (10 % in some instances), and also allowing an alien individual or group, once approved, to increase ownership without further approval (if the interest is a minority ownership interest, to 49%, and if it was controlling, to 100%), as long as the interest in possibly doing so is revealed in the original request for approval. Allowing investments by affiliates of the foreign owner, and allowing the company that is approved to seek additional licenses, all without additional approvals, was also allowed in many instances. All these changes were allowed subject to the FCC’s right to reexamine any holdings if specific issues were raised.  But what was most interesting to those in the broadcasting industry were the statements of three of the Commissioners praising these relaxations, and the hopes that the examination of applying these reforms in the broadcast world would move forward quickly.Continue Reading A Change in the FCC’s Broadcast Foreign Ownership Rules In the Near Future?

The limits on the ownership of broadcast stations by those who are not US citizens is being re-examined by the FCC according to a recent Public Notice. Under Section 310(b)(4) of the Communications Act, foreign ownership of a broadcast licensee is limited to 20% of the company’s stock, or no more than 25% of a parent company of the licensee. Over the years, there has been a significant body of precedent developed about applying these caps to other business organizations, including LLCs and Limited Partnerships.  But the caps remain in place, limiting foreign ownership.  While the statute gives the FCC discretion to allow greater amounts of "alien ownership", the FCC has not exercised that discretion for broadcast companies (though, for non-broadcast licenses, the FCC has many times found greater percentages of foreign ownership to be permissible). A coalition of broadcast groups last year filed a request asking that the FCC exercise the discretion provided under the Act, and consider on a case-by-case basis whether alien ownership combinations in excess of 25% should be permitted. The Commission has now asked for public comment on that proposal. Comments are due on April 15, with replies due on April 30.

Why is this important? Many broadcasters have pushed for revisions in the alien ownership limits for decades – seeing foreign investors as a potential source of capital to allow new companies to buy stations or existing companies to expand their holdings. Many minority advocacy groups, too, have thought that relaxation of the alien ownership rules would provide more sources of capital for minority owners to get into the broadcast game. Spanish language broadcasters, in particular, see broadcasters and other investors from other Spanish-speaking countries as being likely sources of new investors in broadcast companies or new buyers for US broadcast stations. Continue Reading FCC To Consider Allowing Alien Ownership of More Than 25% of Broadcast Licensees – Comments Due April 15

In a Further Notice of Proposed Rulemaking, the FCC last week asked for public comment on a series of initiatives to promote the ownership of broadcast stations by minorities and other Socially Disadvantaged Businesses ("SDBs").  These proposals, which include the potential for the sale without requiring any divestitures of clusters of radio stations which exceed the multiple ownership rules now in effect, and the potential for investors to invest in stations controlled by SDBs, even if such investment would otherwise violate the existing multiple ownership rules.  The Further Notice was issued in response to a petition filed over a year ago by the Minority Media Telecommunications Council, which asked for a withdrawal of the FCC’s Notice of Proposed Rulemaking on the Multiple Ownership Rules (which we summarized here) because that Notice did not address the promotion of minority ownership of broadcast stations.  MMTC claimed that the Third Circuit’s remand of the 2003 Multiple Ownership decision mandated that consideration.  Comments on the Further Notice, which will be resolved as part of the current multiple ownership proceeding, are due on October 1, and replies on October 15. 

The Notice raises a number of suggestions for regulatory changes to foster the ownership of broadcast stations by minority owners and other SDBs.  In addition to allowing the transfer of grandfathered radio clusters that no longer comply with the multiple ownership rules, these include specific proposals that would accomplish the following:

  • Allowing investment by exiting broadcasters and others with attributable media interests into companies controlled by minorities without the investment being counted against the ownership holdings of the investing company
  • Allowing minority groups to purchase unbuilt construction permits, and get sufficient time to construct those stations, even if the construction permit is otherwise to expire as it has been outstanding and unbuilt for over three years
  • Granting some non-minority owned companies waivers to exceed the multiple ownership limits if they sell stations to SDBs (including a proposal to create tradable credits for creating minority-owned stations)
  • Allowing for the waiver of the alien ownership limits if the investment by foreign companies would assist a minority-owned company in getting into the broadcast business.
  • Revival of the policies permitting minority distress sales (where a broadcaster against whom there were issues pending which could lead to a revocation of a license could sell their station to a minority group and avoid the revocation proceeding) and minority tax credits  (where a broadcaster who sells to a minority group could defer gains on sale if the money was reinvested into any broadcast company in the future)

Continue Reading FCC Proposes Multiple Ownership Exceptions to Foster Minority Ownership