FCC attribution rules

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The Third Circuit Court of Appeals yesterday issued an opinion faulting the FCC for not completing any required review of its broadcast ownership rules since the 2006 review was completed in 2007. These reviews of its ownership rules, now done as “Quadrennial Reviews” every four years, but previously required to be done biennially, have been the subject of much judicial review and delay in the past 9 years. Because of the delays in finalizing a review and addressing issues previously raised by the Court, yesterday’s decision ordered the FCC to meet with certain parties who brought the appeal to finalize a timetable for FCC review of the rules designed to promote minority ownership of broadcast stations. At the same time, the Court threw out the FCC’s 2014 decision determining that television Joint Sales Agreements were attributable interests (see our article here), which had essentially banned these agreements in most markets as the attribution of an interest in one station to the owner of another station in the same market would constitute a combination of stations not permitted under the local TV duopoly rules. The discussion in the decision also raised questions as to whether the FCC could justify the continued existence of the broadcast-newspaper cross-ownership rules given the radically changed state of the newspaper industry since these rules were adopted over 40 years ago.

While much has been made of the decision overturning the attribution of television Joint Sales Agreements, that part of the decision was actually a narrow one, and one which leaves the FCC in a position where it could reinstitute the attribution requirement when it completes its current review of the ownership rules. The Court looked at the 2014 decision determining that JSAs should be attributable, and concentrated on the dissenting opinion of Commissioner Pai. The Commissioner argued that the FCC’s decision making the interests attributable ignored record evidence that such combinations were in the public interest. The dissenting opinion said that some combinations were necessary, particularly in smaller television markets, to permit the profitable operations of weaker stations in these markets, and that the agreements otherwise contributed to the public interest by allowing stations that could not afford news and other beneficial programming to air such programming. The Commission dismissed those arguments, contending that they were really addressing questions as to whether more small market TV duopolies should be permitted. But, as the FCC did not address whether small market TV duopolies might be in the public interest, but instead deferred that decision until the next Quadrennial Review, the Court found (as Commissioner Pai had argued) that the FCC decision could not be justified. The FCC could not ban JSAs as not being in the public interest until they considered the arguments as to whether small market duopolies, which could permit many of the JSAs to continue even if attributable, were in the public interest.
Continue Reading Appeals Court Tells FCC to Finalize Multiple Ownership Review, Throws Out TV JSA Attribution, and Questions Newspaper-Broadcast Cross-Ownership Ban

In Friday’s Federal Register, the FCC published a summary of the Commission’s Notice of Proposed Rulemaking looking to revise its policies regarding the ownership of broadcast stations by non-US citizens setting the date for comments on its proposal of December 21, with Reply Comments being due by January 20.  The FCC two years ago issued a Declaratory Ruling confirming that it would allow broadcasters to have foreign ownership (in a licensee’s parent company) of greater than 25%, overturning what was widely viewed as the Commission’s prior reluctance to approve that degree of foreign ownership of broadcast stations (see our article here for a summary of the FCC’s 2013 action).  But that decision left many unanswered questions, as the Commission decided to proceed on a case-by-case basis in reviewing any requests for approval under the new rules.  When it took almost two years for Pandora to get approval for its acquisition of a broadcast station, almost a year in processing a request under the 2013 ruling (see our article here on the filing of the Pandora petition), when Pandora did not even think that it exceeded the 25% foreign-ownership threshold but it could not prove its compliance based on the FCC’s 40 year old rules setting out the procedures used to assess the foreign ownership of broadcast stations, it was clear that some changes had to be made.  So, in approving the Pandora deal in May, the FCC said that it would conduct a further review of its rules regarding foreign ownership, a commitment that it moves to fulfill by the issuance of this Notice of Proposed Rulemaking.

The NPRM suggests that the FCC will use for broadcasting, with some modifications, the procedures that it uses in assessing foreign ownership of non-broadcast FCC licensees.  While there are many details and nuances in its proposals, the FCC will still need a Petition for Declaratory Ruling to approve foreign ownership above 25% of a parent company of a broadcast licensee (foreign ownership of the licensee itself is flatly prohibited if it exceeds 20%). But it now proposes to adopt the non-broadcast presumptions that, when the FCC approves a foreign owner of more than 5% of a corporation, that approved owner can go up to 49% ownership without further FCC approval.  Similarly, if a foreign owner is approved in a control position, that owner would be able go to 100% without further approval.  But, on a practical level, perhaps more important was the FCC proposals about the mechanics of tracking foreign ownership.
Continue Reading FCC Sets Comment Dates on Proposal to Relax Restrictions on Foreign Ownership in Companies Holding US Broadcast Station Licenses – What Is the FCC Proposing?

Last year’s FCC decision to make Joint Sales Agreements between broadcast television stations attributable interests (meaning that they can only be done if stations are commonly owned) are back in the news – at least a little bit. Yesterday, at the NAB State Leadership Conference held here in Washington DC, NY Senator Chuck Schumer, a prominent Democrat, said that he believed that Joint Sales Agreements, especially in smaller television markets, were beneficial to the public interest. He said that he has sent a letter to FCC Chairman Tom Wheeler urging him to grant waivers to allow such agreements to continue. Coming from a Senator of the same political party as the Chairman, that call may have more impact than those that have previously gone to the FCC.

It appears that many broadcasters who had entered into those agreements, who are not currently in the middle of a sale of their companies, have been sitting with their JSAs, waiting to determine what to do with them before the deadline for existing agreements to be unwound – set in December of 2016 by a provision in last year’s STELAR legislation (see our article here). One other factor causing stations to wait on any action is the appeal of the FCC’s decision. The Briefing dates for that case have now been set – with initial briefs due on April 13, and the final of series of other briefs and responsive briefs being due on July 27. No oral argument date has been set yet, but it is likely that the argument itself will not occur until late in the year, so there would not likely be a decision until 2016. Thus, stations waiting to hear about the future of JSAs to which they are a party, may not have much time to decide what to do with their arrangements if there is no decision until 2016.
Continue Reading NY Senator Chuck Schumer Supports TV JSA Waivers in Small Markets, Briefing Dates Set in Appeal of FCC JSA Decision

The FCC’s proceeding on its multiple ownership rules, adopting rules that make Joint Sales Agreements “attributable” (meaning that they “count” for multiple ownership purposes – one TV station can’t do one with another unless it can own that other station) and starting a new proceeding to review its other ownership rules, was adopted in late …

The National Association of Broadcasters on Monday asked the US Court of Appeals for the District of Columbia to overturn the interim processing policy statement adopted by the FCC’s Media Bureau requiring that the FCC scrutinize every new Shared Services Agreement.  As we wrote last month, the FCC has decided that television Joint Sales Agreements should not be permitted unless the stations involved could be commonly owned.  It also commenced a new rulemaking proceeding to review its multiple ownership rules, including specifically Shared Services Agreements.  The rulemaking notice indicates that the FCC thinks that Shared Services Agreements should be limited, but it is asking for public comment as to what kind of sharing is in the public interest, and which should be prohibited.  Any restrictions on SSAs are but a proposed FCC action, and not any sort of final rule.  Nevertheless, the FCC’s Media Bureau, two weeks before the decision starting the rulemaking proceeding on SSAs, instituted an Interim Policy, effectively requiring a case-by-case analysis of all new agreements that involve sharing arrangements.  It is that interim policy that the NAB is challenging.

What the NAB is saying is that this policy effectively creates new law without the Commission making any decisions in the rulemaking proceeding – effectively prejudging that proceeding even before the public comments have been received.  And the policy does in fact change what had been permitted in the past, as many SSAs had been approved in various FCC proceedings.  Even the standards applied to the evaluation of whether or not such agreements are in the public interest change established FCC policy, e.g. suggesting that any involvement in the financing of one station by another, including the guarantee of a loan, would be impermissible – contrary to explicit decisions by the FCC that loan guarantees were not an ownership attribution issue.  Similarly, options and other potential future ownership rights, under the interim processing guidelines, give rise to a suggestion that the deal is not in the public interest – contrary to FCC decisions made after notice and comment rulemaking proceedings on the multiple ownership attribution policies – that contingent future ownership rights did not give rise to attribution for multiple ownership purposes unless such future interest rights were exercised. 
Continue Reading NAB Files Court Challenge to FCC’s Shared Services Agreement Interim Policy

Investors in broadcast properties often seek to have their interests "insulated" from "attribution"   meaning that the interests do not count in a multiple ownership analysis.  In other words, if a party has an attributable interest in a company owning a broadcast station, that interest counts in determining whether the party can, under the FCC’s multiple ownership rules, own an interest in another station in the same market.  The FCC has extensive case law describing when an interest is non-attributable and does not count in a multiple ownership review.  In most cases, a non-attributable interest is one that does not hold voting rights on most company decisions.  However, the Commission has always recognized that the non-attributable, non-voting equity owner may retain certain voting rights when dealing with certain fundamental company actions, as necessary to protect the fundamental integrity of their investment.  In the recent decision approving the transfer of the Ion Media Network broadcast stations, the FCC clarified some of the permissible voting rights of nonattributable shareholders.

In the past, the FCC has permitted nonattributable owners to vote on certain fundamental actions of a company without threatening the owner’s nonattributable status.  Such fundamental actions included changes in the articles of organization or the by-laws of the company, a sale of more than 10% of the assets of the company, a merger or transfer of control of the company, a declaration of bankruptcy, or the issuance of new stock.  As these actions could all affect the fundamentals of the economic interests of the nonattributable owners, votes on these actions was permitted.  In the Ion Media case, new rights were found to not affect the non-attributable status of their investmentsContinue Reading FCC Clarifies Permissible Activities of Nonattributable Investors