local radio ownership rules

With the June 3 filing deadline fast approaching for license renewals for radio stations in Maryland, DC, Virginia and West Virginia, stations (including FM translators and LPFMs) licensed to any community in any of those states should be beginning to prepare their applications. As we wrote here, the FCC forms should be available next week, so once May 1 rolls around, early birds in those states can start to file their renewal applications and the accompanying EEO program report. These stations should also be running their pre-filing license renewal announcements on the 1st and 16th of May. Radio stations in the next renewal group, stations in North and South Carolina, should be prepared to begin their license renewal pre-filing announcements in June – so in May they should be recording and scheduling that announcement to run for the first time on June 1 (see this article on pre-filing announcements for more information).

While May is one of those months with no other regularly scheduled regulatory filing deadlines, it is full of other FCC deadlines including comment dates in several proceedings of importance to broadcasters. In addition, broadcasters in Arizona, Idaho, Maryland, Michigan, Nevada, New Mexico, Ohio, Utah, Virginia, West Virginia, Wyoming, and the District of Columbia that are part of an Employment Unit with 5 or more full-time employees should also be preparing to add to their online public inspection file their Annual EEO Public File Report – due to be added to their files by June 1.
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The Notice of Proposed Rulemaking in the next Quadrennial Review of the FCC’s ownership rules was adopted in December and was published today in the Federal Register, starting the 60 day period for public comments. Comments on the NPRM will be due on April 29 with reply comments due on May 29. The FCC is looking at numerous issues, including one issue, the rules setting out the limits on the number of radio stations that one company can own in a market, that has not been reviewed in depth in recent Quadrennial Reviews. On the TV side, the FCC is again looking at local TV ownership (specifically combinations of Top 4 stations in a market and shared services agreements) and also at the dual network rule restricting common ownership of two of the Top 4 TV networks. In addition, the FCC is reviewing additional ideas on how to increase diversity in broadcast ownership. Today, let’s look at the FCC’s questions on the local radio ownership rules.

The review of the radio ownership rules may well be the most fundamental issue facing the Commission in this proceeding, as no real changes have been made in those rules since they were adopted as part of the 1996 Telecommunications Act. As we wrote here, the marketplace has certainly changed since 1996 – which was at least a decade before Google and Facebook became the local advertising giants that they now are; and before Pandora, Spotify, YouTube and many other web services offered by tech giants became competitors for the audience for music entertainment. And spoken word entertainment competition was also virtually non-existent – “audiobooks” were a niche product and the concept of a “podcast” would have been totally foreign when the current rules were written. So what are some of the questions about the radio ownership rules that are being asked by the FCC?
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Press reports following a speech this week by the head of the Department of Justice’s Antitrust Division have many in the broadcast industry paying attention. In response to a question following a speech at a DC conference by Makan Delrahim, the chief of the DOJ’s Antitrust Division, he is reported to have said that the DOJ will be holding a workshop to assess whether online advertising should be considered in assessing the local television marketplace, and whether the facts should support a change in the Department’s assessment of mergers by considering online advertising as part of the same competitive market as local TV advertising. Why is this important?

In recent years, particularly in its review of combinations such as last year’s proposed Sinclair-Tribune merger, the DOJ has looked only at the marketplace for over-the-air television in assessing a transaction’s likely competitive impact, refusing to look at the competition for viewers and advertisers that now comes from online sources like YouTube, Facebook and the many other digital platforms competing in today’s media marketplace. Were the DOJ to conclude that digital platforms are indeed part of the same market as TV, there is a greater likelihood that transactions previously questioned on antitrust grounds could see a more favorable reception from the DOJ. This could also have an impact on radio ownership – where the FCC is just about to embark on its own review of the local radio ownership rules.
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The agenda for the FCC’s December 12 open meeting is to be released today. As has become customary, the Chairman yesterday blogged about the issues to be considered at the meeting. For broadcasters, there are two matters of interest. The first will be the initiation of the next Quadrennial Review of the FCC’s ownership rules

While September is one of those months with neither EEO reports nor Quarterly Issues Programs or Children’s Television Reports, that does not mean that there are no regulatory matters of importance to broadcasters. Quite the contrary – as there are many deadlines to which broadcasters should be paying attention. The one regulatory obligation that in recent years has come to regularly fall in September is the requirement for commercial broadcasters to pay their regulatory fees – the fees that they pay to the US Treasury to reimburse the government for the costs of the FCC’s operations. We don’t know the specific window for filing those fees yet, nor do we know the exact amount of the fees. But we do know that the FCC will require that the fees be paid before the October 1 start of the next fiscal year, so be on the alert for the announcement of the filing deadline which should be released any day now.

September 20 brings the next Nationwide Test of the EAS system, and the obligations to submit information about that test to the FCC. As we have written before (here and here), the first of those forms, ETRS Form One, providing basic information about each station’s EAS status is due today, August 27. Form Two is due the day of the test – reporting as to whether or not the alert was received and transmitted. More detailed information about a station’s participation in the test is due by November 5 with the filing of ETRS Form Three. Also on the EAS front, comments are due by September 10 on the FCC’s proposal to require stations to report on any false or inaccurate EAS reports originated from their stations. See our articles here and here.
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The state of the audio industry will no doubt be a crucial consideration in the next Quadrennial Review of the FCC’s ownership rules, expected to start late this year or early next. But, before that Review begins, the FCC has been tasked by Congress to write a report on the state of competition in

The FCC routinely, at the request of Congress, does a study of the Video Marketplace. That study is submitted to Congress so that Congress can use it as a factual basis for any legislative issues that may come up dealing with the TV marketplace. The FCC has not previously done this sort of routine study of the audio marketplace. However, in recent legislation, Congress included a requirement that the FCC, in the last quarter of every even numbered year, provide such a report. Yesterday, the FCC released a Public Notice asking a number of questions about the marketplace, to which they seek information to be included in the report.

The questions asked include:

  • The identification of players in the audio marketplace, and a description of their business models and competitive strategies
  • The trends in service offerings and consumer behavior
  • Whether or not there is competition between the players in the marketplace
  • Ratings, revenue and subscriber information about players in the market
  • Information about investment in the market, and the deployment of new technologies
  • Information about what is needed for entry into the market
  • Information as to who has recently entered the market, and who has exited it
  • Regulatory barriers to entry and competition in the marketplace

The FCC is looking for data from 2016 and 2017, as well as any new information that is available from this year.  What will this data be used for?
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The National Association of Broadcasters radio board last week voted on a proposal to revise the FCC rules limiting the number of stations that one company can own in a radio market. This proposal was forwarded to the FCC for consideration in the next Quadrennial Review of the FCC’s ownership rules, scheduled to commence at some point later this year, in a letter delivered to the FCC’s Chief of the Media Division. The NAB suggests that one party should be able to own up to 8 FM stations in any of the Top 75 Nielsen radio markets. It proposes that there should be no FCC ownership limits in markets smaller than the Top 75, and that AMs do not need to be counted against the ownership limits. Owners who incubate the ownership of stations by new entrants into broadcasting would be allowed to own up to two additional FM stations in a market. Why would the NAB take this position?

The letter sets forth many of the same issues that we cited in our article on radio ownership here. Competition is significantly different than it was in 1996, when the current rules setting limits at 8 stations in a market (only 5 of which can be AM or FM) in the largest markets, and in the smallest markets, only two stations (one AM and one FM). As we wrote in our April article, competition for listening like Pandora, Spotify or even YouTube did not exist in 1996 (not arriving on the scene for another decade). Changes in competition for local advertising has been even more dramatic, with some sources showing that over 50% of local advertising revenue (the bread and butter of local radio) is now going to digital competitors – with Facebook, Google, and even the digital music services selling advertising to local advertisers throughout the country, even in the smaller markets.
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With the NAB Convention upon us, and much of the talk being centered on television issues including the repacking of the TV band after the incentive auction, the conversion to the next-generation of TV transmission as allowed by the new ATSC 3.0 transmission standard, and the effects of the FCC’s changes in the local television ownership rules and the reinstatement of the UHF discount in connection with the national ownership cap, it almost seems like radio is an afterthought. The FCC is considering some matters of interest to radio, including how to revitalize the AM band, and it has taken steps to revitalize individual AM stations through the use of FM translators. And the FCC is apparently considering changes in FM through the creation of a new class of C4 stations (see our post here). Yet, in recent ownership orders from the FCC, while TV ownership rules have been dramatically relaxed in the face of new video competition so that local TV owners can more robustly address their challengers, there were no corresponding changes in the radio rules. In the last ownership proceeding (which we summarized here), other than making changes to the embedded market rules (potentially affecting only radio stations in the suburbs of New York and Washington), and allowing ownership joint ownership of radio with TV and newspapers through the abolition of the cross-ownership rules that had limited or prohibited those combinations, radio ownership rules themselves have not been subject to any real changes in ownership limits since those limits were set in the wake of the 1996 Telecommunications Act. The FCC did make some changes early in this century when it adopted Arbitron (now Nielsen Audio) markets as the way in which competition in rated markets is defined, but the numbers of stations that one party can own has not changed since those numbers were established in the 1996 Act – even though Congress gave the FCC the authority to review and revise the rules to insure that they remained in the public interest.

While there have been no changes in the ownership rules for radio, think about the changes that have taken place in the competitive environment since 1996. At that point, streaming was something only a few technologically-forward people even knew existed. Pandora did not launch its streaming service for another decade, and Spotify was even further behind – not launching in the US until 2011. Even those few people who knew that audio streaming existed in 1996 would never have thought that they could listen to a streaming service in their cars. Apple was not offering a streaming music service – in fact it had not even introduced the iPod (introduced in 2001) or the iTunes store (2003) – both now about to become technological relics themselves because of technological changes. Given that there was no iPod, there were obviously no podcasts to bring audio storytelling to the millions who now listen to their favorite programming through the multitude of services that provide podcasts on almost any subject. There was no Alexa to bring Amazon and other music services into the home – in fact Amazon itself had only begun selling books online in 1995. Even Sirius XM (then Sirius and XM as two competing companies) had not initiated their services at the time of the 1996 Act – as XM did not start providing service to consumers for another 5 years (with Sirius launching a year later). And the pace of change for audio technology is not slowing.
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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.
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