Multiple Ownership Rules

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We recently wrote about the Federal Communications Commission’s actions in their Diversity docket, designed to promote new entrants into the ranks of broadcast station owners. In addition to the rules adopted in the proceeding, the FCC is seeking comment on a number of other ideas – some to restrict the definition of the Designated Entities that are eligible to take advantage of these rules, others to expand the universe of media outlets available to potential broadcast owners – including proposals to expand the FM band onto TV channels 5 and 6, and proposals to allow certain AM stations, which were to be returned to the FCC after their owners received construction permits for expanded band stations, to retain those stations or transfer them to Designated Entities. The proposals, on which public comment is being sought, are summarized below.

Definition of Designated Entity. The first issue raised by the Commission deals with whether the class of applicants entitled to Designated Entity status and entitled to take advantage of the Commission’s diversity initiatives should be restricted. One proposal is to restrict the Designated Entity status to companies controlled by racial minorities. The Commission expressed skepticism about that proposal, noting that the courts had throw out several versions of the FCC’s EEO rules, finding that there was insufficient justification offered by the FCC to constitutionally justify raced-based preferences. The Commission asked that proponents of such preferences provide a “compelling” showing of needed, as necessary for a constitutional justification for governmental race-based discrimination.Continue Reading FCC’s Acts to Increase Diversity in Media Ownership – Part 2, The Proposals for Future Actions – Channel 6 for FM, AM Expanded Band, Definition of Designated Entity, Must Carry for Class A TV and Others

At its December meeting, at the same time as it adopted rules relaxing the newspaper-broadcast cross-ownership rules, the FCC adopted new rules to expand diversity in the ownership of broadcast stations, encouraging new entrants into such ownership.  The full text of that decision was just released last week, providing a number of specific rule changes adopted to promote diverse ownership, as well as a number of proposals for changes on which it requests further comment.  Comments on the proposed changes will be due 30 days after this order is published in the Federal Register.  As this proceeding involves extensive changes and proposals, we will cover it in two parts.  This post will focus on the rule changes that have already been made – a subsequent post will cover the proposed changes.  The new rules deal not only with ownership rule modifications, but also with issues of discrimination in the sale of broadcast stations and in the sale of advertising on broadcast stations, new rules that leave some important unanswered questions. 

The rules that the Commission adopted were for the benefit of "designated entities."  Essentially, to avoid constitutional issues of preferences based on race or gender, the definition of a designated entity adopted by the Commission is based on the size of the business, and not the characteristics of the owners.  A small business is one designated as such by the Small Business Administration classification system.  Essentially, a radio business is small if it had less than $6.5 million in revenue in the preceding year.  A television company is small if it had less than $13 million in revenues.  These tests take into account not only the revenue of the particular entity, but also entities that are under common control, and those of parent companies.  For FCC purposes, investment by larger companies in the proposed FCC licensee is permissible as long as the designated entity is in voting control of the proposed FCC licensee and meets one of three tests as to equity ownership: (1) the designated entity holds at least 30% of the equity of the proposed licensee, or (2) it holds at least 15% of the equity and no other person or entity holds more than 25%, or (3) in a public company, regardless of the equity ownership, the designated entity must be in voting control of the company.Continue Reading FCC Takes Actions to Increase Diversity in Broadcast Ownership

The FCC this week released the full text of its decision on the revision of the multiple ownership rules that it adopted at its December 18 meeting.  While the text goes into great detail on the decision to relax the newspaper-television cross ownership restrictions (causing the ruling to be condemned by consolidation critics), the order is very brief in addressing the numerous other issues with the multiple ownership rules that were raised in this proceeding.  Television broadcasters sought greater opportunities to consolidate in local markets, and radio broadcasters requested reconsideration or clarification of various aspects of the Commission’s 2003 decision adopting Arbitron market definitions as the basis of the determining how many radio stations are in a particular market.  These requests were all rejected, some summarily.  Will these parties who were denied relief from the FCC protest as loudly as the critics of the decision with respect to the relaxation of the TV-newspaper cross ownership limits?

We summarized the decision with respect to the newspaper television rules here.  That summary was based on the statements made at the December 18 meeting and on the press release issued that day which provided a brief summary of the Commission’s decision.  The outline we provided in December was basically accurate, and there were few surprises about the newspaper-television cross ownership rules in the text.  The Commission was very thorough in documenting the basis for its decision that newspapers and television stations could be commonly controlled without adversely affecting the public interest, citing a legion of studies supporting their decision, while carefully refuting the studies supplied by consolidation critics.  However, the remainder of the decision, dealing with other aspects of the multiple ownership rules which the Commission refused to change, contained reasoning which was far more limited.  In some cases, particularly dealing with radio issues, the reasoning was almost absent.Continue Reading FCC Issues Text of Its Multiple Ownership Decision – New Combinations for Newspapers and TV, No Ownership Changes for Radio

Last week, the FCC approved the long-pending application for the transfer of control of Clear Channel Broadcasting from its public shareholder to several private equity funds. Even though the application had been pending at the FCC for over a year, the Commission’s decision was notable for the paucity of issues that were discussed. The decision approves the transfer, conditioned on certain divestitures by the Company and by the equity funds that will control the new company, including divestitures previously ordered by the Commission in connection with the investment of one of these funds in Univision Broadcasting but not yet completed, and rejects three petitions that, from the Commission’s description, did not involve fundamental issues about the nature of the overall transaction, but were instead devoted to certain limited issues, in two cases involving actions in a single market. The divestiture conditions were approved seemingly as a matter of course, and do not provide any new insights into the law concerning the FCC’s attribution rules (unlike the recent decision approving the transfer of control of Ion Television, about which we wrote here, which contained an extensive detailed discussion of what it takes to make an ownership interest “nonattributable” for purposes of the FCC multiple ownership rules). Given the lack of controversy in the Commission’s order, what is perhaps most noteworthy about the decision are the concurring statements of the two Democratic Commissioners, which may provide some indication of the concerns of the Commission should we have a Democratic-controlled Commission following this year’s Presidential election.

Of course, as we’ve described in our posts about the FCC’s Localism Notice of Proposed Rulemaking (here), and the new rules regarding Enhanced Disclosure requirements for television broadcasters (here), the Commission has already begun to act in a far more regulatory manner than any other Commission in the past 20 years. Yet the issues raised by the Democrats in this decision are in areas not yet considered by the Commission. Commissioner Copps expresses his concern about the role of private equity in broadcast ownership, and whether such ownership is in the public interest. In numerous proceedings and in response to the presentation made at the FCC’s January meeting by the Media Bureau, Copps has suggested that private equity should be investigated, both to determine whether the Commission is fully aware of all ownership ties of the companies involved, and also (as emphasized in this case) for the potential economic impact on the operations of the broadcast stations caused by the new debt involved in the acquisition. Here, Commissioner Copps questions whether the announcement of a potential downgrade of the bonds of the Company if these deals occur should have been of more concern to the Commission. Private equity should be aware that, in a future FCC, an investigation of the economics of their operations should be expected.Continue Reading Does the FCC’s Approval of the Clear Channel Transfer of Control Provide a Window Into the Future?

The FCC has released the agenda for its first open meeting of the year, scheduled for this Thursday, January 17, 2008.  The agenda consists solely of presentations by the various Bureau Chiefs discussing their various policies and procedures in implementing the agency’s "strategic plan."  Such an agenda, while not common, is not unheard of, especially for the first meeting of the year, and especially after so many controversial decisions were made in the last two meetings at the end of 2007.  

This agenda was released a few days after House Energy and Commerce Committee Chairman John Dingell announced an investigation of the Commission’s rulemaking procedures and management practices.  FCC Chairman Kevin Martin has been under fire from Republicans and Democrats alike in both the House and Senate, especially following the agency’s December meeting in which the newspaper/broadcast cross-ownership ban was modified, as we discussed here.  Congress has criticized the agency’s lack of transparency, and infighting among the Commissioners has become open and much talked about in Washington, as reflected in meetings that are often delayed by hours and in Commissioner’s Copps’ vitriolic dissenting statement read aloud at the December meeting.  Continue Reading FCC to Hold Open Meeting Featuring Bureau Chief Presentations – While Congress Investigates

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

The FCC today adopted Commissioner Martin’s proposal for limited multiple ownership relaxation, adopting a presumption in favor of approving the common ownership of a broadcast station and a daily newspaper in the Top 20 television markets (we wrote about that proposal here).  But the grant of such combinations would not be automatic, but instead would be considered on a case-by-case basis, so opposition to any merger could be submitted to the FCC.  Under the rules announced today, newspaper-television combinations would not be entitled to the presumption in favor of grant if they involved one of the Top 4 ranked television stations in a market, or if there would be fewer than 8 independent media voices (full power TV or significant daily newspapers that are not commonly controlled) after the combination.  As for the other multiple ownership rules, from what was said at the meeting, no change at all will be made.  We addressed some of the many multiple ownership issues before the Commission that were apparently either not addressed or will not be changed in our post, here. 

As the full text of the decision has not been released, details of how the Commission addressed every issue are not available.  From the comments of the Democratic Commissioners who dissented from the decision, changes were being made to the standards adopted today throughout the night and as early as an hour before the meeting was held (see Commissioner Copps’ impassioned statement against the new rules, here, where he details the last minute revisions).  Given the last minute nature of the final order, it may be a while before the full text is released.  However, from statements made today and from the Commission’s press release, some details of the decision are known.  They are summarized below.Continue Reading FCC Adopts Changes in Newpaper-Broadcast Cross Ownership Rules – No Relief For Broadcasters Under Other Ownership Rules

The FCC has released its agenda for its December 18 meeting – and it promises to be one of the most important,and potentially most contentious, in recent memory.  On the agenda is the Commission’s long awaited decision on the Chairman’s broadcast multiple ownership plan relaxing broadcast-newspaper cross-ownership rules (see our summary here).  Also, the FCC will consider a Further Notice of Proposed Rulemaking on Localism issues (pending issues summarized here) following the conclusion of its nationwide hearings on the topic, as well as an Order and Further Notice of Proposed Rulemaking on initiatives to encourage broadcast ownership by minorities and other new entrants (summary here).  For cable companies, the Commission has scheduled a proposed order on national ownership limits.  And, in addition to all these issues on ownership matters, the FCC will also consider revising its sponsorship identification rules to determine if new rules need to be adopted to cover "embedded advertising", i.e. product placement in broadcast programs.  All told, these rules could result in fundamental changes in the media landscape.

The broadcast ownership items, dealing with broadcast-newspaper cross-ownership, localism and diversity initiatives, all grow out of the Commission’s attempts to change the broadcast ownership rules in 2003.  That attempt was largely rejected by the Third Circuit Court of Appeals, which remanded most of the rules back to the FCC for further consideration, including considerations about their impact on minority ownership.  The localism proceeding was also an outgrowth of that proceeding, started as an attempt by the Commission to deal with consolidation critics who felt that the public had been shut out of the process of determining the rules in 2003, and claiming that big media was neglecting the needs and interests of local audiences.Continue Reading FCC Meeting Agenda for December 18 – Potentially One of the Most Important in Recent Memory – Multiple Ownership, Localism, Minority Ownership, Product Placement and Cable TV National Ownership Caps

With a possible decision looming on December 18 on the Chairman’s proposal to loosen the newspaper-broadcast cross-ownership rules (see our summary here and here), the FCC this week granted two applications involving the sales of the Tribune Company and of the Clear Channel television stations, where the decisions focused on the application of the multiple ownership rules – and where the Commission granted multiple waivers of various aspects of those rules – some on a permanent basis and many only temporarily.  And, in the process, both of the Commission’s Democratic Commissioners complained about the apparent prejudgment of the cross-ownership rules and one complained about the role of private equity in broadcast ownership.  Both decisions are also interesting in their treatment of complicated ownership structures and, at least under this administration, evidence the Commission’s desire to stay out of second guessing these structures. 

In the Clear Channel decision, the Commission reviewed the proposed ownership of the new licensee by an affiliate of Providence Equity Partners.  As there were no objections to the proposed sale, the FCC approval process was somewhat easier than it might have been – though the Commission did seem to be somewhat troubled by the fact that Providence was already a shareholder with an interest attributable under the multiple ownership rules in Univision Communications, which had stations in a number of markets in which the Clear Channel television stations operate.  The Commission approved the sale, giving Providence 6 months to come into compliance with the ownership rules – and conditioning the initial closing of the Clear Channel sale on Providence meeting divestiture requirements that it had promised to observe in connection with the Univision acquisition, and had not yet complied with (in fact the Commission recently asked for comments on a proposal by Providence to come into compliance in the Univision case by simply converting their interest in Freedom Communications, which has interests in Univision markets, into a nonvoting interest which would not be attributable under Commission rules)Continue Reading Ownership Waivers All Around – FCC Approves Sales of Tribune and Clear Channel TV

The FCC has released the agenda for its Open Meeting to be held on Tuesday, November 27.  The agenda is full of issues of importance to broadcasters, and several items may resolve issues that may be troubling – including issues relating to low power FM stations (LPFM) and resolving a long outstanding proceeding concerning the possibility of mandatory public interest obligations for TV stations.  The Commission also has on tap initiatives to encourage the entry of minorities and other new entrants into the broadcast business – even though comments on the Commission’s proposals on this matter were received just a month ago.

First, the Commission is to release an Order on Low Power FM.  We have written about some of the issues that could be decided previously – including issues of whether or not to allow the assignment and transfer of such stations (here) and whether to give these stations preferences over translators and even improvements in full power stations (here and here).

On the TV side, the Commission seems ready to issue an order on the public interest obligations of television operators.  We wrote about the proposals – made as part of the Commission’s DTV proceedings (though to be applicable to all TV stations), here.  Proposed rules included the standardization of quarterly issues programs lists, making station’s public fies available on the Internet, and quantifying other public interest obligations.  Continue Reading FCC Meeting to Consider LPFM Reform, Public Interest Requirements for TV Stations, and Minority Ownership Proposals