The Commission has announced the next in its series of media ownership workshops, this one to address financial issues facing the media industry. The workshop, part of the Commission’s 2010 quadrennial review of its ownership rules, will be held on January 12, 2010 at the FCC, and will address, in the FCC’s words: "the current financial
The press was abuzz yesterday with the news that Julius Genachowski is apparently the pick of the Obama Administration for the position of FCC Chairman. Mr. Genachowski was at the FCC during the Reed Hundt Administration, and has since worked in the private sector in the telecommunications industry, including work with Barry Diller and running a DC-based venture capital fund. From the positive reactions that the appointment has received from all quarters, the choice would seem to be a great one. But, in looking at some of the reactions, you have to question whether everyone has to be reading what they want to see into the new Commission. For instance, while the NAB has praised the choice of Genachowski (stating that he "has a keen intellect, a passion for public service, and a deep understanding of the important role that free and local broadcasting plays in American life"), so too did media-reform organization Free Press ("This moment calls for bold and immediate steps to spur competition, foster innovation and breathe new life into our communications sector. With his unique blend of business and governmental experience, Genachowski promises to provide the strong leadership we need.") What will this appointment really mean for broadcasters?
In short – who knows? When Kevin Martin was appointed Chairman of the FCC, few would have imagined that a former communications attorney, a person deeply involved in the Bush campaign, and a former staffer of FCC Commissioner Harold Furtchgott-Roth (perhaps the most free market Commissioner ever) would have supported sustained, wide-reaching inquiries into the underbrush of FCC regulation – e.g. localism, embedded advertising, indecency. So we can’t really know what a Chairman will do until he does it. The Washington Post and the Wall Street Journal both suggest that the new chairman will be focused on Internet issues, and may be less interested in indecency – but who knows?
Come the New Year, we all engage in speculation about what’s ahead in our chosen fields, so it’s time for us to look into our crystal ball to try to discern what Washington may have in store for broadcasters in 2009. With each new year, a new set of regulatory issues face the broadcaster from the powers-that-be in Washington. But this year, with a new Presidential administration, new chairs of the Congressional committees that regulate broadcasters, and with a new FCC on the way, the potential regulatory challenges may cause the broadcaster to look at the new year with more trepidation than usual. In a year when the digital television transition finally becomes a reality, and with a troubled economy and no election or Olympic dollars to ease the downturn, who wants to deal with new regulatory obstacles? Yet, there are potential changes that could affect virtually all phases of the broadcast operations for both radio and television stations – technical, programming, sales, and even the use of music – all of which may have a direct impact on a station’s bottom line that can’t be ignored.
With the digital conversion, one would think that television broadcasters have all the technical issues that they need for 2009. But the FCC’s recent adoption of its “White Spaces” order, authorizing the operation of unlicensed wireless devices on the TV channels, insures that there will be other issues to watch. The White Spaces decision will likely be appealed. While the appeal is going on, the FCC will have to work on the details of the order’s implementation, including approving operators of the database that is supposed to list all the stations that the new wireless devices will have to protect, as well as “type accepting” the devices themselves, essentially certifying that the devices can do what their backers claim – knowing where they are through the use of geolocation technology, “sniffing” out signals to protect, and communicating with the database to avoid interference with local television, land mobile radio, and wireless microphone signals.
Yesterday, the Detroit Free Press and the Detroit Morning News, which operate their publication and distribution operations through a joint operating agreement, announced that they will cut back on the physical publication of their papers – publishing full editions delivered to homes only three days a week. On other days, the papers will publish an abbreviated version, available only on newsstands. The papers will not abandon news coverage the remainder of the week, but will instead concentrate on their on-line presence, showing the power of the Internet to disrupt traditional media. As we said years ago in one of our first posts on this blog – New Media Changes Everything, and it seems that this is just another indication of how true that is. The broadcast media, particularly radio, has often looked at the advertisers served by the daily paper as a ripe source of new business, and may well see the Detroit change as a major business opportunity. But does it also change the FCC’s consideration of the multiple ownership rules applicable to radio and television cross-ownership with newspapers?
The FCC’s multiple ownership rules prohibit the ownership of a broadcast station and a "daily" newspaper that serve the same area. The rules define a daily paper as one that is "published" at least four days each week, and is circulated "generally in the community." Here, the Detroit papers arguably will not meet that 4 day a week requirement – at least for a publication that is generally circulated throughout the community. Of course, some may argue that the abbreviated newsstand copy constitutes a daily publication but one would assume that, sooner or later, even that will disappear. Thus, while there has been so much controversy about the Commission’s decision of one year ago (summarized here) deciding that combinations of broadcast properties and newspapers in Top 20 markets were presumed to be permissible, while those in smaller markets were not, one questions whether this still makes any sense in today’s marketplace where seemingly few can profitably publish a daily paper in most markets, and no one seems to want to rescue the many papers that have fallen on hard times.
Last week, the US Senate passed a resolution of disapproval, which seeks to overturn the FCC’s December decision relaxing the multiple ownership rules to allow newspapers and television stations to come under common ownership in the nation’s largest markets (see our summary of the FCC decision here). This vote, by itself, does not overturn that decision. Like any other legislation, it must also be adopted by the House of Representatives, and not vetoed by the President, to become law. In 2003, the last time that the FCC attempted to relax its ownership rules, the Senate approved a similar resolution, but the House never followed suit (perhaps because the decision was stayed by the Third Circuit Court of Appeals before the House could act). In this case, we will have to see whether the House acts (no dates for its consideration have yet been scheduled). Even if the House does approve the resolution, White House officials have indicated that the President will veto the bill, meaning that, unless there is a 2/3 majority of each house of Congress ready to override the veto, this effort will also fail.
The reactions to this bill passing the Senate have been varied. The two FCC Democratic Commissioners, who both opposed any relaxation of the ownership rules, each issued statements praising the Senate action (see Commissioner Copps statement here and that of Commissioner Adelstein here). The NAB, on the other hand, opposed the action, arguing that the relaxation was minimal, that it was necessary given "seismic changes in the media landscape over the last three decades" (presumably referring to including the economic and competitive pressures faced by the broadcast and newspaper industries in the current media environment), and that it ought not be undone by Congressional actions.
In a recent decision, the FCC interpreted its radio multiple ownership rules in a case involving changes in an Arbitron market. The FCC’s rules restrict the number of radio stations that one company can own in a market based on how many stations are in that radio market. In situations where stations are rated in an Arbitron market, the number of stations is determined by how many stations are in that Arbitron market, as determined by data compiled by the financial analysis firm BIA. In this case, while the application to acquire the station was pending, BIA came out with its first list of stations that it considered to be in the newly created Arbitron market. That list showed that, in the new market, the Buyer already owned more stations than allowed by the rules, so acquisition of this additional station was prohibited. The case stands for the proposition that, while changes in Arbitron markets that allow an acquisition to take place must have been in place for two years to become effective (to prevent owners from gaming the system by making short-term changes), changes that adversely affect the ability of an owner to acquire a station become effective immediately.
According to the decision, at the time that the application in question was filed, the station to be bought was listed by BIA as being in the Manchester, New Hampshire Arbitron market. The number of stations owned by the Buyer in Manchester was such that the acquisition of the station was permissible at the time the application was filed. However, Arbitron announced the creation of a new Concord radio market just before the filing of the FCC application for approval of the transfer of control of the radio station. Soon after the filing of the application, BIA released its list of stations in the new Concord market, and it included a number of the stations owned by Buyer, including the station it was proposing to acquire. In the new Concord market, the Buyer would have too many stations to permit the acquisition of this station under the restrictions set out in the multiple ownership rules.
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.
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.
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.
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 investments