Pandora buying radio station

In a decision released yesterday, the FCC issued a Declaratory Ruling permitting certain identified foreign companies and individuals to own up to 40% of the voting interests in Univision, and allowed aggregate foreign ownership of up to 49% of the equity of the company. This decision noted that it was based not on the new rules for analyzing foreign ownership in broadcast stations approved by the Commission in late September (see our summary here), as those rules were not yet effective as they were only published in the Federal Register last month and certain aspects still needed to undergo analysis under the Paperwork Reduction Act. Instead, the request for the ruling in this case was analyzed under the 2013 Declaratory Ruling on ownership (see our summary here), the same ad hoc analysis used to review and approve Pandora’s acquisition of a radio station in 2015. While technically, the new rules did not apply to this proceeding, it is clear that the analysis of this decision would not be much different, as the Commission specifically refers to the new rules as setting what is reasonable in its ad hoc analysis of the circumstances of this case. Thus, this decision provides a good basis for determining what issues any potential foreign investor in a US broadcast station would face, particularly when investing in a public US company.

Even though the FCC looked to the new rules for guidance, the final conditions look much like those imposed on Pandora. Univision is required to seek specific approval for any acquisition of stock by any foreign shareholder not specifically approved in this order if that investor seeks to acquire an interest (either voting or equity) of greater than 5% of the company. The company must actively monitor its shareholders to assure that no specific foreign shareholder exceeds that 5% threshold and that foreign ownership does not exceed the aggregate 49% limit. The company cannot simply rely on the address of its shareholders in making a determination as to whether or not they are foreign, but instead must use reasonable efforts as defined in the October order (and set out in our summary) to establish the citizenship and ownership of its investors. The company also must insure that its organizational documents provide that, if any foreign owner causes the station to violate one of the restrictions imposed by the Declaratory Ruling, the company can redeem the stock of the owner. The company must also have provisions providing for the right to restrict foreign ownership and the right to require disclosure of citizenship information. The decision also notes that Executive Branch agencies had reviewed the proposal and did not find any potential security issues.
Continue Reading FCC Approves Up to 49% Foreign Ownership of Univision – What Guidance is Provided to Potential Foreign Investors in US Broadcast Stations?

At the FCC’s open meeting last week, the Commission adopted new policies for assessing and computing foreign ownership of broadcast companies – particularly such ownership in public companies. The Commission’s Report and Order on this matter is dense reading, dealing with how companies assess compliance with the rules which limit foreign ownership to 20% of a broadcast licensee and 25% of a holding company unless there is a finding by the FCC that the public interest is not harmed by a greater foreign ownership interest. The rules adopted last week were principally an outgrowth of the petition for declaratory ruling filed by Pandora which sought FCC approval, in connection with its acquisition of a radio station, for foreign ownership of greater than 25%. Pandora did not file such a petition because its foreign ownership exceeded that percentage, but instead because, based on the FCC methodology in use at the time, Pandora could not prove that it was in compliance (see our summary of the Pandora petition here). The new rules adopted last week essentially reverse the presumption to which Pandora had to comply – rather than assuming that there was a compliance issue because a company cannot prove that its foreign ownership was less than 25%, the FCC will now conclude that there is an issue only where a company, based on knowledge either that it has or should have, actually knows that there it has a foreign ownership compliance problem.

The order requires that public companies regularly take steps to assess their owners to determine if there are potential foreign ownership issues. A public company should know who certain shareholders are, either because they are insiders (e.g. officers and directors) or because they are otherwise known to the company (e.g. through proxy fights, shareholder lawsuits or because they are in some way doing business with the company). Other shareholders can be determined through an array of filings made at the SEC – including filings made when a shareholder exceeds holdings of 5% of the stock of a company, and other filings made by companies that manage more than $100 million in assets who are required to report on their stockholdings. In addition, there are other public sources of information about funds and other investment companies that buy the stock of broadcast companies, from prospectuses to Internet news stories. Public broadcast companies need to monitor all of these sources of information to see whether they potentially have a problem with foreign ownership. The FCC did not require that these companies take other measures that had been used in the past or suggested in the Notice of Proposed Rulemaking in this proceeding (about which we wrote here).
Continue Reading FCC Updates Foreign Ownership Compliance Policies for Broadcast Companies

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?

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