FCC Announces Plan to Scrap Ownership Limits

Submitted on October 27, 2017

FCC Announces Plan to Scrap Ownership Limits

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Round-Up for the Week of October 23-27, 2017

Federal Communications Commission Chairman Ajit Pai announced this week that the commission will vote in November to eliminate or revise four key rules aimed at preserving media diversity in local markets.

The changes will come in an order on reconsideration. Andrew Jay Schwartzman, the Benton Senior Counselor at the Public Interest Communications Law Project at Georgetown University Law Center's Institute for Public Representation, alerted us to this tool in a January 2017 article for the Digital Beat:

The Communications Act provides a procedure under which an aggrieved party can ask the agency to reconsider a recent decision. Such petitions for reconsideration are subject to a strict and unwaivable filing deadline of 30 days after a decision is officially “released,” typically by means of publication in the Federal Register. Several recent major FCC decisions, including the broadband privacy rules ... as well as an August 2016 decision on rules pertaining to limits on broadcast ownership, have been or will be subjected to timely petitions for reconsideration.

The FCC is acting now on a number of petitions for reconsideration from the National Association of Broadcasters, Nexstar Broadcasting, and Connoisseur Media LLC. Oppositions to the reconsideration petitions were filed by the American Cable Association (ACA) and the United Church of Christet al (UCC et al) [Note: Benton joined the UCC et al petition.].

Assuming the FCC Republican majority adopts the draft order released this week, the action will mark a major deregulation of local broadcast and newspaper ownership. Specifically, the FCC is planning on:

Eliminating the Newspaper/Broadcast Cross-Ownership Rule;
Eliminating the Radio/Television Cross-Ownership Rule;
Revising the Local Television Ownership Rule to eliminate the Eight-Voices Test and to modify the Top-Four Prohibition; and
Eliminating the attribution rule for television joint sales agreements (JSAs).

In addition, the FCC decided to create an incubator program to promote ownership diversity, asking for public comment on how to structure it to help facilitate new entry into the broadcast services.

1. Newspaper/Broadcast Cross-Ownership Rule

First adopted in 1975 to promote viewpoint diversity, the Newspaper/Broadcast Cross-Ownership Rule prohibited common ownership of a daily print newspaper and a full-power broadcast station (AM, FM, or TV) in the same community. But in this order, the new FCC majority finds that prohibiting newspaper/broadcast combinations is no longer necessary to serve the goal in light of the multiplicity of sources of news and information in the
current media marketplace and the diminished voice of daily print newspapers.

"Whatever the limited benefits for viewpoint diversity of retaining the rule, in today’s competitive media environment, they are outweighed by the costs of preventing traditional news providers from pursuing cross-ownership investment opportunities to provide news and information in a manner that is likely to ensure a more informed electorate," the order reads.

2. Radio/Television Cross-Ownership Rule

The Radio/Television Cross Ownership Rule prohibits an entity from owning more than two television stations and one radio station in the same market, unless the market meets certain size criteria. The FCC plans to eliminate the rule concluding that the rule is not necessary to promote viewpoint diversity in local markets. Specifically, the FCC finds that it can no longer justify retention of the rule in light of broadcast radio’s diminished contributions to viewpoint diversity and the variety of other media outlets that contribute to viewpoint diversity in local markets. In addition, given that the current rule already permits a significant degree of common ownership, the FCC concludes that elimination of the rule will have a negligible effect in most markets, particularly as ownership will continue to be limited by the Local Television and Local Radio Ownership Rules.

3. Local Television Ownership Rule

The Local Television Ownership Rule bars broadcasters from combining two of the top-four-ranked stations in a market -- which are usually the ABC, CBS, Fox and NBC affiliates -- and prohibits them from acquiring second stations regardless of rank in markets with fewer than eight independently-owned stations (Eight-Voices Test). The FCC now plans to eliminate the Eight-Voices Test concluding that it is no longer necessary in the public interest. Instead, the FCC plans to adopt a hybrid approach to application of the restriction on ownership of two top-four ranked stations in the same market (Top-Four Prohibition) that will include an opportunity for case-by-case evaluation to account for circumstances in which application of the prohibition may be unwarranted given certain factors affecting a particular market or a particular transaction. The FCC believes these modifications to the Local Television Ownership Rule are not likely to have a negative impact on minority and female ownership.

4. Television Joint Sales Agreements Attribution Rule

A Joint Sales Agreement (JSA, if you're playing acronym bingo at home) is an agreement that authorizes a broker to sell some or all of the advertising time on the brokered station. JSAs generally give the broker authority to hire a sales force for the brokered station, set advertising prices, and make other decisions regarding the sale of advertising time, subject to the licensee’s preemptive right to reject the advertising. JSAs are often multifaceted agreements that include, or are accompanied by, other agreements that involve the provision of programming, technical support, and/or operational services

The FCC found that television JSAs often involve the sale of significant portions of advertising time, and many involve the sale of 100 percent of the advertising time on the brokered station. And JSA brokers also provide programming or production services to their brokered stations under the JSA or related sharing agreements. So the FCC adopted attribution rules seeking to identify those interests in licensees that confer on their holders a degree of “influence or control such that the holders have a realistic potential to affect the programming decisions of licensees or other core operating functions.” But attribution rules are not ownership limits in themselves.

Now the FCC finds that its record does not sufficiently support the previous conclusion that television JSAs confer on the brokering station a sufficient degree of influence or control over the core operating functions of the brokered station to warrant attribution. Moreover, the FCC finds that JSAs provide public interest benefits by creating efficiencies that benefit local broadcasters—particularly in small- and medium-sized markets—and enabling these stations to better serve their communities. Additionally, the FCC finds, certain JSAs have helped spur minority ownership.

The order reads, "even if some television JSAs were to provide the brokering station some ability to influence the operations of the brokered station, we find that attribution is not warranted here in light of the significant public interest benefits produced by these agreements."

Minority Ownership Incubation Program

A coalition of national organizations proposed that the FCC provide waivers of the local radio ownership rule to broadcasters that finance or incubate a small disadvantaged business (SDB). But some groups expressed concern that adoption of such incubation policies could increase concentration and harm viewpoint diversity by creating a loophole in the FCC's ownership rules that would permit increased concentration and could result in a net decrease in minority and female ownership. Sharing those concerns the FCC "tentatively" declined the proposal.

On reconsideration, the FCC now decides it will adopt an incubator program -- in the future, after it figures out how to do it. The FCC will ask for public comment on how to structure a program that will provide an ownership rule waiver or similar benefits to a company that
establishes a program to help facilitate station ownership for a certain class of new owners. The FCC's Advisory Committee on Diversity and Digital Empowerment will also be engaged.

They will ask about:

How to determine eligibility for participation in the incubator program;
How to define qualifying incubation activities;
How to structure the program so that the benefits outweigh the potential impact on competition associated with the waiver;
How to review incubation proposals;
How to monitor compliance;
How to reduce costs associated with the program -- especially for small businesses; and
How to define and quantify the expected benefits of an incubator program.

No due dates have been determined for public comment as of yet.

Conclusion

As Andrew Schwartzman wrote back in January,

While the reconsideration process does afford the Trump-appointed FCC the opportunity to reject or revise FCC actions, there are legal obstacles that the Commission may encounter in doing so. It is a basic principle of administrative law that, while agencies are free to abandon prior factual findings and legal interpretations, the reasoning of such changes is subject to judicial review. When an agency does a complete about-face, it can be difficult to provide a persuasive justification for the turnabout.

Although the November 16 vote will end a significant chapter in the ongoing debate over media ownership rules, it is not likely to be the final chapter. As interested parties consider court challenges, we'll bring you all the developments in Headlines.

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