Earlier this month we reported on the Notice of Proposed Rulemaking (NPRM) issued in the Commission’s 2010 Quadrennial Review of its media ownership rules. The NPRM has now been published in the Federal Register, which in turn establishes the deadlines for comments and reply comments. Comments are due no later than March 5, 2012. Reply comments are due by April 3.
FCC lays out new (or old) media ownership proposals in latest phase of quadrennial review process
Three days before Christmas, the FCC delivered a little present for broadcasters: a Notice of Proposed Rulemaking (NPRM) proposing changes to its media ownership rules. The NPRM followed up on a Notice of Inquiry (NOI) issued 18 months ago. While some might be thrilled with this gift, for most it’s probably more like a lump of coal.
Under the 1996 Telecom Act, the Commission is required to review its media ownership rules every four years to determine if they remain “necessary in the public interest as a result of competition.” These quadrennial reviews tend to be controversial – the 2002 and 2006 reviews both ended up in appeals (before the Third Circuit) that essentially left the ownership rules the same as they were before the beginning of the 2002 review.
With this history in mind, in June, 2010, the Commission opened the latest round of media ownership review with the NOI. The FCC requested comment on not only the existing rules, but also “fundamental questions” related to media ownership. Big Questions like what public interest goals the Commission should be advancing and how those goals should be defined and measured. In the intervening 18 months, much has happened: vast numbers of comments and reply comments have been filed, studies have been released, and the Third Circuit has weighed in again, overturning portions of earlier FCC ownership rulings.
Given all that, you might have expected some pretty significant changes to be proposed in the NPRM. If so, you’ll probably be disappointed, since the Commission seems to gravitate back to the status quo. However, from the multitude of questions the NPRM poses, it’s at least possible that the Commission may be positioning itself to make considerably broader changes than the surface of the NPRM suggests.
The NPRM rambles on for nearly 100 pages. We’ll take a more detailed look at the high points below. Here’s a quick-hit glimpse at those points.
The FCC proposes to:
- retain, for the most part, the existing media ownership rules, including the local radio ownership rules, the dual network rule, and the local television ownership rule (with minor modification);
- toss the existing blanket ban on newspaper/broadcast cross-ownership (NBCO), replacing it with a modified version that would allow some cross-ownership in the largest markets; and
- repeal the radio/television cross-ownership rule entirely.
In ominous news for some broadcasters, the FCC requests comment on whether it should treat shared services and news sharing agreements as attributable interests, although it stops short of proposing rules to that effect.
In response to the Third Circuit’s decision overturning its diversity rules, the Commission notes that it doesn’t have enough information to re-instate those rules. Accordingly, it asks for suggestions on how it could get such information or otherwise take actions to encourage minority and female ownership.
Finally, the NPRM requests comment on the 11 media ownership studies it released in the last year.
On the Big Picture side, the NPRM reflects the FCC’s inclination to retain the traditional broad policy goals of its ownership rules, i.e., increasing competition, localism and diversity. (Notably, the notion of formally adding other goals – like the “protection” of local news/journalism – is apparently dead for now, although we would not be surprised if the Commission’s final Order mentions such goals at least a few times.) With these goals tentatively identified (or, more accurately, re-identified), the Commission addresses its five main media ownership rules.
Here’s the nitty-gritty.
Local Television Ownership: Currently, an entity is allowed to own two television stations in the same DMA, but only if one of two conditions is met: (1) if there is no Grade B contour overlap between the commonly owned stations; or (2) if at least one of the commonly-owned stations is not ranked among the top-four stations in the market (“top-four prohibition”) and at least eight independently owned television stations remain in the DMA after ownership of the two stations is combined (“eight-voices test”).
The Commission figures that this rule is still necessary to promote competition. While the FCC acknowledges the availability of non-broadcast video services (e.g., cable, Internet), the Commission thinks that broadcasters compete against themselves in a market separate from non-broadcast operators. (One basis for that conclusion: non-broadcast video services do not change their programming based on decisions taken by local television stations and, to some extent, in response to local concerns at all.) So the local ownership rules would remain in place.
In place, that is, except for the “Grade B exception”. The Commission is proposing to eliminate that option entirely, meaning that same-DMA duopolies would have to satisfy the top-four/eight-voices tests, which the Commission would keep in place. (But the Commission nonetheless still poses a wide variety of questions – some likely to be controversial – about the possible need to revise or replace either or both of those tests.)
Tossing the Grade B exception would raise a number of practical issues – like whether and, if so, how, to grandfather any existing situations that would not satisfy an ownership regime lacking the Grade B exception.
The NPRM also asks whether the DTV-spawned potential for multicasting should affect local ownership rules.
Local Radio Ownership: Along the same lines as the local TV ownership rules, the Commission proposes generally to keep its local radio ownership limits, complete with AM/FM subcaps. This tentative conclusion is based on the view that broadcast radio constitutes a market unto itself, separate from satellite and Internet services. Again, however, the Commission poses a wide range of questions about possible alternatives, so it’s impossible to say for sure whether the status quo will remain the status quo once all is said and done.
Among the questions posed are a number relating to the competitiveness of the AM service. The Commission is currently of the opinion that AM operators may still suffer some competitive disadvantages, and that the AM/FM subcaps assist in easing, if not overcoming, those disadvantages. But the availability of on-line streaming, HD radio technology and FM translators for rebroadcasting AM signals may also help level the playing field.
Newspaper/Broadcast Cross-Ownership (NBCO): Perhaps the greatest source of controversy in the past two quadrennial reviews has been the NBCO rule, which flatly prohibits any common ownership of a daily newspaper and a broadcast station in the same market. The rule has been in place since 1975 – since efforts in 2002 and 2006 to change it were overturned by the Third Circuit.
As the FCC now sees it, the NBCO rule doesn’t have any impact on competition – in fact, newspaper/broadcast combinations could well serve the goal of localism. On the other hand, the Commission remains tentatively convinced that such combinations pose a risk to diversity, and particularly viewpoint diversity – so some restrictions on cross-ownership remain necessary. In assessing “diversity”, the Commission discounts (as it did in 2002 and 2006) the impact of the Internet as a source of news. The web isn’t a significant source of independent local news, in the FCC’s view, largely because it doesn’t provide significant independent newsgathering, as opposed to commentary; plus, the local news sites that do exist tend to draw very small audiences compared to daily newspapers and local broadcast stations.
The Commission’s solution: Continue to prohibit newspaper/broadcast cross-ownership, BUT declare that, presumptively, certain combinations in the top-20 DMAs are acceptable, while combinations in other markets may be permissible if they satisfy a complicated waiver standard. This approach incorporates certain elements of the version of the rule proposed in the 2006 ownership review, with some twists. (One such twist under consideration: cross-ownership of any newspaper in a TV station’s DMA would be prohibited, not just those newspapers published within the station’s Grade A contour.)
The prohibition would preclude (a) TV/daily newspaper combinations if the paper is published in the TV’s DMA, and (b) radio/daily newspaper combinations if the paper is published within the 2.0 mV/m contour (for AM stations) or 1.0 mV/m contour (for FM’s). The presumptive waiver would then permit combination of a single radio station and daily newspaper in the top-20 DMAs. Common ownership of a single TV and daily newspaper in the top-20 DMAs would also be permitted, as long as the television station was not ranked in the top four and if at least eight “major media voices” would remain in the market.
The Commission may not be wedded to the radio/newspaper prohibition, though. The NPRM specifically asks whether that aspect of the NBCO rule could simply be eliminated, since radio stations tend not to constitute “primary outlets that contribute to local viewpoint diversity”.
As with the rest of the NPRM, this portion poses a raft of questions both conceptual and practical. Again, grandfathering generally, and the transferability of grandfathered combinations, are among the particular concerns.
Radio/Television Cross-Ownership: In perhaps the lone clearly deregulatory aspect of the NPRM, the Commission proposes to totally toss its existing limits on radio/television cross-ownership. According to the FCC, radio and TV stations don’t compete for advertising in the local market and don’t, from the perspective of listeners/viewers, serve as substitutes for one another. The Commission also doesn’t fear that elimination of this prohibition is likely to result in significant consolidation.
The Commission’s analysis in this portion of NPRM raises interesting contrasts with the remainder of the NPRM. Elimination of the radio/TV cross-ownership prohibition is said here to be justified in part because broadcast stations generally face increasing competition from non-broadcast sources of news and entertainment (including particularly the Internet), and the “primary marketplace for news is shifting”. Perhaps so, but the Commission discounted the effect of competition from such non-broadcast services in its analysis of its rules governing local radio, local TV and newspaper/broadcast ownership limits.
Dual Network Rule: The existing prohibition on a single entity owning any two of the top-four English-language television networks (ABC, CBS, NBC, or Fox) would be retained. In the Commission’s tentative view, the top-four networks remain categorically different from their competitors in terms of both viewership and advertising rates. As a result, a combination of any two networks would have a negative effect on competition among the networks, and affiliated stations, for programming and the sale of advertising time.
In addition to the specific ownership rules, the NPRM also addresses a number of other areas touching on the general notion of media ownership:
Diversity Order Remand: Last July the Third Circuit rejected all FCC rules based on the agency’s definition of “eligible entity”. Those rules had been adopted as part of the Commission’s efforts to increase minority and female ownership of broadcast properties. There are constitutional limits on a governmental agency’s ability to engage in decisionmaking based on race, gender or ethnicity, of course, so the Commission adopted an alternative approach. Using the concept of “eligible entities” – a revenue-based term defined essentially by the Small Business Administration – the Commission hoped to benefit minorities and women without expressly carving out set asides based on constitutionally suspect categories.
The Third Circuit seemed to feel that the Commission had not shown that offering a benefit to businesses with low revenues necessarily served the stated goals of increasing female and minority ownership. So the court voided all the Commission’s rules and policies based on the “eligible entity” concept and ordered the Commission to address the problem in this quadrennial ownership review.
In the NPRM, the Commission essentially punts, concluding that it still doesn’t have a sufficient evidentiary record to permit it to address the Third Circuit’s concerns. As a result, while the NPRM requests comment on how it might support or replace its definition of eligible entities, it proposes pushing off resolution of the issue to the 2014 quadrennial review. The Commission does conclude that promoting diversity in ownership, and particularly female and minority ownership, remain important policy goals, and requests comment on other, non-eligible entity-based, ways in which it can accomplish those goals.
Media Ownership Studies: In the 2010 NOI, the Commission commissioned 11 studies to provide data that would support its analysis of the media ownership rules. It has since released the final reports of these studies, as well as peer review information and the data sets underlying the reports. In doing so, the Commission made clear that it didn’t want comments on the reports then. For anyone inclined to comment on those studies, now is the time. The NPRM invites comments on any or all of the 11 studies.
Attribution Standards: Finally, at the end of the Christmas stocking that is the NPRM, we get to the lump of coal for broadcasters. The Commission asks whether it should revise its rules to make certain arrangements between stations – such as shared services agreements, local news sharing arrangements, agreements related to joint retransmission consent negotiations and the like – attributable to the stations’ owners. Expanding the concept of “attribution” to include such contractual relationships would impose considerably greater constraints on many broadcasters, since “attributable” interests trigger the Commission’s media ownership rules.
The proposal to expand attribution standards arises from a number of complaints and petitions for rulemaking focusing on arrangements between and among various stations. The complainants allege that various parties, primarily television stations, are attempting to circumvent the ownership rules through contractual arrangements that allow stations to work together to produce news, or manage other station operations. The NPRM requests comments on why, whether, and if so, how, its attribution rules should be adjusted to address such arrangements.
The filing dates for comments and reply comments on the NPRM have not yet been set. Check back here for updates.
This is an extraordinarily wide-ranging proceeding. While the Commission’s particular proposals appear to involve little if any substantial change from the status quo, let’s not forget the extraordinary litany of questions on which the Commission has sought comments. Having at least posed those questions in the NPRM, the Commission could follow up with comprehensive and dramatic rule changes veering far afield of the seemingly benign “proposals” described in the NPRM. Attention should be paid.
“Eligible entity” policies suspended in light of Third Circuit decision
From our Unintended Consequences File: The recent Third Circuit decision on multiple ownership rules – which took the Commission to task for failing to do more to promote minority and female broadcast ownership – has led to the abrupt termination of a Commission policy intended to (wait for it) promote minority and female broadcast ownership. While there remains at least a chance that that termination may be forestalled, a recent public notice from the Commission has set the termination process in motion.
Under the policy at issue, the Commission extended unbuilt broadcast construction permits by 18 months when they were assigned to “eligible entities”. An “eligible entity” was generally defined as an entity that qualified as a small business under the standards of the Small Business Administration for industry groupings based on revenue. The policy was first announced in the Commission’s Diversity Order released in 2008, as part of a wide-ranging agency effort to promote “diversity”.
As we reported earlier this month, the Third Circuit found that the FCC had not shown how its revenue-based definition of eligible entity would advance its goal of promoting minority and female ownership of broadcast stations. Accordingly, the Court tossed the policy, preventing the Commission from continuing to utilize it at all.
In response, the Commission has issued a public notice alerting potentially affected permit holders and prospective permit assignees of the effect of the Court’s decision.
To understand the way the shut-down will work, you have to understand the concepts of (a) “finality” of FCC actions and (b) issuance of the “mandate” relative to the court’s action.
A grant of an “eligible entity” assignment application – along with the corresponding extension of the underlying permit – becomes final 40 days after public notice of the grant (barring any petition for reconsideration, application for review, or other intervention by the Commission on its own motion).
The court’s decision becomes effective when the court issues its “mandate” to the Commission, telling the Commission that the agency's got to comply with the court's decision. Under the Federal Rules of Appellate Procedure (Rule 41, if you’re checking), an appellate mandate is supposed to issue seven days after the deadline for seeking rehearing has passed or, if rehearing is sought, then seven days after rehearing is denied. The deadline for seeking rehearing is 45 days after the court’s opinion is issued. Note, however, that parties can also ask the court to hold off on issuing its mandate. The Third Circuit decision was issued on July 7 – which means that the deadline for seeking rehearing would ordinarily be August 21 and, if rehearing isn’t sought and the issuance of the mandate isn’t delayed, we can expect to see the mandate pop out on August 29 (August 28, technically the seventh day after August 21, being a Sunday).
Applying those concepts to the problem at hand, the Commission has come up with the following.
CP-extending “eligible entity” application grants that become final prior to the issuance of the Third Circuit’s mandate are safe – they will not be affected by the Third Circuit’s decision. This means that any such application whose grant showed up on a public notice issued at least 41 days prior to August 29 should be OK. (We do the math so you don’t have to: 41 days prior to August 29 is July 19.)
But any such grant that has not become final as of the issuance of the mandate has big problems. In such cases, the expiration date of the construction permit at issue will automatically revert back to its original, non-extended date. If that non-extended date has already passed and the permit has, thus, expired, the staff will rescind the grant of the assignment application and dismiss the application (since, technically, there’s nothing left to assign). If the non-extended date has not yet passed, the grant of the assignment will remain in effect – but the assignee will be subject to the permit’s original construction deadline, and the likelihood of getting that deadline extended is negligible.
For any CP-extending “eligible entity” assignment application that hasn’t yet been acted on, the news is equally grim. Any such application involving a permit that has already expired will be summarily dismissed. If the permit hasn’t expired, the Commission will process the assignment, but the buyer will be getting the permit as is, without any extended construction deadline. Again, the likelihood of any such extension is negligible.
Is there any ray of hope here? If the Third Circuit’s mandate is delayed, presumably the Commission’s ax won’t start to fall right away, which could afford some valuable time in some instances. What are the prospects for such a delay? Who knows? The Third Circuit’s decision was expansive and, at least to some, controversial. It’s possible that some private parties, or maybe even the Commission, might be inclined to seek rehearing. That could delay the issuance of the mandate by several months, possibly affording relief to some. So, too, could an effort to bring the case to the Supreme Court (although that alone would not necessarily stay issuance of the mandate – a request to hold off on that issuance might need to be filed).
The Commission’s public notice does not address that delay possibility, presumably because the one thing we know for sure at this point is that, absent rehearing efforts, the rules provide for issuance of the mandate on August 29. And while the possibility of delay may exist in theory, it’s a very thin reed on which to rest any hopes.
So a policy designed to increase diversity in broadcast ownership is being deep-sixed by a court decision which complained of the lack of diversity in broadcast ownership. And so it goes.
Shades of 2004! Court tosses 2008 version of newspaper/broadcast cross-ownership rule, major elements of 2008 Diversity Order.
Remember in the original Planet of the Apes, when Charlton Heston had gone through years of space travel and wild adventures, only to find after all that that (SPOILER ALERT) he really hadn’t gone anywhere at all and was just back where he’d started from?
Welcome to the FCC’s media ownership rules, which have just been deposited back at Square One by an opinion of the U.S. Court of Appeals for the Third Circuit.
With one major exception (i.e., the Newspaper/Broadcast Cross-ownership (NBCO) rule), the Court affirmed the Commission’s 2008 Ownership Order. But bear in mind that, in the 2008 Ownership Order, the Commission largely (but not entirely) reversed its own 2003 Ownership Order in response to a 2004 Third Circuit decision. And bear in mind, too, that the 2008 Ownership Order was adopted by a Commission led by Kevin Martin, a Republican. The Third Circuit had stayed the effectiveness of the 2003 Ownership Order, and had continued that stay for the 2008 Order as well. (Last year the Court lifted that stay, allowing the 2008 revision to the NBCO rule to go into effect temporarily; in light of the new Third Circuit opinion, the issue of the stay is now moot.) In 2009, the Commission – now under new management, i.e., Democrat Julius Genachowski – asked for that stay to remain in place, meaning that the current Commission is not necessarily keen on the 2008 decision which largely reverted to the pre-2003 ownership rules.
Oh yeah – and in a move that could prove very problematic for some, the Court also rejected parts of the Commission’s separate 2008 decision (the Diversity Order) providing enhanced opportunities for certain “eligible entities”.
Confused? Join the club.
Some history might be useful here.
Congress has ordered the FCC to review its ownership rules every four years. In 2002, the Commission (under then-Chairman Powell) started such a review. It was a highly contentious proceeding, with hundreds of thousands (if not millions) of comments filed and much rancorous debate inside and outside the Commission. The upshot was the 2003 Ownership Order. Under that order, the ownership rules generally were abandoned and replaced by a different set of limits (dubbed “Cross-Media Limits”) calculated through a “Diversity Index” applicable to all forms of media cross-ownership.
Numerous appeals were filed, ending up in the Third Circuit, which promptly stayed the effectiveness of the 2003 Order. In 2004, the Third Circuit shipped a number of aspects of the 2003 Order back to the Commission for further consideration. The Court did agree with the Commission that a complete ban on newspaper/broadcast cross-ownership (in effect since 1975) was no longer necessary. BUT the Court concluded that the new cross-ownership limits as a whole had not been adequately supported by the Commission. So with the stay still in place (and with it, the pre-2003 rules), the Court remanded cross-ownership back to the Commission.
In 2006 the Commission started work on its next quadrennial ownership review. Since the Commission was then still looking at the 2003 rules thanks to the 2004 remand by the Third Circuit, the Commission folded that into its 2006 review. The end result was the 2008 Ownership Order. In that order the Commission ditched its 2003 Cross-Media Limits/Diversity Index approach, opting instead for its pre-2003 rules and standards relative to broadcast ownership. With respect to the NBCO rule, however, it chose not to revert to the pre-2003 absolute ban on newspaper/broadcast cross-ownership. Rather, the 2008 Order permitted such cross-ownership on a case-by-case basis, with a presumption that some limited cross-ownership would be permitted in the largest markets.
Many of the parties who appealed the 2003 Order also appealed the 2008 Order.
In its latest decision, the Third Circuit has again sent the NBCO rule back to the Commission. It’s not that the Court necessarily disagrees with the FCC’s case-by-case approach. The Court’s problem is with the process by which the Commission arrived at that approach: while the Commission had issued a notice of proposed rulemaking generally indicating that it planned to revisit the NBCO rule, the Court felt that that notice didn’t provide the public with enough of a description of the approach ultimately adopted.
[Wonk Warning: Esoteric Legal Discussion Ahead. Proceed with Caution. This aspect of the Court’s ruling is particularly interesting to administrative lawyers. Agencies are required by the Administrative Procedure Act to describe “either the terms or substance of the proposed rule or description of the subjects and issues involved.” Ordinarily that requirement has not been interpreted to require the agency to spell out its proposals in exhaustive detail; to the contrary, many agency rulemaking actions that don’t conform to the specifics of the underlying notice of proposed rulemaking have been upheld as long as the actions were a “logical outgrowth” of the proposal. The Third Circuit’s rejection of the “logical outgrowth” doctrine here will provide fodder for law review articles and appellate arguments for some time to come.]
The Court’s dissatisfaction with the process leading to the 2008 NBCO rule may have been a reaction to the untidiness of that process. The FCC’s underlying NPRM plainly put everybody on notice that some change to the NBCO rule was on the table. But no specifics surfaced until then-Chairman Martin authored an op-ed piece in the New York Times disclosing what he personally had in mind. That piece appeared barely a month before the 2008 Ownership Order incorporating Martin’s approach was adopted. The Court seemed troubled by this chronology, even though the op-ed was accompanied by a simultaneous invitation for comments on Martin’s suggested NBCO rule. Further complicating matters were the facts that drafts of the 2008 Order were circulating before the comment period relative to Martin’s proposal wrapped up, and the final vote occurred just one week after the close of the comment period.
According to the Court, the FCC was obliged to (a) remain “open-minded” about the issues raised and (b) engage with the substantive responses submitted. As the Third Circuit saw it, the 2008 process fell short of those obligations, at least with respect to the NBCO rule. So back to the Commission goes the 2008 revision to the NBCO rule, with instructions to ensure that the APA is followed in any further revisions. As a result, the Commission’s outright ban on newspaper/broadcast cross-ownership, first adopted in 1975, is now back in force.
Having sent the NBCO rule back, the Court next addressed the five permanent waivers of that rule that the Commission granted in the 2008 Ownership Order. Despite “several concerns” with these waivers, the Court has left them in place because the folks challenging the waivers in court hadn’t sought reconsideration of the waivers at the FCC first – so the Court doesn’t have jurisdiction to consider them on appeal.
Despite its unhappiness with the NBCO aspect of the 2008 Order, the Court upheld the Commission’s decision to retain, essentially unmodified, its other primary media ownership rules: the radio/television cross-ownership rule; the local television ownership rule; the local radio ownership rule, including AM/FM subcaps; and the dual network rule. In a very brief discussion, the Court concluded that the FCC adequately justified the retention of each of these rules. Note, though, that these rules are essentially the same that were in effect prior to 2003.
The Court also rejected, almost in passing, constitutional challenges to the cross-ownership rules as a whole. In particular, the Court adhered to the decades-old “scarcity doctrine” as a justification for broadcast regulation. Despite the proliferation of new media voices in recent years, the Court concluded that the scarcity rationale – i.e., that “more people would like to access the [spectrum] than can be accommodated” – remains valid. As a result, the broadcast media continue to receive limited First Amendment protections.
Now, about that Diversity Order.
Back in 2004, when the Third Circuit remanded the 2003 Ownership Order, the Court devoted particular attention to what it described as the “the Commission’s obligation to make the broadcast spectrum available to all people ‘without discrimination on the basis of race.’” Among other things, the Court was critical of the FCC’s failure to address a number of minority-oriented proposals that had been advanced by the Minority Media and Telecommunications Council in 2002.
In response to that criticism, on the same day that it adopted the 2008 Ownership Order, the Commission also adopted the Diversity Order in which it adopted 13 proposals intended to enhance minority/female ownership opportunities. So the Court should be happy, right?
Apparently not. Many of the Diversity Order’s enhanced opportunities were limited to “eligible entities” – a universe defined by reference to revenue factors. Even though the race/gender-neutral universe of “eligible entities” might logically include a significant number of minorities and women, the Third Circuit rejected rule changes based on that definition of “eligible entities”. According to the Court, the Commission had made no showing that expanding opportunities for “eligible entities” would expand opportunities for women and minorities. The Court is insisting that the Commission explain why it should use the revenue-based “eligible entities” definition rather than a “socially and economically disadvantaged business” (SDB) definition that might “better promote the Commission's diversity objectives”.
In its 2004 decision the Court had directed the Commission to consider SDB-based regulations in its 2006 quadrennial ownership review (i.e., the proceeding that culminated with the 2008 Ownership Order). The Commission, however, did not do so, opting instead to rely on the “eligible entity” approach.
But that wasn’t good enough for the Court, which has now concluded that the FCC hasn’t explained how a revenue-based “eligible entity” definition would increase female and minority ownership. (In part, the Court noted that this failure stems from the fact that the Commission simply doesn’t have any reliable data on female and minority ownership, although the Court acknowledges that the Commission is working to address that problem.)
So the Court has vacated and shipped back to the FCC all of the Diversity Order’s provisions based on the “eligible entity” definition. (Still alive and kicking are the Diversity Order provisions that don’t hinge on “eligible entity” status – i.e., the ban on discrimination in broadcast transactions; the “zero tolerance” policy for ownership fraud; non-discrimination provisions in advertising sales contracts; longitudinal research on minority and women ownership trends; local and regional bank participation in SBA guaranteed loan programs; “Access to Capital” conference; and guidebook on diversity.)
The tossing of the “eligible entity”-dependent provisions may place the FCC in an awkward position. A number of “eligible entities” who happen to be minority and/or female have been taking advantage of those provisions for some time, and have applications in the pipeline to continue to do so. The Third Circuit’s decision would appear to put the kibosh on such applications – even though tossing such applications would also appear to be contrary to the Court’s underlying goal. Whether the Commission can come up with a way to save the baby from getting thrown out with the bathwater remains to be seen.
It also remains to be seen how the Court’s insistence on explicit consideration of racial and gender factors can be squared with the Supreme Court’s case law on affirmative action. The Supreme Court did uphold (21 years ago) some earlier FCC policies on minority ownership in the face of an equal protection constitutional attack. But that decision was expressly overruled by the Supremes in Adarand, which imposed very heavy burdens on any federal agency attempting to justify race-based decision making. The Third Circuit acknowledges Adarand but seems to insist that the FCC can and should nonetheless consider race and gender in its licensing policies. At the least, according to the Court, the FCC must do more than cite the difficulty of complying with Adarand in deciding not to consider race and gender factors. Reliance on the race/gender-neutral concept of “eligible entity” was designed to get the Commission around Adarand problems. It will be interesting to see how this issue will now evolve.
Bureau provides guidance, grace period of sorts until May 31
If you have a broadcast construction permit that’s about to expire, listen up. The Media Bureau has provided some “guidance”on how to take advantage of a rule change that took effect last year, a change that could help you breathe the breath of life into that dying CP, if only for a little while. The “guidance” doesn’t begin to answer all the possible questions, but it at least establishes an important filing deadline for some CP assignment applicants.
Way back in December, 2007, the Commission adopted a number of rule changes intended to “increase participation in the broadcasting industry by new entrants and small businesses, including minority- and women-owned businesses, which historically have not been well-represented in the broadcasting industry.” It took the FCC four months to publish its order, which hit the presses in March, 2008; some of the rules took effect in July, 2008.
In that order the FCC agreed to allow the sale of expiring CP’s to “eligible entities” who pledge that they will complete construction before the expiration or within 18 months of consummation of the permit, whichever is later. The goal was to provide the acquiring “eligible entity” its own construction period of at least 18 months. Since the permits in question would otherwise likely expire (since CP’s cannot normally be extended), the thinking was that this would create an incentive for holders of soon-to-expire permits to deal them off to “eligible entities”, thereby increasing the number of such entities participating in the broadcast business.
But the original order left a number of details up-in-the-air.
One such unaddressed detail: the order did not specify when the application for assignment to the “eligible entity” has to be filed relative to the expiration of the permit. While the Commission assumed that the proposed acquisition of the permit would be consummated before the permit expired, the precise mechanics underlying the application were not spelled out in any detail. In fact, they weren’t spelled out at all.
The Bureau has now addressed at least that aspect. In its public notice, the Bureau has clarified that applications for CP sales filed pursuant to the “eligible entity” provision (i.e., Section 73.3598(a) of the rules) “should generally be on file at least 90 days prior to permit expiration.” So if you have a permit with a short remaining shelf life that you’re thinking about selling to an “eligible entity”, you should have the agreement tied down and the assignment application filed at least 90 days before the CP’s expiration date. (The idea is that that should ordinarily provide enough time for (a) the staff to process the assignment application through to a grant and (b) the parties then to consummate the deal.)
Since this “at-least-90-days-before-expiration” filing deadline had not previously been announced, the Bureau has established a grace period of sorts. Specifically, between now and May 31, 2009, the Bureau will accept CP assignment applications as long as the underlying permit has not expired prior to the filing of the application. (The grant of any such assignment will be subject to a condition that the deal be closed within 30 days of the grant.)
But starting June 1, the Bureau will require that the sale to the eligible entity be consummated prior to the expiration of the underlying permit – hence the Bureau’s admonition that applications for such assignments be on file at least 90 days prior to the expiration.
The Bureau’s “guidance” here leaves unresolved a number of other practical questions concerning the implementation of Section 73.3598(a). We’ll just have to wait for further clarification(s). In the meantime, at least you know when your applications must be filed.
[Sidenote: What, you may ask, is an “eligible entity”? Here’s how the Commission has defined that term for purposes of the Section 73.3598(a) provision, among others:
any entity that would qualify as a small business consistent with Small Business Administration (“SBA”) standards for its industry grouping, based on revenue. At present, the SBA defines as a small business a television broadcasting station that has no more than $13 million in annual receipts and a radio broadcasting entity that has no more than $6.5 million in annual receipts. To determine qualifications as a small business, the SBA considers the revenues of the parent corporation and affiliates of the parent corporation, not just the revenues of individual broadcast stations. In addition, in order to ensure that ultimate control rests in an eligible entity that satisfies the revenue criteria, the entity must satisfy one of several control tests. The eligible entity must hold: (1) 30 percent or more of the stock/partnership shares and more than 50 percent voting power of the corporation or partnership that will hold the broadcast license; or (2) 15 percent or more of the stock/partnership shares and more than 50 percent voting power of the corporation or partnership that will hold the broadcast licenses, provided that no other person or entity owns or controls more than 25 percent of the outstanding stock or partnership interests; or (3) more than 50 percent of the voting power of the corporation if the corporation that holds the broadcast licenses is a publicly traded company.
Promoting Diversification of Ownershipin the Broadcasting Services, FCC 07-217, pp. 4-5. The Commission is still considering possible changes to that definition – for example, abandoning the gender- and race-neutral approach and, instead, specifically including ownership by minorities and women as a definitional component of the term. In view of the thorny constitutional issues that such a change would give rise to, though, the Commission is not likely to embrace that particular change, at least in the near-term.]