CommLawBlog : Broadcast & Communications Lawyers & Attorneys : Fletcher Heald & Hildreth Law Firm : Telecommunications, FCC Regulation, Communications Act

Station licensees could persuade Arbitron to modify its market definitions to increase some markets to include particular stations, or decrease them to exclude particular stations. The result of such modifications: some deals that might not otherwise have met the FCC’s ownership caps could suddenly be acceptable. To discourage rampant, licensee-induced changes in the Arbitron market definitions, the Commission imposed a two-year waiting period before any such changes could be relied on to demonstrate compliance with the ownership caps.

Of course, some stations aren’t located in (or “home to”) any Arbitron-defined markets. Such stations are still subject to the signal contour method of determining local ownership caps.

So what happened with Cumulus?

Cumulus was looking to improve its position in the adjacent Mobile, Alabama and Pensacola, Florida Arbitron markets. No problem there. It entered into agreements with a couple of other licensees to acquire a total of three stations, one in the Mobile market, the others in the Pensacola market. The proposed acquisitions would, once granted, still leave Cumulus safely within the permissible caps for those markets.

But wait. As a petitioner to deny the deal pointed out, of the stations that Cumulus already owned in the Mobile market, one had just been the subject of a recent change-of-community application that brought it from scenic Atmore, Alabama to slightly more scenic (from a 307(b) perspective, anyway) Saraland, Alabama. That change just happened to bring the station from outside the geographical boundaries of Arbitron’s Mobile market to within those boundaries. According to the petitioner, if that change had not been made, Cumulus’s proposed acquisitions would have had to be assessed under the signal contour approach and (again according to the petitioner) those acquisitions would have exceeded the relevant ownership caps and the assignment applications would have to be rejected.

As the petitioner saw it, the change-of-community application was essentially the same as an effort to modify the Arbitron market definition; since (as noted above), such market modifications are subject to a two-year waiting period, Cumulus could not take advantage of the change for two years. 

The Audio Division didn’t buy it.

According to the Division, the two-year waiting period applies only to market changes effected through Arbitron’s processes, i.e., changes in market boundaries (making a market bigger or smaller) or changing a particular station’s “home” designation for Arbitron purposes. Change-of-community applications, by contrast, are handled through the FCC’s own processes. The Commission can thus take into account the potential effect of such proposed changes on such regulatory considerations as multiple ownership and market size before deciding whether to grant the change. So the two-year holding period is irrelevant with respect to changes approved through the FCC’s processes.

In this case, the change-of-community application had already been granted before Cumulus filed its applications to acquire other stations in the market. Just before, as it turns out – the change-of-community application was granted on May 7, 2012, while the first of Cumulus’s assignment applications was filed two days later. That may, of course, have been purely coincidental; but – call us crazy – it seems to us that it’s a good bet that the filing of the assignment applications was timed to occur after Cumulus was successful in moving its existing station within the geographical boundaries of the Mobile market. 

In any event, since the petitioner’s beef was really with the grant of the change-of-community application rather than with the follow-up assignment applications, the Division concluded that it was too late for the petitioner to raise the issue now.

Another point weighing against the petitioner: even before the change-of-community, that particular Cumulus station had already been counted by Arbitron as “home to” the Mobile market for more than eight years, so the move into Saraland did not affect the practical Arbitron status of the station. It seems to us that the Division could have avoided any discussion of the two-year waiting period by mentioning this, since the station’s status as “home to” Mobile had clearly been in place for well more than two years before the change-in-community.  (It’s possible that the staff was concerned about the fact that formally moving the station from Atmore to Saraland meant that the Atmore market – not an Arbitron-defined market – would be losing a station, so Arbitron’s historical treatment of the station didn’t completely resolve all conceivable market-related questions. But that factor implicates Section 307(b) considerations more than multiple ownership concerns, at least as far as we can see.)

The Division opted instead to focus on the alternate rationale that FCC-granted changes potentially affecting a station’s market status are not subject to the waiting period. By doing so, the Division appears to have endorsed a way of circumventing the contour-overlap approach to the radio multiple ownership rules. 

But don’t look for a boatload of applications trying to take advantage of what might be classified as a loophole. The limitations on “move-in” applications that take stations from outside a market to inside the market have been considerably tightened in recent years. As a result, it seems unlikely that very many folks will be able to take advantage of the Division’s decision. Nevertheless, licensees looking to max out their local ownership interests may want to consider whether an otherwise impermissible acquisition might be made possible through the change in one or another station’s community of license.

New Northwest had accumulated stations in several Northwest markets, including six in the Yakima market and six in the adjacent Richland-Kennewick-Pasco (a/k/a/ “Tri-Cities”) market. But things didn’t go well financially and the company went into receivership.   The Receiver was to sell the stations and pay off the creditors. 

Enter TM. TM already had the maximum permissible number of radio stations in Yakima and lacked only an AM to hold a full house in the Tri-Cities. But New Northwest had a few stations that TM wanted for itself, and TM presumably wouldn’t mind getting its hooks into the rest of New Northwest’s holdings.

Time for a divestiture trust. The concept of a divestiture trust is not new. It’s been used mainly in BIG broadcast deals involving scores if not hundreds of stations. Occasionally, assignment of a very small handful of the stations in such a deal can’t be closed for various technical reasons – and the multiple ownership rules will not permit the proposed assignee to continue to hold those stations, incidental though they may be, and still acquire the additional stations proposed in the assignment. Rather than allow a huge deal to crater because of such technicalities, the Commission has permitted the problem stations to be dealt off to an independent trustee. Those stations are then beneficially owned by the buyer (even if that buyer could not own them directly under the ownership rules). If you hold beneficial ownership of a station, you still get the profits and cover the losses – but the trustee controls the operations, and is (at least theoretically) charged with selling the station off to some third party in due course.

TM sat down at the New Northwest table and agreed to take over all of New Northwest’s Yakima and Tri-Cities stations. Because of multiple ownership limits, TM would acquire in its own name only five of the stations. The other seven would be dropped into the divestiture trust along with four of TM’s less desirable stations. In other words, TM was looking to upgrade its hand from a near full house to a royal flush: TM was looking to own outright six cream-of-the-crop stations – the maximum under the rules – in each of the Yakima and Tri-Cities markets. Plus, through the divestiture trust, it would have the beneficial ownership of another six stations in Yakima and five in Tri-Cities. For those of you keeping score at home, that would give TM a stake in 23 of the 54 station in the two markets.

What a deal.

Or misdeal, as the Audio Division concluded. In the Division’s view, TM’s proposed use of a divestiture trust did not involve mere incidental aspects of a much larger transaction. Rather, TM itself was netting out, numerically, with only one more station than it started with. The trust was simply serving as a parking lot for the (presumably) less desirable New Northwest stations. Even though the court overseeing New Northwest receivership had approved the TM plan, the Division determined that the potential adverse effect of the deal on competition in the two markets was unacceptable. Accordingly, the Division eschewed the Commission’s normal policy of accommodating state court orders. The Division also noted that the proposed deal would not wrap up the receivership, since New Northwest’s Receiver would still have a herd of stations in Oregon and Alaska to dispose of. And the Division was not tickled pink with the fact that TM was using the trust to hold some of its own (again presumably) less desirable stations in order to allow TM to skim the cream from the New Northwest holdings. 

And with that, the Division dismissed the various TM applications as “inadvertently accepted for filing”.

The bottom line is that a station owner will not be allowed to use a divestiture trust “to re-shuffle its radio station portfolio.” Where the line falls between (a) the permissible use of a divestiture trust to accommodate a deal and (b) impermissible re-shuffling of a station portfolio will have to be sorted out on a case-by-case basis. Parties looking to play the divestiture trust card should proceed with caution.

In adopting its HD Radio rules, the Commission recognized that the multi-stream nature of HD operation could potentially allow broadcasters to make an end-run around the ownership rules. (That could happen if, say, a licensee who had hit the ownership cap in a market were to arrange through, e.g., a brokerage deal, to secure one or more digital streams on stations owned by others in the market.) In an apparent attempt to prevent this, the Commission held that if a licensee (let’s call it Licensee A) of a station in a market were to broker a multicast stream from another licensee’s station in the same market, that brokered stream would count towards the local radio ownership cap for Licensee A. This would prevent a maxed-out licensee – such as Viacom – from programming using another licensee’s in-market multicast channels.

But the situation in Los Angeles isn’t quite that simple. According to Mount Wilson, Viacom is using a multicast stream on a station that Viacom already owns (KTWV) to simulcast the programming from another station that it owns in another market (i.e., KFRG in the nearby San Bernardino market). Mount Wilson is urging the Commission to declare that, when a licensee uses the multicast stream of a station it owns to simulcast the signal of an out-of-market station it also owns, the licensee should be charged with an additional attributable interest in the multicast market.

While Mount Wilson’s pique is understandable, its argument reduces to the odd and probably untenable notion that Viacom should be deemed to have multiple attributable interests in its own station. With the Commission’s oft-stated desire to encourage the expanded acceptance – by both the industry and the listening public – of HD Radio, it seems unlikely that the Commission will adopt such a novel and potentially far-reaching approach to attribution of multicast streams. Still, Mount Wilson’s request does raise some interesting questions, such as how the situation would differ if Viacom were to carry on its multicast stream either (a) the programming of an out-of-market station owned by an unaffiliated entity, or (b) the programming of a station it owns in a much more distant market, or (c) simply the same programming as on KFRG, but not to carry it as a simulcast.

Mount Wilson raises a second question about the geographic limits on use of an HD Radio multicast stream to simulcast another station. The Commission’s rules have long held that a commercial licensee cannot use a commonly owned FM translator to expand the service area of a commonly-owned full-power FM station beyond the limits of the full-power station’s 60 dBu contour. The rationale of that limitation on translator usage is based in significant part on the view that such use would undermine full-power FM service and the Commission’s allocation scheme.

Mount Wilson picks that ball up off the translator field and tries to score with it on the HD radio field. In Mount Wilson’s view, the simulcasting of a full-power FM station on the multicast stream of another outside the first’s 60 dBu contour is the same thing as using a translator for that purpose. Since such use in the translator context is prohibited, so too should the multicasting gambit be. Mount Wilson does not limit its requested prohibition to commonly-owned stations: it urges the Commission to adopt a prohibition on the use of an HD Radio multicast stream to expand the service area of any other FM station.

If adopted, Mount Wilson’s suggested prohibition would prevent an owner of multiple stations within a market from using the multicast streams of the strongest station to deliver the programming from a weaker station to a larger audience. Again, the FCC’s stated desire to encourage multicasting and adoption of HD Radio would suggest a reluctance to adopt such limits.

Our best guess is that the Commission is unlikely to impose the requested limitations, at least through a declaratory ruling. A (somewhat) more likely outcome would be inclusion of the issue in a future notice of proposed rulemaking in HD Radio proceeding. If and when that occurs – or if any other opportunity to chip in your two cents’ worth on the Mount Wilson proposal arises – we’ll let you know.