Increased restrictions and an at-best-vague waiver policy threaten continued viability of many if not most joint sales arrangements.
Everybody knows that, back on March 31, the Commission significantly altered the playing field for television broadcasters. In two separate items adopted that day the FCC (a) barred non-commonly-owned Top 4 network affiliates in a given market from engaging in joint retransmission consent negotiations, and (b) changed its approach to ownership attribution of joint sales agreements (JSAs). The full text of the retrans consent decision was released the day of the meeting. (You can check out our post on it here.) But the JSA order has been MIA . . . until now.
On April 15, more than two weeks after its adoption, the Further Notice of Proposed Rulemaking and Report and Order (JSA R&O) laying out the new JSA rules and policies was released. (The JSA R&O also kicks off the Commission’s statutorily mandated quadrennial review of its ownership rules.) Despite the delay in the document’s release – and the fact that it runs to 236 pages (and 1,147 footnotes) – the JSA R&O doesn’t add significant insight into how JSA attribution, and in particular the standards for waiver, will be implemented.
The new JSA rules and policies govern any arrangement which authorizes one TV station in a market to sell 15% or more of the advertising time of another station in the same market. Reversing a couple of decades of precedent, the JSA R&O provides that such JSAs will now be attributable to the owner of the station doing the selling. This means that, in many markets, longstanding arrangements that have been viewed as consistent with the multiple ownership rules will now have to be modified or unwound in order to assure compliance with those rules. Such modifications/unwinding must be done within two years of the effective date of the new rules. While the Commission will entertain requests for waivers of the rules, the prospects for getting a waiver are at this point far from clear.
The change will make the television ownership rules essentially the same as those currently applied to radio. The Commission is concerned that TV JSAs can give the selling station an undue degree of influence and control over the programming choices of the ostensibly independent station. This concern is particularly acute when the JSA is combined with other “entanglements”, such as shared services agreements, option agreements, or other financing. (The Commission has concluded that JSAs involving sale of less than 15% of a station’s time don’t provide the opportunity to exercise excessive control over that station’s operations.)
In the anticipatory run-up to the adoption and release of the JSA R&O, considerable speculation had been devoted to questions of possible grandfathering and waivers of the expected rule. The FCC’s action on both those scores is not something broadcasters are likely to celebrate.
As to grandfathering, forget it: no automatic grandfathering will be available for any JSAs. Rather, if the terms of a JSA bring it within the reach of the rule, the JSA will be deemed to constitute an attributable interest, and if that attributable interest puts the selling station in question over the multiple ownership limits, the parties to the JSA will have two years to either restructure or terminate it.
Alternatively, the parties could ask for a waiver, although what exactly will be required to obtain a waiver is not yet entirely clear. It appears that the Media Bureau will enjoy significant discretion in determining which waivers (if any) will be approved. But in an apparent effort to create the impression that it’s sensitive to concerns about uncertainty and possible delay, the Commission has directed the Bureau to either grant or deny each waiver request within 90 days of the “closing on the record” on that particular request. (The record is said to be “closed” as of the date of the final submission relative to the request.) But even that 90-day “shot clock” is subject to uncertainty, because the JSA R&O provides that the time limit will apply only “provided there are no circumstances requiring additional time for review.”
Unlike the days when Chairman Martin helmed the Commission – when the actual orders adopted by the FCC often weren’t released until months after they were adopted – the Genachowski and Wheeler Commissions have demonstrated an admirable ability to get their decisions released within no more than a day or two of adoption. Because of that, many industry members scratched their heads as days and then weeks passed without the release of the JSA R&O. Many harbored the hope that release of the text of the decision was delayed to permit the inclusion of detailed waiver standards.
Anyone harboring such hopes will be deeply disappointed.
As it turns out, barely one paragraph of the JSA R&O discusses the standards that will apply to JSA attribution waivers, and even that minimal discussion is disturbingly vague. Here’s what we know: the Bureau’s assessment of waiver requests will be guided in the first instance mainly by concern about whether the proposed JSA gives the selling station inappropriate influence over the other station’s programming. Otherwise prohibited JSAs might qualify for a waiver if they can be shown to result in significant benefits to localism, diversity and competition. As with any case-by-case process, we can expect to see some flesh put on those bones over the course of time. For now, however, the Commission has provided no more guidance than that.
In a presentation made at the March 31 Commission meeting, Media Bureau Chief William Lake provided far more detail than the JSA R&O itself. According to Lake, the staff currently contemplates that waiver requests will fall into one of three “groups” or categories, each of which will be subject to somewhat different processing.
First would be proposed JSAs between two existing owners where no sale transaction is proposed and where no facts suggest that the station providing advertising services would have any other means to influence the subject station. Waivers in such situations would receive the quickest processing and, presumably, would be more likely to be granted.
The second group would be JSAs arising as part of a sale transaction, but without any additional “entanglements” suggesting influence, such as financing or options agreements. These types of proposals would receive a closer look.
Finally, the third group of proposed JSAs would be those where, over and above the JSA, additional relationships between the two stations – such as financing, options, or shared services agreements – indicate that the station providing services may have the ability to exert control over the programming, personnel, and finances of the subject station. Lake indicated that such waiver requests would receive the closest scrutiny, and that a very strong public interest showing would be required to obtain a waiver in such a situation.
In terms of the potential public interest benefits that could be shown to help justify a waiver, few details have been officially identified. Possible factors include: time limitations on the JSA; a demonstration of how the JSA would help a local educational institution or “community support organization” to launch a broadcast operation; a showing that the JSA would lead to increased production of news or other locally-focused efforts.
The JSA R&O does contain some (very minimal) good news for a small universe of broadcasters: the new limits will not apply to national sales representatives. Even if a national sales rep firm owns stations in a market, it will still be allowed to sell time for other stations in that market without attribution.
The requirement that JSAs, both old and new, be filed with and approved by the Commission must first be run past the Office of Management and Budget for its approval (thanks to our old friend, the Paperwork Reduction Act). Once OMB has approved the new rules – which is likely to take at least three-four months, possibly more – the FCC will issue a notice advising everybody when the rules will become effective. Parties to existing JSAs will then have 30 days to file their documents with the Commission. Any parties entering into JSAs after the effective date of the JSA R&O, will also need to file those agreements with the Commission within 30 days of signing or as part of an assignment or transfer of control application, if applicable.
The JSA R&O also includes a Further Notice of Proposed Rulemaking (FNPRM) component in which the Commission has initiated the 2014 Quadrennial Review of the Commission’s ownership rules while also continuing the still-unresolved 2010 quadrennial review and addressing the Commission’s 2008 order on encouraging diversity in ownership. (That last order was remanded to the Commission by the U.S. Court of Appeals for the Third Circuit in 2011.)
In the FNPRM the Commission proposes retaining the existing local television ownership rule (although the term “Grade B contour” for overlap purposes would be replaced by “digital Noise-limited service contour” (NLSC), the equivalent of the “Grade B contour" for DTV purposes). The FCC also proposes to retain:
- the failed and failing station waiver regime (although it requests comment on whether any changes that should be made on that front);
- the newspaper/broadcast cross-ownership rule with respect to television (although it requests comment on potentially repealing the rule for radio/newspaper cross-ownership). The TV element of this rule would also be updated to refer to digital Principal Community Contour rather than “Grade A Contour”);
- the Commission’s local radio ownership rule and dual network rules without change (although it does request comments on whether the radio/television cross-ownership rule remains necessary).
Buried in the FNPRM is also a proposal that would prohibit two television stations in a local market from swapping affiliations such that a single owner controlled two Top-Four affiliates. Previously, this type of contractual arrangement had been allowed as long as common ownership of any two stations in the market was permitted. In those circumstances a subsequent change in affiliations would not have required Commission approval or review. Under the proposal in the FNPRM, any party gaining control over two Top-Four network affiliations in a market in such a manner would be subject to enforcement action.
The FCC also proposes rules designed to “increase transparency” by requiring that all sharing arrangements between stations – including shared services agreements, news sharing arrangements, news gathering arrangements, and agreements for joint retransmission consent negotiation (even where such negotiation is still allowed) – be disclosed. The FNPRM makes clear that the Commission intends to define “sharing arrangements” as broadly as possible, to encompass any agreement, written or oral, by which one station (or its parent or affiliate companies) provides “administrative, technical, sales, and/or programming” services to another station.
Finally, there’s the matter of the Third Circuit’s 2011 remand of the Commission’s 2008 Order designed to increase diversity in broadcast ownership. The Court overturned much of that order because the FCC had supposedly failed to establish a sufficient “nexus” between (a) the “eligible entity” program adopted there and (b) the goal of furthering racial diversity in ownership. The Commission is now looking to reinstate the “eligible entity” standards on the separate theory that increasing ownership and entry into broadcasting by small businesses would itself be beneficial. While the FCC still appears interested in adopting a race-conscious standard to encourage female and minority ownership, it has apparently concluded such a standard could not withstand the strict constitutional scrutiny to which it would likely be subjected in the courts, although it seeks comment on this conclusion.
The JSA R&O drew strong dissents from Commissioners Pai and O’Rielly. Pai, in particular, delivered a lengthy response in which he characterized the JSA R&O the most problematic he has voted on at the Commission and invited court challenges to it. Procedurally, Commissioner Pai disagreed with the Commission’s decision to adopt new JSA rules when the 2010 Quadrennial Ownership review remains unresolved. In particular, he expressed great concern that the Media Bureau would not even be scheduled to deliver recommendations on the full ownership review until June, 2016, after the two-year period for the unwinding of JSAs has closed. On this front, Commissioner Pai’s views jibe with those of Congressional Republicans, who continue to attempt to insert language into a revision of satellite carriage laws that would require the Commission to resolve the 2010 Quadrennial Review before taking any action on JSAs. It remains to be seen what will come of those attempts.
Pai and O’Rielly also both expressed disagreement with the substance of the Commission’s decision to attribute JSAs, asserting that regulation isn’t warranted because there isn’t enough evidence that JSAs lead to influence over programming decisions. Both also argued that eliminating JSAs, particularly in small markets, will harm localism and diversity by forcing smaller stations to decrease or eliminate local news coverage or fold entirely. Pai also noted that the Media Bureau has repeatedly approved JSAs in recent years; given that, he fears that the Commission’s refusal to grandfather such arrangements could undermine any confidence that broadcasters, and investors, might otherwise have that the FCC can be counted on to stand by its decisions.
Comments on the JSA R&O and the FNPRM will be due 45 days after Federal Register publication, with replies due another 30 days after that. (Check back here for updates as to the specific due dates.)