[Federal Register Volume 60, Number 22 (Thursday, February 2, 1995)]
[Proposed Rules]
[Pages 6483-6490]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-2545]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 73
[MM Docket Nos. 94-150, 92-51, and 87-154; FCC 94-324]
Broadcast Services; Television and Radio Broadcasting
AGENCY: Federal Communications Commission.
ACTION: Notice of proposed rulemaking.
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SUMMARY: The Commission, through Notice of Proposed Rule Making (NPRM)
initiates a thorough review of its broadcast media attribution rules
contained in Notes to 47 CFR 73.3555. This Notice of Proposed Rule
Making requests comment on the many issues pertinent to our analysis of
whether the current attribution rules continue to be effective in
serving their goals or whether changes to the rules are required. This
proceeding is appropriate to ensure that the broadcast attribution
rules conform with other related Commission rules and to ensure that
these rules effectively implement the Commission's broadcast multiple
ownership rules by identifying those interests that have the potential
to influence the licensee in core operating areas. such as programming.
Comments are sought with respect to the current corporate stockholding
attribution benchmarks, the single majority shareholder exemption, the
nonattribution of nonvoting stock, and the treatment of limited
partnership interests. Additionally, comment is sought on how to treat
Limited Liability Companies and Registered Limited Liability
Partnerships for attribution purposes. The attribution rules are a
critical enforcement mechanism for the Commission as it applies its
multiple ownership rules. Comments are also sought on the remaining
aspects of the Commission's cross-interest policy and on what multiple
``cross-interests'' or otherwise nonattributable interests, when viewed
in combination, raise diversity and competition concerns warranting
regulatory oversight.
DATES: Comments are due by April 17, 1995, and reply comments are due
by May 17, 1995.
ADDRESSES: Federal Communications Commission, Washington, D.C. 20554.
FOR FURTHER INFORMATION CONTACT: Mania K. Baghdadi, Mass Media Bureau,
Policy and Rules Division (202) 418-2130, or Robert Kieschnick, Mass
Media Bureau, Policy and Rules Division (202) 418-2170.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Notice of Proposed Rule Making in MM Docket Nos. 94-150, 92-51, and 87-
154, FCC 94-324, adopted December 15, 1994, and released January 12,
1995. The complete text of this NPRM is available for inspection and
copying during normal business hours in the FCC Reference Center (Room
239), 1919 M Street, N.W., Washington, D.C., and also may be purchased
from the Commission's copy contractor, International Transcription
Service, (202) 857-3800, 2100 M Street, N.W., Suite 140, Washington, DC
20037.
Synopsis of Notice of Proposed Rule Making
1. This NPRM initiates a thorough review of the Commission's
broadcast media attribution rules (found in 47 CFR 73.3555), which
``define what constitutes a `cognizable interest' for the purpose of
applying the multiple ownership rules to specific situations.''\1\
\1\Report and Order in MM Docket No. 83-46, 49 FR 19482, May 8,
1984 (Attribution Order), On recon., Memorandum Opinion and Order in
MM Docket No. 83-46, 50 FR 27438, July 3, 1985 (Attribution
Reconsideration), on further recon., Memorandum Opinion and Order in
MM Docket No. 83-46, 52 FR 01630, January 15, 1987 (Attribution
Further Reconsideration).
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The multiple ownership rules limit the number of broadcast stations
that a single person or entity, directly or indirectly, is permitted to
own, operate, or control, so as to foster programming diversity by
encouraging diversity of ownership, and to assure competition in the
provision of broadcast services.
2. The broadcast industry and other Commission rules have changed
since these rules were last revised. For example, the multiple
ownership rules themselves have been relaxed, and, concurrently with
this decision, the Commission has adopted a Further Notice of Proposed
Rule Making (Further Notice of Proposed Rule Making in MM Docket No.
91-221, FCC 94-322, adopted December 15, 1994), which seeks comments as
to whether we should relax national and local multiple ownership limits
for television stations, including the one-to-a-market rule. Also, in
an additional separate proceeding published elsewhere in this edition
of the Federal Register, the Commission is considering a variety of
measures, including relaxing our attribution rules, to aid the entry of
minorities and, if deemed necessary, women into broadcasting. The
Commission wishes to ensure that the attribution rules remain effective
in light of the previous and proposed relaxation of the multiple
ownership rules.
3. Additionally, the Commission is concerned that certain
nonattributable investments, while completely permissible, may permit a
degree of influence that warrants their attribution for multiple
ownership purposes. Moreover, the Commission is also concerned that
otherwise permissible cooperative arrangements between broadcasters are
being used in combination by those broadcasters to obtain, indirectly,
controlling interests in multiple stations that they would be
prohibited from holding directly under the multiple ownership rules.
Further, this proceeding will consider how to treat, for attribution
purposes, new business forms, such as Limited Liability Companies
(LLCs). Finally, this review will ensure that any differences between
the broadcast attribution rules and recently adopted or revised
attribution rules for other regulated services are justified by other
factors, such as differences between the media or our policies
regulating them.
4. While the Commission's focus is on the issues of influence or
control, at the same time, the attribution rules must be tailored to
permit arrangements in which a particular ownership or positional
interest involves minimal risk of influence, in order to avoid unduly
restricting the means by which investment capital may be made available
to the broadcast industry. The Commission intends to ensure that any
revisions to the attribution rules meet these stated goals, are clear
to broadcast regulatees, provide reasonable certainty and
predictability to allow transactions to be planned, ensure case of
processing, and provide for the
[[Page 6484]]
reporting of all the information necessary to make the Commission's
public interest finding with respect to broadcast applications.
5. This NPRM also consolidates and comprehensively reexamines other
pending proceedings that directly or indirectly implicate the
attribution rules. Specifically, in 1992, in a Notice of Proposed Rule
Making and Notice of Inquiry in MM Docket No. 92-51, 57 FR 14684, April
22, 1992, (``Capital Formation Notice''), comments were sought
regarding whether the Commission should relax several of its
attribution rules in a number of specific contexts in order to
stimulate investment in the broadcast industry and to benefit new
entrants, who have historically experienced significant difficulties in
securing adequate startup funding. The Notice inquired as to whether
the Commission should relax its attribution benchmarks for active and
passive stockholders, and modify its insulation criteria as to widely-
held limited partnerships, including business development companies
organized as such. The Commission will incorporate the record from MM
Docket No. 92-51 into the record of this proceeding to the extent that
it is relevant to our consideration of the foregoing issues.\2\
\2\The Capital Formation Notice also asked whether the
Commission could, under the Communications Act, and should, for
policy reasons, permit the holding of security and reversionary
interests in licenses. That issue will be resolved in a separate
proceeding.
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6. The Commission will also consider in this proceeding the
comments received in response to the Further Notice of Inquiry/Notice
of Proposed Rule Making in MM Docket No. 87-154, 54 FR 10026, March 9,
1989 (``Cross-Interest Notice''), in which comment was sought on
whether Commission should maintain its cross-interest policy in three
areas--key employees, non-attributable equity interests, and joint
ventures. In the Cross-Interest Notice, we also invited comment as to
whether to amend the attribution rules to incorporate the key employee
portion of the cross-interest policy. The Commission will incorporate
the record from MM Docket No. 87-154 into the record of this
proceeding.
7. The Commission notes that this proceeding is complementary with,
and will affect our actions in, two rulemaking proceedings which appear
elsewhere in this edition of the Federal Register. The first is a
Further Notice of Proposed Rule Making in MM Docket No. 91-221, which
concerns the multiple ownership rules for television stations. The
second is a Notice of Proposed Rule Making in MM Docket Nos. 94-149 and
91-140, which seeks comment on a number of proposed rule changes and
initiatives to provide minorities and women with greater opportunities
to enter the mass media industry. Because the content of the
attribution rules is critical to issues raised in both proceedings, the
Commission will review the comments received in those proceedings in
conjunction with the comments received in the instant proceeding to
assure a coordinated approach to the three proceedings.
8. In this undertaking, we are guided by basic economic concepts as
to the essential nature of firms, their control, and their conduct.
Comment is invited on our analysis and parties are encouraged to
support their views with relevant empirical analysis and business and
economic theories. Commenters are also invited to propose alternative
analytical frameworks for establishing the specific interests that
should be deemed cognizable under our various multiple ownership rules.
The Commission's analysis will focus essentially upon the effect that
financial claims on, and associated voting or contractual rights in,
broadcasting companies have on their conduct. The economic conduct of
concern to us relates to a broadcasting company's programming choices,
including affiliation choices, and competitive practices, including
advertising pricing. To address these issues with a desirable degree of
confidence, the Commission will need as much information as is
available to establish the connections and thresholds of concern
between financial claims on a firm and its conduct.
9. Accordingly, with respect to each specific ownership or
relational interest discussed herein, the Commission seeks comment on
whether the level or degree of ownership interest in, or relationship
to, a licensee would be likely to impart the ability to influence or
control the operations of the licensee, including core functions such
as programming, such that the multiple ownership rules should be
implicated. The Commission intends to base its judgment with respect to
each specific attribution limit or criterion considered in this NPRM on
as much empirical data as can be obtained, as well as economic and
business theories on levels of influence in business organizations, as
discussed above, and comments are specifically invited that contain
such data and are grounded in rigorous economic theories and analyses.
In setting a specific attribution limit or determining whether a
particular interest should be cognizable or not, the Commission asks
commenters to address the degree to which we should attempt to
accommodate the competing concerns that have motivated us in the past,
such as not inhibiting legitimate business opportunities and
encouraging the flow of capital investment into the broadcast industry.
An important consideration is the extent to which the Commission can
and should accommodate these interests directly. In every case, if the
new rule or exemption proposed represents a departure from the
commission's current rules and standards, commenters should demonstrate
the justification for such a departure. Additionally, in light of our
desire to promote ownership opportunities for minorities and women in
the broadcasting industry, the Commission invites comment on whether
there are other attribution rules, besides those discussed in MM Docket
Nos. 94-149 and 91-140, that should be adjusted to promote access to
capital for minorities and women.
10. The Commission seeks empirical data and analysis that would
indicate the ownership level that would likely impart to its holder
some ability to influence the operation of a broadcast station in a
manner that is intended to be limited by our multiple ownership rules.
Also, the Commission seeks data and/or analysis, based on sound
economic principles, to demonstrate that changing the attribution rules
would have a significant effect on capital investment and new entry.
The Commission also seeks detailed economic data regarding how the
capital needs and outlays of broadcasters have changed since the
current attribution rules were set, as well as since the earlier set of
comments were submitted in response to the Capital Formation Notice,
and any impediments to adequate financing imposed by the current rules.
11. The Commission is concerned that any action taken in this
proceeding not inhibit capital investment nor disrupt existing
financial arrangements, and we seek comment as to both of these areas
with respect to our proposals herein. The Commission also seeks comment
on whether, and, if so, to what extent, we should grandfather existing
situations if any modifications we make to the attribution rules, for
example, restricting the availability of the single majority
shareholder exemption or attributing nonvoting stock, would result in a
new attribution of ownership to an entity for a previously held
interest, and that new attribution would result in a violation of the
multiple ownership rules. Alternatively, should the Commission permit a
transition period, during which
[[Page 6485]]
licensees could come into compliance with the multiple ownership rules,
as affected by any changes we make in the attribution rules?
12. The Commission recognizes that any specific benchmark or limit
that is adopted will not include every influential interest that might
be limited by the multiple ownership rules. A particular holding or
interest not considered cognizable under our rules may, in the context
of the structure of a particular business, including the relative
distribution of ownership interests in that company, permit a degree of
influence or control that should be regulated under the multiple
ownership rules. On the other hand, a rule of general applicability
drawn so strictly as to include every possible influential interest
would ensnare innumerable interests that have no ability to impart
influence or control over a licensee's core decision-making processes
to their holders. Weighing these considerations, the Commission
preliminarily concludes that our goals of predictability and certainty
can best be achieved if we continue to use benchmarks and specific
attribution limits rather than proceeding on an ad hoc basis. Of
course, the Commission retains the discretion to treat specific factual
situations on a case-by-case basis. Commenters may, of course, address
these basic propositions.
Stockholding Benchmarks
13. In devising our attribution rules, the Commission proceeds on
the basis of certain assumptions. As noted above, the attribution rules
focus on the issues of influence on and control of a firm. Thus, this
NPRM first concentrates on equity holders and addresses whether or not
particular equity holdings have the potential to control or influence
the firm and its activities.-
A. Voting Stock
14. The Commission now attributes ownership to holders of 5 percent
or more of the voting shares of corporations. The Commission does not
attribute the shares of nonvoting shareholders, regardless of the
percentage of the equity of the corporation contributed by those
shareholders or the percentage of the nonvoting shares that they hold.
The current benchmarks were adopted in 1984. We selected the 5 percent
benchmark because, according to our examination, a 5 percent
shareholder in a widely-held corporation would typically be one of the
two or three largest corporate shareholders and thus could potentially
influence a licensee's management and operations. Further, this
benchmark corresponds with Security and Exchange Commission regulations
that require the reporting of ownership interests of 5 percent or
greater.\3\ We also concluded that adoption of a benchmark higher than
5 percent may result in many substantial and influential interests
being overlooked and that the need to adopt a higher threshold was
unclear since every demonstrable benefit to be derived from relaxing
the attribution rules would be achievable in large measure from
adopting a 5 percent benchmark.
\3\Securities and Exchange Act Section 13(d), 15 U.S.C. 78m(d).
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15. In the Capital Formation Notice, the Commission proposed to
increase the general attribution benchmark for voting stock from 5
percent to 10 percent in order to stimulate capital investment. The
Commission asked commenters how we might preserve investment
flexibility while adequately accounting for all influential interests
that merit scrutiny under our rules. The record thus far does not
contain information sufficient to justify raising the benchmark to 10
percent. Commenters addressing this issue unanimously supported raising
the benchmark due to changes in the economic and competitive
environment of the media marketplace since the mid 1980s, but they did
not provide enough information on the changes in the economic climate
and competitive marketplace to justify raising the benchmark or explain
and verify the link between raising the attribution benchmark and
precipitating additional capital investment.
16. While commenters argued that a less than ten percent
stockholding is not, in itself, sufficient to presume that the holder
could exert control or influence over the corporation, they do not
explain the basis for that claim or provide any specific information
that would allow us to devise a methodology to assume that such a
stockholder would remain inactive in the affairs of the company in most
or all cases. Moreover, comment is requested on whether such factors as
the size, composition of management, and minority shareholder rights of
individual corporations might not be increasingly relevant where larger
nonattributable stockholdings are permitted. Therefore, commenters are
asked to provide detailed illustrations of the role of minority
shareholders in the management of a corporation. In addition, the
Commission seeks more detailed information about the impact of minority
shareholder rights on corporate management generally, particularly in
those instances where individual minority shareholders might act in
concert with others to affect the decision making of the corporate
licensee or permittee.
17. With respect to the issue of facilitating increased capital
investment, the Commission seeks answers to the following questions. Is
there support for the assumption that an increased attribution
benchmark will result in greater capital investment? If so, how would
any increased availability of or reduced cost of capital resulting from
an increased attribution benchmark be likely to be allocated between
smaller, less established broadcasters and larger, more established
ones? Should we be concerned that proportionately increasing the
capital available to larger entities or reducing its cost to them might
actually strengthen those licensees that already dominate the broadcast
industry, thereby threatening competition and diversity? Analyses of
these effects at several different hypothetical attribution benchmarks
are requested.
18. Commission Attribution Rules in Other Services. The Commission
seeks comment on the relevance of attribution rules applied in other
FCC services. A critical matter on which we seek comment is whether and
how a change in the Commission's broadcast attribution benchmark would
affect the many services that rely on it. The Commission invites
comment on the relevance of the attribution criteria for other services
detailed in paragraphs 26-36 in the full text of this NPRM, as well as
on others not discussed therein, to our consideration of the broadcast
attribution rules. Does broadcasting have unique factors that make
comparison with other Commission services inapposite, or, to the
contrary, should we consider our action in other services as
precedential? Is broadcasting sufficiently different from these other
services in nature, function of the service or otherwise so as to
justify any differences? Or, are the purposes of the broadcasting
attribution and multiple ownership rules sufficiently distinct so as to
justify any differences between those rules and those of the other
Commission services?
19. Other Agency Benchmarks. In addition to taking note of the
attribution rules used in other Commission services, the Commission
also seeks comment as to regulatory benchmarks used by other federal
agencies, including those discussed in the full text of this NPRM and
other standards that commenters may bring to our attention. The
strength of the analogy to
[[Page 6486]]
other benchmarks will, of course, depend on whether the purpose of the
particular benchmark in question parallels the Commission's objective
in identifying ownership interests that confer on their holders the
ability to influence the day-to-day operations of a licensee, and
commenters should address, in detail, why a particular agency's
benchmark may or may not be applicable, by analogy, to our analysis.
The Commission is particularly interested in whether the purposes
underlying other regulatory benchmarks are comparable to our
competition and diversity concerns, and why that agency believed the
percentage it selected reflects a substantial enough interest to
constitute the level of influence or control that implicates its
underlying ownership limitation, and, in particular, whether is
analytical methodology would be applicable to our rules.
20. The Commission seeks comment on how to devise rules that are
consistent with the administrative concerns expressed in our section
devoted to our underlying principles, and that would accommodate the
principles as discussed in the full text of his NPRM. Should there be
an exemption, similar to the single majority stockholder exemption, for
stockholders in firms where management holds some threshold level of
stock, on the ground that the inherent control afforded managers would
preclude significant influence by other stockholders? Can the
Commission's stockholding benchmarks rely on, or take cognizance of,
the size of a stockholding relative to others in the firm?
B. Voting Stock: Passive Investors
21. In the Attribution Order, the Commission adopted a 10 percent
attribution benchmark for certain institutional investors (bank trust
departments, insurance companies, and mutual funds) that we deemed to
be ``passive'' in nature in order to ``increase the investment
flexibility of these entities and, in so doing, expand the availability
of capital to the broadcast and cable industries without significant
risk of attribution errors.'' The Capital Formation Notice proposed
increasing the passive investor benchmark from 10 percent to 20
percent. The commenters who addressed this issue unanimously supported
increasing the voting stock attribution level for passive investors,
but provided no basis on which to conclude such a change is
appropriate. Commenters are invited to delineate what specific
assurances we would have that passive investors that hold large stock
interests cannot or would not exert influence or control over broadcast
licensees and that raising the benchmark would therefore not exclude
from attribution holders of interests that have a significant and
realistic potential to influence station operations. Are there common
factors, intrinsic to all passive investors, or institutional or other
safeguards that could provide such assurance? Moreover, the comments do
not, in the Commission's view, dispose of the Commission's concern
regarding the impact on corporate decision-making that could result,
even unintentionally, by the trading and voting of large blocks of
stock of assertedly passive investors. Commenters are asked to address
the foundations of the Commission's concern about the possible effect
of large stock trades and whether there have, in fact, been any stock
transactions of this nature. If so, how substantial have such stock
transactions been, and do the costs of the exclusion of such interests
from attribution outweigh any potential benefits that might be realized
from an increased attribution benchmark?
22. The Commission seeks additional analysis on the degree of
increased investment that would likely stem from any adjustment of our
rules and on the need for such increased investment. Additionally, the
commenting parties did not adequately address the Commission's concerns
that any increase in these attribution levels not implicate our
concerns about the potential for influence. Finally, if the benchmark
for all investors is raised to 10 percent, does that reduce any need
there might be to facilitate broadcast investment by increasing the
passive investor benchmark?
23. Several commenters raised a closely related issue not discussed
in our Capital Formation Notice. They requested that the Commission
further expand the passive investor class to include other
institutional investors, such as pension funds, investment and
commercial banks, and certain investment advisors. The Commission does
not intend to revisit its decision of 1984 in order to broaden the
category of passive investors to include such entities. However,
commenters are invited to argue why this tentative conclusion is
incorrect. Similarly, the Commission is not prepared to expand the
category of passive investors to include Small Business Investment
Companies (``SBICs'') and Specialized Small Business Investment
Companies (``SSBICs''), formerly known as Minority Enterprise Small
Business Investment Companies (``MESBICs''), as proposed in the Capital
Formation Notice. The Commission has received no evidence in the
comments made thus far to alter our first conclusion that these
entities do not meet our definition of ``passive.'' In the above cited
NPRM in MM Docket Nos. 94-149 and 92-140, adopted simultaneously with
this NPRM, the Commission is, however, considering other rule changes
to facilitate capital investment and entry by minorities and women
without broadening our definition of ``passive'' investors.
C. Minority Stockholdings in Corporations With a Single Minority
Shareholder
24. Minority voting stock interests held in a corporate licensee
are not attributable if there is a single majority shareholder of more
than 50 percent of the corporate licensee's outstanding voting stock.
The Commission invites comment as to whether we should restrict the
availability of this exemption. The Commission is concerned that this
exemption not be used to evade the multiple ownership limits and that
our previous conclusion that a minority stockholder could not exert
significant influence on a licensee where there is a single majority
stockholder may not be a valid conclusion in all circumstances. For
example, if the minority voting stockholder has contributed a
significant proportion of the equity, holds 49 percent of the voting
stock, and combines that holding with a large proportion of the
nonvoting shares or debt financing, would that minority shareholder
have the potential to influence the licensee such that the multiple
ownership rules would be implicated? The Commission invites comment on
how we should approach our concerns in this area. Should the
availability of the exemption be restricted? If so, should the
Commission do so on a case-by-case basis or restrict it in specified
circumstances?
D. Non-Voting Stock
25. Under the Commission's attribution rules, all non-voting stock
interests (including most preferred stock classes) are generally
nonattributable. The Commission solicits comment on whether to amend
the attribution rules to consider nonvoting shares as attributable, at
least in certain circumstances. The Commission is concerned, for
example, that a nonvoting shareholder who has contributed a large part
or all of the equity of a corporate licensee may carry appreciable
influence that is not now attributed. If the Commission decides to
attribute nonvoting shares, should we do so only where substantial
equity holdings are held in combination with
[[Page 6487]]
other rights, such as some voting shares or contractual relationships?
If the Commission decides to attribute nonvoting shares without
reference to the existence of other contractual relationships, should
we adopt a separate benchmark at the same level as we apply either to
voting shares or to ``passive'' investors? The Commission tentatively
believes that we should, if we decide to attribute nonvoting shares,
adopt a benchmark at least as high as that applied to ``passive
investors'' since there is a common assumption of less potential for
influence or control in both instances.
Partnership Interests
26. The Commission generally attributes all partnership interests,
except for sufficiently insulated limited partnership interests,
regardless of the degree of equity holding. There is no apparent
controversy regarding the rule to attribute all general partnership
interests, and the Commission does not intend to revisit this rule. The
Commission currently exempts from attribution those limited partners
that are sufficiently insulated from ``material involvement,'' directly
or indirectly, in the management or operation of the partnership's
media related activities, upon a certification by the licensee that the
limited partners comply with specified insulation criteria. Limited
partnership interests that are not insulated are attributable,
regardless of the amount of equity held. The Commission seeks comment
on the effectiveness of the current insulation criteria for limited
partnership interests. Are additional insulation criteria necessary to
assure that the goals of the attribution rules are achieved? Or, to the
contrary, should the insulation criteria be relaxed to any degree, at
least in certain circumstances, to attract increased capital investment
or encourage new entry, and can this be done without implicating the
purposes of the multiple ownership rules to encourage diversity and
competition?
27. Business Development Companies and Other Widely-Held Limited
Partnerships. The Capital Formation Notice proposed to relax insulation
criteria with respect to business development companies organized as
limited partnerships so as to eliminate, as much as possible, the
current conflict with state and federal securities laws. Alternatively,
the Capital Formation Notice asked whether the Commission should
combine an equity ownership standard specific to these partnerships
with a more limited relaxation of specific insulation requirements. The
Capital Formation Notice also solicited comments on whether the
Commission should modify the insulation criteria applicable to all
``widely-held'' limited partnerships to recognize insulation where
limited partners hold an insignificant percentage of the total
interests in the partnership. The Commission asked whether a 5 percent
or other ownership benchmark would be appropriate in certain
circumstances.
28. The Commission seeks additional comments in this area. In
particular, we would like updated information and additional empirical
information on the growth and prevalence of business development
companies and widely-held limited partnerships as investment vehicles
generally, as well as applied to the broadcast industry in particular,
including the percentage of equity typically represented by their
investment. In this regard, it will be helpful for commenters to
discuss with specificity the operation of business development
corporations and widely-held limited partnerships and whether the
existing insulation criteria have hindered capital flow from these
entities to licensees.
29. The Commission asks parties to address the standards that could
be used to define widely-held limited partnerships eligible for
application of any revised insulation criteria. Comment is particularly
sought on whether there is anything inherent in the nature of state or
federal regulation of business development companies that would insure
that they remain widely held and whether such a guarantee, if it
exists, is an adequate substitute for any of our current insulation
criteria. Parties may also wish to offer additional suggestions for
defining widely-held limited partnerships that reflect our concerns
that such entities be used exclusively for investment purposes.
30. Additional information is sought, supported by empirical data,
on whether the Commission should revise our decision, on
reconsideration of the Attribution Order, not to adopt an equity
benchmark for noninsulated limited partnerships. In that decision, the
Commission decided to apply insulation criteria to limited
partnerships, instead of applying an equity benchmark. The Commission
is not inclined to change this approach based on the record compiled
thus far. If parties disagree with this conclusion, they must provide
us with more data and analysis to demonstrate that our earlier decision
is no longer valid or effective.
31. In this respect, the Commission seeks information on the
financial and legal structures of limited partnerships to enable us to
determine whether there is a uniform equity level below which the
Commission need not be as concerned or need not be concerned at all
with the application of the insulation criteria. Should equity share be
defined by the amount of cash contribution, the share of proceeds, or
rights on dissolution? How would the Commission evaluate contributions
in the form of services? If the power of a limited partner is not
related to his proportional partnership share (which is the premise of
the current rules), is there a partnership size that would obviate the
power of any one partner, such that ownership should not be attributed
to any partner, regardless of his share? The Commission also asks
whether other state and federal regulations might provide guidance in
this area, and/or the extent that such regulations might provide
sufficient protection so as to make additional Commission regulations.
In this regard, the Commission requests estimates, supported by
economic or other studies that provide their basis, of how much
additional capital might be made more readily or cheaply available to
the broadcast industry by adoption of any of these approaches, as well
as how such capital is likely to be distributed.
Limited Liability Companies and Other New Business Forms
32. The Commission also seeks comment as to how we should treat,
for attribution purposes, the equity interest of a member in a limited
liability company or LLC, a relatively new form of business association
permitted and regulated by statute in at least 45 states. The
Commission has recently received TV and radio assignment applications
where parties have argued that we should exempt certain owners of an
LLC from attribution, either because they should be treated as
nonvoting shareholders or because they should be treated as fully-
insulated limited partners. So that processing of pending applications
is not indefinitely delayed, the Commission plans to process them on a
case-by-case basis until this rule making is completed, using the
tentative proposal delineated above as our interim policy, including
the special exception for minorities discussed therein.
33. Comment is solicited as to how the Commission should treat
LLCs, Registered Limited Liability Partnerships (``RLLPs''), and other
new business forms as well as any other new business forms, that may
arise in the future for attribution purposes. Any approach the
Commission takes with respect to LLCs and similar hybrid entities must
ensure that exemption
[[Page 6488]]
from attribution is granted only where there are sufficient assurances
that the exempted owner is adequately insulated from control of the
entity. In addressing the attribution of LLCs, the Commission hopes to
delineate the principles to be applied and express them in general
terms that can be applied to new business forms that appear in the
future. The Commission invites comment as to the form and content of
any general principles that may be distilled from our analysis of
attribution of LLCs. The Commission also invites comment as to the
advantages of LLCs, in general, and also, in particular, the impact on
minority and female ownership opportunities.
34. The Commission tentatively proposes to treat LLCs and RLLPs as
we now treat limited partnerships. Membership in an LLC or RLLP would
be treated as a cognizable interest for multiple ownership purposes
unless the applicant certifies that the member is not materially
involved, directly or indirectly, in the management or operation of the
media-related activities of the LLC or RLLP. The Commission proposes
that such certification be based on the criteria specified in our
Attribution Reconsideration and Attribution Further Reconsideration.
Comment is invited on whether the insulating criteria developed with
respect to limited partnerships are sufficient to insulate members of
LLCs and RLLPs or whether other criteria would be more effective. The
Commission notes, however, that applying limited partnership
attribution criteria to LLCs would result in attributing all investors
that may provide programming or other services to the LLC. In this
regard, the Commission's recent experience suggests that such
arrangements have been central to proposals that might significantly
advance minority ownership of broadcast facilities. Accordingly, the
Commission seeks comment on whether to provide an exception to our
tentative proposal, on a case-by-case basis, where doing so would
advance our policy of enhancing opportunities for broadcast station
ownership by minorities.
35. The Commission is not inclined to treat LLCs as we currently
treat corporations, exempting from attribution the interests of
``nonvoting'' shareholders without regard to the presence or absence of
insulating provisions in an operating agreement. If, however,
commenters raise significant policy reasons why the Commission should
alter this interim view, we will consider those reasons. The Commission
also invites comment as to what approaches should be taken to LLCs and
RLLPs should we neither adopt the equity benchmark for partnerships nor
retain the existing attribution standards. The Commission also requests
comment on whether there are differences between LLCs and/or RLLPs and
limited partnerships such that we should not treat the former entities
as we treat limited partnerships.
36. The Commission invites comment on whether, if the certification
approach with respect to LLCs is adopted, we should also require
parties to file copies of the organizational filings and/or operating
agreements with the Commission when an application is filed. If so,
what, if any, confidentiality concerns exist, and how should they be
addressed? If the Commission adopts, as our attribution standard, an
ownership benchmark applicable to limited partnerships, comment is
invited on whether it would be appropriate to apply that benchmark to
LLCs and RLLPs as well.
37. If the Commission relaxes insulation standards for widely-held
limited partnerships, should we apply these changes to LLCs and RLLPs?
The Commission invites comment as to whether to take a uniform approach
to widely-held LLCs, RLLPs, and ``business development companies.'' Do
these entities have similarities in organization and/or function that
would mandate such similar treatment or are there significant
distinctions? Alternatively, do the policy goals discussed in the
Capital Formation Notice apply with respect to LLCs and RLLPs so as to
justify such a similar approach? If a uniform approach is warranted,
what should that approach be?
38. Should the Commission treat all LLCs the same or differentiate
those with centralized management from those with decentralized
management? In LLCs where all management authority has been vested in
nonmembers who are selected by the members, should the managers be
treated, for attribution purposes, as equivalent to officers and/or
directors of a corporation? Should the Commission adopt an approach of
exempting from attribution members with limited equity interests,
regardless of lack of compliance with insulating criteria? For
attribution purposes, should the percentage of ``ownership'' be
determined by voting rights among the members, the share divisions
designated by the parties, the extent of capital contribution, or by
some other measure? Under the commission's current attribution rules,
we do not distinguish among partners based on the amount of equity they
contribute or their share division. If the determination is made based
on capital contribution, what should be done about members whose
contribution is in services? How should the Commission treat LLCs in
multi-tiered vertical organizational chains? Should multipliers be
applied, and, if so, under what circumstances?
The Cross-Interest Policy and Multiple Business Interrelationships
39. The Commission also incorporates in this proceeding the pending
issues raised in the Cross-Interest Notice with respect to the
remaining aspects of the Commission's cross-interest policy. The
Commission also seeks comment regarding the appropriate treatment of
nonequity financial interests and multiple business interrelationships
between licensees, in light of the fundamental economic principle that
the conduct and control of business organizations may at times be
influenced by nonequity interests.
A. The Cross-Interest Policy
40. Background. In 1989, the Commission issued a Policy Statement
(54 FR 09999, March 9, 1989) limiting the scope of the cross-interest
policy so that it would no longer apply to consulting positions, time
brokerage arrangements and advertising agency representative
relationships. At the same time, however, the Cross-Interest Notice was
issued to seek further comment concerning key employees,
nonattributable equity interests, and joint ventures. The Commission
solicited comment on whether retention of the remaining cross-interest
policies was necessary to prevent anticompetitive practices, whether
alternative deterrent mechanisms exist to assure competition and
diversity, and whether continued regulation of relationships not
specifically addressed by the Commission's attribution rules is
necessary. The Commission also questioned whether regulatory oversight
of one or more of these interests should be limited to geographic
markets with relatively few media outlets. Only five comments and reply
comments were filed in response to the Cross Interest Notice, and
almost all urged the Commission to eliminate these restrictions.
41. Discussion. The commenters supporting the elimination of the
remaining aspects of the cross-interest policy put forth four general
arguments: (1) The cross-interests that implicate diversity and
competition concerns are now covered by our multiple ownership rules;
(2) The video entertainment marketplace has become increasingly
[[Page 6489]]
competitive, thus diminishing the need for regulatory oversight of
cross-interests; (3) alternative remedies, such as the antitrust laws
and internal conflict of interest policies, will serve to deter abuses
stemming from cross-interests; and (4) The cross-interest policy
imposes significant burdens in terms of administrative costs and
uncertainty, chilling investment in the broadcast industry. The
Commission believes each of these arguments has merit, and continues to
question the continuing need for our cross-interest policy in its
present form. The Commission also strives to clarify aspects of the
policy that may warrant continued enforcement.
42. For a number of reasons, however, the Commission believes it
necessary to develop a more complete and updated record in our review
of the cross-interest policy as applied to key employees, joint
ventures, and nonattributable equity interests. It is necessary as a
general matter to update the record to ensure that changes in
interrelated policies are coordinated. Further, comment is also
requested regarding whether multiple cross interests and business
relationships between stations, when viewed in combination, raise
diversity and competition concerns, an issue that the commenters did
not address.
43. On a more specific level, the Commission also seeks comment
regarding a number of issues either not addressed in the comments or
raised by the comments themselves. First, a number of parties argued
that the Commission's ownership and attribution rules have supplanted
the remaining aspects of the cross-interest policy that implicate
diversity and competition concerns. It is true that the Commission's
attribution rules have evolved to the point where they now apply to a
number of interests formerly covered only by the cross-interest policy.
The Commission seeks comment, however, on whether this argument is
undermined by the proposed changes to our attribution rules. There
remains the question of whether particular situations warrant case-by-
case review to determine whether a cross-interest poses diversity and
competition concerns. The Commission requests commenters to be specific
in defining the particular situations and harms they may believe
require continued application of the cross-interest policy.
44. The Commission also seeks further comment on the argument that
the increased competition facing broadcasters eliminates the need for
the cross-interest policy. We seek comment on whether there are smaller
markets with an insufficient number of media outlets to assume that
competition will deter the abuses our cross-interest policy seeks to
prevent. If parties believe this to be the case, they should define the
size and nature of the markets that raise such concerns.
45. Commenters favoring the elimination of the remaining aspects of
the cross-interest policy point to the burdens and uncertainty it
creates. Parties should submit, if possible, evidence to support the
assertion that the cross-interest policy has impeded the ability of
broadcasters to raise capital. Comment is also sought regarding the
extent, if any, of a shortage of key employees, especially in smaller
markets, that may be exacerbated by the Commission's cross-interest
policy.
46. In addition, commenters raised several questions regarding the
alternative remedies that other parties maintain lessen the need for
the remaining aspects of our cross-interest policy. How common, and how
effective, are the internal conflict of interest policies cited by
parties as providing a means to deter abuses stemming from key employee
cross-interests? While the antitrust laws deter anticompetitive
conduct, do they address the diversity concerns behind the cross-
interest policy? The Commission seeks comment as to these questions and
more generally as to the effectiveness of these alternative remedies.
47. Finally, no comment was received on ways to clarify and
possibly narrow the cross-interest policy in the event the Commission
determines that continued enforcement is appropriate. The Commission
now seeks specific suggestions as to how the cross-interest policy
might be clarified. The Commission also seeks comment on the following
means of narrowing the policy: (1) Should we limit the application of
the cross-interest policy to smaller markets where competition and
diversity are of particular concern, and, if so, how should we define
these markets? (2) Should we enforce the cross-interest policy only
where the cross-interest, if attributable under our attributable rules,
would violate the ownership rules? (3) With respect to nonattributable
equity interests, should we limit review only to those interests
reaching a certain level of ownership, or when those interests exceed
or reach a certain percentage of the licensee's voting equity?
B. Non-Equity Financial Relationships and Multiple Business
Interrelationships
48. In our review of the cross-interest policy, the Commission has
focused on each cross-interest individually. But broadcasters in
particular markets may also at times enter into a number of different
business relationships between themselves. While the Commission
recognizes the important role cooperative arrangements can play, we
seek comment as to whether multiple ``cross-interests'' or otherwise
nonattributable interests, when viewed in combination, raise diversity
and competition concerns warranting regulatory oversight. The nature of
broadcaster interrelationships can vary widely, and can include
nonattributable interests, contractual relationships, family
relationships in conjunction with other interests, and joint
arrangements among stations, including time brokerage agreements (also
referred to as local marketing agreements or LMAs) and joint sales
arrangements. Many of these business interrelationships serve
legitimate purposes and, indeed, have been encouraged by the
Commission. The Commission seeks comment as to whether ostensibly
separately owned stations could so merge their operations, through a
variety of joint enterprises or cooperative agreements, perhaps in
conjunction with other nonattributable interests, and thereby create
such close business interrelationships as to implicate our diversity
and competition concerns.
49. In 1984, the Commission decided to exclude debt from
attribution on the supposition that attributing debt would severely
restrict capital sources for broadcasters, and because debt financing
was the least likely of all financing sources to involve an interest
that implicates the multiple ownership rules. The Commission believes,
at this point, that we should continue to exclude such relationships,
standing alone, from attribution under the multiple ownership rules
because any other approach would severely impair the ability of the
broadcasting industry to obtain necessary capital. The Commission would
neither wish to inhibit such a key means of obtaining capital nor to
disrupt existing expectations and relationships to such a degree. If
any commenters disagree with this conclusion, the Commission invites
them to demonstrate that the benefits of extending our attribution
rules to debt and other similar contractual relationships outweigh the
significant drawbacks. At the same time, there may be circumstances
where debtholding, accompanied by a number of other close
[[Page 6490]]
business interconnections, should be considered to be attributable.
Comment is requested regarding the potential for debt or other
nonattributable interest, in conjunction with a series of cooperative
or contractual arrangements, to provide their holders the ability to
influence the day-to-day operations of a licensee, thus implicating our
competition and diversity concerns.
50. Any regulation of such interrelationships among broadcasters,
given their varying forms, would require case-by-case review in the
context of applications for new stations of transfer or assignment
applications. The Commission seeks comment as to whether the burdens
and uncertainty created by such review would be outweighed by the
perceived benefits of addressing the concerns in this area, and whether
these concerns are best addressed in the context of our real-party-in-
interest rules and de facto transfer of control challenges. The
Commission also seeks comment as to whether any review of such close
business interrelationships should be limited to those markets where
the lack of competition and diversity is a particular concern, and how
such markets should be defined. In addition, should the Commission
focus on combinations of business interrelationships among stations in
the same market only, or do inter-market relationships among stations
also warrant review? The Commission wishes to emphasize that in
considering these issues we are sensitive to the need not to inhibit
capital flow into the broadcast industry or unduly disrupt existing
financial arrangements.
Administrative Matters
51. Pursuant to applicable procedures set forth in Secs. 1.415 and
1.419 of the Commission's Rules, 47 CFR 1.415 and 1.419, interested
parties may file comments on or before April 17, 1995, and reply
comments on or before May 17, 1995. All relevant and timely comments
will be considered by the Commission before final action is taken in
this proceeding. To file formally in this proceeding, you must file an
original plus four copies of all comments, reply comments, and
supporting comments. If you want each Commissioner to receive a
personal copy of your comments, you must file an original plus nine
copies. You should send comments and reply comments to Office of the
Secretary, Federal Communications Commission, Washington, D.C. 20554.
Comments and reply comments will be available for public inspection
during regular business hours in the FCC Reference Center (Room 239),
1919 M Street, N.W., Washington D.C. 20554.
52. This is a non-restricted notice and comment rulemaking
proceeding. Ex parte presentations are permitted, except during the
Sunshine Agenda period, provided they are disclosed as provided in the
Commission Rules. See generally 47 CFR 1.1202, 1.1203, and 1.1206(a).
Initial Regulatory Flexibility Analysis
53. Reason for the Action: This proceeding was initiated to obtain
comment on whether the Commission's broadcast attribution rules
continue to be effective in serving their intended goals, and on
whether they should be revised in certain areas to more effectively
achieve those goals.
54. Objective of this Action: The actions proposed in the Notice
are intended to assure that the Commission's broadcast attribution
rules effectively implement the Commission's broadcast multiple
ownership rules by identifying those interest that have the potential
to influence the licensee in core operating areas, such as programming.
55. Legal Basis: Authority for the actions proposed in this Notice
May be found in Sections 4,303, and 310 of the Communications Act of
1934, as amended, 47 U.S.C. Secs. 154,303,310.
56. Reporting, Recordkeeping and Other Compliance Requirements
Inherent in the Proposed Rule: If the attribution rules are changed,
the Commission would have to change the reporting requirements in the
Commission's annual ownership report form, accordingly, as the
attribution rules determine which broadcast interests must be reported
to the Commission and are counted for multiple ownership purposes.
57. Federal Rules Which Overlap, Duplicate or Conflict with the
Proposed Rule: None.
58. Description, Potential Impact and Number of Small Entities
Involved: Approximately 11,000 existing television and radio
broadcasters of all sizes may be affected by the proposals contained in
this decision. After evaluating the comments in this proceeding, the
Commission will further examine the impact of any rule changes on small
entities and set forth our findings in the Final Regulatory Flexibility
Analysis.
59. Any Significant Alternatives Minimizing the Impact on Small
Entities and Consistent with the Stated Objectives: The Notice solicits
comments on a variety of alternatives.
60. As required by Section 603 of the Regulatory Flexibility Act,
the Commission has prepared an Initial Regulatory Flexibility Analysis
(IRFA) of the expected impact on small entities of the proposals
suggested in this document. Written public comments are requested on
the IRFA. These comments must be filed in accordance with the same
filing deadlines as comments on the rest of the Notice, but they must
have a separate and distinct heading designating them as responses to
the Regulatory Flexibility Analysis. The Secretary shall send a copy of
the Notice of Proposed Rule Making, including the IRFA to the Chief
Counsel for Advocacy of the Small Business Administration in accordance
with paragraph 603(a) of the Regulatory Flexibility Act (Pub. L. 96-
354, 94 Stat. 1164, 5 U.S.C. 601 et. seq. (1981)).
List of Subjects in 47 CFR Part 73
Radio broadcasting, Television broadcasting.
Federal Communications Commission.
LaVera F. Marshall,
Acting Secretary.
[FR Doc. 95-2545 Filed 2-1-95; 8:45 am]
BILLING CODE 6712-01-M