[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