[Federal Register Volume 64, Number 180 (Friday, September 17, 1999)]
[Rules and Regulations]
[Pages 50651-50667]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-23696]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 73
[MM Docket No. 91-221, 87-8; FCC 99-209]
Review of the Commission's Regulations Governing Television
Broadcasting; Television Satellite Stations Review of Policy and Rules
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: This document amends the Commission's local TV multiple
ownership rule and its radio/TV cross-ownership rule. This document
also adopts a grandfathering policy for certain TV local marketing
agreements and certain conditional waivers of the radio/TV cross-
ownership rule. The purpose of this action is to balance the
Commission's competition and diversity goals with the efficiencies and
public interest benefits that can be associated with common ownership
of same-market broadcast stations.
DATES: Effective November 16, 1999, except for the requirements that:
(1) radio/TV cross-ownership conditional waiver grantees file with the
Commission showings sufficient to convert their compliance or non-
compliance with the Commission's revised radio/TV cross-ownership rule;
and (2) holders of local marketing agreements (LMAs) that have become
attributable under the Commission's revised rules file a copy of their
LMA with the Commission. These requirements contain information
collection requirements that are not effective until approved by the
Office of Management and Budget. The FCC will publish a document in the
Federal Register announcing the effective dates for those sections.
FOR FURTHER INFORMATION CONTACT: Eric Bash, (202) 418-2120, Policy and
Rules Division, Mass Media Bureau.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order (``R&O''), FCC 99-209, adopted August 5, 1999, and released
August 6, 1999. The full text of the Commission's R&O is available for
inspection and copying during normal business hours in the FCC Dockets
Branch (Room TW-A306), 445 12 St. S.W., Washington, D.C. The complete
text of this R&O may also be purchased from the Commission's copy
contractor, International Transcription Services (202) 857-3800, 1231
20th St., N.W., Washington, D.C. 20036.
Synopsis of Report and Order
I. Introduction
1. In this R&O, we revise our local TV multiple ownership rule and
the radio/TV cross-ownership rule to respond to ongoing changes in the
broadcast television industry. The new rules we adopt today reflect a
recognition of the growth in the number and variety of media outlets in
local markets, as well as the significant efficiencies and public
service benefits that can be obtained from joint ownership. At the same
time, our decision reflects our continuing goals of ensuring diversity
and localism and guarding against undue concentration of economic
power. The rules we adopt today and in our related national television
ownership and broadcast attribution proceedings, being adopted
simultaneously with this R&O, balance these competing concerns and are
intended to facilitate further development of competition in the video
marketplace and to strengthen the potential of broadcasters to serve
the public interest.
II. Background
2. The local TV multiple ownership rule currently prohibits an
entity from having cognizable interests in two television stations
whose Grade B signal contours overlap. The Commission rarely grants
permanent waivers of the duopoly rule, reserving such relief for cases
with unique or highly unusual circumstances. Under current policy, the
time brokerage by one television station of another television station,
even one in the same market, pursuant to a time brokerage or ``local
marketing'' agreement (``LMA''), is not attributable, and accordingly
these relationships are not subject to our multiple ownership rules.
The radio-television cross-ownership rule generally forbids joint
ownership of a radio and a television station in the same local market.
We have presumed it is in the public interest to waive this rule in the
top 25 television markets if, post-merger, at least 30 independently
owned broadcast voices remain, or if the merger involves a failed
station. Such waivers are available to permit ownership of up to one
television, one AM, and one FM station per market. We have evaluated
other waiver requests case by case, based on an analysis of five
criteria (the ``five factors'' test).
3. This proceeding began in 1991 with the issuance of a Notice of
Inquiry (``NOI''), 56 FR 40847, August 16, 1991, soliciting comment on
whether existing television ownership rules and related policies should
be revised in light of ongoing changes in the competitive market
conditions facing broadcast licensees. After reviewing the comments
received in response to the NOI, the Commission issued a Notice of
Proposed Rule Making (``NPRM''), 57 FR 28163, June 24, 1992, containing
a number of alternative proposals involving the national and local
television ownership rules, and seeking comment on the extent and
impact of LMAs in the broadcast television industry.
4. In 1994, in a Further Notice of Proposed Rule Making
(``FNPRM''), 60 FR 06490, February 2, 1995, in this docket, the
Commission set forth a competition and diversity analysis for examining
our ownership rules. Based
[[Page 50652]]
on this analysis, the Commission proposed changes to the national
television ownership rule, the local television ownership rule
(otherwise known as the ``duopoly'' rule), and the radio-television
cross-ownership rule. In addition, the Commission solicited comment on
whether broadcast television local marketing agreements (``LMAs'')
should be considered attributable for purposes of applying the
ownership rules in a manner similar to radio LMAs.
5. On February 8, 1996, the Telecommunications Act of 1996 became
law. Section 202 of the Act directed the Commission to make a number of
significant revisions to its broadcast ownership rules. Section 202
also requires us to review aspects of our local ownership rules that
were the subject of the FNPRM. Specifically, section 202 requires the
Commission to: (1) conduct a rulemaking proceeding concerning the
retention, modification, or elimination of the duopoly rule; and (2) to
extend the top 25 market/30 independent voices one-to-a-market waiver
policy to the top 50 markets, ``consistent with the public interest,
convenience, and necessity.'' In addition, both the Act and its
legislative history contain language regarding the appropriate
treatment of existing television LMAs under our ownership rules.
Finally, section 202 directs the Commission to conduct a biennial
review of all of its broadcast ownership rules and to repeal or modify
any regulation it determines is no longer in the public interest.
6. In view of the 1996 Act's directives regarding broadcast
multiple ownership, the Commission in 1996 adopted a Second Further
Notice of Proposed Rule Making (``2FNPRM''), 61 FR 66978, December 19,
1996, in this proceeding inviting comment on several issues in light of
the 1996 Act. The Commission solicited further comment in light of its
review of comments previously filed in this proceeding, and invited
comments on a number of specific issues pertaining to the duopoly rule,
the radio-television cross-ownership rule, and the treatment of
existing television LMAs in the event they are deemed attributable
under any rules adopted in our attribution proceeding.
7. Our ownership rules, particularly the local ownership rules at
issue in this proceeding, serve a vital public interest by promoting
competition and diversity in the mass media. These are bedrock goals--
reaffirmed by Congress and the Supreme Court on numerous occasions--in
carrying out our statutory mandate of ensuring that broadcast licensees
serve the ``public interest, convenience, and necessity.'' With these
goals in mind, and after carefully reviewing the record in this
proceeding, we believe we should relax to some extent our local
television ownership restrictions where the public interest benefits
resulting from same-market common ownership outweigh the threat to
diversity and localism. The record reflects that there has been an
increase in the number and types of media outlets available to local
communities.
8. Specifically, we have decided to modify our local television
ownership rule as follows. First, we are relaxing our television
duopoly rule by narrowing the geographic scope of the rule from the
current Grade B contour approach to a ``DMA'' test. Thus, common
ownership of two television stations will be permitted without regard
to contour overlap if the stations are in separate Nielsen Designated
Market Areas (``DMAs''). In addition, we will allow common ownership of
two stations in the same DMA if their Grade B contours do not overlap
(a continuation of our current rule), or if eight independently owned,
full-power and operational television stations (commercial and
noncommercial) will remain post-merger, and one of the stations is not
among the top four-ranked stations in the market, based on audience
share, as measured by Nielsen or by any comparable professional and
accepted rating service, at the time the application is filed. We will
also adopt three waiver criteria as follows. First, we will presume a
waiver of the rule is in the public interest to permit common ownership
of two television stations in the same market where one station is a
``failed station,'' as supported by a showing that the station either
has been off the air for at least four months immediately preceding the
application for waiver, or is currently involved in involuntary
bankruptcy or insolvency proceedings. Second, we will presume a waiver
of the rule is in the public interest where one of the merging stations
is a ``failing'' station, as supported by a showing that the station
has had a low audience share and has been financially struggling during
the previous several years, and that the merger will result in
demonstrable public interest benefits. Third, we will presume a waiver
is in the public interest where applicants can show that the
combination will result in the construction and operation of an
authorized but as yet ``unbuilt'' station, supported by a showing that
the permittee has made reasonable efforts to construct. For all of
these waivers, we will also require a showing that the in-market
applicant is the only buyer ready, willing, and able to operate the
station, and that sale to an out-of-market applicant would result in an
artificially depressed price.
9. With respect to the radio-television cross-ownership rule, we
are adopting a new, three-part rule that permits some degree of same-
market radio and television joint ownership. We will permit a party to
own a television station (or two television stations if permitted under
our modified TV duopoly rule or television LMA grandfathering policy)
and any of the following radio station combinations in the same market:
Up to six radio stations (any combination of AM or FM
stations, to the extent permitted under our local radio ownership
rules) in any market where at least 20 independent voices would remain
post-merger;
Up to four radio stations (any combination of AM or FM
stations, to the extent permitted under our local radio ownership
rules) in any market where at least 10 independent voices would remain
post-merger; and
One radio station (AM or FM) notwithstanding the number of
independent voices in the market.
In addition, in those markets where our revised rule will allow parties
to own eight outlets in the form of two TV stations and six radio
stations, we will permit them to own one TV station and seven radio
stations instead.
10. For purposes of the new radio-television cross-ownership rule,
we will count as voices all independently owned, full-power,
operational, commercial and noncommercial television stations licensed
to a community in the DMA in which the TV station in question is
located, and all independently owned and operational commercial and
noncommercial radio stations licensed to, or with a reportable share
in, the radio metro market where the TV station involved is located. In
addition, we will count independently owned daily newspapers that are
published in the DMA and have a circulation exceeding 5 percent in the
DMA. Finally, we will count, as a single voice, wired cable service,
provided cable service is generally available in the DMA. As with our
revised duopoly rule, we will permit waiver of our new radio/TV cross-
ownership rule where one station is a failed station. We will not,
however, adopt a presumptive waiver based on a showing that one station
is a failing station or that the combination will result in the
construction and operation of an authorized but as yet unbuilt station.
[[Page 50653]]
We will consider further relaxation of this rule and waiver policies as
part of future biennial reviews.
11. We have granted a number of radio-television cross-ownership
rule waivers conditioned on the outcome of this proceeding. The
majority of these waivers involve radio-television combinations that
will now be permissible under the revised rule we adopt today. For
those that are not covered by the revised rule, as well as for those
for which an application was filed on or before July 29, 1999 (the date
of the ``sunshine'' notice for this R&O) if such application is
ultimately granted by the Commission, we will allow these combinations
to continue, conditioned on the outcome of the Commission's 2004
biennial review. Parties who wish the Commission to conduct this review
prior to 2004 may apply for such relief, using criteria set forth
below, beginning one year after the date this R&O is published in the
Federal Register. Any transfer of a grandfathered combination after the
adoption date of this R&O (whether during the initial grandfathering
period of after a permanent grandfathering decision has been made) must
meet the radio/TV cross-ownership rule.
12. Finally, with respect to existing television LMAs, we have
decided in our related attribution proceeding to attribute time
brokerage of another television station for purposes of our multiple
ownership rules where the brokered and brokering station are in the
same market and the amount of time brokered is more than 15 percent of
the brokered station's weekly broadcast hours. Once attributed,
however, the majority of currently existing same-market television LMAs
will not violate our new TV duopoly rule going forward, because they
either will be in separate DMAs, or will constitute an otherwise
permissible arrangement under the new rule or related waiver policies.
We will permit those LMAs that do not comply with our new duopoly rule
and waiver policies to continue in full force and effect, if entered
into before November 5, 1996, the grandfathering cut-off date proposed
in the 2FNPRM. LMAs entered into on that date or thereafter must come
into compliance with our new duopoly rule and/or waiver policies or
terminate within two years of the adoption date of this R&O. Television
LMAs entered into before November 5, 1996 will be grandfathered,
conditioned on the outcome of the Commission's 2004 biennial review, at
which time the Commission will reconsider their status. Parties who
wish the Commission to review the status of their LMAs prior to the
2004 biennial review may apply for such relief, using the criteria
specified below, beginning one year after the date this R&O is
published in the Federal Register. During the initial grandfathering
period, the parties to the LMA may renew and/or transfer the term of
LMA that remains in the five-year period.
III. The Local Television Ownership Rule
A. Geographic Scope of the Rule
13. Background. Our local television ownership rule presently
prohibits common ownership of two television stations whose Grade B
signal contours overlap. In the FNPRM, we sought comment on whether the
geographic scope of the rule should be changed to Grade A signal
contours or to Designated Market Areas (``DMAs''). Based on the
comments we received, we tentatively concluded in the 2FNPRM that the
geographic scope of the local television ownership rule should be based
on a combination of DMAs and Grade A contours. We sought comment on
that tentative conclusion in the 2FNPRM, as well as comment about
possible exceptions to and waivers of the rule to permit television
duopolies in certain circumstances where they would serve the public
interest.
14. Discussion. We have decided to narrow the geographic scope of
the television duopoly rule so as to permit common ownership of two
television stations provided they are in different DMAs without regard
to contour overlap. We will also continue to allow common ownership of
stations within the same DMA as long as their Grade B contours do not
overlap. We have chosen this DMA test based on our belief that,
compared to the current Grade B signal contour standard, DMAs are a
better measure of actual television viewing patterns, and thus serve as
a good measure of the economic marketplace in which broadcasters,
program suppliers and advertisers buy and sell their services and
products. Changing the geographic scope of the duopoly rule will
consequently more accurately define a local television market and
permit mergers of stations in different markets without harming local
competition and diversity. Moreover, we believe that the mergers that
will be allowed under our new rule can lead to improved television
service and viewer choice.
15. There are several benefits to defining the geographic
dimensions of the local television market by reference to DMAs. Most
importantly, unlike a rule relying on predicted field strength
contours, DMAs reflect actual television viewing patterns and are
widely used by the broadcasting and advertising industries. DMAs
reflect the fact that a station's audience reach, and hence its ``local
market,'' is not necessarily coextensive with the area of its broadcast
signal coverage. For example, a station's over-the-air reach can be
extended by carriage on cable systems and other multichannel delivery
systems, as well as through such means as satellite and translator
stations. In designating DMAs and compiling DMA-based ratings of
television programs, Nielsen Media Research, a TV audience measuring
service, collects viewing data from diaries placed in television
households four times a year. Nielsen assigns counties to DMAs annually
on the basis of television audience viewership as recorded in those
diaries. Counties are assigned to a DMA if the majority or, in the
absence of a majority, the preponderance, of viewing in the county is
recorded for the programming of the television stations located in that
DMA. Nielsen uses its DMA viewing data to compile DMA-based audience
ratings for television programs. These data are used by television
stations in deciding which programming should be aired, and by
advertisers and stations in negotiating advertising rates.
16. We recognize that we proposed in the 2FNPRM to supplement the
DMA test with a Grade A contour standard to prohibit common ownership
of stations with Grade A signal contour overlap even when they are in
separate DMAs. However, after considering the comments in response to
this proposal, we believe a ``DMA-only'' test is more appropriate.
Although a station may attract some viewers who live outside its
designated DMA, the preponderance of its audience will reside within
its DMA. Local advertisers use DMA-based ratings to make their
purchases of advertising time on local television stations, television
networks generally have only one affiliate in each DMA, and stations
target their programming to viewers inside the DMA because these are
the viewers that advertisers pay to reach. The record also indicates
that there are a fair number of stations that lie in different DMAs and
serve wholly different markets even though they may have slightly
overlapping Grade A contours. In addition, a DMA-only standard is more
straightforward and easy to apply in terms of administering the rule.
We consequently will not adopt a Grade A component in our new
definition of the geographic scope of the duopoly rule.
17. This new definition will generally be less restrictive than the
current Grade B signal contour test. There may be
[[Page 50654]]
some situations, however, in which this is not the case, particularly
in some geographically large DMAs west of the Mississippi River. In
these situations, the DMA may be large enough that two stations
situated in the DMA do not have overlapping Grade B contours. Common
ownership of the two stations would be permitted under the existing
rule but not under a strict application of the new DMA standard.
18. In the 2FNPRM, we noted our belief that there are currently few
stations within the same DMA that could be commonly owned under the
existing Grade B signal contour standard that are not already jointly
owned. We sought comment on whether we should, if we adopted a DMA/
Grade A rule, grandfather existing joint ownership combinations that
conform to our current Grade B test. We also sought comment on an
alternative approach of adopting a two-tiered rule under which we would
permit common ownership both under the new test using DMAs and in
situations where there is no Grade B overlap.
19. It is our intention in this proceeding to relax the duopoly
rule consistent with our competition and diversity objectives. It is
not our intention to restrict combinations that would be permitted
under our present Grade B signal contour test. To avoid this result, we
will continue to permit common ownership of television stations in the
same DMA where there is no Grade B overlap between those stations.
Although such stations may compete to some extent for viewers and
advertisers, we believe any harm to diversity and competition from
permitting such combinations will be minimal and we wish to avoid
instances in which application of our new rule would be more
restrictive than our current duopoly rule. In addition, this approach
avoids disrupting current ownership arrangements involving stations in
the same DMA with no Grade B overlap.
B. Permitting Television Duopolies in the Same Local Market
20. Background. In both the FNPRM and the 2FNPRM, we invited
comment on whether, in certain situations, we should allow entities to
acquire more than one television station in the same geographic market.
We sought comment both on exceptions to our ``one-station'' local
ownership rule, including the exception currently provided in our rules
for television satellite stations, as well as on a number of possible
waiver criteria.
21. Costs and Benefits of Broadcast TV Station Duopolies. We
believe that the demonstrated benefits of same-market television
station combinations support allowing the formation of such
combinations in certain cases where competition and diversity will not
be unduly diminished. The record in this proceeding shows that there
are significant efficiencies inherent in joint ownership and operation
of television stations in the same market, including efficiencies
related to the co-location and sharing of studio and office facilities,
the sharing of administrative and technical staff, and efficiencies in
advertising and news gathering. These efficiencies can contribute to
programming and other benefits such as increased news and public
affairs programming and improved entertainment programming, and, in
some cases, can ensure the continued survival of a struggling station.
In markets with many separate television licensees, the public interest
benefits of common ownership can outweigh any cost to diversity and
competition of permitting combinations.
22. While we conclude that the public interest would be served by
permitting television duopolies in certain circumstances, we are not
eliminating or relaxing the rule to the extent a number of commenters
advocate given the important diversity and competition issues at stake.
Television broadcasting plays a very special role in our society. It is
the primary source of news and information, as well as video
entertainment to most Americans, and we must continue to ensure that
the broadcast television industry has a diverse and competitive
ownership structure. Moreover, as discussed above, because the
communications industry is undergoing rapid change and increasing
consolidation, significant yet measured relaxation of the television
duopoly rule is appropriate to allow us to monitor the results of these
sweeping changes.
23. In light of these considerations, we have decided to adopt a
modification to our duopoly rule, and three waiver tests, that are
targeted to promote the public interest without appreciable harm to our
competition and diversity goals. In particular, as described below, we
will modify the TV duopoly rule to allow common ownership of two
stations in the same DMA, if eight independently owned and operating
commercial and noncommercial television stations will remain in the DMA
post-merger, and at least one of the stations is not among the top
four-ranked stations in the market, based on audience share, as
measured by Nielsen or by any comparable professional and accepted
rating service, at the time the application is filed. In addition, we
will presume that a waiver of the rule is in the public interest if the
applicant satisfies a ``failed'' or ``failing'' station test, or
involves the construction of an ``unbuilt'' station.
1. Modification of the Rule: Eight Voice/Top Four-Ranked Station
Standard
24. Background. In the 2FNPRM, the Commission sought comment on
whether we should entertain joint ownership of stations that (1) have
very small audience or advertising market shares and (2) are located in
a very large market where (3) a specified minimum number of
independently owned voices remain post-merger. We stated that the
purpose of such a standard would be to enhance competition and
diversity in the local market by allowing small stations to share costs
and thereby compete more effectively. We further stated that such joint
ownership could potentially serve the public interest if such stations
were to use their economic savings to produce new and better-quality
programming or related enhancements. Such advantages may be
particularly helpful to small and independent UHF stations. We invited
comment on the circumstances under which joint ownership should be
permitted, and on the size of the market share we might adopt, the
number and kinds of voices we should count in any minimum voice
criterion, and whether we should include a market rank test.
25. Discussion. After considering the record, and our competition
and diversity goals, we have decided to modify the duopoly rule to
permit any two television stations in the same market to merge if:
At least eight independently owned and operating full-
power commercial and noncommercial TV stations would remain post-merger
in the DMA in which the communities of license of the TV stations in
question are located, and
The two merging stations are not both among the top four-
ranked stations in the market, as measured by audience share.
If any entity acquires a duopoly under this standard, it will not later
be required to divest if the number of operating television voices
within the market falls below eight or if the two merged stations
subsequently are both ranked among the top four stations in the market;
however, a duopoly may not automatically be transferred to a new owner
if the market does not satisfy the eight voice/top four-ranked
standard. In such a case, the transaction must either meet one of the
waiver standards enunciated below, or involve a sale to separate
parties. We will not include a market rank component in our new rule
[[Page 50655]]
because we believe such a test is unnecessary given the station rank
and minimum number of stations criteria we are adopting. We adopt this
``eight voice/top four-ranked station'' standard as a modification of
the rule as opposed to the adoption of a waiver criterion in order to
fashion a bright-line test, bring certainty to the permissibility of
these transactions, and expedite their consummation, given that we do
not believe as a general matter that they unduly compromise our
competition and diversity goals. We delegate to the Mass Media Bureau
the authority to grant any application that satisfies the eight
station/top four ranked station standard, and presents no new or novel
issues.
26. This standard provides measured relaxation of the television
duopoly rule, particularly in the larger television markets. It will
allow weaker television stations in the market to combine, either with
each other or with a larger station, thereby preserving and
strengthening these stations and improving their ability to compete.
These station combinations will allow licensees to take advantage of
efficiencies and cost savings that can benefit the public, such as in
allowing the stations to provide more local programming. At the same
time, the station rank and voice criteria are designed to protect both
our core competition and diversity concerns.
27. The ``top four ranked station'' component of this standard is
designed to ensure that the largest stations in the market do not
combine and create potential competition concerns. These stations
generally have a large share of the audience and advertising market in
their area, and requiring them to operate independently will promote
competition. In addition, our analysis has indicated that the top four-
ranked stations in each market generally have a local newscast, whereas
lower-ranked stations often do not have significant local news
programming, given the costs involved. Permitting mergers among these
two categories of stations, but not among the top four-ranked stations,
will consequently pose less concern over diversity of viewpoints in
local news presentation, which is at the heart of our diversity goal.
28. The ``eight independent voice'' component of the rule provides
a clear benchmark for ensuring a minimum amount of diversity in a
market. Taking into account current marketplace conditions, the eight
voice standard we adopt today strikes what we believe to be an
appropriate balance between permitting stations to take advantage of
the efficiencies of television duopolies while at the same time
ensuring a robust level of diversity. Thus, under our new rule, at
least eight independently owned and operating full-power commercial and
noncommercial broadcast television stations must remain in the DMA
post-merger. We will not include in our count of independently owned
television stations those that are brokered pursuant to an attributable
same-market LMA because a substantial portion of the programming of
brokered stations is furnished by the brokering station. This gives the
brokering station a significant degree of influence over the brokered
station's operations and programming such that it should not be counted
as an independent source of viewpoint diversity; indeed, it is for this
reason we have decided to attribute such TV LMAs in our attribution
proceeding.
29. We believe that an ``eight station'' test that focuses only on
the number of full-power broadcast television outlets in the market is
necessary for two reasons. First, we believe that broadcast television,
more so than any other media, continues to have a special, pervasive
impact in our society given its role as the preeminent source of news
and entertainment for most Americans. As the Supreme Court recently
stated, ``[b]roadcast television is an important source of information
to many Americans. Though it is but one of many means for
communication, by tradition and use for decades now it has been an
essential part of the national discourse on subjects across the whole
broad spectrum of speech, thought, and expression.''
30. Second, we are unable to reach a definitive conclusion at this
time as to the extent to which other media serve as readily available
substitutes for broadcast television. In the FNPRM and 2FNPRM, we
sought information about the extent to which other media serve as
substitutes for television in the advertising and delivered video
programming markets, and for purposes of diversity. For example, in the
FNPRM, we stated that for the purpose of competition analysis, we would
tentatively consider local advertising markets to include broadcast and
cable television advertising, radio advertising, and newspaper
advertising. For delivered video programming, we tentatively included
commercial and noncommercial television stations and cable television.
While we expressed our inclination to tentatively include MMDS, DBS,
and television delivered by telephone companies, we expressed concern
about the extent to which the latter three alternatives were actually
available to most Americans and sought quantitative, behavioral studies
estimating the extent to which broadcast television actually faced
substitutes from any and all sources in the marketplace. Although we
have received voluminous materials debating such substitutability, we
have not received the quantitative, empirical studies that we sought in
order to assess this issue in a complete and accurate fashion. Nor does
there seem to be a consensus on the extent to which various media are
substitutes for purposes of diversity. Thus, while we agree with those
commenters who argued that different types of media, such as radio,
cable television, VCRs, MMDS, and newspapers, may to some extent be
substitutes for broadcast television, in the absence of the factual
data we requested we have decided to exercise due caution by employing
a minimum station count that includes only broadcast television
stations.
31. Our ``eight voice/top four ranked station'' standard provides
significant relaxation of the television duopoly rule while at the same
time ensures that markets remain sufficiently diverse and competitive
at the local level so that common ownership of two television stations
in these markets does not threaten our core diversity concerns. We
recognize that stations in markets with less than nine independent
voices will not be able to take advantage of this standard. But we
believe this is appropriate given that these markets start with fewer
broadcast television outlets, and thus a lower potential for providing
robust diversity to viewers in such markets. While we recognize, as
several commenters argued, that smaller markets also benefit from the
efficiency gains and cost savings associated with joint station
ownership, it is in these small markets that consolidation of broadcast
television ownership could most undermine our competition and diversity
goals. Moreover, the three waiver standards we adopt today--the failed
and failing station criteria, and the unbuilt station test--will,
consistent with our competition and diversity goals, provide relief in
a more tailored fashion for stations in smaller markets that are unable
to compete effectively.
2. Waiver Criteria
a. Failed Stations
32. Background. We invited comment in the 2FNPRM on whether, if an
applicant can show that it is the only viable suitor for a failed
station, the Commission should grant the application regardless of
contour overlap or DMA designations. We noted that for purposes of our
one-to-a-market rule waiver standard, a ``failed'' station
[[Page 50656]]
is a station that has not been operated for a substantial period of
time, e.g., four months, or that is involved in bankruptcy proceedings.
We asked whether this standard should be used in evaluating a request
to waive the television duopoly rule.
33. Discussion. We are persuaded that the public interest would be
served by adopting a failed station waiver standard for our revised
television duopoly rule. A station that is off the air or in
involuntary bankruptcy or insolvency proceedings can contribute little,
if anything, to any type of diversity in a local market. Nor does such
a station constitute a viable alternative in the local advertising
market. As we concluded in adopting our current failed station waiver
standard for the one-to-a-market rule, the benefits to the public of
joint ownership under these circumstances outweigh the costs to
diversity. In fact, dark or bankrupt stations actually disserve our
goal of efficient use of the spectrum because those stations are
holding valuable frequencies without providing service to the public.
Permitting another local station to acquire a failed station will
result in additional programming, perhaps an increase in diversity in
the market, and more advertising time available for sale in larger
quantities.
34. We have decided to define a ``failed station'' for purposes of
our television duopoly rule as one that has been dark for at least four
months or is involved in court-supervised involuntary bankruptcy or
involuntary insolvency proceedings. In addition, we will require that
the waiver applicant demonstrate that the ``in-market'' buyer is the
only reasonably available entity willing and able to operate the failed
station, and that selling the station to an out-of-market buyer would
result in an artificially depressed price for the station.
35. This standard is stricter than the failed station standard used
in the context of our current one-to-a-market rule. First, we are
limiting our TV duopoly failed station waiver to stations in court-
supervised involuntary bankruptcy and insolvency proceedings. By
excluding voluntary bankruptcy and insolvency proceedings, we hope to
avoid the issue of whether an owner has filed for bankruptcy or
insolvency simply in order to qualify for a waiver. We will extend our
failed station waiver here to apply to both insolvency and bankruptcy
proceedings, as the former are a state-regulated mechanism similar to
bankruptcy. Second, we are requiring applicants to make a serious
attempt to sell the troubled station to an entity that would not
require a waiver of our revised duopoly rule. Waiver applicants must
demonstrate that the ``in-market'' buyer is the only reasonably
available entity willing and able to operate the station, and that
selling to another buyer would lead to an artificially depressed price
for the station. One way to make this showing will be to provide an
affidavit from an independent broker affirming that active and serious
efforts have been made to sell the station, and that no reasonable
offer from an entity outside the market has been received. We believe
that a strict failed station waiver standard is warranted in view of
the other steps we are taking today to relax the television duopoly
rule. While there are now other limited criteria pursuant to which
same-market television stations may combine, we hope to limit the
special relief awarded to failed stations to those situations where
this relief is clearly needed. As with our current one-to-a-market
failed station waiver standard, we will be predisposed to grant
applications that meet the waiver standard, but will entertain
petitions to deny seeking to rebut the waiver request.
36. To qualify for a waiver under the failed station standard, we
will require the waiver applicant to provide relevant documentation,
i.e., proof of the length of time that the station has been off the
air, or proof that the station is involved in bankruptcy or insolvency
proceedings. We will also require, in the case of a silent station, a
statement that the failed station went dark due to financial distress,
not because of other, non-financial reasons. This documentation will
ensure that the waiver standard is applied only to stations facing
financial difficulties. We will not require the waiver applicant to
demonstrate that the market will contain post-merger a minimum number
of voices. As noted above, we have concluded that the benefits to the
public of preventing a station from going dark or bringing a dark
station back on the air cannot harm and may help diversity and
competition, regardless of the number of broadcast and other voices in
the local market. Any combination formed as a result of a failed
station waiver may be transferred together only if the combination
meets our new duopoly rule or one of our three waiver standards at the
time of transfer.
b. ``Failing'' Stations
37. Background. The 2FNPRM also invited comment on whether we
should adopt a failing station waiver criteria, and, if so, the
appropriate definition of a failing station.
38. Discussion. We will adopt a ``failing'' station waiver
standard. It will permit two stations to merge where at least one of
the stations has been struggling for an extended period of time both in
terms of its audience share and in its financial performance.
Permitting such stations to merge should pose minimal harm to our
diversity and competition goals, since their financial situation
typically hampers their ability to be a viable ``voice'' in the market.
These stations rarely have the resources to provide local news
programming, and often struggle to provide significant local
programming at all. Allowing a ``failing'' station to join with a
stronger station in the market can greatly improve its ability to
improve its facilities and programming operations, thus benefitting the
public interest. This waiver standard may be of particular assistance
to struggling stations in smaller markets that are not covered by the
eight voice/top four ranked station test.
39. We agree with the commenters that argued that it makes little
sense to force a station to go dark or declare bankruptcy before
considering whether it should receive a waiver of the duopoly rule to
permit it to merge with another station in the market. Of course,
determining when a station is ``failed'' is a more straightforward
task, since there are clear, objective criteria for identifying such a
status, i.e., a station is dark or in bankruptcy. A ``failing'' station
standard, by contrast, will involve more of an individualized, case-by-
case assessment to determine when a station is struggling to such an
extent that permitting it to merge with another station will not
undermine our competition and diversity goals and may in fact promote
them.
40. With these considerations in mind, and based on the record
before us, we establish the following criteria for granting waivers
under a ``failing'' station waiver standard. We will presume such a
waiver is in the public interest if the applicant satisfies each of
these criteria:
(1) One of the merging stations has had low all-day audience share
(i.e., 4% or lower).
(2) The financial condition of one of the merging stations is poor.
A waiver is more likely to be granted where one or both of the stations
has had a negative cash flow for the previous three years. The
applicant will need to submit data, such as detailed income statements
and balance sheets, to demonstrate this. Commission staff will assess
the reasonableness of the applicant's showing by comparing data
[[Page 50657]]
regarding the station's expenses to industry averages.
(3) The merger will produce public interest benefits. A waiver will
be granted where the applicant demonstrates that the tangible and
verifiable public interest benefits of the merger outweigh any harm to
competition and diversity. At the end of the stations' license terms,
the owner of the merged stations must certify to the Commission that
the public interest benefits of the merger are being fulfilled,
including a specific, factual showing of the program-related benefits
that have accrued to the public. Cost savings or other efficiencies,
standing alone, will not constitute a sufficient showing.
(4) The in-market buyer is the only reasonably available candidate
willing and able to acquire and operate the station; selling the
station to an out-of-market buyer would result in an artificially
depressed price. As with the showing required of failed station waiver
applicants, one way to satisfy this fourth criterion will be to provide
an affidavit from an independent broker affirming that active and
serious efforts have been made to sell the station, and that no
reasonable offer from an entity outside the market has been received.
Any combination formed as a result of a failing station waiver may be
transferred together only if the combination meets our new duopoly rule
or one of our three waiver standards at the time of transfer.
c. Unbuilt Stations
41. Background. In the 2FNPRM, we invited comment on whether we
should entertain requests to waive the local television ownership rule
to permit a local broadcast television licensee to apply for a
television channel allotment that has remained vacant or unused for an
extended period of time. We stated there that it may not be in the
public interest to allow allotted broadcast channels to lie fallow--
particularly in markets where it might be possible to allow additional
NTSC stations to come on the air without adversely affecting the DTV
allotment table and the transition to digital television. Similarly, we
asked whether, if it is possible to create new channel allotments in a
market without interfering with nearby channels and without adversely
affecting the DTV allotment table, the Commission should entertain
applications by an incumbent television licensee to establish a new
channel in its market.
42. Discussion. Since we adopted the 2FNPRM, the rationale for a
vacant allotment waiver policy has become less relevant. In the DTV
Sixth Report and Order, 62 FR 26684, May 14, 1997, we eliminated vacant
NTSC allotments in order to better achieve our DTV objectives of full
accommodation, service replication and spectrum recovery. We further
stated that new television stations should be operated as DTV stations,
and that there would be no need to maintain vacant NTSC allotments that
were not the subject of a pending application or rule making
proceeding. Thus, with the licensing of new NTSC service coming to an
end, we believe that the proposed rationale for a vacant allotment
waiver policy has been largely vitiated because there would be few, if
any, situations where that basis for a waiver would apply. As the
development of DTV continues, it is possible that new channels may
again become available for licensing. If so, we may reconsider this
issue at that time or in the context of our biennial review of our
multiple ownership rules.
43. Although we no longer find it appropriate to adopt a vacant
allotment waiver standard, we have concluded that the public interest
would be served at this time by adopting a duopoly waiver standard for
``unbuilt'' television stations. The unbuilt station waiver we adopt is
premised on essentially the same logic as supports our failed and
failing station waiver standards. A station that has gone unbuilt, like
a built station that has gone dark, cannot contribute to diversity or
competition. On the other hand, activation of a construction permit and
construction of a station, even by the owner of another television
station in the market if that is the only viable means to obtain
service, increases program choice for viewers, may increase outlet
diversity, and increases the amount of advertising time available for
sale in the market. We believe that the benefits to the public of
construction and operation of such a station, even if through joint
ownership, rather than allowing the channel to remain unused, outweigh
any costs to diversity and competition.
44. To qualify for a duopoly waiver under this standard, we will
require that applicants satisfy each of these criteria:
(1) The combination will result in the construction of an
authorized but as yet unbuilt station.
(2) The permittee has made reasonable efforts to construct, and has
been unable to do so.
(3) The in-market buyer is the only reasonably available candidate
willing and able to acquire the construction permit and build the
station and selling the construction permit to an out-of-market buyer
would result in an artificially depressed price. As with the showing
required of failed and failing station waiver applicants, one way to
satisfy this criterion will be to provide an affidavit from an
independent broker affirming that active and serious efforts have been
made to sell the permit, and that no reasonable offer from an entity
outside the market has been received.
Any combination formed as a result of an unbuilt station waiver may be
transferred together only if the combination meets our new duopoly rule
or one of our three waiver standards at the time of transfer.
d. UHF Combinations
45. Background. In the 2FNPRM, we invited comment on the extent to
which the Commission should distinguish between UHF and VHF stations in
applying our TV duopoly rule.
46. Discussion. After careful consideration of the comments, we
have decided not to create a UHF exception or UHF waiver policy for
several reasons. First, a UHF exemption or waiver policy is an
overbroad means of promoting the public interest. As we noted in our
R&O eliminating the prime time access rule for television networks,
many UHF stations are financially successful, are network affiliates,
and are part of large station groups. Thus, a blanket exception or
waiver for all UHF stations would unfairly benefit more powerful
affiliates as well as struggling stations. Second, cable carriage
compensates for many of the technical disadvantages faced by UHF
stations vis-a-vis their VHF counterparts. Cable penetration is near 70
percent nationwide. Moreover, the Supreme Court's decision upholding
the statutory must-carry rights of television stations removes a major
source of uncertainty among UHF stations about their ability to obtain
cable carriage. Third, deployment of DTV should eliminate, over the
next several years, many of the remaining disadvantages of UHF
stations. The Commission's power limitations for DTV licensees will
likely reduce the technical discrepancy of UHF and VHF stations, and
the multichannel capabilities of digital transmission should enhance
the ability of UHF stations to compete in the video marketplace.
Fourth, licensees may continue to take advantage of the satellite
station exception to the TV duopoly rule, which is designed to assist
financially struggling stations that cannot operate as stand-alone
full-service stations. Finally, we believe that the financial problems
faced by particular UHF stations can more appropriately be addressed,
at least to some extent, by the other duopoly waiver criteria we are
adopting today.
[[Page 50658]]
As discussed above, these criteria are targeted to assist stations
facing financial hardships. We therefore will not create a waiver
policy or exception to the TV duopoly rule based on whether a station
is in the UHF or VHF band.
3. Satellite Stations
47. Background. Generally, television satellite stations retransmit
all or a substantial part of the programming of a commonly-owned parent
station. Satellite stations are generally exempt from our broadcast
ownership restrictions. In the 2NPRM, we noted that the Commission
first authorized TV satellite operations in small or sparsely populated
areas with insufficient economic bases to support full-service
operations. Later we authorized satellite stations in smaller markets
already served by full-service operations but not reached by major
networks. More recently, we have authorized satellite stations in
larger markets where the applicant has demonstrated that the proposed
satellite could not operate as a stand-alone full-service station. We
stated in the 2FNPRM that we saw no reason to alter our policy of
exempting satellite stations from our local ownership rules, but
invited comment on this conclusion. All the commenters that addressed
this issue supported continuing the exception of satellite stations
from the duopoly rule.
48. Discussion. We believe that continued exception of satellite
stations from the duopoly rule is appropriate. As we stated in the
2FNPRM, our satellite station policy rests in part on the questionable
financial viability of the satellite as a stand-alone facility. As
such, our policy has furthered the underlying goals of our ownership
restrictions by adding additional stations to local television markets
where these stations otherwise would not have been established. In
addition, the other criteria we use to evaluate satellite operations,
including service to underserved areas, ensure that satellite
operations are consistent with our goals of promoting diversity and
competition.
IV. Radio-Television Cross-Ownership Rule
49. Background. The radio-television cross-ownership rule, or the
``one-to-a-market'' rule, forbids joint ownership of a radio and a
television station serving substantial areas in common. In 1989, the
Commission amended the rule to permit, on the basis of a presumptive
waiver, radio-television mergers involving one television and one AM
and one FM station, in the top 25 television markets if, post-merger,
at least 30 independently owned broadcast voices remain in the relevant
market, or if the merger involves a failed station. Our current policy
also permits waivers on a case-by-case basis if the merger satisfies a
group of five separate criteria.
50. In the FNPRM, we proposed to eliminate the cross-ownership
restriction in its entirety or replace it with an approach under which
cross-ownership would be permitted where a minimum number of post-
acquisition, independently owned broadcast voices remained in the
relevant market. We tentatively concluded there were two alternative
approaches toward modifying the rule. If radio and television stations
do not compete in the same local advertising, program delivery, or
diversity markets, we proposed to eliminate the rule entirely and rely
on our radio and television local ownership rules to ensure competition
and diversity at the local level. Under the local radio ownership rules
in effect at that time, this would have permitted entities to own one
AM, one FM, and one television station in even the smallest markets,
and up to 2 AM, 2 FM, and one television station in larger markets. In
contrast, if we concluded that radio and television did compete in some
or all of the local markets, we proposed to modify the one-to-a-market
rule to permit radio-television combinations in markets where there are
a sufficient number of remaining independent voices to ensure
sufficient diversity and competition.
51. After adoption of the FNPRM, Congress passed the 1996 Act,
which affects the radio-television cross-ownership rule in at least two
ways. First, section 202(d) of the Act directs the Commission to extend
the radio-television cross-ownership presumptive waiver policy to the
top 50, rather than top 25, television markets ``consistent with the
public interest, convenience and necessity.'' Second, section 202(b)(1)
of the Act liberalized the local radio ownership rules.
52. In our 2FNPRM, based on the statutory changes to the local
radio ownership rules, we requested further comment on our radio-
television cross-ownership rule proposals. First, we sought further
comment on whether the rule should be eliminated based on a finding
that radio and television stations do not compete in the same market.
Second, even if we consider television and radio stations to be
competitors, we asked if the radio-television cross-ownership rule
could be eliminated because the respective radio and television
ownership rules alone can be relied upon to ensure sufficient diversity
and competition in the local market. We also sought to update the
record on a number of specific options for modifying, but not
eliminating, the rule. In this regard, and consistent with section
202(d) of the 1996 Act, we proposed, at a minimum, to extend the top 25
market/30 voice waiver policy to the top 50 markets. However, we also
invited comment on a number of options to change the rule beyond what
was contemplated by section 202(d) of the 1996 Act. For example, we
asked whether the presumptive waiver policy should be extended further
to any television market where the minimum number of independent voices
would remain after the merger. We also invited comment on whether the
presumptive waiver policy should be extended to entities that seek to
own more than one FM and/or AM radio station, and whether the
Commission should reduce the number of required independently owned
voices that must remain after a merger. Finally, we asked whether our
``five factors'' test should be changed or refined to be more effective
in protecting competition and diversity.
A. Modification of the Rule
53. Discussion. We have determined that the public interest would
be best served at this time by relaxing the radio-television cross-
ownership rule to permit same-market joint ownership of radio and
television facilities up to a level that permits broadcasters and the
public to realize the benefits of common ownership while not
undermining our competition and diversity concerns. Our new rule
consists of three parts. First, we will permit a party to own up to two
television stations (provided this is permitted under our modified TV
duopoly rule or TV LMA grandfathering policy) and up to six radio
stations (any combination of AM or FM stations, to the extent permitted
under our local radio ownership rules) in any market where at least 20
independently owned media voices remain in the market after the
combination is effected. In those markets where our revised rule will
allow parties to own a total of eight outlets in the form of two TV
stations and six radio stations, we will also permit them instead to
own eight outlets in the form of one TV station and seven radio
stations. Second, we will permit common ownership of up to two
television stations and up to four radio stations (any combination of
AM or FM stations, to the extent permitted under our local radio
ownership rules) in any market where at least 10 independently owned
media voices remain after the combination is effected. And, third, we
will permit common ownership of up to two television stations and one
radio
[[Page 50659]]
station notwithstanding the number of independent voices in the market.
In determining which stations are subject to the new rule, we will use
the same contour overlap standards used in our present rule. We
delegate to the Mass Media Bureau the authority to grant any
application that satisfies the new radio/TV cross-ownership rule, and
presents no new or novel issues. If a voice test is required to acquire
a given combination (i.e., any combination that includes more than one
radio/TV combination), that combination will not later be required to
be undone if the number of independent voices in the market later falls
below the applicable voice test. However, a radio/TV combination may
not be transferred to a new owner if the market does not satisfy the
applicable voice standard at the time of sale.
54. As described below, we will eliminate our five factor case-by-
case waiver standard. Waivers of our new three-part rule will be
granted only in situations involving a failed station and in
extraordinary circumstances in which the proponent of the waiver will
face a high hurdle. We will define a failed station for purposes of our
new radio/TV cross-ownership rule in the same manner as that term is
defined for purposes of the failed station waiver we adopt today in
connection with our television duopoly rule. Any combination formed as
a result of a failed station waiver may be transferred together only if
the combination meets our new radio/TV cross-ownership rule or our
failed station waiver standard at the time of transfer.
55. Rationale for Modified Rule. We relax our radio/TV cross-
ownership rule to balance our traditional diversity and competition
concerns with our desire to permit broadcasters and the public to
realize the benefits of radio/TV common ownership. We believe that the
revised rule reflects the changes in the local broadcast media
marketplace. The relaxed rule recognizes the growth in the number and
types of media outlets, the clustering of cable systems in major
population centers, the efficiencies inherent in joint ownership and
operation of both television and radio stations in the same market, as
well as the public service benefits that can be obtained from joint
operation. At the same time, the voice test components of the revised
rule also ensure that the local market remains sufficiently diverse and
competitive.
56. The new three-part rule also ensures the application of a
clear, reasoned standard. One of our primary goals in this proceeding
is to provide concrete guidance to applicants and the public about the
permissibility of proposed transactions. This minimizes the burdens
involved in complying with and enforcing our rules. It also promotes
greater consistency in our decision-making. Since development of the
Commission's waiver policy in 1989, the Commission has granted a
significant number of waivers in order to provide broadcasters relief
from the one-to-a-market rule, which prohibited any common ownership of
television and radio stations in the same market. Indeed, some
commenters argue that this waiver process has come to govern regulation
of same-market radio-television cross-ownership, rather than the rule
itself. Today, we redirect our approach by amending the rule to provide
a greater degree of common ownership of radio and television stations
while at the same time limiting waivers of this new rule to only
extraordinary circumstances. In addition, the new rule will ease
administrative burdens and will provide predictability to broadcasters
in structuring their business transactions.
57. A number of commenters argued that we should eliminate our
radio-television cross-ownership rule entirely. We do not believe that
course is appropriate at this time. We stated in the FNPRM that
elimination of the rule might be warranted if we concluded that radio
and television stations do not compete in the same local advertising,
program delivery, or diversity markets. Although radio and television
stations may or may not compete in different advertising markets, we
believe a radio-television cross-ownership rule continues to be
necessary to promote a diversity of viewpoints in the broadcast media.
The public continues to rely on both radio and television for news and
information, suggesting the two media both contribute to the
``marketplace of ideas'' and compete in the same diversity market. As
these two media do serve as substitutes at least to some degree for
diversity purposes, we will retain a relaxed one-to-market rule to
ensure that viewpoint diversity is adequately protected.
58. Although we decline to eliminate our radio-television cross-
ownership rule, the demonstrated benefits of same-market broadcast
combinations support relaxing the rule and allowing such combinations
in circumstances where we find that diversity and competition remain
adequately protected. The record in this proceeding demonstrates that
there are significant efficiencies inherent in joint ownership and
operation of broadcast stations in the same market, even when the
stations are in separate services (i.e., radio-TV combinations). Among
other benefits, these efficiencies often lead to improved programming
and can help stations in financial difficulty remain on the air. The
revised radio/TV cross-ownership rule we adopt today will establish
clear guidelines that will permit common ownership of radio and
television stations in markets where diversity and competition are
preserved.
59. Turning to the specifics of the first two prongs of the new
rule, we will use a ``voice count'' approach rather than also applying
a market rank restriction as with our current top 25 market, 30 voice
presumptive waiver policy. In particular, the first prong of our new
rule, which permits a party to own up to two television stations
(provided this is permitted under our modified TV duopoly rule or TV
LMA grandfathering policy) and up to six radio stations (any
combination of AM or FM stations, to the extent permitted under our
local radio ownership rules) in any market with at least twenty
independently owned media voices, focuses on the number of independent
voices remaining in the market post-merger, rather than market rank
(e.g., the top 100 markets). A rule based on the number of independent
voices more accurately reflects the actual level of diversity and
competition in the market. As a number of commenters in this proceeding
noted, a market-size restriction is unnecessary for purposes of
competition and diversity as long as there are a minimum number of
independent sources of news and information available to listeners, and
a minimum number of alternative outlets available to advertisers. In
addition, unlike a rule based on market rank, our revised rule will
account for changes in the number of voices in a market resulting from
consolidation, the addition of new voices, or the loss of any outlets.
Mergers will be permitted only when the voice count is satisfied,
thereby ensuring the preservation of a minimum level of diversity and
competition in the market.
60. The second prong of our new rule permits a party to own up to
two television stations (provided this is permitted under our modified
TV duopoly rule or TV LMA grandfathering policy) and up to four radio
stations (any combination of AM or FM stations, to the extent permitted
under our local radio ownership rules) in any market with at least ten
independently owned media voices. This standard also focuses on the
number of independent voices remaining in the market post-merger rather
than market rank, and extends the benefits of common ownership to
smaller markets. In this regard, our
[[Page 50660]]
revised rule permits broadcasters and the public in these markets to
realize the same benefits of common ownership we have concluded are
worthwhile for the largest markets.
61. The third prong of our new rule will allow common ownership of
up to two television stations (provided that is permissible under our
rules or TV LMA grandfathering policy) and one radio station
notwithstanding the number of independent voices in the market. Based
on the record before us, we find that the service benefits and
efficiencies achieved from the joint ownership and operation of a
television/radio combination in local markets further the public
interest and outweigh the cost to diversity in these instances.
62. Applying the Voice Count Tests. We will apply the voice test
under both prongs of our new radio/TV cross-ownership rule that include
such a test as follows:
(1) We will count all independently owned and operating full-power
commercial and noncommercial broadcast television stations licensed to
a community in the DMA in which the community of license of the
television station in question is located.
(2) We will also count all independently owned and operating
commercial and noncommercial broadcast radio stations licensed to a
community within the radio metro market in which the community of
license of the television station in question is located. In addition,
we will count broadcast radio stations outside the radio metro market
that Arbitron or another nationally-recognized audience rating service
lists as having a reportable share in the metro market. In areas in
which there is no radio metro market, the party seeking the waiver may
count the radio stations present in an area that would be the
functional equivalent of a radio market.
(3) We will count all independently owned daily newspapers that are
published in the DMA at issue and that have a circulation exceeding 5%
of the households in the DMA.
(4) We will count cable systems provided cable service is generally
available to television households in the DMA. For DMAs in which cable
service is generally available, cable will count as a single voice for
purposes of our voice analysis, regardless of the number of cable
systems within the DMA, their ownership, and any overlap in service
area.
63. In counting broadcast television and radio stations as
``voices'' we are being consistent with the voice count analysis used
in our current ``top 25 market/30 voice'' presumptive waiver standard.
That standard, however, counts radio stations licensed to the relevant
television metropolitan market. Under our new rule, we will instead use
the radio metropolitan market, and will include both radio stations
licensed within the radio metro market and stations with a reportable
share in that market. We believe it is important to count radio
stations with a reportable share in the relevant market because those
stations clearly serve as a source of information and entertainment
programming for the relevant market. We have chosen to use the radio
metro market rather than the television metro market for counting the
number of independent radio voices because the former more accurately
reflect the competitive and core signal availability realities for
radio service in the market. All independently owned radio stations in
the radio market can be presumed to be available to residents of that
market because of signal reach. Radio stations outside the radio metro
market may also be presumed to be available to all residents of the
radio market if Arbitron, or another nationally recognized audience
rating service, lists them as having a reportable audience share in the
radio metro. Reportable audience share information is not generally
available for television metro markets. Thus, use of radio markets will
ease the burden on applicants seeking approval of assignment and
transfer applications, and on the Commission staff reviewing such
applications.
64. We will also include in our voice count daily newspapers and
cable systems because we believe that such media are an important
source of news and information on issues of local concern and compete
with radio and television, at least to some extent, as advertising
outlets. Although we have not previously explicitly counted cable and
newspapers as voices under our current top 25 market/30 voice
presumptive waiver standard, we have counted these outlets in applying
the case-by-case, five factor waiver standard. While we will count
these media outlets in applying our amended rule, we will restrict the
number of newspapers we will include and limit the weight we will
ascribe to cable. Specifically, we will include all independently owned
daily newspapers that are published in the DMA that have a circulation
exceeding 5 percent of the households in the DMA. Our intent in this
regard is to include those newspapers that are widely available
throughout the DMA and that provide coverage of issues of interest to a
sizeable percentage of the population. Although we recognize that other
publications also provide a source of diversity and competition, many
of these are only targeted to particular communities and are not
accessible to, or relied upon by, the population throughout the local
market. We will also include wired cable television in the DMA as one
voice, since cable service is generally available to households
throughout the U.S. We believe it is appropriate to include at least
one voice for cable, where cable passes most of the homes in the
market, because there are PEG and other channels on cable systems that
present local informational and public affairs programming to the
public. At this time we count cable as no more than one voice since
most cable subscribers have only one cable system to choose from. In
addition, despite a multiplicity of channels provided by each cable
system, most programming is either originated or selected by the cable
system operator, who thereby ultimately controls the content of such
programming. As most cable programming available to a household is
controlled by a single entity, we believe cable should be counted as a
single voice in applying our voice test.
B. Waiver Criteria
1. Failed Stations
65. We will continue to grant waivers of our radio-television
cross-ownership rule, on a presumptive basis, in situations involving a
failed station. However, we will adopt the definition of a failed
station used in the context of our television duopoly failed station
waiver standard. In order to qualify as ``failed'' a station must be
dark for at least four months or involved in court-supervised
involuntary bankruptcy or involuntary insolvency proceedings. In
addition, we will require that the waiver applicant demonstrate that
the ``in market'' buyer is the only reasonably available entity willing
and able to operate the failed station and that selling the station to
an out-of-market buyer would result in an artificially depressed price
for the station. As in the past, we will require the applicant seeking
the waiver to provide relevant documentation, i.e., proof of the length
of time that the station has been off the air, or proof that the
station is involved in bankruptcy proceedings. In addition, in the case
of a silent station, we will require a statement that the failed
station went dark due to financial distress, not because of other, non-
financial reasons. Any combination formed as a result of a failed
station waiver may be transferred together only
[[Page 50661]]
if the combination meets our radio/TV cross-ownership rule, or failed
station waiver, at the time of transfer.
66. Our new waiver standard is significantly stricter than the
failed station standard used in the context of our current one-to-a-
market rule. As we stated in adopting our television duopoly failed
station waiver, we are limiting the waiver to involuntary bankruptcy
and insolvency proceedings to avoid the risk that an owner has filed
for bankruptcy or insolvency simply to qualify for a waiver. We will
extend the waiver to include stations in insolvency as well as
bankruptcy proceedings, as the former is a state-regulated mechanism
similar to bankruptcy. Finally, we are requiring that applicants make a
serious effort to sell the troubled station to an out-of-market buyer
in order to limit the relief afforded by the waiver to those situations
in which it is clearly needed. In view of the other steps we are taking
today to relax our radio/TV cross-ownership rule, we believe that it is
appropriate to ensure that the relief offered by our failed station
waiver is directed to stations that are clearly facing financial
difficulty and that cannot be sold absent a waiver of our rule.
67. Our rationale for this waiver standard is the same as that of
the failed station waiver standard we are adopting today for the
television duopoly rule. We believe that the benefits to the public of
joint ownership, namely preserving a bankrupt station or allowing a
dark station to return to the air, do not pose costs from a diversity
perspective. Once a station has been off the air for a substantial
period or has become involved in involuntary bankruptcy proceedings (so
that it is likely to go off the air), competition and diversity in a
local market cannot be improved by forbidding joint ownership of that
station with another station in the market. It is our view that two
operating, commonly-owned stations serve the public better than one
operational station and one nonoperational station that provides no
service to the public at all. We note that Congress reached the same
conclusion in the 1996 Act when it authorized an exception to the local
radio ownership limits to permit an entity to exceed those limits if so
doing would result in an increase in the number of stations in
operation. Increasing the number of stations in a market provides
additional voices to address community needs and issues and increases
listeners' programming choices.
68. This waiver will not be extended to failing or unbuilt
stations. Thus, evidence that a station is losing money (i.e., a
negative cash flow) is not adequate to qualify for the waiver. We do
not believe that it is necessary at this time to permit such additional
waivers in view of the measured liberalization of our radio/TV cross-
ownership rule and the 1996 Act's liberalization of the local radio
ownership limits.
2. ``Five Factors'' Waiver Standard
69. Background. We invited comment in the 2FNPRM on whether our
``five factors'' case-by-case waiver standard should be changed or
refined to be more effective in protecting our competition and
diversity concerns. Under this standard, we make a public interest
determination on a case-by-case basis currently using the following
five criteria: (1) the potential public service benefits of common
ownership of the facilities, such as economies of scale, cost savings,
and programming benefits; (2) the types of facilities involved; (3) the
number of media outlets already owned by the applicant in the relevant
market; (4) any financial difficulties involving the station(s); and
(5) issues pertaining to the level of diversity.
70. Discussion. In light of the modifications we are making today
in the radio-television cross-ownership rule and our goals of
protecting competition and diversity, we will eliminate the case-by-
case, ``five factors'' waiver test we have previously employed. Our
amended rule goes beyond the criteria pursuant to which we have
delegated authority to the Commission staff to act on one-to-a-market
waiver requests, most of which have been approved under the five
factors standard. We have revised the rule based on our recognition
that the benefits of joint ownership in many circumstances outweigh the
harm to diversity, and have based that conclusion in large part on an
assessment of the same general criteria identified in our current five
factor waiver standard. In the event that extraordinary evidence exists
that a waiver of our revised rule is warranted, the Commission will
consider that evidence pursuant to our general waiver authority. Given
the significant relaxation of our radio-TV cross-ownership rule,
applicants seeking combinations that exceed the new rule will bear a
substantially heavier burden than in the past in justifying joint
ownership.
71. We are eliminating the five-factor waiver standard because it
has been difficult to apply. After a number of years of experience in
applying this test, we have come to conclude that the standard does not
sufficiently protect our competition and diversity goals. We believe
that our new, three-part rule, along with our failed station waiver,
will be easier to administer, better protect the Commission's
competition and diversity goals, and therefore further the public
interest.
3. Existing Conditional Waivers
72. In a number of rulings since passage of the 1996 Act, the
Commission has granted, conditioned on the outcome of this proceeding,
applications for waiver of the radio-television cross ownership rule
where the number of radio stations exceeded the radio limits in
existence prior to the Act. The conditional waiver grantees are
directed to file with the Commission within sixty days of publication
of this R&O in the Federal Register a showing sufficient to demonstrate
their compliance or non-compliance with our new rule. In situations
where the revised rule is met, we delegate to the Mass Media Bureau the
authority to replace the conditional waiver with permanent approval of
the relevant assignment or transfer of license.
73. A number of the conditional waivers that have been granted will
not comply with our newly revised radio/TV cross-ownership rule.
Although parties that received these waivers were placed on notice that
their proposed station transactions were subject to the outcome of this
rulemaking proceeding, we nonetheless will extend these conditional
waivers, until the conclusion of our biennial review in 2004, during
which we will review the radio/TV cross-ownership rule itself. We will
also extend this grandfathering relief to any pending application for
conditional waiver, if filed on or before July 29, 1999 (the date of
this ``sunshine'' notice for this R&O), and ultimately granted by the
Commission. In 2004, the Commission will review these waivers, on a
case-by-case basis, as part of its biennial review and determine the
appropriate treatment of them beyond that point in time. In order to
qualify for permanent grandfathering relief after 2004, conditional
waiver grantees will be required to demonstrate that such relief is in
the public interest, based upon, to the extent applicable to radio/TV
combinations, the same criteria that we will use to review the LMAs
that we have concluded to grandfather for a similar period of time. As
is the case with the grandfathered LMAs, if conditional waiver grantees
wish to establish greater certainty about the status of their waiver
prior to the 2004 biennial review, they may make a showing using the
2004 biennial review criteria, beginning one year after the date that
this R&O is published in the
[[Page 50662]]
Federal Register. Any transfer of a grandfathered combination after the
adoption date of this R&O (whether during the initial grandfathering
period or after a permanent grandfathering decision has been made) must
meet the radio/TV cross-ownership rule or waiver policy in effect at
the time of transfer.
V. Television Local Marketing Agreements
74. Background. A television local marketing agreement (``LMA'') or
time brokerage agreement is a type of contract that generally involves
the sale by a licensee of discrete blocks of time to a broker that then
supplies the programming to fill that time and sells the commercial
spot announcements to support the programming. Our current data
indicate that there are at least 70 existing LMAs where the brokering
and brokered station are in the same DMA. Most of these LMAs are in the
top 50 television markets.
75. In our companion Attribution R&O, we have decided to attribute
time brokerage of another television station in the same market for
more than fifteen percent of the brokered station's broadcast hours per
week and to count LMAs that fall in this category toward the brokering
licensee's ownership limits. In the 2FNPRM, we stated that we would
decide in this proceeding how to treat existing television LMAs under
any new attribution rules that we might adopt in the Attribution
proceeding. In this R&O, we adopt policies to afford ``grandfather''
rights to existing television LMAs according to the provisions
discussed below.
76. In the 2FNPRM, we stated that, in the event that we found
television LMAs attributable, we were inclined to extend some
grandfathering relief to all television LMAs entered into before the
November 5, 1996 adoption date of the 2FNPRM for purposes of compliance
with our ownership rules. We sought comment on an approach whereby such
LMAs would not be disturbed during the pendency of the original term of
the LMA in the event the cognizability of the LMA would result in
violation of an ownership rule. We also tentatively concluded that
television LMAs entered into on or after the adoption date of the
2FNPRM, if they resulted in violation of any ownership rule, would not
be grandfathered and would be accorded only a brief period within which
to terminate. We also reserved the right to invalidate an otherwise
grandfathered LMA in circumstances raising particular competition and
diversity concerns, such as might occur in very small markets.
77. After reviewing the comments received in response to the 2FNPRM
in this proceeding and the FNPRM in our related attribution proceeding,
the Commission concluded that the commenters had not provided
sufficient information on a range of important factual issues related
to television LMAs. To provide a more complete record, the Commission
released a Public Notice on June 17, 1997 (62 FR 33792, June 23, 1997),
requesting parties to any existing television LMA to provide certain
information regarding the terms and characteristics of these agreements
to help us determine, inter alia, the number of existing television
LMAs, the date of origination and duration of these arrangements, and
the efficiencies or public interest benefits that may have resulted
from the LMA.
78. Discussion. We adopt our proposal in the 2FNPRM to grandfather
television LMAs entered into prior to November 5, 1996, the adoption
date of that document, for purposes of compliance with our ownership
rules. Television LMAs entered into on or after that date will have two
years from the adoption date of this R&O to come into compliance with
our rules or terminate. LMAs entered into before November 5, 1996 will
be grandfathered until the conclusion of our 2004 biennial review, a
period of approximately five years. As part of that review, the
Commission will conduct a general review of the TV duopoly rule and a
case-by-case review of grandfathered LMAs, and assess the
appropriateness of extending the initial grandfathering period. Parties
who wish the Commission to conduct this review prior to 2004 may apply
for such relief, using the biennial review criteria, beginning one year
after the date the R&O is published in the Federal Register. We now
turn to a more detailed explanation of our decision on this issue.
79. Section 202(g) of the 1996 Act. Some commenters argue that the
1996 Act directs us to grandfather television LMAs permanently. Section
202(g) of the 1996 Act addresses the construction of section 202 with
respect to LMAs. Section 202(g) states that ``[n]othing in this section
shall be construed to prohibit the origination, continuation, or
renewal of any television local marketing agreement that is in
compliance with the regulations of the Commission.'' (Emphasis added.)
As we stated in the 2FNPRM, the plain language of this provision states
that section 202 shall not be construed to prohibit any television LMA
that is in compliance with the Commission's rules.
80. We do not regard section 202(g) as limiting our ability to
promulgate attribution rules under Title I and Title III of the
Communications Act affecting the status of television LMAs. As a
result, we do not see section 202(g) of the 1996 Act as posing a legal
restraint in resolving questions raised in the FNPRM as to (1) whether
television LMAs in which a broker obtains the ability to program 15% or
more of a broadcast television station's weekly broadcast output should
be deemed an attributable interest (which has been decided in our
companion Attribution R&O); and (2) whether grandfathering existing
television LMAs from any applicable ownership rules that would follow
from that attribution decision is appropriate.
81. We consequently believe that the 1996 Act left the Commission
with the discretion to adopt a grandfathering policy with respect to
television LMAs that appropriately addresses the equity, competition,
and diversity issues these arrangements raise. Having said that, we
fully recognize the need to avoid undue disruption of television LMAs
that were entered into in good faith reliance on our previous rules at
the time, and that these arrangements may in fact have resulted in
significant public interest benefits. We now turn to striking the
appropriate balance regarding these factors.
82. Grandfathering Cut-Off Date. We will adopt our proposal in the
2FNPRM to grandfather television LMAs entered into before the adoption
date of that document, i.e., November 5, 1996. It was on this date that
the Commission gave clear notice that it intended to attribute
television LMAs in certain circumstances, and that LMAs entered into on
or after that date that violated our local television ownership rule
would not be grandfathered and would be accorded only a fixed period in
which to terminate.
83. Treatment of LMAs Entered Into on or After November 5, 1996.
LMAs that are not eligible for grandfathering relief--i.e., those LMAs
entered into on or after November 5, 1996, that are attributable under
the new attribution criteria and that would violate the TV duopoly
rule--will be given two years from the adoption date of this R&O to
terminate. Even though the holders of such LMAs entered into after our
grandfathering date could not have a legitimate expectation of being
eligible for the grandfathering rights we adopt today, we believe that
such a transition is appropriate to avoid undue disruption of existing
arrangements and will allow the holders of LMAs to order their affairs.
For example, the licensee
[[Page 50663]]
of a brokered station may need time to arrange for programming to
replace that provided under the LMA; a two-year transition to do this
will allow the licensee to avoid disruption of its service to the
public. In addition, stations with non-grandfathered LMAs could, of
course, apply for a TV duopoly under our new rule or waiver criteria,
just as any other station owner in the market could. Applications based
on a waiver may be based on circumstances as they existed at the time
just prior to the parties entering into the LMA.
84. Scope of Grandfathering Relief. We believe television LMAs
entered into prior to the November 5, 1996 adoption date of the 2FNPRM
should receive significant grandfathering relief. The parties to these
LMAs entered into these arrangements when there was no Commission rule
or policy prohibiting them. There consequently are strong equities
against requiring them to divest their interests in these LMAs and
upset the settled expectations established by these plans and
investments. Doing so could impose an unfair hardship on these parties.
85. In addition to these equities, the record shows that a number
of television LMAs resulted in public interest benefits. ALTV submitted
a study showing that LMAs helped some struggling stations complete
construction of their facilities or upgrade them, allowed others to add
a local newscast or other local programming to their schedule, and more
generally permitted stations to take advantage of operating
efficiencies to serve their viewers better. We do not wish to disrupt
these public interest benefits.
86. We consequently will grandfather television LMAs entered into
prior to November 5, 1996, conditioned on the Commission's 2004
biennial review. During this initial grandfathering period and during
the pendency of the 2004 review, these LMAs may continue in full force
and effect, and may also be transferred and renewed by the parties,
though the renewing parties and/or transferees take the LMAs subject to
the review of the status of the LMA as part of the 2004 biennial
review. At that time, the Commission will reevaluate these
grandfathered television LMAs, on a case-by-case basis, to examine the
competition, diversity, equities, and public interest factors they
raise and to determine whether these LMAs should continue to be
grandfathered. In order to qualify for permanent grandfathering relief
after 2004, parties to LMAs entered into before November 5, 1996 will
be required to demonstrate that such relief is in the public interest
based upon the biennial review factors described below.
87. We believe that reevaluation of the LMAs is reasonable as the
record shows that many parties entered into television LMAs, and made
substantial investments in these arrangements, with the belief that
they could be renewed or transferred. If any party to an LMA wishes the
Commission to determine the status of its agreement prior to the 2004
biennial review, it may request the Commission to do so at any time
beginning one year after this R&O is published in the Federal Register,
using the biennial review factors noted below, to demonstrate that
continuation of the LMA is in the public interest. (In addition, at any
time the parties to an LMA may seek, just as any other applicant, to
form a duopoly or justify an LMA indefinitely under our new rule and
waiver policies. A showing based on voice counts must meet our new rule
at the time the showing is filed; a showing based on a waiver may be
based on the circumstances existing just prior to the parties entering
into the LMA.) Whether LMA holders obtain a duopoly outright or
permanent grandfathering relief for arrangements that do not comply
with our new TV duopoly rule and waiver policies, such relief will not
be extended to any transfers subsequent to 2004; any transfer of
permanently grandfathered arrangements after that time must meet our
duopoly rule or waiver policies in effect at the time of transfer.
88. As part of the 2004 biennial review, the Commission will
examine the following factors to assist in its review of grandfathered
television LMAs:
Public Interest Factors--The FCC will assess the extent to
which parties, by virtue of their joint operation, have achieved
certain efficiencies allowing them, in turn, to produce specific and
demonstrable benefits to the public. For example, the Commission may
consider, among other things, the following: the extent to which
broadcasters involved have fostered the regulatory goal of promoting
localism, including locally-originated programming, such as news and
public affairs programming; the extent to which the joint operations
have made possible capital investments and technical improvements that
have improved service; the extent to which the joint operations have
increased the amount and investment in children's educational
programming; and the extent to which the joint operations have
otherwise produced specific and demonstrable benefits to the viewing
public;
DTV Conversion--The FCC will evaluate the extent to which
the same-market joint operations are on or ahead of schedule to convert
to DTV and digital service. We will examine the extent to which one
station has enabled the other to convert to digital operations, and
whether joint operation has expedited that conversion, as well as has
produced more over-the-air programming using digital transmission.
Marketplace Conditions--The FCC will evaluate the status
of competition and diversity in the marketplace.
Equities--In considering the appropriateness of
grandfathering beyond the initial five year period, the FCC will take
into account the capital investments the broadcasters involved have
already made to improve the quality of the technical facilities of the
stations involved, and weigh these equities against the competition and
diversity issues involved.
89. Filing Existing LMAs. Those parties with existing LMAs that are
attributable under our new attribution rules are directed to file a
copy of the LMA with the Commission within thirty days of the
publication of this R&O in the Federal Register.
VI. New Applications
90. Applications filed pursuant to this R&O will not be accepted by
the Commission until the effective date of this R&O. We realize that
the rules adopted in this R&O could result in two or more applications
being filed on the same day relating to stations in the same market and
that due to the voice count all applications might not be able to be
granted. We will address how to resolve such conflicts in a subsequent
action.
VII. Conclusion
91. For the reasons discussed, we adopt this R&O revising our local
television ownership rules. We intend by these revisions to improve the
ability of television broadcasters to realize the efficiencies and cost
savings of common station ownership, and to strengthen their potential
to serve the public interest. We believe that our decision strikes the
appropriate balance between common ownership and our fundamental
competition and diversity concerns, and ensures that our television
ownership restrictions appropriately reflect ongoing changes in the
broadcast television industry.
VIII. Administrative Matters
92. Paperwork Reduction Act of 1995 Analysis. This R&O has been
analyzed with respect to the Paperwork Reduction Act of 1995 and found
to impose new reporting requirements on
[[Page 50664]]
the public. Implementation of these new reporting requirements will be
subject to approval by the Office of Management and Budget as
prescribed in the Act. The new reporting requirements contained in this
R&O have been submitted to OMB for emergency clearance.
93. Regulatory Flexibility Analysis. Pursuant to the Regulative
Flexibility Act of 1980, as amended, 5 U.S.C. 601 et seq., the
Commission's Final Regulatory Flexibility Analysis in this document.
94. Ordering Clauses. Accordingly, it is ordered that, pursuant to
the authority contained in sections 4(i) & (j), 303(r), 308, 310 and
403 of the Communications Act of 1934, 47 U.S.C. 154(i) & (j), 303(r),
308, 310 and 403, as amended, 47 CFR Part 73 is amended as set forth in
the Rule Changes.
95. It is further ordered that, pursuant to the Contract with
America Advancement Act of 1996, the amendment set forth in the Rule
Changes shall be effective November 16, 1999.
96. It is further ordered that the Commission's Office of Public
Affairs, Reference Operations Division, shall send a copy of this R&O,
including the Final Regulatory Flexibility Analysis, to the Chief
Counsel for Advocacy of the Small Business Administration.
97. It is further ordered that this proceeding is terminated.
98. Additional Information. For addition information concerning
this proceeding, please contact Eric Bash, Mass Media Bureau, (202)
418-2130.
Final Regulatory Flexibility Act Analysis
99. As required by the Regulatory Flexibility Act (``RFA''), 5
U.S.C. 603, an Initial Regulatory Flexibility Analysis (``IRFA'') was
incorporated in the 2FNPRM in this proceeding. The Commission sought
written public comment on the proposals in this document, including
comment on the IRFA. The comments received are discussed below. This
present Final Regulatory Flexibility Analysis (``FRFA'') conforms to
the RFA.
I. Need For, and Objectives of, Report and Order
100. In February, 1996, the Telecommunications Act of 1996 (``1996
Act'') was signed into law. Section 202 of the 1996 Act directed the
Commission to make a number of significant revisions to its broadcast
media ownership rules. Section 202 also requires us to review aspects
of our local ownership rules which were the subject of the TV Ownership
FNPRM in this docket. Specifically, section 202 requires the Commission
to: (1) conduct a rulemaking proceeding concerning the retention,
modification, or elimination of the duopoly rule; and (2) extend the
Top 25 market/30 independent voices one-to-a-market waiver policy to
the Top 50 markets, ``consistent with the public interest, convenience,
and necessity.'' In view of the 1996 Act's directives regarding
broadcast multiple ownership, the Commission in 1996 adopted a 2FNPRM
in this proceeding inviting comment on several issues prompted by the
1996 Act. We seek to foster both competition and diversity in the
changing video marketplace, and this R&O modifies the local ownership
rules consistent with these goals.
II. Significant Issues Raised by the Public in Response to the Initial
Analysis
101. Media Access Project, et al. (``MAP et al.'') submitted the
only set of comments that was filed directly in response to the IRFA
contained in the 2FNPRM.
III. Description and Estimate of the Number of Small Entities to Which
the Rules Will Apply
102. The amended rules will affect commercial television and radio
broadcast licensees, permittees, and potential licensees. MAP asserts
that the estimate contained in the IRFA of the number of broadcast
radio and television licensees that qualify as ``small entities'' is
flawed.
1. Definition of a ``Small Business''
103. Under the RFA, small entities may include small organizations,
small businesses, and small governmental jurisdictions. 5 U.S.C.
601(6). The RFA, 5 U.S.C. 601(3) defines the term ``small business'' as
having the same meaning as the term ``small business concern'' under
the Small Business Act, 15 U.S.C. 632. A small business concern is one
which: (1) is independently owned and operated; (2) is not dominant in
its field of operation; and (3) satisfies any additional criteria
established by the Small Business Administration (``SBA'').
104. The Small Business Administration defines a television
broadcasting station that has no more than $10.5 million in annual
receipts as a small business, (13 CFR 121.201, Standard Industrial Code
(SIC) 4833 (1996). Television broadcasting stations consist of
establishments primarily engaged in broadcasting visual programs by
television to the public, except cable and other pay television
services. Included in this industry are commercial, religious,
educational, and other television stations. Also included are
establishments primarily engaged in television broadcasting and which
produce taped television program materials. Separate establishments
primarily engaged in producing taped television program materials are
classified under another SIC number.
105. The SBA defines a radio broadcasting station that has no more
than $5 million in annual receipts as a small business. A radio
broadcasting station is an establishment primarily engaged in
broadcasting aural programs by radio to the public. Included in this
industry are commercial religious, educational, and other radio
stations. Radio broadcasting stations which primarily are engaged in
radio broadcasting and which produce ratio program materials are
similarly included. However, radio stations which are separate
establishments and are primarily engaged in producing radio program
material are classified under another SIC number.
106. Pursuant to 5 U.S.C. 601(3), the statutory definition of a
small business applies ``unless an agency after consultation with the
Office of Advocacy of the SBA and after opportunity for public comment,
establishes one or more definitions of such term which are appropriate
to the activities of the agency and publishes such definition(s) in the
Federal Register.''
2. Issues in Applying the Definition of a ``Small Business''
107. As discussed below, we could not precisely apply the foregoing
definition of ``small business'' in developing our estimates of the
number of small entities to which the rules will apply. Our estimates
reflect our best judgments based on the data available to us.
108. An element of the definition of ``small business'' is that the
entity not be dominant in its field of operation. We are unable at this
time to define or quantify the criteria that would establish whether a
specific radio or television station is dominant in its field of
operation. Accordingly, the estimates that follow of small businesses
to which the new rules will apply do not exclude any radio or
television station from the definition of a small business on this
basis and are therefore overinclusive to that extent. An additional
element of the definition of ``small business'' is that the entity must
be independently owned and operated. As discussed further below, we
could not fully apply this criterion, and our estimates of small
businesses to which the rules may apply
[[Page 50665]]
may be overinclusive to this extent. The SBA's general size standards
are developed taking into account these two statutory criteria. This
does not preclude us from taking these factors into account in making
our estimates of the numbers of small entities.
109. With respect to applying the revenue cap, the SBA has defined
``annual receipts'' specifically in 13 CFR 121.104, and its
calculations include an averaging process. We do not currently require
submission of financial data from licensees that we could use in
applying the SBA's definition of a small business. Thus, for purposes
of estimating the number of small entities to which the rules apply, we
are limited to considering the revenue data that are publicly
available, and the revenue data on which we rely may not correspond
completely with the SBA definition of annual receipts.
110. Under SBA criteria for determining annual receipts, if a
concern has acquired an affiliate or been acquired as an affiliate
during the applicable averaging period for determining annual receipts,
the annual receipts in determining size status include the receipts of
both firms. 13 CFR 121.104(d)(1). The SBA defines affiliation in 13 CFR
121.103. In this context, the SBA's definition of affiliate is
analogous to our attribution rules. Generally, under the SBA's
definition, concerns are affiliates of each other when one concern
controls or has the power to control the other, or a third party or
parties controls or has the power to control both. 13 CFR
121.103(a)(1). The SBA considers factors such as ownership, management,
previous relationships with or ties to another concern, and contractual
relationships, in determining whether affiliation exists. 13 CFR
121.103(a)(2). Instead of making an independent determination of
whether television stations were affiliated based on SBA's definitions,
we relied on the databases available to us to provide us with that
information.
3. Estimates Based on Census Data
111. The rules adopted in this R&O will apply to full service
television and radio stations.
112. There were 1,509 television stations operating in the nation
in 1992. That number has remained fairly constant as indicated by the
approximately 1,594 operating television broadcasting stations in the
nation as of June 1999. For 1992 the number of television stations that
produced less than $10.0 million in revenue was 1,155 establishments.
Thus, the new rules will affect approximately 1,594 television
stations; approximately 77%, or 1,227 of those stations are considered
small businesses. These estimates may overstate the number of small
entities since the revenue figures on which they are based do not
include or aggregate revenues from non-television affiliated companies.
113. The new rule will also affect radio stations. The 1992 Census
indicates that 96 percent (5,861 of 6,127) of radio station
establishments produced less than $5 million in revenue in 1992.
Official Commission records indicate that 11,334 individual radio
stations were operating in 1992. As of June 1999, official Commission
records indicate that 12,560 radio stations are currently operating.
IV. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements
114. The R&O imposes compliance requirements. Pursuant to the R&O,
applicants will be required to file with the Commission upon the
effective date of the rules showings to convert conditional waivers to
permanent license grants under the new rules or waiver standards. In
addition, licensees with existing local marketing agreements (LMAs)
that are attributable under the revised rules will be required to file
a copy of the LMA with the Commission within thirty days of publication
of the R&O in the Federal Register.
V. Steps Taken To Minimize Significant Economic Impact on Small
Entities and Significant Alternatives Considered
115. We believe that our revised TV duopoly rule, radio/TV cross-
ownership rule, and related waiver policies strike the appropriate
balance between allowing broadcast stations to realize the efficiencies
of combined operations, and furthering our policy goals of competition
and diversity. Both of our revised rules and their associated waiver
policies allow small stations to reduce expenses through shared
operations, but at the same time protect them from acquisition that
could eliminate their voice, and from the exercise of undue market
power.
116. In addition to having amended the geographic scope of our TV
duopoly rule, we have also modified the rule to permit common ownership
of two stations in the same DMA if at least eight independently owned
and operated full power TV stations (commercial and noncommercial) will
remain post-merger, and both of the stations are not in the top four-
ranked stations in the DMA. The new rule ensures that small stations
may combine operations, reduce expenses, and perhaps diversify
programming. At the same time, both the market rank and the voice count
components of the rule further our competition goal and protect small
stations from their competitors. The market rank test ensures that the
two largest stations cannot combine to dominate and exercise market
power in the advertising and programming markets in which TV stations
compete; the voice count test ensures that more than eight competitors
must exist in the market before any two of them may combine to increase
their market share. Both components of the new rule also further our
diversity goal and preserve small stations in markets with less than
eight voices.
117. We have revised our radio/TV cross-ownership rule to permit
common ownership of one or two TV stations and up to six radio stations
if twenty independent voices will remain post-merger; one or two TV
stations and up to four radio stations if at least ten voices will
remain post-merger; and one or two TV stations and one radio station
regardless of the number of voices that will remain post-merger. As
with our amended TV duopoly rule, the modified radio/TV cross-ownership
rule will allow stations, including small stations, to realize
economies of scale, but at the same time ensure that no market will
become concentrated to such an extent that any one or series of
combinations will dominate the markets in which broadcasters compete,
or monopolize the media and sources of information for their audiences.
118. Our TV duopoly waiver policies, based on a showing of a
``failed'' station, a ``failing'' station, and the construction of an
authorized but as yet unbuilt station, and our radio/TV cross-ownership
waiver policies, based on a showing of a ``failed'' station, likewise
accommodate small stations, while protecting our competition and
diversity goals. Each of these waiver policies was designed to ensure
that only truly financially distressed, which are typically smaller,
stations, can benefit from them. The waiver policies also ensure that
more financially successful in-market stations, which are typically
larger and likely would value same-market broadcast assets more highly
than out-of-market stations, cannot foreclose out-of-market buyers. The
in-market buyer must demonstrate that it is the only purchaser ready,
willing, and able to operate the station, and that sale to an out-of-
market buyer would result in an artificially depressed price.
119. We also believe that our grandfathering policies for
conditional
[[Page 50666]]
radio/TV cross-ownership waivers, and TV LMAs, may help small stations.
For example, the record suggested that TV LMAs may have helped smaller,
struggling stations to remain on or return to the air, and to diversity
and expand their programming. The R&O grandfathers all LMAs entered
into prior to November 5, 1996, and therefore permits them to remain in
full force and effect, subject to further review in the Commission's
biennial review in 2004.
120. For the above reasons, we believe that the Commission has
taken steps not only to reduce the economic impact on small entities,
but also to assist them realize the benefits of common operations, and
to protect them from undue market power.
VI. Report to Congress
121. The Commission will send a copy of this R&O, including this
FRFA, in a report to be sent to Congress pursuant to the Small Business
Regulatory Enforcement Fairness Act of 1996, see 5 U.S.C. 801(a)(1)(A).
In addition, the Commission will send a copy of this R&O, including
FRFA, to the Chief Counsel for Advocacy of the Small Business
Administration. A copy of this R&O and FRFA (or summaries thereof) will
also be published in the Federal Register. See 5 U.S.C. 604(b).
List of Subjects in 47 CFR Part 73
Television broadcasting.
Federal Communications Commission.
Magalie Roman Salas,
Secretary.
Rule Changes
For the reason discussed in the preamble, the Federal Communication
Commission amends 47 CFR part 73 as follows:
PART 73--RADIO BROADCAST SERVICES
1. The authority citation for Part 73 continues to read as follows:
Authority: 47 U.S.C. 154, 303, 334 and 336.
2. Section 73.3555 is amended by revising paragraphs (b) and (c)
and Note 7 to read as follows:
Sec. 73.3555 Multiple ownership.
* * * * *
(b) Local television multiple ownership rule. An entity may
directly or indirectly own, operate, or control two television stations
licensed in the same Designated Market Area (DMA) (as determined by
Nielsen Media Research or any successor entity) only under one or more
of the following conditions:
(1) The Grade B contours of the stations (as determined by
Sec. 73.684 of this part) do not overlap; or
(2)(i) At the time the application to acquire or construct the
station(s) is filed, at least one of the stations is not ranked among
the top four stations in the DMA, based on the most recent all-day
(9:00 a.m.-midnight) audience share, as measured by Nielsen Media
Research or by any comparable professional, accepted audience ratings
service; and
(ii) At least 8 independently owned and operating full-power
commercial and noncommercial TV stations would remain post-merger in
the DMA in which the communities of license of the TV stations in
question are located. In areas where there is no Nielsen DMA, count the
TV stations present in an area that would be the functional equivalent
of a TV market.
(c) Radio-television cross ownership rule. (1) This rule is
triggered when:
(i) The predicted or measured 1 mV/m contour of an existing or
proposed FM station (computed in accordance with Sec. 73.313 of this
part) encompasses the entire community of license of an existing or
proposed commonly owned TV broadcast station(s), or the Grade A
contour(s) of the TV broadcast station(s) (computed in accordance with
Sec. 73.684) encompasses the entire community of license of the FM
station; or
(ii) The predicted or measured 2 mV/m groundwave contour of an
existing or proposed AM station (computed in accordance with
Sec. 73.183 or Sec. 73.386), encompasses the entire community of
license of an existing or proposed commonly owned TV broadcast
station(s), or the Grade A contour(s) of the TV broadcast station(s)
(computed in accordance with Sec. 73.684) encompass(es) the entire
community of license of the AM station.
(2) An entity may directly or indirectly own, operate, or control
up to two commercial TV stations (if permitted by paragraph (b) of this
section, the local television multiple ownership rule) and 1 commercial
radio station situated as described above in paragraph (1) of this
section. An entity may not exceed these numbers, except as follows:
(i) If at least 20 independently owned media voices would remain in
the market post-merger, an entity can directly or indirectly own,
operate, or control up to:
(A) Two commercial TV and six commercial radio stations (to the
extent permitted by paragraph (a) of this section, the local radio
multiple ownership rule); or
(B) One commercial TV and seven commercial radio stations (to the
extent that an entity would be permitted to own two commercial TV and
six commercial radio stations under paragraph (c)(2)(i)(A) of this
section, and to the extent permitted by paragraph (a) of this section,
the local radio multiple ownership rule).
(ii) If at least 10 independently owned media voices would remain
in the market post-merger, an entity can directly or indirectly own,
operate, or control up to two commercial TV and four commercial radio
stations (to the extent permitted by paragraph (a) of this section, the
local radio multiple ownership rule).
(3) To determine how many media voices would remain in the market,
count the following:
(i) TV stations: independently owned full power operating broadcast
TV stations within the DMA of the TV station's (or stations') community
(or communities) of license;
(ii) Radio stations:
(A) (1) Independently owned operating primary broadcast radio
stations that are in the radio metro market (as defined by Arbitron or
another nationally recognized audience rating service) of:
(i) The TV station's (or stations') community (or communities) of
license; or
(ii) The radio station's (or stations') community (or communities)
of license; and
(2) Independently owned out-of-market broadcast radio stations with
a minimum share as reported by Arbitron or another nationally
recognized audience rating service.
(B) When a proposed combination involves stations in different
radio markets, the voice requirement must be met in each market; the
radio stations of different radio metro markets may not be counted
together.
(C) In areas where there is no radio metro market, count the radio
stations present in an area that would be the functional equivalent of
a radio market.
(iii) Newspapers: English-language newspapers that are published at
least four days a week within the TV station's DMA and that have a
circulation exceeding 5% of the households in the DMA; and
(iv) One cable system: if cable television is generally available
to households in the DMA. Cable television counts as only one voice in
the DMA, regardless of how many individual cable systems operate in the
DMA.
* * * * *
[[Page 50667]]
Note 7: The Commission will entertain applications to waive the
restrictions in paragraph (b) and (c) of this section (the TV
duopoly and TV-radio cross-ownership rules) on a case-by-case basis.
In each case, we will require a showing that the in-market buyer is
the only entity ready, willing, and able to operate the station,
that sale to an out-of-market applicant would result in an
artificially depressed price, and that the waiver applicant does not
already directly or indirectly own, operate, or control interest in
two television stations within the relevant DMA. One way to satisfy
these criteria would be to provide an affidavit from an independent
broker affirming that active and serious efforts have been made to
sell the permit, and that no reasonable offer from an entity outside
the market has been received. We will entertain waiver requests as
follows:
(1) If one of the broadcast stations involved is a ``failed''
station that has not been in operation due to financial distress for
at least four consecutive months immediately prior to the
application, or is a debtor in an involuntary bankruptcy or
insolvency proceeding at the time of the application.
(2) For paragraph (b) of this section only, if one of the
television stations involved is a ``failing'' station that has an
all-day audience share of no more than four per cent; the station
has had negative cash flow for three consecutive years immediately
prior to the application; and consolidation of the two stations
would result in tangible and verifiable public interest benefits
that outweigh any harm to competition and diversity.
(3) For paragraph (b) of this section only, if the combination
will result in the construction of an unbuilt station. The permittee
of the unbuilt station must demonstrate that it has made reasonable
efforts to construct but has been unable to do so.
* * * * *
[FR Doc. 99-23696 Filed 9-16-99; 8:45 am]
BILLING CODE 6712-01-P