[Federal Register Volume 81, Number 205 (Monday, October 24, 2016)]
[Rules and Regulations]
[Pages 73035-73041]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-25569]



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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 73

[MB Docket No. 13-236; FCC 16-116]


National Television Multiple Ownership Rule

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: This document eliminates the UHF discount from the calculation 
of the national television audience reach cap because it is no longer 
justified due to the transition to digital television. The discount 
attributes television stations broadcasting in the UHF spectrum with 
only 50 percent of the television households in their Designated Market 
Areas (DMAs). To avoid imposing undue harm on existing broadcast 
television station groups that exceed the national audience reach cap 
without the benefit of the UHF discount, this Report and Order 
grandfathers combinations: In existence on September 26, 2013 
(Grandfather Date), the release date of the Notice of Proposed 
Rulemaking (NPRM) in this proceeding; created by a transaction that had 
received Commission approval on or before the Grandfather Date; and 
proposed in applications pending before the Commission on the 
Grandfather Date.

DATES: Effective November 23, 2016.

FOR FURTHER INFORMATION CONTACT: Brendan Holland, Industry Analysis 
Division, Media Bureau, [email protected], (202) 418-2757.

SUPPLEMENTARY INFORMATION: This Report and Order in MB Docket No. 13-
236 was adopted August 24, 2016, and released September 7, 2016. The 
full text of this document is available for public inspection during 
regular business hours in the FCC Reference Center, 445 12th Street 
SW., Room CY-A257, Washington, DC 20554, or online at https://www.fcc.gov/ecfs/filing/0907563506002/document/090756350600263ba. To 
request this document in accessible formats for people with 
disabilities (e.g. braille, large print, electronic files, audio 
format, etc.) or to request reasonable accommodations (e.g. accessible 
format documents, sign language interpreters, CART, etc.), send an 
email to [email protected] or call the FCC's Consumer and Governmental 
Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY).

Synopsis of the Report and Order

    1. Background. Three decades ago in 1985, to protect localism, 
diversity, and competition, the Commission amended its national 
television multiple ownership rule to include a national audience reach 
cap that prohibited a single entity from owning television stations 
that collectively reached more than 25 percent of the total television 
households in the nation. At that time, the Commission recognized the 
inherent physical limitations of the UHF television band, finding that 
the strength of UHF television signals decreased more rapidly with 
distance in comparison to the signals of stations broadcasting in the 
VHF band, resulting in significantly smaller coverage areas and 
audience reach. This finding was significant because, at the time, the 
vast majority of viewers received programming from broadcast television 
stations via over-the-air signals. Thus, a smaller over-the-air signal 
made it harder for UHF stations to compete with incumbent VHF stations, 
which maintained greater coverage areas. To account for this coverage 
disparity, the Commission determined that licensees of UHF stations 
should be attributed with only 50 percent of the television households 
in their DMAs for purposes of calculating the national audience reach 
cap. This rule is termed the UHF discount.
    2. As early as 1992, the Commission anticipated the possibility 
that the transition to digital television would obviate the need for 
the UHF discount, and sought comment on whether any distinction between 
UHF and VHF stations would be appropriate in light of the transition. A 
few years later, in the Telecommunications Act of 1996 (1996 Act), 
Congress directed the Commission to modify its ownership rules to 
increase the national audience reach cap from 25 percent to 35 percent 
of the total nationwide audience. In the 1996 Act Implementation Order 
(11 FCC Rcd 12374), the Commission noted that it was reviewing the UHF 
discount in the context of its television broadcast ownership rules, 
and explicitly cautioned that any entity that acquired stations during 
this interim period and complied with the 35 percent audience reach cap 
only by virtue of the UHF discount would be subject to the outcome of 
the pending rule making proceeding. In the 1998 Biennial Review Order 
(15 FCC Rcd 11058), the Commission retained the UHF discount, but 
stated that it would likely be unnecessary after the digital television 
transition and that the Commission would initiate a proceeding in the 
future to phase out the discount. In the 2002 Biennial Review Order (18 
FCC Rcd 13620), the Commission raised the national audience reach cap 
to 45 percent and again concluded that, ``the digital [television] 
transition [would] largely eliminate the technical basis for the UHF 
discount because UHF and VHF signals [would] be substantially 
equalized.'' Therefore, the 2002 Biennial Review Order adopted rules to 
phase out the UHF discount for broadcast stations owned by the Big Four 
networks (ABC, CBS, NBC, and Fox) on a market-by-market basis at the 
time the markets transitioned to DTV. The Commission indicated further 
that, for networks and station groups other than those stations owned 
and operated by the Big Four networks, it would decide in a subsequent 
biennial ownership review whether to extend the sunset to all other 
networks and station group owners. The rules at that time contemplated 
a gradual, market-by-market transition to DTV, but this approach was 
later replaced by a hard deadline--June 12, 2009.
    3. Following adoption of the 2002 Biennial Review Order, Congress 
subsequently rolled back the 45 percent national audience reach cap by 
including a provision in the 2004 Consolidated Appropriations Act (CAA) 
directing the Commission to set the cap at 39 percent of national 
television households. The CAA further amended section 202(h) of the 
1996 Act to require a quadrennial review of the Commission's broadcast 
ownership rules rather than the previously mandated biennial review. In 
doing so, Congress removed the requirement to review any rules relating 
to the 39 percent national audience reach cap from the quadrennial 
review requirement. The CAA did not mention the UHF discount, nor did 
it address the potential impact of the DTV transition on the 
calculation of the national audience reach cap.
    4. Prior to the enactment of the CAA, several parties had appealed 
the Commission's 2002 Biennial Review Order to the U.S. Court of 
Appeals for the Third Circuit (Third Circuit). In June 2004, the Third 
Circuit found, among other things, that the CAA rendered moot the 
challenges to the Commission's decision to retain the UHF discount (373 
F.3d 372). The court further found that the CAA insulated the national 
audience reach cap, including the UHF discount, from the Commission's 
quadrennial review of its media ownership rules. At the same time, 
however, the court stated that its decision did not foreclose the 
Commission's consideration of the UHF

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discount in a rulemaking separate from the required quadrennial review 
of its ownership rules. The court concluded that, barring congressional 
intervention, the Commission could decide the scope of its authority to 
modify or eliminate the UHF discount outside the context of section 
202(h). Prior to the court's decision, in February 2004, the Media 
Bureau issued a Public Notice specifically seeking comment on the 
Commission's authority to modify or eliminate the UHF discount in light 
of the CAA. In particular, the Media Bureau sought comment on whether 
the passage of the 39 percent cap signified congressional approval, 
adoption, or ratification of the 50 percent UHF discount. The comments 
and replies were filed in the docket for the 2002 Biennial Review 
Order.
    5. In July 2006, the Commission issued a Further Notice of Proposed 
Rulemaking (FNPRM) as part of its 2006 quadrennial review of the media 
ownership rules (21 FCC Rcd 8834). Among other things, the FNPRM sought 
comment on the UHF discount rule in light of the Third Circuit's 
holding and queried whether the Commission should retain, modify, or 
eliminate the UHF discount. Comments filed in response to the FNPRM 
also refreshed the Commission's record on its authority to alter the 
UHF discount. In February 2008, the Commission concluded in the 2006 
Quadrennial Review Order (23 FCC Rcd 2010) that the UHF discount was 
insulated from review under section 202(h) as a result of the CAA, and 
thus beyond the parameters of the quadrennial review. But the 
Commission noted that the Third Circuit's 2004 decision had left it to 
the Commission to decide the scope of its authority to modify or 
eliminate the UHF discount outside the context of section 202(h). 
Accordingly, the Commission indicated that it would address the 
petitions, comments, and replies filed with respect to the alteration, 
retention, or elimination of the UHF discount in a separate proceeding, 
which would be commenced at a future date.
    6. Since June 13, 2009, all full-power television stations have 
broadcast their over-the-air signals exclusively in digital form. The 
DTV transition has enabled broadcasters to provide multiple programming 
choices, higher quality video, and enhanced capabilities to consumers. 
Yet the transition has posed more challenges for VHF channels than UHF 
channels because VHF spectrum has proven to have characteristics that 
make it less desirable for providing digital television service. For 
instance, nearby electrical devices tend to emit noise that can cause 
interference to DTV signals within the VHF band, creating reception 
difficulties in urban areas even a short distance from the TV 
transmitter. The reception of VHF signals also requires physically 
larger antennas compared to UHF signals. For these reasons, among 
others, television broadcasters generally have faced greater challenges 
providing consistent reception on VHF signals than UHF signals in the 
digital environment, and some station owners have therefore opted to 
migrate their signals from VHF to UHF. Therefore, on September 26, 
2013, the Commission issued the NPRM in this proceeding proposing to 
eliminate the UHF discount and grandfather certain existing television 
station combinations that would exceed the 39 percent national audience 
reach cap in the absence of the discount, and seeking comment on 
whether a VHF discount should be adopted (28 FCC Rcd 14324).
    7. Authority to Modify the UHF Discount. We conclude that the 
Commission has the authority to modify the national audience reach cap, 
including the authority to revise or eliminate the UHF discount. We 
find that no statute bars the Commission from revisiting the cap or the 
UHF discount in a rulemaking proceeding so long as such a review is 
conducted separately from a quadrennial review of the broadcast 
ownership rules pursuant to section 202(h) of the 1996 Act. The CAA 
removed the requirement to review the national ownership cap from the 
Commission's quadrennial review requirement, but did not impose a 
statutory national audience reach cap or prohibit the Commission from 
evaluating the elements of this rule. While the CAA also provides that 
the Commission may not apply its forbearance authority under Section 10 
of the Communications Act to any person or entity exceeding the 39 
percent national audience reach cap, there is nothing in the CAA that 
suggests Congress intended to prevent the Commission from tightening 
the cap, repealing the UHF discount, or otherwise changing its rules at 
a later date. Thus, the Commission retains authority under the 
Communications Act to review any aspect of the national audience reach 
cap; it simply is not required to do so as part of the quadrennial 
review.
    8. Specifically, the Communications Act gives the Commission the 
statutory authority to revisit its own rules and revise or eliminate 
them when it concludes such action is appropriate. The Act authorizes 
the agency to ``perform any and all acts, make such rules and 
regulations, and issue such orders, not inconsistent with this Act, as 
may be necessary in the execution of its functions.'' Similarly, 
section 303(r) provides that the Commission may ``[m]ake such rules and 
regulations . . . not inconsistent with this law, as may be necessary 
to carry out the provisions of this Act . . . .'' Indeed, courts have 
held that the Commission has an affirmative obligation to reexamine its 
rules over time. In Bechtel v. FCC (957 F.2d 873), the court observed 
that ``changes in factual and legal circumstances may impose upon the 
agency an obligation to reconsider a settled policy or explain its 
failure to do so. In the rulemaking context, an agency also may be 
obligated to reexamine its approach if a significant factual predicate 
of a prior decision has been removed.'' As we explain further below, 
this is precisely the case in this instance.
    9. With respect to the UHF discount, even those advocating 
retention of the discount based on the CAA acknowledge that the CAA 
does not even mention the UHF discount. We disagree with commenters' 
suggestion that the CAA's legislative history somehow supports a 
conclusion that Congress fully considered either the UHF discount or 
the effect of the--then future--DTV transition. The history of this 
immense, omnibus bill does not reflect any consideration of the UHF 
discount or its potential elimination. There is no basis for the 
assumption that Congress, in overruling the Commission's decision to 
raise the national audience reach cap to 45 percent and mandating it be 
moved back down to 39 percent, did so with the expectation that the 
Commission would indefinitely maintain the UHF discount, especially 
given that post-DTV transition there is no technological basis for the 
discount. We note further that, when Congress chose to supersede the 
Commission's action and revise the national audience reach cap down to 
39 percent, it was on notice of the Commission's intent to phase out 
the discount, which the Commission had expressed in 1998 and again in 
2002. Congress was also aware, of course, of the Commission's broad 
authority--indeed, its obligation--to reevaluate its rules periodically 
and revise any that no longer serve the public interest. It could have 
foreclosed the Commission from ever revising the national audience 
reach cap or the UHF discount by making the national cap and the UHF 
discount a statutory restriction or by otherwise withdrawing Commission 
authority to modify the cap or the UHF

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discount. It did not do so, opting instead for the limited measure that 
reduced the cap from 45 percent to 39 percent and relieved the 
Commission of the obligation to reevaluate the national audience reach 
cap in the mandated quadrennial ownership review.
    10. We agree with commenters who assert that these actions suggest 
Congress's intent was to prevent excessive consolidation in the 
broadcast market. In fact, as discussed below, operation of the analog-
era discount after the DTV transition effectively allows some 
broadcasters with UHF stations to reach far more than the 45 percent of 
the national audience that Congress thought too high.
    11. Our interpretation of the CAA is consistent with the conclusion 
of the Third Circuit. As the court explained, although Congress 
excluded the national audience reach cap from the quadrennial review 
requirement under section 202(h), it did not foreclose Commission 
action to review or modify the UHF discount in a separate context.
    12. Elimination of the UHF Discount. As in the NPRM, we conclude 
that television broadcasting in the UHF band is no longer technically 
inferior to operations in the VHF band. UHF stations no longer suffer 
from weaker signals and smaller audience reach, are less dependent 
today on over-the-air coverage, are more desirable than VHF stations 
for digital broadcasting, and therefore UHF station owners no longer 
need the UHF discount to remain viable and competitive. Commenters in 
this proceeding have not presented evidence of any existing technical 
limitations that render digital UHF stations inferior to digital VHF 
stations.
    13. Therefore, we find that the DTV transition has rendered the UHF 
discount technically obsolete, and we eliminate it from the calculation 
of the national audience reach cap. As a result of the DTV transition, 
the national cap is effectively 78 percent for a station group that 
includes only UHF stations, and for any station group that includes a 
UHF station, the effective national cap now exceeds the 39 percent 
level that Congress directed the Commission to establish. Rather than 
offsetting an actual service limitation or reflecting a disparity in 
signal coverage, the UHF discount serves only to confer a factually 
unwarranted benefit on owners of UHF television stations that 
undermines the purpose of the national audience reach cap. Furthermore, 
the Commission's ongoing experience reviewing media transactions after 
the DTV transition date indicates that failure to correct the 
distortion that the UHF discount causes in the calculation of national 
audience reach as a result of the DTV transition creates an ongoing 
potential that additional transactions could undermine the national 
audience reach cap.
    14. At the time the UHF discount was established, analog UHF 
television stations were demonstrably inferior to VHF stations, with 
weaker signals and a smaller audience reach. Thirty years after its 
adoption, however, it is clear that the UHF discount cannot be 
justified in the digital world. While the discount was needed in the 
mid-1980s, the Commission soon found that the disparity between analog 
UHF and VHF stations was unlikely to exist in perpetuity. Further, 
three decades ago roughly 60 percent of U.S. television households 
received programming exclusively over-the air, while according to the 
most recent Nielsen data, approximately 11.5 percent, or about 13.3 
million television households, are broadcast-only.
    15. As early as 1988, the Commission noted that the disparities 
between UHF and VHF services had begun to decrease. Further, as the 
disparity between the two services eroded during the 1980s and 1990s, 
the Commission repealed a number of rules and policies that had 
previously treated UHF stations differently, and occasionally more 
favorably, than their VHF counterparts. In 1988 the Commission 
eliminated the UHF Impact Policy, which limited approval of new or 
modifications to existing VHF stations if the approval would harm 
existing or potential UHF stations (3 FCC Rcd 638). In 1995, the 
Commission repealed both the Prime Time Access Rule, which prohibited 
network-affiliated television stations in the top 50 markets from 
broadcasting more than three hours of network programs during prime 
time (11 FCC Rcd 546), and the Secondary Affiliation Rule, which 
required a third network seeking an affiliate in a market to offer its 
programming first to the independent station, often a UHF station (10 
FCC Rcd 4538). By the mid-1990s, the Commission went so far as to note 
that the disparities between UHF and VHF stations had been largely 
ameliorated and the ability of UHF stations to compete against VHF 
stations had greatly improved (11 FCC Rcd 19949).
    16. The most important change, however, occurred with the DTV 
transition, which the Commission had long recognized would likely 
eliminate the inferiority of UHF channels. In the 1998 Biennial Review 
Order, even though the Commission ultimately decided to retain the 
discount because the digital television transition was not yet 
complete, it indicated that the discount's days were numbered. The 
Commission discussed at length its expectation that the transition to 
digital broadcasting would potentially ``rectify the UHF/VHF 
disparity'' and that ``the eventual modification or elimination of the 
discount for DTV [would] be appropriate.'' In the subsequent 2002 
Biennial Review Order, the Commission determined that the issue was 
ripe and that the forthcoming DTV transition would substantially 
equalize UHF and VHF signals. The DTV transition has borne out the 
Commission's expectation.
    17. UHF spectrum is now highly desirable in light of its superior 
propagation characteristics for digital television. Since the 2009 DTV 
transition, 74 percent of the nation's television stations are now 
operating on UHF channels, and 80 percent of the aggregate television 
viewing population is served by UHF stations. As a result of the DTV 
transition, the number of UHF stations increased by 221 stations and 
the number of VHF stations decreased by 204 stations, indicating that 
over 200 stations, or approximately 15 percent of the total number of 
commercial television stations, switched spectrum bands in favor of 
UHF. In April 2010, Broadcasting & Cable noted that following the June 
2009 DTV transition, the majority of U.S. TV stations had moved to UHF 
channels, which are better suited to broadcasting digital television at 
lower power level. Notably, the DTV transition preserved station 
coverage, and in many cases, allowed stations to improve coverage by 
upgrading their facilities, maximizing power, and capitalizing on 
improved propagation of digital television signals. Therefore, stations 
have enhanced their coverage and audience reach as a result of the DTV 
transition, both because of the technical superiority of digital 
broadcasts on UHF channels and as a result of the chance to maximize 
their signal coverage during the transition. The evidence clearly 
establishes that digital UHF operations do not suffer from the same 
technical limitations as analog UHF operations. This finding is 
consistent with past Commission decisions scrutinizing the necessity of 
the UHF discount and recognizing the increased economic viability and 
success of the UHF band.
    18. Simply put, the UHF discount does not appropriately reflect the 
technical and economic reality of UHF facilities today. In fact, the 
discount impedes the objectives of the national audience reach cap by 
effectively expanding the 39 percent cap beyond even the level that 
Congress determined

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was too high when it enacted the CCA. Continued application of the UHF 
discount seven years after the DTV transition has the absurd result of 
stretching the national audience reach cap to allow a station group 
broadcasting exclusively on UHF channels to actually reach up to 78 
percent of television households, dramatically raising the number of 
viewers that a station group can reach and thwarting the intent of the 
cap.
    19. While the discount was intended to make the calculation of an 
owner's audience reach better reflect the reality of the audience the 
stations actually reached, in current circumstances, applying the 
discount creates a loophole that allows owners to fail to count 
audience that the stations actually do reach. Continued application of 
the antiquated UHF discount now has the unintended consequence of 
significantly discounting a station's actual audience reach for 
purposes of the rule when in reality the station's audience reach is 
not diminished at all by the use of UHF technology, but rather 
improved.
    20. Additionally, during the DTV transition, many stations that 
were broadcasting on VHF channels at the time the 39 percent cap was 
instituted shifted to UHF channels. Even after the transition, a number 
of stations that initially elected to operate on a VHF channel sought 
to relocate to a UHF channel to resolve technical difficulties 
encountered in broadcasting digitally on a VHF channel. Despite having 
signal coverage that was equal to, or even better than, its previous 
VHF channel, the former VHF station now received--for the first time--
the benefit of the UHF discount, i.e., a 50 percent reduction in the 
audience reach attributed to the station, all based on a discount 
intended to offset the inferiority of analog UHF signals. For instance, 
a licensee that traded an analog VHF station for a digital UHF station 
would now appear to have room to acquire additional stations under the 
39 percent cap simply by virtue of having changed spectrum, even though 
the number of stations owned by the licensee and the audience reached 
by those stations remained the same. Such a result serves as an 
unwarranted windfall for stations that migrated from VHF to UHF in the 
DTV transition, in light of the general technical superiority of the 
digital UHF channels.
    21. For example, in 2009, just prior to the DTV transition, Fox 
owned 27 stations with a total national audience reach of 37.22 percent 
before application of the UHF discount and 31.20 percent after 
application of the UHF discount. In 2010, immediately after the DTV 
transition, Fox continued to own 27 stations with a total national 
audience reach of 37.10 percent before application of the UHF discount. 
However, because five of Fox's stations switched from analog VHF 
channels to digital UHF channels in the transition, Fox's national 
audience reach calculation suddenly decreased with the benefit of the 
UHF discount, which allowed the station group to calculate its audience 
reach as only 24.75 percent--despite the fact that Fox still owned the 
same number of stations in the same markets reaching the same 
audiences. Although only five of Fox's stations switched from analog 
VHF to digital UHF channels in the DTV transition, these stations were 
all located in the top 10 DMAs, which account for a significant 
percentage of the television households in the nation. As a result, 
reducing the national audience reach by 50 percent for just a handful 
of stations in these larger markets had the effect of greatly reducing 
Fox's national audience reach calculation and potentially allowing 
significant additional consolidation, although it had no effect on its 
actual national audience reach. This example demonstrates the absurd 
results created by the continued existence of the discount.
    22. We do not agree with commenters arguing that, apart from 
technical considerations, the discount remains necessary to promote 
competition, localism, and diversity, help non-network broadcast groups 
compete with stations owned and operated by the major broadcast 
networks, and foster the creation of new networks. Further, contrary to 
claims of some commenters, the Commission's decision in the 2002 
Biennial Review Order to continue the UHF discount for stations not 
owned and operated by the Big Four networks was not based on a finding 
that such stations continued suffering from economic handicaps. The 
Commission clearly articulated that the UHF discount was predicated on 
the competitive disparity arising from the technical differences 
between the two types of channels, and merely deferred a decision on 
eliminating the discount. Any competitive disparity between UHF and VHF 
flowed from the technological disparity.
    23. As we have detailed above, following the transition to DTV, 
stations broadcasting on UHF spectrum are no longer competitively 
disadvantaged as compared to stations broadcasting on VHF spectrum. The 
record does not reflect evidence of any existing competitive disparity 
resulting from the continued deficiency of UHF signals. For example, no 
party has proffered evidence that advertisers routinely discount the 
prices paid for advertising on UHF stations versus VHF stations, as 
commenters alleged in the 2002 biennial review proceeding. Thus, we 
find no evidence that UHF stations today face a competitive disparity 
vis-[agrave]-vis VHF stations. In fact, as we note above, a number of 
former analog VHF stations chose to switch to UHF channels, further 
belying the suggestion that a competitive disparity persists between 
the two types of channels. We note further that the Commission has 
eliminated previously the historic steep discount in annual regulatory 
fees assessed for UHF stations, combining UHF and VHF stations into a 
single fee category beginning in Fiscal Year 2014, thereby eliminating 
a distinction based on the historical disadvantages of UHF.
    24. Of course, this is not to say that all stations are now 
competitive equals. Disparities continue to exist between stations in 
terms of viewership, advertising revenue, retransmission consent fees, 
and programming, to name a few. But these competitive disparities are 
not the result of any current technical differences between UHF and VHF 
stations. Because UHF stations are no longer technologically 
disadvantaged, they can now compete effectively in a market with VHF 
stations. Disparities between stations today are the result of market 
competition, programming choices, network affiliation, and 
capitalization. We do not believe that retention of the UHF discount 
would resolve any of these competitive differences. Finally, we 
disagree with any claim that removing the discount would frustrate the 
original purpose of the national cap; instead, removing the discount 
will prevent networks from expanding their reach, and our 
grandfathering regime, discussed below, will ensure that broadcasters 
that otherwise would exceed the cap after the discount is eliminated--
none of which are the Big Four networks--will be grandfathered.
    25. Further, when the Commission stated in the 2002 Biennial Review 
Order that the UHF discount continues to be necessary to promote entry 
and competition among broadcast networks, the DTV transition was still 
a number of years in the future. Contrary to the Commission's 
observations nearly a decade and a half ago, we do not see that the UHF 
discount is leading to the creation of new broadcast networks today. 
The record contains no evidence that new broadcast networks are being 
built today by assembling a national station group of UHF broadcast 
stations. Similarly, our most recent annual report on the state of 
competition among video

[[Page 73039]]

providers does not reflect a trend of emerging UHF broadcast networks. 
Instead, it appears that new programming networks are emerging as cable 
networks, online video programmers, and multi-cast digital networks--
methods that do not rely on the UHF discount. Therefore, the record in 
this proceeding does not support a conclusion that perpetuation of the 
UHF discount would foster the creation of new broadcast networks.
    26. We do not agree with commenters claiming that eliminating the 
UHF discount also requires an examination of the national audience 
reach cap. Reexamining the cap is not within the scope of the NPRM, and 
we decline to initiate a further rulemaking proceeding at this time for 
that purpose. No party has presented persuasive reasons for revisiting 
the national cap at this time, and doing so would be far more complex 
than the decision to eliminate the UHF discount, which we conclude 
clearly lacks any remaining justification. Initiating a new rulemaking 
proceeding to undertake a complex review of the public interest basis 
for the national cap, which is the media ownership limit that Congress 
examined most recently, would only delay the correction of audience 
reach calculations necessitated by the DTV transition. Delay would 
unnecessarily complicate efforts to bring the cap back into alignment 
with its stated level as broadcasters continue to increase their reach. 
Continued application of the discount absent its technical 
justification simply distorts the operation of the national audience 
reach cap by exempting the portions of the audience that are receiving 
a signal from being counted and allowing licensees that operate on UHF 
channels to reach more than 39 percent of viewers nationwide. Removal 
of the analog-era discount thus maintains the efficacy of the national 
cap. Although we do not foreclose the possibility of examining the 
national audience reach cap in the future, we find that action now to 
address the effects of the DTV transition by eliminating the UHF 
discount is appropriate.
    27. In this regard, our elimination of the UHF discount is unlike 
our adoption of the attribution rule for television joint sales 
agreements (TV JSAs), which the Third Circuit, in its recent ruling in 
connection with our quadrennial review of the multiple ownership rules, 
held was contrary to our periodic review obligation under section 
202(h) (824 F.3d 33). (``[T]he Commission cannot expand its attribution 
policies for an ownership rule to which Sec.  202(h) applies unless it 
has, within the previous four years, fulfilled its obligation to review 
that rule and determine whether it is in the public interest.'') The 
Local TV ownership rule clearly is subject to periodic review under 
section 202(h), whereas the national television ownership cap is not 
subject to that obligation. In addition, unlike our initial action on 
TV JSAs, we are grandfathering station groups that will exceed the 
national cap after we eliminate the UHF discount, so elimination of the 
UHF discount will not require divestitures by station owners. Finally, 
as discussed above, retention of the UHF discount is indefensible, 
regardless of the level of the cap, because it is irrational in light 
of the digital transition. Therefore, we reject the recent contentions 
of the National Association of Broadcasters and Fox that the Third 
Circuit's recent decision supports a conclusion that we cannot 
eliminate the UHF discount separately from a review of the national 
audience reach cap.
    28. Grandfathering Existing Broadcast Station Combinations. We 
adopt the proposal for grandfathering reflected in the NPRM. 
Specifically, we grandfather broadcast station ownership groups that 
would exceed the 39 percent national audience reach cap as a result of 
the elimination of the UHF discount as of September 26, 2013, the date 
of the NPRM. As further proposed, we also grandfather proposed station 
combinations for which an assignment or transfer application was 
pending with the Commission or that were part of a transaction that had 
received Commission approval as of that date if such station groups 
would otherwise exceed the cap. We require any grandfathered ownership 
combination subsequently assigned or transferred to comply with the 
national audience reach cap in existence at the time of the transfer of 
control or assignment of license. We find that these provisions provide 
an appropriate balance between the valid expectations of broadcast 
station ownership groups who exceed the cap solely as a result of the 
elimination of the UHF discount and the goals and purposes of the 39 
percent national audience reach cap. For this reason, we refuse to 
adopt a more limited grandfathering regimen or no grandfathering 
provision whatsoever, as urged by some commenters.
    29. No broadcasters will exceed the national cap following the 
elimination of the UHF discount with a combination that will not be 
fully grandfathered by this decision. No broadcast transactions since 
the release of the NPRM have resulted in an entity exceeding the 
national ownership cap. Thus, as a practical matter, there is no actual 
difference in grandfathering as of the date of the NPRM or the date of 
this Report and Order. Despite one commenter's claims, the Commission 
has continued to evaluate and approve broadcast transaction 
applications during the pendency of this proceeding. The grandfathering 
proposal adopted today protects the existing ownership structure as of 
the release of this Report and Order for all broadcast television 
station groups that will exceed the national audience reach cap upon 
the elimination of the UHF discount. Given the long history of notice 
that the UHF discount would be eliminated following the DTV transition 
and the potential for significant distortion of the national audience 
reach cap--indeed, the potential to double the national cap--the 
decision to use the date of the NPRM as the grandfathering date is 
fully supported and best serves the public interest.
    30. Grandfathering as of the date of the NPRM is consistent with 
previous Commission decisions. For example, the grandfathering of 
interests in connection with the Commission's equity/debt plus rule and 
the attribution of Local Marketing Agreements (LMAs) each used the date 
of the notice in those proceedings as the cut-off date (14 FCC Rcd 
12559 and 14 FCC Rcd 12903). Therefore, the Commission is not persuaded 
to designate the adoption date of this Report and Order as the 
grandfathering date for the UHF discount as some commenters request. 
Proposing such a grandfathering date would have provided an incentive 
to broadcasters to rush to engage in new transactions that could have 
diluted the effectiveness of the Commission's action to preserve the 
national audience reach cap by eliminating the outdated and technically 
unsupported UHF discount, perpetuating the distortive effect of this 
anachronistic regulation.
    31. Further, this grandfathering date does not disrupt expectations 
because the industry has been on notice for at least 20 years that the 
UHF discount would likely be eliminated following the transition to 
DTV. The Commission further stated in the 1998 Biennial Review Order 
that it expected to eliminate the UHF discount after completion of the 
DTV transition. The Commission, in fact, had previously decided to 
phase out the UHF discount, although that phase-out was rendered moot 
by congressional action. The grandfathering proposal adopted today 
ensures that, going forward, the national audience reach of broadcast 
station groups is reflected accurately in the broadcast television 
market while not penalizing those station groups which

[[Page 73040]]

exceed the national audience reach cap solely as a result of 
eliminating the UHF discount.
    32. The grandfathering mechanism adopted here does not make the 
decision to eliminate the UHF discount retroactive. This action does 
not alter the past lawfulness of station combinations, does not impose 
any liability for having assembled station groups that would be 
prohibited going forward, and does not introduce any retrospective 
obligations for past conduct. As noted above, by grandfathering 
existing station groups that would exceed the national audience reach 
cap without the continued benefit of the UHF discount as of the date of 
the NPRM, we protect all existing broadcast television station 
ownership combinations that would otherwise exceed the cap from the 
future effect of this change, even though application of the revised 
rule to them would not be considered retroactive.
    33. While some commenters urge adoption of permanent grandfathering 
of station groups that resulted in the creation of a new broadcast 
network, the Commission concludes that its decision not to allow the 
transferability of grandfathering is fully consistent with prior 
Commission practice regarding grandfathering; for example, the 1999 
Local TV Ownership Order (14 FCC Rcd 12903) and the 2014 Expanding the 
Economic and Innovation Opportunities of Spectrum Through Incentive 
Auctions Order (29 FCC Rcd 6567). This approach strikes the appropriate 
balance between avoiding imposition of the hardship of divestiture on 
owners of existing station combinations who have long owned the 
combination in reliance on the rules, and moving the industry toward 
compliance with current rules when owners voluntarily decide to sell 
their stations. The grandfathering rule adopted preserves several 
existing combinations that resulted in new broadcast networks. Networks 
continue to exist with owned and operated station groups that comply 
with the national audience reach cap, or which are far below the nearly 
65 percent nationwide coverage reached by one grandfathered station 
group. In addition, even if the Commission permitted a grandfathered 
station group to be transferred intact, there would be no obligation 
for the new buyer to maintain the stations' current network affiliation 
or the programming aired by the current licensee. Thus, we conclude 
that the public interest would not be served by allowing grandfathered 
combinations to be freely transferable in perpetuity where a 
combination does not comply with the national audience reach cap at the 
time of transfer or assignment simply because the combination once 
resulted in a new network.
    34. Finally, we find that the record does not support one 
commenters' request that the Commission fashion a specific waiver 
standard for violations of the national audience reach cap that result 
from elimination of the UHF discount. Parties may always petition the 
Commission for a waiver under our existing rules if they believe unique 
circumstances warrant a waiver in a particular case. However, we expect 
such circumstances to be rare and isolated given that only a few 
existing broadcast television station ownership groups will exceed the 
cap after elimination of the discount. Ultimately, there are many 
different ways to structure an assignment or transfer of control that 
may present varying levels of concern regarding the potential impact of 
a proposed transaction. Given the fact-specific nature of our review of 
such transactions, a specific waiver standard is not appropriate. 
Instead, we conclude that a case-by-case approach will best serve the 
public interest by allowing the Commission to consider the unique 
circumstances of any proposed transaction involving grandfathered 
combinations and its potential impact on competition.
    35. VHF Discount. We disagree with commenters claiming that 
eliminating the UHF discount also requires the concurrent adoption of a 
VHF discount. As noted above, the DTV transition has made UHF spectrum 
generally more desirable than VHF spectrum for purposes of digital 
television broadcasting. Yet, despite the challenges to the digital VHF 
band, the current record does not demonstrate that digital television 
operations in the VHF band are universally technically inferior to 
operations in the UHF band in a manner or to a degree that would 
warrant a discount. The record does not provide clear evidence that 
digital VHF stations consistently suffer from significant technical 
disadvantages in audience coverage sufficient to justify adoption of a 
discount. Further, the record lacks evidence that the economic 
viability of VHF stations would be threatened without a discount. 
Moreover, the Commission has already taken steps to assist individual 
VHF stations in addressing technical concerns. Accordingly, we decline 
to adopt a VHF discount at this time.
    36. Procedural Matters. As required by the Regulatory Flexibility 
Act of 1980, as amended (RFA), the Commission has prepared a Final 
Regulatory Flexibility Analysis (FRFA) relating to this Report and 
Order in MB Docket No. 13-236, which is summarized below.
    37. This Report and Order does not contain proposed information 
collection(s) subject to the Paperwork Reduction Act of 1995. In 
addition, therefore, it does not contain any new or modified 
information collection burden for small business concerns with fewer 
than 25 employees, pursuant to the Small Business Paperwork Relief Act 
of 2002.
    38. Final Regulatory Flexibility Analysis. The Regulatory 
Flexibility Act (RFA) directs the Commission to provide a description 
of and, where feasible, an estimate of the number of small entities 
that will be affected by the rules adopted in the Report and Order. The 
RFA generally defines the term ``small entity'' as having the same 
meaning as the terms ``small business,'' ``small organization,'' and 
``small governmental jurisdiction.'' In addition, the term ``small 
business'' has the same meaning as the term ``small business concern'' 
under the Small Business Act. 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 SBA.
    39. Television Broadcasting. The SBA designates television 
broadcasting stations with $38.5 million or less in annual receipts as 
small businesses. Television broadcasting includes establishments 
primarily engaged in broadcasting images together with sound. These 
establishments operate television broadcasting studios and facilities 
for the programming and transmission of programs to the public. These 
establishments also produce or transmit visual programming to 
affiliated broadcast television stations, which in turn broadcast the 
programs to the public on a predetermined schedule. Programming may 
originate in their own studio, from an affiliated network, or from 
external sources. The Commission estimates that there are 1,387 
licensed commercial television stations in the United States. In 
addition, according to Commission staff review of the BIA/Kelsey Media 
Access Pro Television Database as of March 25, 2016, 1,264 (or about 91 
percent) of the estimated 1,387 commercial television stations have 
revenues of $38.5 million or less and, thus, qualify as small entities 
under the SBA definition. We therefore estimate that the majority of 
commercial television broadcasters are small entities. The Commission 
has also estimated the number of licensed noncommercial educational 
(NCE) television stations to be 390. These

[[Page 73041]]

stations are non-profit, and therefore considered to be small entities.
    40. We note, however, that in assessing whether a business concern 
qualifies as small under the above definition, business (control) 
affiliations must be included. Our estimate, therefore, likely 
overstates the number of small entities that might be affected by our 
action because the revenue figure on which it is based does not include 
or aggregate revenues from affiliated companies. In addition, 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 
television station is dominant in its field of operation. Accordingly, 
the estimate of small businesses to which rules may apply does not 
exclude any television station from the definition of a small business 
on this basis and is therefore possibly over-inclusive to that extent.
    41. The Report and Order modifies the calculations underlying the 
national television multiple ownership rule as set forth above, which 
would affect reporting, recordkeeping, or other compliance 
requirements. The conclusion modifies several FCC forms and their 
instructions: (1) FCC Form 301, Application for Construction Permit for 
Commercial Broadcast Station; (2) FCC Form 314, Application for Consent 
to Assignment of Broadcast Station Construction Permit or License; and 
(3) FCC Form 315, Application for Consent to Transfer Control of 
Corporation Holding Broadcast Station Construction Permit or License. 
The Commission may have to modify other forms that include in their 
instructions the media ownership rules or citations to media ownership 
proceedings, including Form 303-S and Form 323. The impact of these 
changes will be the same on all entities, and we do not anticipate that 
compliance will require the expenditure of any additional resources as 
the proposed modification to the calculations underlying the national 
television multiple ownership rule will not place any additional 
obligations on small businesses.
    42. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include the following four alternatives (among others): (1) 
The establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance and reporting requirements under the rule for small 
entities; (3) the use of performance, rather than design, standards; 
and (4) an exemption from coverage of the rule, or any part thereof, 
for small entities. The NPRM invited comment on issues that had the 
potential to have significant impact on some small entities.
    43. The rule change adopted in this Report and Order, as set forth 
above, is intended to achieve our public interest goal of competition. 
By recognizing the technical advancements of the UHF band after the DTV 
transition, this Report and Order seeks to create a regulatory 
landscape that reflects the current value of UHF spectrum in order to 
better assess national television ownership figures. Further, this 
Report and Order complies with the President's directive for 
independent agencies to review their existing regulations to determine 
whether such regulations should be modified, streamlined, expanded, or 
repealed so as to make the agency's regulatory program more effective 
or less burdensome in achieving the regulatory objectives. By 
eliminating an outdated rule, we seek to reduce the costs and burdens 
of compliance on firms generally, including small business entities. 
And we find that the benefits of our decision to eliminate the UHF 
discount outweigh any costs or other burdens that may result from our 
action. In addition, the grandfathering proposal the Commission adopts 
in the Report and Order aims to create a more effective regulatory 
landscape by addressing current market realities. Overall, this Report 
and Order seeks to expand broadcast ownership opportunities for station 
owners, which includes small entities, by accurately reflecting 
broadcast television ownership in the digital age. Given that the 
technical justification for the UHF discount no longer exists, 
continued application of the discount stifles competition by 
encouraging consolidation instead of promoting new entrants in local 
broadcast television markets. Therefore, the Commission believes the 
rule change adopted in this Report and Order will benefit small 
entities, not burden them.
    44. Ordering Clauses. Accordingly, it is ordered that, pursuant to 
the authority contained in Sections 1, 2(a), 4(i), 303(r), 307, 309, 
and 310 of the Communications Act of 1934, as amended, this Report and 
Order is adopted. The rule modification below shall be effective 
November 23, 2016.
    It is further ordered that the commission shall send a copy of this 
Report and Order to Congress and to the Government Accountability 
Office pursuant to the Congressional Review Act.

Federal Communications Commission.
Gloria J. Miles,
Federal Register Liaison Officer. Office of the Secretary.

List of Subjects in 47 CFR Part 73

    Television, Radio.

    For the reasons discussed in the preamble, The Federal 
Communication Commission amends 47 CFR part 73 as follows:

PART 73--RADIO BROADCAST SERVICES

0
1. The authority citation for part 73 continues to read as follows:

    Authority:  47 U.S.C. 154, 303, 334, 336, and 339.

0
2. Amend Sec.  73.3555 by revising paragraphs (e)(1) and (e)(2)(i) to 
read as follows:


Sec.  73.3555  Multiple ownership.

* * * * *
    (e) * * *
    (1) No license for a commercial television broadcast station shall 
be granted, transferred or assigned to any party (including all parties 
under common control) if the grant, transfer or assignment of such 
license would result in such party or any of its stockholders, 
partners, members, officers or directors having a cognizable interest 
in television stations which have an aggregate national audience reach 
exceeding thirty-nine (39) percent.
    (2) * * *
    (i) National audience reach means the total number of television 
households in the Nielsen Designated Market Areas (DMAs) in which the 
relevant stations are located divided by the total national television 
households as measured by DMA data at the time of a grant, transfer, or 
assignment of a license.
* * * * *
[FR Doc. 2016-25569 Filed 10-21-16; 8:45 am]
 BILLING CODE 6712-01-P