Repp Law Firm

In late August 2016, the Federal Communications Commission (FCC) issued its Second Report and Order in its consolidated 2014/2010 Quadrennial Regulatory Review, over the dissents of Republican Commissioners Pai and O’Rielly.  The rule changes will become effective 30 days after publication in the Federal Register, except for those changes subject to OMB approval. 

  • Local Television Ownership Rule.  The FCC essentially maintains the current local television (TV) ownership rule, with its prohibition on the acquisition of a second top-four television station in a Nielsen Designated Market Area (DMA) along with the requirement of eight remaining independent TV stations, but replaces the Grade B contour overlap test with the digital noise limited service contour (NLSC).  The revised Local TV Ownership Rule provides that an entity may own up to two TV stations in the same DMA if: (1) the digital NLSCs of the TV stations do not overlap; or (2) at least one of the TV stations is not ranked among the top-four stations in the market and at least eight independently owned TV stations would remain in the DMA (counting only those TV stations whose digital NLSCs overlap with the digital NLSC of at least one of the TV stations in the combination).  TV combinations in a DMA that were compliant due to the absence of Grade B contour overlap, but which have NLSC contour overlap, will be grandfathered during their existing ownership, with compliance required at the time of sale.  Additionally, the FCC will now apply the dual top-four prohibition to “affiliation swaps” that would result in a second station switching from non-top-four to top-four.  The FCC is keeping its standards for failing/failed station waivers of the Local TV Ownership Rule.  The FCC also rejected at this time calls to regulate multicast affiliations involving more than one Big Four network.
  • Local Radio Ownership Rule.  The FCC concluded that the existing local radio ownership rule will be retained without modification, while adding a few clarifications.  Regarding radio stations in embedded markets, while not adopting a blanket exception, the FCC stated it would entertain market-specific waiver requests demonstrating that BIA listings in a Nielsen parent market do not accurately reflect competition by embedded market stations.  The FCC clarified the exception to the two-year waiting period for the removal of a station from BIA’s list of “home” stations in a Metro, when the exclusion results from an FCC approved change in the station’s community of license to a community that is outside the Metro’s geographic boundaries, as applying only where the community of license change also involves the physical relocation of the station.  The FCC will allow certain grandfathering for community of license changes involving intra-Metro communities.  Lastly, due to its unique characteristics and consistent with prior waivers, instead of defining Puerto Rico as one Nielsen radio market, the FCC will employ for Puerto Rico radio station combinations the contour-overlap methodology that already applies to defining radio markets in non-Nielsen Audio rated markets.

  • Daily Newspaper/Broadcast Cross-Ownership Rule.  The FCC is keeping its prohibition on the common ownership of broadcast stations and contour-encompassed daily newspapers, with some definitional refinements:  the geographic reference is now to the television station’s digital principal community contour (PCC); for the prohibition to apply, in addition to contour encompassment, the community of license of the television station and the community of publication of the newspaper must be in the same Nielsen DMA; for newspaper-radio, the radio station and the newspaper’s community of publication must be located in the same Nielsen Audio Metro market (where one is defined) in addition to contour encompassment of the newspaper’s community of publication.  Newspaper-broadcast combinations made newly non-compliant under these changes will be grandfathered, but such combinations, along with existing grandfathered combinations (including those subject to permanent waivers), are not transferrable together.  The FCC has now adopted an explicit exception to the newspaper-broadcast ban for proposed combinations involving a failed or failing broadcast station or newspaper.  As to waivers, in lieu of the previously proposed presumptive waiver standard, the FCC will consider waivers on a case-by-case basis and grant relief from the prohibition if the applicant can show that the proposed merger “will not unduly harm viewpoint diversity in the market.”  (A dissenting Commissioner criticized this waiver standard as vague and subjective, doubting that any waivers will be granted; both Republican Commissioners note that while a majority of the FCC was in favor of eliminating the newspaper-radio cross-ownership rule, because there was not unanimity among the Democratic Commissioners, no such loosening of the rule was adopted.)

  • Radio/Television Cross-Ownership Rule.  In contrast to its proposal in its Further Notice of Proposed Rulemaking, the FCC has voted to continue in force the radio/television cross-ownership rule, with only definitional adjustments to reflect the transition to digital TV:  the digital PCC replaces the analog Grade A contour as the measure for a TV station’s contour encompassing a radio station’s community of license and thereby triggering the rule; and the TV station’s digital NLSC replaces the Grade B contour for counting remaining independent TV stations with contour overlap within the DMA. 

  • Dual Network Rule.  The FCC has retained the dual network rule, which permits common ownership of multiple broadcast networks, but prohibits a merger between or among the “top-four” networks (ABC, CBS, Fox, and NBC), finding it serves the public interest by fostering localism as well as competition in the provision of primetime entertainment programming and the sale of national advertising time.

  • TV Joint Sales Agreements.  As to TV Joint Sales Agreements (JSAs), the FCC re-adopted its contested decision to attribute TV JSAs, thereby subjecting those JSA’d stations to the ownership limits.  Due to “expressions of Congressional will,” the FCC is extending the grandfathering period of JSAs grandfathered as of March 31, 2014 until September 30, 2025, also allowing such grandfathered JSAs to be assigned or transferred during that period without coming into compliance with the ownership limits. 

  • TV Shared Service Agreements.  The FCC will now require commercial TV stations to place copies of Shared Service Agreements (SSAs) in the stations’ online public inspection files.  A TV SSA is defined as “any agreement or series of agreements, whether written or oral, in which (1) a station provides any station-related services, including, but not limited to, administrative, technical, sales, and/or programming support, to a station that is not directly or indirectly under common de jure control permitted under the Commission’s regulations; or (2) stations that are not directly or indirectly under common de jure control permitted under the Commission’s regulations collaborate to provide or enable the provision of station-related services, including, but not limited to, administrative, technical, sales, and/or programming support, to one or more of the collaborating stations.”  Moreover, the term “station” includes the licensee, its subsidiaries and affiliates, and any other individual or entity with an attributable interest in the station.  The substance of oral SSAs must be reduced to writing.  The parties may redact confidential or proprietary information from the posted TV SSAs, provided the redacted information is made available to the FCC upon request.  The FCC has justified this disclosure requirement by stating: “Without an industry-wide disclosure rule, we lack the information necessary to determine the extent to which SSAs may affect diversity, competition, and localism and whether SSAs in fact confer significant influence or control warranting attribution for purposes of our ownership rules or raising unauthorized control concerns.”  While the FCC has declined at this point to make TV SSAs attributable, the FCC states that the SSA disclosure requirement “is a necessary step before the Commission can consider whether attribution of any additional types of SSAs or any other regulatory action is appropriate.”

  • Diversity Order Remand.  Following the Third Circuit Court remand of a prior FCC decision, the FCC, adding to its analysis, has reinstated its revenue-based “eligible entity” definition as a race-neutral means of facilitating ownership diversity, declining to adopt race, ethnicity or gender based definitions (such as the socially disadvantaged business (SDB) definition, which expressly would recognize the race and ethnicity of applicants).  As before, an “eligible entity” is defined under Small Business Administration guidelines, which currently defines as a small business a radio or television station with no more than $38.5 million dollars in annual revenue (counting the revenues of domestic and foreign affiliates, including the parent corporation and affiliates of the parent corporation, in addition to the applicant).  The reinstated policies employing special benefits for eligible entities are:  (1) 18-month extension of construction permit deadline for permits sold to an eligible entity; (2) relaxation of the equity/debt plus (EDP) attribution standard for interest holders in eligible entities; (3) distress sale policy allowing licensees to avoid a hearing upon a sale to an eligible entity; (4) TV duopoly priority for companies that finance or incubate an eligible entity; (5) extension of divestiture deadlines in certain mergers; and (6) assignment/transfer of grandfathered radio station combinations.  The FCC also noted that it has recommended to Congress the adoption of a tax incentive program to spur ownership diversity among small businesses, including those owned by women and minorities.

Summary of Federal Communications Commission AM Revitalization First Report and Order (R&O), Further Notice of Proposed Rule Making (FNPRM) and Notice of Inquiry (NOI), October 2015

ADOPTED IN THE R&O (TO BE EFFECTIVE 30 DAYS AFTER FEDERAL REGISTER PUBLICATION):

         Two-Tiered AM-Only FM Translator Modification Window

  1. Class C/D Only Window for FM Translator Modification:  In 2016, the Media Bureau will open a first-come/first-served filing window to allow an AM station (licensed or with a construction permit) to relocate one FM translator (in the commercial band) up to 250 miles to any rule-compliant FM channel (also in the commercial band) as a minor modification, available only to Class C and D AM stations during the initial six-month window.  This window will be scheduled following a three-month outreach the Media Bureau is to undertake promptly to encourage Class C and D AM participation.

  2. Secondary All AM Window for FM Translator Modification.  Immediately after the Class C/D Modification Window, a second window, for three months, will be opened for 250-mile/any channel modifications of FM translators to be associated with any class AM station, including Class C and D AM stations that did not file an application in the first window.  Same one FM Translator per AM restriction.

  3. AM Relationship to FM Translator.  Both FM Translator modification windows will be available to an AM station that either (1) is the licensee of the FM translator to be modified; (2) has an agreement and a pending assignment application to acquire the subject FM translator; or (3) has a rebroadcasting agreement with the FM translator.

  4. Four-Year Operating Condition.  FM Translators modified during either Modification Window must rebroadcast the application’s specified AM primary station for four years of on-air operations (excluding silent periods) commencing with operations implementing the modification.

  5. Waivers of Construction Deadlines.  The FCC will presume that a waiver of an Auction 83 FM Translator construction deadline is in the public interest for FM Translators participating in either Modification Window, provided the AM licensee commits to prompt FM translator construction.  It is unclear if construction deadline waivers for permits expiring before the Modification Application may be filed, particularly since the planned modification may be cut-off by prior First Modification Window applications.

  6. First-Come/First-Served.  While these Modification Windows are termed “windows” by the FCC, they are periods allowing the relaxation/waiver of the major modification rule, as opposed to a traditional filing window when all applications filed at any date during the window period are treated as filed at the same time for cut-off purposes.  Thus, any party expecting to file in either Modification Window should be prepared to file on the first day the window opens.  Under existing FCC rule, all minor modification applications filed on the same day are considered mutually exclusive regardless of the time of submission, and mutual situations are to be resolved through settlement or technical amendment.  See 47 CFR 74.1233(d)(1).

  7. Interpretative Issues.  The R&O refers at one point to the FM Translator Modification Window restriction as “on a one translator per AM station basis,” but elsewhere, refers to “an AM licensee or permittee seeking to rebroadcast on an FM translator may acquire and relocate one and only one authorized non-reserved bank FM translator station….” (emphasis added).  If read literally as applying to an AM licensee, as opposed to an AM station, a group owner would be limited to applying to its number of licensee entities, rather than the number of its licensed AM stations.  More likely the FCC meant the limit to apply to one translator modification per AM station, but clarification may be necessary.  Also, the R&O does not address whether an AM station that is currently paired with an FM Translator may participate in a Modification Window and obtain one modification waiver, or whether that AM station is disqualified if it already has an FM Translator outlet, and if that is the case, whether a divestiture of the FM Translator pairing would suffice to allow participation.  (These questions apply also to the window for new FM Translators discussed below.) 

  8. Mattoon Waivers/Tell City Waiver.  The FCC will maintain the Mattoon waiver policy and endorses the Media Bureau’s four-year condition for the rebroadcast of the specified AM station.  (It is uncertain whether the FCC would grant permission for the substitution of another qualified AM station as the primary.)  The R&O states that a ruling on the Tell City waiver will need to wait until action by the FCC in that appeal proceeding.

     Two-Tiered AM-Only Window for New FM Translators

  1. Class C/D Only Window for New FM Translators:  After certain other FCC auctions are conducted (the Television Incentive Auction and the not yet scheduled Auction 83 for FM Translators) “beginning in 2017,” the Media Bureau is instructed to open a window for Class C and D AM stations that did not participate in either Modification Window to apply for a new FM Translator, with each AM limited to one translator application (which must be a fill-in for the AM station).

  2. Secondary All AM Window for New FM Translators.  Following the Class C/D New FM Translator Window, and following the period for resolution of mutual exclusivity for those applications, the Media Bureau is directed to open up a filing window (one application per station) open to all AM Stations, including Class C and Ds that did not participate in either Modification Windows or the C/D New FM Translator Window.

          Adopted AM Technical Changes

  1. Daytime Community Coverage.  The R&O adopts the NPRM proposal to provide daytime coverage flexibility to existing AM stations:  instead of 80 percent coverage, the daytime 5 mV/m contour must cover 50% of the area or 50% of population of the community of license.  The R&O adds that if such a reduction in minimum coverage is requested within the first four years of operation, it will be subject to increased FCC scrutiny, and denied unless there is a compelling reason.  No changes in daytime coverage were adopted for new AM stations.  The R&O notes the comments favoring no more new AM filing windows and tax incentives for AM surrenders, characterizing that as a perspective that “points toward a policy that would favor fewer, more robust new stations rather than additional, weaker ones.” 

  2. Nighttime Community Coverage.  The R&O adopted the NPRM proposal to eliminate the nighttime community coverage requirement for existing AM stations, and maintained the existing minimum 80% of the community covered by a 5 mV/m or nighttime interference-free contour for new AM stations and AM stations applying to change community of license.

  3. AM Ratchet Rule.  The R&O eliminates the “ratchet rule,” which had required reductions in interference for AM modifications.

  4. MDCL.  The R&O streamlines the use of MDCL (Modulation Dependent Carrier Level) technology.  Notification to the FCC by filing Form 338 will now be required within 10 days after commencement.  The R&O confirms a hybrid IBOC AM station may maintain its existing digital power level when the station’s analog power is reduced.

  5. AM Antenna Efficiency Standards.  The R&O sticks with the NPRM proposal to reduce the AM antenna efficiency standards by 25 percent.  The Media Bureau is directed to consider requests by AM stations for experimental authority to operate with systems that do not meet the more relaxed rule, upon a showing of no increased interference.

PROPOSED IN FURTHER NOTICE OF PROPOSED RULE MAKING (COMMENTS AND REPLY COMMENTS TO BE DUE 60 AND 90 DAYS AFTER FEDERAL REGISTER PUBLICATION):

  1. Reduce Nighttime, and Eliminate Critical Hours, Protection to Class A AM Stations.  The FCC tentatively concludes in the FNPRM:  (1) all Class A AM stations should be protected, both day and night, to their 0.1 mV/m groundwave contour from co-channel stations [versus current nighttime protection to 0.5 mV/m-50 percent skywave contour]; (2) all Class A AM stations should continue to be protected to the 0.5 mV/m groundwave contour, both day and night, from first adjacent channel stations; and (3) the critical hours protection of Class A AM stations should be eliminated completely [currently, a Class A AM station is protected to its to 0.1 mV/m groundwave countour during the critical hour periods of two-hours immediately following local sunrise and two-hours immediately preceding local sunset].  The FCC solicits technical comments on these tentative changes. 

  2. Change Nighttime RSS Calculation Methodology.  The FCC tentatively concludes that it should return to the pre-1991 rule change for the calculation of nighttime RSS values of interfering field strengths and nighttime interference free service, returning to using only the interference contributions from co-channel stations and the 50 percent exclusion method.

  3. Change Daytime Protection to Class B, C and D AM Stations.  The FCC proposes to return to the pre-1991 0 dB daytime 1:1 protection ratio for first adjacent channels, to change second adjacent channel groundwave protection, and to eliminate third adjacent channel groundwave protection for non-Class A AM stations.

  4. Geographic Siting of FM Translators Providing Fill-In Service to AM Stations.  The FCC proposes a relaxation of the geographic conditions for FM Translator fill-in service for AM stations:  the coverage contour (1 mV/m) of an FM translator rebroadcasting an AM station as its primary station would have to be contained within the greater of [instead of the current “and”] the 2 mV/m daytime contour of the AM station or a 25-mile (40 km) radius centered at the AM transmitter site, but in no event could the translator’s 1 mV/m coverage contour extend beyond a 40-mile (64 km) radius.

  5. Modify Partial Proof of Performance.  The FCC proposes to change the current rule for partial proofs of performance to require field strength measurements only on radials containing a monitoring point.

  6. Modify Rules for Method of Moments Proofs.  The FCC tentatively concludes that several procedural and rule changes for MoM directional antenna proofs should be adopted.  See R&O ¶¶ 71-74.

  7. Surrender of One of Dual Expanded Band/Standard Band Licenses.  The FCC has tentatively concluded that the remaining 25 stations holding on to dual standard and expanded band AM licenses should be required to surrender one within one year of a future R&O, and if no selection is made, the standard band license will be cancelled.

NOTICE OF INQUIRY

  1. Utilization of AM Expanded Band.  The FCC seeks comments as to whether the AM Expanded Band should be opened for further development.  Associated questions include whether the FCC should give preferences to new stations, migrators from the standard band, all-digital operations or other criteria.  The one “tentative agreement” by the FCC is that migrating stations would need to “flash cut” from the standard band, so there would be no dual transitional licensing.  Comment is also sought on methods of channel assignment and permitted classes and powers of stations in the Expanded Band.  The FCC touches on the question of whether the Expanded Band should be limited to all-digital stations, while noting that testing still is continuing with regard to all-digital AM.

  2. Relaxed Main Studio Requirements.  Responding to comments that an AM station should be allowed to co-locate its main studios to a non-compliant co-owned station location, the FCC is soliciting comments on whether to relax its main studio location and staffing rules for AM stations, and if so, what restrictions and additional requirements (such as local mobile phone or online public file) should be imposed.



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In May 2015, the Federal Communications Commission (“FCC”) issued a Declaratory Ruling that sets the way for Pandora to acquire a radio station in South Dakota.  ASCAP had opposed Pandora on the grounds that Pandora only wants to acquire a broadcast station to avail itself of “copyright licensing payment terms applicable to broadcasters rather than by a sincere desire to become a broadcaster” and further contended that Pandora could not properly certify compliance with the 25% guideline for holding-company foreign ownership

The Pandora Declaratory Ruling comes after the FCC’s Clarification Order, where the FCC confirmed it would exercise its statutory discretion to consider, on a case-by-case basis, applications and transactions that propose foreign broadcast ownership exceeding the 25 percent benchmark of 47 U.S.C. Section 310(b)(4).

Pandora, a widely-held publicly traded holding company, did not concede its foreign ownership exceeded the 25% foreign benchmark, but asked for the Declaratory Ruling allowing ownership over the threshold due to the difficulty, given SEC non-disclosure rules and the practice of stock being held in street names, to definitively prove it was below the benchmark (the FCC found reliance on surveying stockholder addresses and SEC Form 13Fs inadequate).  The FCC agreed that it would promote the public interest for Pandora to be allowed to exceed the 25% foreign ownership benchmark subject to several conditions which require Pandora to amend its organizational documents and to take additional efforts to track changes in ownership, along with keeping a majority US board of directors.  Specifically in regard to organizational documents, the FCC is requiring:

“Pandora Media shall modify its certificate of incorporation, bylaws, or other appropriate organizational documents to ensure that the Board of Directors has all necessary powers to implement the provisions of this Declaratory Ruling. Reflecting broadcast industry best practices regarding compliance with Section 310(b)(4), these powers must include the right of Pandora Media to request and obtain information regarding the citizenship of beneficial owners and those with voting rights and, if necessary to comply with Section 310(b)(4) or any requirement or condition of this Declaratory Ruling, the right to take any and all actions that the Board of Directors deems necessary to so comply or cure any noncompliance. Specific changes Pandora Media must incorporate include: (1) the right to restrict the transfer of shares to aliens; (2) the right to require disclosure when an alien acquires beneficial ownership of, or voting interest in, shares; and (3) the right to compel the redemption of shares held by aliens.” 

As to foreign ownership levels, the Ruling states:

"Pandora must obtain prior Commission approval for: (1) aggregate foreign equity and/or foreign voting interests in Pandora Media exceeding 49.99 percent; or (2) any change in the Pandora Media Board of Directors that would result in a majority of foreign members; or (3) any individual foreign investor or “group” acquiring a greater than five percent voting or equity interest (or ten percent for certain institutional investors) in Pandora Media.”

Future compliance/monitoring condition:

“we require that Pandora Media monitor its foreign ownership and certify that it continues to meet the conditions of the grant of the Declaratory Ruling every two years, at the same time that it files its FCC Form 323—Biennial Ownership Report. Consistent with broadcast industry compliance practices, Pandora Media must diligently seek to identify the citizenship of beneficial owners and those with voting rights in numbers sufficient to make this certification on a reasonably reliable basis in the circumstances. In particular, we expect Pandora Media to use sources other than shareholder mailing addresses or corporate headquarters locations.”

The Ruling notes several compliance tracking measures that Pandora should consider going forward, including:

·        Entering into the Depository Trust Corporation (“DTC”) SEG-100 or equivalent program that allows for the deposit of foreign-owned shares into a segregated account for monitoring of shares;

·        Monitoring shares held by current and former officers and directors;

·        Monitoring relevant SEC filings, such as Form 13F, Schedule 13D, Schedule 13G, and Form ADV

·        As to each institutional investor or other person/entity filing such SEC reports, reviewing the reports, consulting other publicly available sources, and contacting the filer as necessary (and permissible under SEC regulations and the company’s governance documents) to determine (1) the citizenship of the holder(s) of sole or shared voting rights in the shares reported by the filer, and (2) the citizenship of the beneficial owners of (i.e., the persons or entities holding the economic interests in such shares;

·        Requesting that Broadridge Financial Services (or equivalent company) provide Pandora with a non-objecting beneficial owner (“NOBO”) list—i.e., a list of beneficial owners that own shares through a broker or bank intermediary and that do not object to their identifying information being reported to the issuer; and

·        Committing to make reasonable efforts to secure the cooperation of the relevant financial intermediaries in obtaining citizenship information.

The Commission further stated:

“We note that the actions taken herein are specific to Pandora’s Petition and thus do not prejudge any broadly applicable measures we may consider in response to the above suggestions. Indeed, we intend to examine in the near future whether it would be appropriate for the Commission to revise its methodology for assessing compliance with Section 310(b)(4) in the broadcast context.”

In their concurring statements, the Republican Commissioners complain about the burdensome process imposed on Pandora by the majority and endorse adoption of a more streamlined and liberalized policy across the board.