FCC Releases Updated Broadcast Multiple Ownership Rules

The Federal Communications Commission (“FCC”) has released its highly anticipated Quadrennial Review Second Report and Order (“Second R&O”), available here, bringing to a close the Commission’s 2010 and 2014 Quadrennial Reviews of its broadcast multiple ownership rules. Despite the lengthy and hotly contested record, the Second R&O makes only modest changes to the broadcast multiple ownership rules based on the FCC’s conclusion that “the public interest is best served by retaining [the] existing rules, with some minor modifications.” The new rules will become effective once they are published in the Federal Register, unless there is litigation that delays the effective date.

The broadcast multiple ownership rules subject to the FCC’s quadrennial review process are: (1) the Local Television Ownership Rule (including the Dual Network Rule); (2) the Local Radio Ownership Rule; (3) the Newspaper/Broadcast Cross-Ownership Rule; and (4) the Radio/Television Cross-Ownership Rule. Below is a summary of the changes that the FCC made to the each of these rules.

1) Local Television Ownership Rule

• The Eight Voices Test. The Second R&O retains the “eight voices test”, with slight modifications. Specifically, the previous rule allowed one entity to own two commercial TV stations in a market only if there are at least eight independent television voices in a market, and only where one of the TV stations is not among the top-four highest rated stations in a market or if the “Grade B” contours of the stations did not overlap. The only change made by the Second R&O is to update the contour overlap provision, by replacing the analog “Grade B” contour overlap test language with the digital noise limited service contour (“NLSC”). The modified rule now reads that an entity may own two television stations in a market if the digital noise limited service contours of the stations do not overlap, in addition to satisfying the otherwise unchanged eight voices test.
• Top-Four Stations/Affiliation Swaps/Dual Network Rule. The Second R&O expands the prohibition against ownership of two top-four stations in the same market to now include “affiliation swaps” to close what the FCC perceives to be a “loophole” in the rule. According to the Second R&O, the rule, in theory, provides a potential avenue for an owner of both a top-four station and a non-top-four ranked station in a market to create a prohibited duopoly. This could potentially be accomplished by the owner swapping the affiliation of its previously non-top-four ranked station for a top-four ranked affiliation, thereby turning the second station affiliation into a top-four station, giving the owner two top-four ranked stations in the market. Once the rules become effective, an entity will not be permitted to acquire through the execution of an agreement (or series of agreements) the network affiliation agreement of another separately licensed station in the market if the acquisition of the affiliation agreement would mean the entity would own or control two top-four stations in the market. The FCC did note that a station holding two top-four network affiliations as a result of multicasting (i.e., having one top-four network on a primary stream, and another top-four network on a secondary stream of the same station) does not implicate the multiple ownership rules. The Second R&O also retains the Dual Network Ownership Rule, which prohibits mergers among any of the top four national television broadcast networks (ABC, CBS, NBC, and FOX).
• Joint Sales Agreement (“JSA”) Attribution. The Second R&O readopts the FCC’s 2014 prohibition against JSAs between stations that cannot be commonly owned. This means a station cannot enter into an “attributable” JSA with another station in its market, unless it could otherwise own that other station outright. An “attributable” JSA is defined as a JSA under which one television station (the broker) sells more than 15 percent of the weekly advertising time for another same-market television station that it does not own (the brokered station).” The FCC retained the previous effective date for grandfathering relief for parties who entered into a JSA by March 31, 2014, and also extended the compliance period through September 30, 2025. Grandfathered JSAs will not be considered attributable, and parties are permitted to transfer their grandfathered agreements to other parties without terminating the underlying grandfathering of the agreement, until the end of the compliance period.
• Shared Services Agreements (“SSAs”). The FCC determined that SSAs will not create an attributable interest in a station. However, once the rules go into effect, stations must publicly disclose their SSAs by uploading the agreements to the station’s FCC online public inspection file. SSAs are “any agreement[s] in which (1) a station provides any other television station that it does not own with any station-related services, including administrative, technical, sales, and/or programming support; or (2) stations that are not commonly owned collaborate to provide station-related services, including administrative, technical, sales, and/or programming support.”

2) Local Radio Ownership Rule

The Second R&O makes no major changes to the Local Radio Ownership Rule and retains the local radio caps and subcaps. It does, however, make minor processing changes to the rule, including providing a definition of the radio marketplace in Puerto Rico, and clarifying the grandfathering rules applicable to radio station community of license changes. Because of the unique topography of Puerto Rico, the FCC will rely on a contour overlap method to determine compliance with the local radio ownership rule, rather than the Nielsen Audio market definition. With respect to community of license changes, previously, if a station was moved outside of a market as a result of a community of license change, the station did not have to wait two years to rely on the change for determining multiple ownership compliance. The FCC has now clarified that an entity can only rely on a community of license change without the two year waiting period if the community of license change involves the physical relocation of the station’s facilities. The FCC has also clarified that grandfathered station clusters that must come into compliance with the local radio ownership rule as a result of a community of license change will now have three months from the grant of the community of license change application to come into compliance with the rule. The change is to allow BIA sufficient time to update its database. The FCC also changed one of the notes to the rule to provide that a licensee that has a grandfathered cluster of stations that exceeds the applicable cap and applies to change the community of license of a station from one community in a market to a different community in the same market will not be required to divest any stations to come into compliance with the caps.

The new rules will also provide limited relief for stations that are located within embedded markets. Embedded markets are smaller markets that are within the boundaries of a larger “parent” market. Stations in embedded markets, which have to comply with the caps and subcaps of both the smaller market and the larger “parent” market, will now have the opportunity to apply for a waiver if the BIA listing for the “parent” market does not accurately represent the competition by embedded market stations.

3) Newspaper/Broadcast Cross-Ownership Rule (“NBCO”)

The Second R&O retains the existing ban on NBCO, which prohibits common ownership of a daily newspaper and a full-power broadcast station (AM, FM, or TV) if the station’s service contour encompasses the newspaper’s community of publication, but modifies the rule to more precisely focus on the areas served by the broadcast stations and newspapers. As a result, to determine whether the NBCO rule is triggered, the FCC will consider both the contour of the radio or television station and also whether the station and newspaper are located in the same Nielsen DMA or Audio Market. The new rules will use a television station’s digital principal community contour (“PCC”) to determine encompassment. The FCC also adopted an express exception to the prohibition for proposed mergers involving a failed or failing newspaper, television station, or radio station. In addition, the FCC adopts a new waiver standard for entities that seek a waiver of the NBCO rule. The FCC will focus on the totality of the circumstances and waiver proponents will be required to demonstrate that the proposed combination will not unduly harm viewpoint diversity in the market.

4) Radio/Television Cross-Ownership Rule

The Second R&O retains the existing Radio/Television Cross-Ownership rule, with a slight modification in the rule to reflect the transition from analog to digital television. The Second R&O modifies the rule only to update references to two out-of-date analog contour provisions. First, the Commission will now use a television station’s digital PCC instead of its analog “Grade A” contour to determine whether the radio/television cross-ownership rule is triggered. Second, the FCC will now use a television station’s digital NLSC when counting the number of media voices remaining in a market post-merger.

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Should you have any questions about the Second R&O or the FCC’s media ownership rules, please contact any of the attorneys in our office.