After failing to complete the required Quadrennial Review of its media ownership rules for nearly a decade, on August 25, 2016, the FCC released a Second Report and Order signaling the completion of both its 2010 and 2014 Quadrennial Reviews. So now, for the first time since 2007, the FCC has a “new” set of media ownership rules. However, these “new” media ownership rules amount to little more than a slight modification of the current rules. In summary, the FCC retains the existing Local Radio Ownership Rule, the Radio-Television Cross-Ownership Rule, and the Dual Network Rule, and restores the Joint Sales Agreement rules that had recently been struck down by the Third Circuit. As has been the norm under Chairman Wheeler’s leadership, the item was passed on a 3-2 party-line vote, and the Republican commissioners issued scathing dissents of the item, which could have an impact on these rules going forward. The following is an overview of the FCC’s action, or inaction, as noted.
Local Television Ownership Rule
The FCC maintains its current Local Television Ownership Rule, and specifically finds that the Local Television Ownership Rule is necessary to promote competition and viewpoint diversity by helping to ensure the presence of independently owned broadcast television stations in local markets. Under the Rule, an entity may own up to two television stations in the same DMA if: (1) the digital noise limited service contours of the stations do not overlap; or (2) at least one of the stations is not ranked among the top-four stations in the market (“top-four prohibition”), and at least eight independently owned television stations would remain in the DMA (“eight-voices test”) following the combination. Opponents of the FCC’s decision argue that this Rule actually impedes localism and competition in the marketplace, and that the top-four prohibition and eight-voices test have no solid foundation in the record.
The FCC indicated that it would not be inclined to grant waivers of the Local Television Ownership Rule, and instead found that that the existing waiver criteria effectively establish when relief from the rule is appropriate. Therefore, parties should not count on waiver relief as the FCC is likely only to grant waiver in exceptional circumstances.
One of the most hotly debated portions of the Second Report and Order was the FCC’s decision to readopt the Television Joint Sales Agreement (“JSA”) Attribution Rule first adopted in the 2014 Report and Order. The Third Circuit vacated the JSA Attribution Rule in Prometheus III, finding that adoption of the rule was procedurally invalid as a result of the FCC’s failure to also determine that the Local Television Ownership Rule served the public interest. However, since the FCC has now concluded that the Local Television Ownership Rule remains in the public interest, it readopted the Television JSA Attribution Rule with revised transition provisions described below. This means that if a TV station enters into a JSA with another TV station in the same market for more than 15% of that station’s advertising time, the second station would be “attributed” to the first station for purposes of the FCC’s Local Television Ownership Rule. Thus, if the first station could not own the second station under FCC rules, it would also be prohibited from selling more than 15% of that station’s advertising time.
Since there are currently numerous same market JSAs in place, the FCC has decided to allow JSAs in existence before March 31, 2014 to remain in place through September 30, 2025. These “grandfathered” JSAs will not be counted as attributable, and parties will be permitted to transfer or assign these agreements to other parties without losing the grandfathering.
Local Radio Ownership Rule
The FCC retained the Local Radio Ownership Rule without modification. The FCC found that the rule remains necessary to promote competition and that the radio ownership limits promote viewpoint diversity “by ensuring a sufficient number of independent radio voices and by preserving a market structure that facilitates and encourages new entry into the local media market.” Accordingly, the Local Radio Ownership Rule will continue to allow a sliding number of stations to be owned in a single DMA based on the total number of radio stations in the market.
The FCC also maintains the existing Newspaper Broadcast Cross-Ownership Rule (“NCBO”)that 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. The FCC states that the rapid and ongoing changes to the overall media marketplace do not negate the NCBO’s basic premise that the divergence of viewpoints between a commonly-owned newspaper and broadcast station “cannot be expected to be the same as if they were antagonistically run.” In maintaining the NCBO, the FCC adopted two new exceptions. First, if a proposed merger involving a failed or failing entity meeting specific qualifications does not present a significant risk to viewpoint diversity, the FCC will grant a waiver of the NCBO. Second, the FCC will consider waivers of the NCBO on a case-by-case basis (not the presumptive waiver approach the FCC offered in the FNPRM) and grant relief from the NCBO if the applicants can show that the proposed merger will not unduly harm viewpoint diversity in the market. While these exceptions for waivers offer some relief for consolidation within the media market, critics and dissenters claim they make little sense in today’s media market dominated by the internet.
Radio/Television Cross-Ownership Rule
To “promote viewpoint diversity in local markets” the FCC essentially maintained the existing Radio/Television Cross-Ownership Rule. This means that an entity is prohibited from owning more than two television stations and one radio station within the same market, unless the market meets specific criteria.
Dual Network Rule
As with most of the other rules discussed above, the FCC keeps the Dual Network Rule, which permits common ownership of multiple broadcast networks but prohibits a merger between or among the “top-four” networks (specifically, ABC, CBS, Fox, and NBC). In defending its decision, the FCC states that any combination among top-four broadcast networks could substantially lessen competition and lead the networks to pay less attention to viewer demand for innovative, high-quality programming.
Shared Service Agreements
The FCC concludes the lengthy Second Report and Order by addressing the use of Shared Service Agreements (“SSA”) between independently owned commercial television stations in which otherwise competitive stations combine certain operations, with effectively the same station personnel performing functions for multiple independently owned stations. While not otherwise prohibiting or regulating SSAs, the FCC is requiring disclosure of SSAs in each participating station’s online public inspection file.
The FCC defines an SSA as an agreement in which 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 under common control permitted under the Commission’s rules. Interestingly, the FCC’s requirement to disclose will apply regardless of whether the agreement involves stations in the same market or in different markets.
Media Ownership Rules Going Forward
With the culmination of the first Quadrennial Review in nearly a decade making very few changes to the media ownership rules, a court challenge from both sides of the media ownership debate is likely. Dissents from Republican Commissioners Pai and O’Rielly will surely add fuel to the industry fire seeking to loosen media ownership restrictions in a media market increasingly dominated by online-digital content, while public interest groups may well argue that the FCC’s restrictions do not go far enough.