With the FCC closed because of the Federal government shutdown so no new decisions will be coming out for the time being, we get to look at some of the issues and decisions that we didn't get a chance to write about when they first came out. One of the cases we overlooked raised the question of whether the FCC cares about a broadcaster’s market share when it goes to buy a new radio station, or will it simply apply the numerical station ownership limits set out in the rules? Based on a decision released last month (note that the link to the decision may not work during the shutdown), the rules which set numerical limits on how many radio stations one party can own in a market are pretty much decisive in the FCC’s determination of whether or not a party can buy a station in a market. Even if the advertising or audience market share of the buyer is very high, the fact that there are other stations in a market providing competitive opportunities makes questions of audience share essentially irrelevant. The case also addresses two other interesting aspects of the FCC’s analysis of radio holdings in a market – which stations are included in the station count for a market, and when a station being silent means that it will no longer be counted as a competitive voice in the market.
The case involved the purchase of a radio station in the Roanoke-Lynchburg, Virginia market. The Buyer already owned four FM stations in the market, and was buying a fifth. Another owner contended that the ownership of those stations would give the Buyer a share of the advertising market of more than 50%, which the petitioner claimed would impede competition and make it difficult for minorities and other new entrants to buy stations in the market. The Media Bureau rejected the arguments, finding that, as there are at least 45 stations in the market, ownership of 5 FM stations in the market is permissible under the rules established back in 1996, and revised in 2003. The numerical limits were found by the Media Bureau to represent the FCC’s judgment of what represented a sufficient limit on one party’s ownership of stations in a market. While a company that owns the maximum number of stations in a market may have a very large share of the advertising market, the decision concluded that the Commission, when adopting the numerical caps, made the determination that the numerical caps were more reliable than a market share analysis. Even when an owner owns the maximum number of stations allowed under the rules, there are numerous other competitive outlets in the market. As market shares can change over time, the numerical limits were found to be determinative. So the Media Bureau would not upset that policy decision in a case like this.
In assessing the ownership, however, the decision did closely review the claim of the Buyer that there were at least 45 stations in the market. There have to be at least 45 stations in a market for one owner to own 5 FM stations in the market. The FCC determines the number of stations in a market by looking at the number of stations in an Arbitron market, as determined by private company BIA Kelsey. This firm specializes in broadcast financial analysis, and they determine how many stations are in an Arbitron market. In the decision, the Buyer claimed that there were at least 3 stations that, even though listed by BIA, were really not competitive stations in the market and should not be counted toward that station count. As BIA listed only 46 stations in the market, the elimination of these three stations would have prevented the transaction from going forward. After looking at the facts, the FCC determined that two of the challenged stations were in the market, but one should not properly be counted, leaving 45 stations in the market.
One of the stations was alleged to not really cover a significant part of the market, showing up in the ratings in only 2 of the last 18 ratings books. Also, the station had not been included in the BIA list of in-market stations until August 1, 2011. The FCC determined that the lack of ratings in the market is not enough to exclude a station, if included by BIA. As the station had been part of the BIA market for 2 years at the time of the decision, the station was counted as an in-market station. Note that stations must be included in a market for two years to count in an applicant’s analysis (and if they leave a market as a result of a licensee’s decision, they must be out of the market for at least two years to be excluded from the market. Note, however, that in another recent decision, a station’s move out of one market and into another as the result of a city-of-license change will be given immediate effect). This decision does seem to answer the question as to when that two year period runs. The two year waiting period for the change to be effective ended well after the purchase agreement was signed and the application filed at the FCC. Thus, it appears that the two years runs to the date of FCC action, not the date of the agreement to purchase or the date of the FCC application.
The two other challenged stations presented another issue – whether a station that has spent a significant period of time off the air should be included in the market’s station count. Here, the FCC split the difference, counting one station and excluding another. One station, which had been on the air for only 5 of the last 21 months, was excluded as not being a viable marketplace competitor. Another station, however, was included, even though the petitioner claimed that petitioner’s manager had monitored the station at least 4 times a week and never found it operating, and a former owner had submitted an email stating the station had been off the air since October 2012. The FCC relied on a statement that it requested from the licensee of the challenged station and denied the challenge, as the licensee certified that the station had not been off the air at any time for more than 30 consecutive days.
This decision covers many issues that often arise in analyzing the ownership of radio stations, and is instructive as to how the FCC will review these matters. While the FCC states that it may go beyond the strict numerical analysis in its determination as to whether a purchase is in the public interest, this decision makes clear that the numerical analysis remains the principal way in which such deals will be analyzed. Of course, this is a decision of the Media Bureau alone, and there have been trade press reports that the petitioner may appeal this decision to the full Commission. So we may not have seen the end of this decision yet.