Ownership
Attribution CommentsOwnership
Attribution Comments
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____________________________________________ In the Matter of Review of the Commission's Review of the Commission's Reexamination of the Commission's |
) ) ) ) ) MM Docket No. 94-150 ) ) ) ) MM Docket No. 92-51 ) ) ) ) MM Docket No. 87-154 ) ) |
Media Access Project, Black Citizens for a Fair Media, the Center for Media Education, the Minority Media and Telecommunications Council, National Association for Better Broadcasting, the Office of Communication of the United Church of Christ, Philadelphia Lesbian and Gay Task Force, Telecommunications Research and Action Center, Washington Area Citizens Coalition Interested in Viewers' Constitutional Rights, and Women's Institute for Freedom of the Press ("Commenters"), respectfully submit these comments in response to the Commission's review of its broadcast ownership attribution rules, Further Notice of Proposed Rulemaking, MM Docket Nos. 94-150, 92-51, 87-154 (released November 7, 1997)("FNOPR").
The Commission has proposed to adopt several reforms to its present attribution rules, the regulations by which it defines "what constitutes a `cognizable interest' in applying the multiple ownership rules." FNOPR at ¶1.1 The rules seek to identify interests "that confer on their holders a degree of influence or control such that the holders would have a realistic potential to affect the programming decisions" or other operating functions of licensees. Id. The FNOPR, although a continuation of an earlier Notice of Proposed Rulemaking, 10 FCCRcd 3606 (1994) ("1994 NOPR"), seeks to update the consideration of these proposed reforms in light of the deregulatory provisions of the Telecommunications Act of 1996, Pub. L. No. 104-104 (1996) ("1996 Act").
Commenters welcome this long-overdue initiative. The proposals presented in the FNOPR will improve the accuracy, efficacy, and clarity of the attribution rules. They will also greatly streamline regulatory oversight, and better effectuate the will of Congress in adopting statutory ownership limits, because they better identify all interests that are relevant to the underlying purposes of the multiple ownership rules.
At the outset, commenters wish to refer the commission to their discussion on pages 1-11 of the comments filed today in the Commission's proceeding to review its local multiple ownership rules. A copy of this discussion has been supplied as Appendix A to these comments. Comments of Media Access Project, et al., in response to Second Further Notice of Proposed Rulemaking, MM Docket Nos. 91-221, 87-7 (released November 7, 1996)("MAP, et al. Duopoly Comments"). Because the Commission has divided its review of broadcast ownership rules into four concurrent overlapping proceedings, the remarks on those pages address several of the issues common to each of these dockets. In particular, commenters address erroneous assumptions the Commission has made about the nature of the marketplace of ideas and the ability of an increasingly concentrated broadcast industry to contribute to diversity in that marketplace. Id.
The importance of the Commission's attribution rules cannot be overstated: they are the foundation upon which the multiple and cross ownership rules are built. Without effective attribution rules, Congress could mandate, and the Commission could adopt, nearly any ownership limits - no matter how restrictive and no matter how clearly worded - and would not be able effectively to enforce them. Parties could structure investments which had all the same impact on viewpoint diversity as outright ownership, but which did not violate the letter of the rules.
Indeed, this sort of evasion has been epidemic under the existing rules. The last decade has brought a legion of examples of parties sidestepping the ownership rules by taking advantage of loopholes and ambiguities in the attribution rules. To exacerbate matters, the Commission's staff has been overly permissive, and may even have sent signals about the types of structures that would pass review. The result has been cases which shock the conscience for their laxity in allowing parties to circumvent multiple and cross ownership rules. And these are only the cases where parties have discovered the violations and challenged them - there is no way of determining how many examples have gone undetected. Some examples from only the last two years:
Cases such as these offend the very nature of the ownership limits and their underlying goal of promoting viewpoint diversity. They prove that change is needed.
In light of the dramatic deregulation of the broadcast industry, effective and accurate attribution rules are important now more than ever if the Commission is to pay anything more than lip service to diversity, and to the needs of the viewers. Despite the importance to broadcasters of economies of scale, the Commission should not forget that viewpoint diversity remains "essential to the welfare of the public...." Associated Press v. US, 326 U.S. 1, 20 (1945); NCCB v. FCC, 439 U.S. 775 (1978). As noted below, many regulatory reforms and industry changes have recently occurred, and will all have a significant impact on viewpoint diversity goals. These include:
Because the Commission effectuated these deregulatory actions one at a time, and steadfastly refused to consider their cumulative effect, it is unlikely to have any idea what the ultimate impact on editorial diversity will be. But the Commission's statutory mandate to serve the public interest requires it to monitor the effect of these deregulatory changes on viewpoint diversity, not just on the economics of the broadcast industry. Even were it to do so, however, the Commission would face great impediments because parties can circumvent the remaining protections against ownership concentration. If parties can steer around ownership limits through deceptively-structured holdings, the effect of the deregulations on diversity will be much greater than the Commission has supposed.
The Commission, in evaluating whether to attribute a given interest, should follow a simple touchstone test: it should examine whether the party holding an interest would, on the strength of that interest, be able to influence editorial decisionmaking at the station in which the interest is held. This standard effectively protects the Commission's diversity goals because it reflects editorial diversity, and, as commenters have noted, only editorial diversity - as opposed to program diversity - is an adequate indicator of viewpoint diversity. Appendix at 8. Conversely, if the nature of an investor's interest is minute or otherwise insulated so that it could not influence the licensee's editorial decisions, there should be no concern.
If another standard prevailed - if the attribution rules did not count certain minority interests or LMAs that confer a degree of editorial control upon the owner - it would create new loopholes. Parties could structure holdings so as to influence editorial decisions at unlimited numbers of stations. There is no qualitative difference between this and outright ownership of an unlimited number of stations, or stations with an unlimited audience reach, both results expressly disclaimed by Congress. See 1996 Act, §§202(b)(local radio caps), 202(c)(national TV audience reach caps). The reforms would leave the attribution rules no more effective than before and allow evasion of the Commission's remaining multiple and cross ownership rules.
The Commission has requested comment on its proposal to adopt a new "equity or debt plus" rule. FNOPR at ¶8. This approach would preserve the current attribution exceptions available to single majority and nonvoting shareholders, 47 CFR §73.3555, notes 2(b), 2(f), but would limit their availability in certain circumstances.2 Specifically, this rule would attribute ownership in cases where the holder of an equity or debt interest in a licensee (1) also holds other significant interests in, or "triggering relationships" to the licensee or other media outlet, and (2) the amount of equity or debt held exceeds certain thresholds. FNOPR at ¶12.
Commenters applaud this proposal. This approach will prevent most, if not all, of the abuses that occur when equity or debt holders in a licensee have the power and the incentive to influence the licensee's editorial choices. In this sense, it will prevent parties from using such investments to circumvent the national and local multiple ownership rules, and will thereby serve as a stalwart against further erosion of viewpoint diversity.
By targeting only those cases with the potential for abuse, i.e. by not fully repealing the single majority and nonvoting shareholder exceptions, this proposal preserves the Commission's expressed goal of "not unduly disrupting capital flow..." FNOPR at ¶13. The approach does not affect investors that exceed the investment threshold but do not stand in a triggering relationship to a licensee.
Indeed, this approach does not even prevent investment by parties that are in a triggering relationship and exceeding the threshold; it merely attributes their investment toward the ownership limits.
In perhaps only a handful of cases will the attribution of these interests force an investor to run afoul of the multiple ownership rules. These cases would involve highly suspicious financial structures: same-market media entities or program suppliers, holding a significant nonvoting interest in stations that would violate the Commission's rules if counted as an ownership interest. In other words, these cases are crystal-clear examples of investors using the current attribution rules to evade the ownership limits. Thus, adoption of the proposal will effect precisely those parties that use the current rules to the detriment of ownership diversity.
Moreover, and in any event, the Commission must not overvalue the goal of encouraging capital flow to licensees. Most licensees have no problems raising capital in the current market, and would continue to do so even after reform of the attribution rules. In the few cases where the reforms scare investors away, licensees are likely to be able to find other investors willing to step in. This is demonstrated by the feverish pitch of investment in licensees in 1996. The amount of money spent in radio buyouts in 1996 was $14.87 billion, a 315% increase over 1995, and the television buyouts total was $10.49 billion, a 121.3% increase. Donna Petrozzello, "Trading Market Explodes," Broadcasting & Cable, February 3, 1997 at 18. Stock prices were also sky high, and continue strong in 1997. One broker noted that "[s]tocks are rising, [and] capital remains plentiful..." Id. at 19. For example, "since the beginning of 1997, radio stocks have rebounded anywhere from 20 percent to 35 percent." Id. See MAP, et al. Duopoly Comments at 4 n. 4.
Nor will the proposed modifications discourage investors from assisting in the conversion to digital television. The Commission expresses concern that adoption of the "equity or debt plus" approach to attribution might "disrupt the flow of capital to television stations to fund...the conversion to digital television...," which the Commission believes, "will be costly." FNOPR at ¶21. It therefore requests comment as to whether tightening the attribution rules would "significantly hinder networks or other telecommunications entities from helping stations to fund the conversion...." Id.
The Commission's anxiety about endangering the conversion to digital television is unfounded. First, and most importantly, there is now ample evidence that broadcasters' first estimates of digital conversion costs were grossly inflated. Costs that were once estimated to be as high as ten million dollars are now estimated to be no more than $750,000. Chris McConnell, "Digital TV at doable price, " Broadcasting & Cable, January 20, 1997 at 60.3 Second, even if the attribution rules are tightened, there is enormous incentive for the networks to fund the conversion to digital television for their affiliates. If affiliates cannot transition, networks will be unable to obtain the national coverage necessary to command high prices from advertisers.4
Finally, there is little doubt that other investors will flock to fund the conversion to digital television.5 Digital transmission will permit broadcasters to transmit multiple advertiser supported and subscription services, which will likely increase their revenues enormously. Were the transition to digital not such a potential gold mine, it is doubtful that broadcasters would have fought so hard, and for so long, to obtain the extra spectrum needed for the transition.6
The Commission has also expressed support for the goal of "affording ease of administrative processing and reasonable certainty to regulatees in planning their transactions." FNOPR at ¶13. It has invited comment as to whether the equity or debt plus proposal would be preferable to a case-by-case approach that would base attribution on the presence of "contract language that yields control over decisions of concern..." Id. at ¶25.
From the standpoint of licensee certainty and administrative ease, and more importantly from the standpoint of effective enforcement, a bright line rule is far superior. Unlike a bright line rule, a case-by-case approach would necessitate protracted and expensive agency fact-finding and review, and thus could be a significant burden on the Commission's resources. Many cases would require close examination of investment contracts, perhaps leading to hotly-contested litigation. The results could vary widely, as the result of subtle differences in contract language or divergent conclusions of fact-finders, leading to a patchwork quilt of decisions. Moreover, a case-by-case approach invites opportunistic parties to probe for loopholes and avoid enforc ment.
Significantly, a case-by-case approach would also provide inadequate opportunity for public review.7 It would create one or more stakeholders with strong interest and vast resources in litigating to oppose attribution - the investor and perhaps the licensee. Members of the viewing public, although having great interests in diversity of viewpoints as participants in a democratic society, are unlikely to have the intensity of interest, legal knowledge, and depth of resources to mount a meaningful review of contract provisions. In fact, their participation may be completely foreclosed because it will be impossible, or nearly so, for them to obtain the specific investment contracts in order to examine the powers granted.8 A bright line rule, on the other hand, would assist viewers in participating and acting as "private attorneys general." See, UCC v. FCC, 359 F.2d at 1002.
Moreover, Commenters observe that these same goals of administrative efficiency, licensee certainty, and public participation are also served by the approach taken in the Commission's cross-ownership rules, which are under review in this and another pending Commission proceed- ing. FNOPR at ¶43. Those rules incorporate a bright line standard to determine whether, for example, a cable operator exercises influence over the operations of an MMDS licensee in its franchise area. 47 USC §§533(a). Therefore, the Commission should employ the same reasoning to retain the traditional approach to the cross-ownership rules that here leads it to adopt a single rule for multiple ownership attribution.
The equity or debt plus proposal would focus on investing parties that hold other significant interests in the licensee. In this way, the rule will focus "directly on those relationships that may trigger situations in which there is significant incentive and ability for the otherwise nonattributable interest holder to exert influence such that the interest may implicate diversity and competition concerns..." FNOPR at ¶14. The Commission has identified two specific categories of interest that would trigger concern: broadcasters or certain other media entities operating in the same market, and program suppliers. Id. It invites comment on whether to include these categories and how to define them.
The Commission has asked whether to include same market media entities within the scope of interests that would trigger the application of the equity or debt plus approach. It suggests that "[f]irms with existing local media interests could use financing or contractual arrangements...to obtain a degree of horizontal integration within a particular local market that should be subject to local multiple ownership limitations." FNOPR at ¶16. It also asks what type of media entities to include, such as broadcast television and radio, daily newspapers, and cable operators. Id.
Commenters urge the Commission to include all these same market media entities ("SMMEs") in the equity or debt plus approach. An SMME - including broadcast, cable, and daily newspaper - that holds an investment interest in a licensee would have both the ability and incentive to influence editorial decisionmaking at that station, and would therefore significantly limit editorial diversity.
The ability of an equity or debt holding SMME to affect the program decisions of a media outlet becomes apparent in light of a number of extreme cases which have come before the Commission. E.g., Roy M Speer, 11 FCCRcd 14147 (1996)(large cable MSO held over $3 million nonvoting preferred stock, compared to $100 voting common stock, and held option to convert nonvoting into voting stock at such time as it could avoid "violating the Communications Act or Commission rules"). An SMME may have a number of incentives to influence the station's editorial decisionmaking, including preventing expression of a particular, disfavored viewpoint or speaker; avoidance of programming decisions which would compete with the SMME's own content; or encouraging a selection of information which promotes the SMME's own content or other business interests.
Therefore, failing to adopt this proposal, i.e. allowing SMMEs to hold a minority equity stake or debt without attribution, would seriously undermine the goals of the local ownership rules and cross-interest rules. A media entity could spin a web of nonattributable equity or debt holdings in many, if not most, of the competitors in its locality. With this influence, it could dramatically affect the licensee's editorial decisionmaking. In the extreme case, many local media outlets could invest in each other, creating a system of interlocking media ventures, with very little viewpoint diversity.
The Commission has tentatively concluded that both radio and television broadcasters could be included as SMMEs. FNOPR at ¶16. Commenters agree with this conclusion. A same market broadcaster would have strong incentive to control the editorial decisionmaking of a licensee, for example, to foreclose expression of a particular viewpoint or speaker, or to reduce competition for advertising revenue. The reduction in viewpoint diversity from common editorial control of local broadcasters has been well documented, and is the very purpose of the Commission's local ownership restrictions. MAP, et al. Duopoly Comments at 9.
The Commission has also tentatively concluded that cable operators and daily newspapers should be subject to the equity or debt plus approach, just as they are included in its cross-ownership rules. FNOPR at ¶16. The incentives and ability for cable operators and newspapers are nearly the same as broadcasters. Cable operators and newspapers with an equity or debt interest in a licensee would have incentives to influence editorial control, such as competing for advertising revenue, opposing certain viewpoints and speakers, or cross-promotion. Indeed, the Commission's cross ownership rules are directed toward preventing precisely this type of influence. See, e.g., Report and Order, Corporate Ownership Reporting and Disclosure by Broadcast Licensees, 97 FCC 2d 997, 1004 (1984)("1984 Attribution Order").
The Commission questions whether to include program suppliers under the equity or debt plus attribution approach. This, it says, may address its concern that program suppliers, such as networks, syndicators, and LMA holders could use minority equity or debt interests to influence editorial decisionmaking. FNOPR at ¶17. It also asks how to define the category of program supplier, and how to treat entities that hold interests in the program supplier. Id. at ¶20.
Commenters support the Commission's inclusion of program suppliers in the equity or debt plus approach, because such entities have a clear, powerful incentive to influence the editorial discretion of a licensee and thereby reduce viewpoint diversity. Specifically, there are sound reasons for including networks,9 syndicators, program producers, and LMAs in this proposal.
The ability of all these entities to influence programming is clear,10 as it was for same market media entities, and the Commission has seen cases where program suppliers structure equity and debt interests which flagrantly desecrate the spirit, if not the letter, of the attribution rules. See, e.g., BBC License Subsidiary, 10 FCCRcd 7926 (1995)(program supplier held 25% of total common stock as nonvoting shares, with an option to increase to 50%, option to convert all nonvoting stock to voting, contributed an additional $2.5 million for those shares, and held 100% of preferred stock).
It is equally clear that the various entities proposed for inclusion as program suppliers would have an interest in influencing programming decisions. Their interest could stem partly from a desire to create or maintain demand for their programs, or a desire to obtain more favorable price terms. Thus, for example, a syndicator or a program producer might use a minority equity stake to encourage a licensee or group owner to carry a specific program, to carry a package of two or more programs when he would otherwise carry only one, and to pay a higher price or more barter time. A network might use its influence to persuade a station or group owner to affiliate with it, to prevent rejection of certain programs, to carry a greater portion of the network's feed, or to demand less compensation in its affiliation agreement. An LMA holder might use its influence to create or continue the LMA relationship, to influence payment to the licensee, or to prevent rejection of certain programming or other exercises of licensee control.
Moreover, and most important, program suppliers could wield the influence derived from a minority equity or debt interest directly to affect the flow of information from the licensee. For example, a program supplier may prevent a news report, station editorial, or other program selection which is adverse to its own interest (or the interests of its investors), or may force dissemination of information which helps its interests. A program supplier may also distort news or station editorials which oppose its political or social beliefs. In either case, there is a severe risk of a reduction in editorial diversity, which should be attributed toward the multiple ownership limits.
The Commission's equity or debt plus proposal would attribute ownership to an entity, standing in a triggering relationship to a licensee, if that entity holds equity or debt in an amount exceeding certain thresholds. The Commission proposes to aggregate all equity holdings (i.e. non-voting and voting stock in whatever form), and to apply a similar aggregation approach for debt holdings. FNOPR at ¶22. It continues that attribution would be triggered when an investor's aggregated equity, aggregated debt, or the sum of the two exceeds a specified threshold percentage of the licensee's total equity, debt, or total capitalization respectively. Id. It invites comment on this proposal, as well as on a tentative proposal to set the threshold percentage at 33%. Id. at ¶23.
The Commission's overall approach to aggregation of equity and debt holdings is generally sound, but has two serious shortcomings. The first is that it would allow parties to circumvent the rule by structuring investments that fall just short of the separate threshold percentages for debt and equity. To use a numerical example, with a 33% threshold, an investor could hold 32.5% of equity and 32.5% of debt and still would not trigger attribution, while another investor might hold 33.5% of equity and zero debt but would be attributed. It is unfathomable to find the former interest non-attributable and the latter attributable. See, BBC License Subsidiary L.P. (WLUK-TV), 10 FCCRcd 7926 (1995)(statement of Commissioner Ness, "In circumstances such as these, the whole is greater than the sum of its parts.").
Commenters propose the following solution. In addition to the Commission's approach of examining a party's investments in aggregated equity, debt, and total capitalization, the Commi sion should look across all three. If an entity holds interests in any two categories which measure two-thirds as great as the threshold percentage, the Commission should attribute ownership to that party. This additional approach would recognize, going back to the numerical example, that any party holding 22% of the equity in addition to 22% of the debt would still wield enough influence to affect editorial decision- making.
The second flaw in the Commission's proposed investment thresholds is that it is underinclusive. The proposed benchmark percentage, 33%, is so high that it will overlook many investors with significant power to affect editorial decisions. Indeed, it seems that the amount, 33%, has been plucked out of thin air. The only support for this number the Commission cites is an eleven year old case predating both the current formulation of the attribution and ownership rules and the recent dramatic changes in the broadcast industry, to try to show an example where it has allowed a nonattributable equity interest of 33 percent. FNOPR at ¶23.
But the Commission's factual finding in that case was specifically rejected on review in the United States Court of Appeals for the District of Columbia Circuit, although the ultimate holding was affirmed on other grounds. In Cleveland Television Corp. v. FCC, 732 F.2d 962 (D.C. Cir. 1984), the court held that, "contrary to the Commission's assertions...," an investor's 33% "preferred stock ownership does not constitute a merely passive interest in [the licensee]." Id. at 971. "An owner of one-third of a corporation's equity may, of course, exercise control in fact, especially if the one-third share represents the largest voting block in the corporation." Id. at 967. It went on to state, however, that the decision not to apply the cross-ownership rules in that case was not an abuse of authority, based on the Commission's review of all other facts and circumstances, and its general authority to engage in case-by-case inquiries. Id. at 971. If anything, Cleveland Television stands for the proposition that a 33% nonvoting interest - or even less - does give control to the investor.
Yet parties can exercise control over station operations with investments much smaller than 33%. The Commission has seen many instances of nonvoting equity or debt holders exercising very real and substantial control over station operations and editorial decisionmaking. See page 4, above. See also, Fenwick Island Broadcast Corp., MM Docket No. 87-236 (1990)(debt holder could require 50% premium on payback, secured by option to purchase station outright); Evergreen Broadcasting Co., MM Docket Nos. 84-397 through 84-412 (1989)(same). Alarmingly, the Commission has kept the public in the dark about the effect of its choice of proposed triggering percentage. For the purpose of reasoned policymaking in this area, and for the purpose of meaningful public comment, it would be extremely useful to examine the breakdown of sizes of nonvoting stock interests. This is precisely the type of data that the Commission released in its study of the 1994/95 annual TV ownership reports, and indeed, that study releases distributions of percentage ownership interests for many types of holdings, including active and passive voting stock. FNOPR at Appendix B. Nonvoting stock was the only type of investment that the study did not detail. Id. at part IX. It merely noted that there were 79 instances of non-voting interests - a number which is not insignificant especially when compared to the total of 203 widely held, for-profit stations.
Therefore, commenters support a benchmark percentage of 20%. It is reasonable to conclude that above this level, an investor in nonvoting equity or debt would begin to hold enough control to influence editorial decisionmaking.
Finally, the Commission should emphasize that it can and will continue to look beyond the bright- line rule in extraordinary cases to examine other indicia of ownership.11 Although the Commission will gain considerable advantages and administrative economy through a simple rule, it should not willfully turn a blind eye to cases that evade the letter - but not the spirit - of its rules.
The Commission has also asked a number of questions concerning whether to attribute television LMAs. It notes that under its current rules, brokerage between same market radio stations for over 15% of the brokered station's ("licensee") time results in attribution to the brokering station ("LMA holder"). FNOPR at ¶26. It proposes to apply the same principle to same market television LMAs. Id. at ¶27.
To begin with, Commenters advocate that the Commission should go one step further and prohibit LMAs altogether. As discussed in the MAP, et al. Duopoly Comments, LMAs are an unlawful evasion of the ownership rules; an abrogation of broadcasters' public trustee obligations; permit a transfer of control without Commission review, in violation of the Communications Act; and an affront to both diversity and competition. MAP, et al. Duopoly Comments at 28.
If the Commission should continue to allow LMAs, however, Commenters strongly support its proposal to attribute them,12 because television LMAs, like radio LMAs, result in a diminution of voices and viewpoint diversity. The principle here is simple: LMAs give the holder nearly total editorial control over the licensee's programming, at least for the duration brokered. This makes them another powerful weapon, which has been tacitly endorsed by the Commission, to evade multiple and cross ownership limits.
Few industry observers would lend any weight to the required representation by the licensee that it retains editorial authority. Indeed, no evidence has ever been presented in this proceeding that licensees could ever or have ever challenged or modified the LMA holder's editorial choices. C.f., comments filed in response to 1994 NOPR, in MM Docket Nos. 94-150, 92-51, 87-154. In effect, an LMA is nearly indistinguishable from an outright transfer in which the transferror retains a small, passive interest.
Moreover, LMAs allow their holders blatantly to avoid the Commission's ownership limits - and indeed they have done so. In a recent tally of the top 100 markets, Broadcasting & Cable found 40 LMAs in 35 markets. Chris McConnell, "Consolidation Yea or Nay," Broadcasting & Cable, January 27, 1997 at 4. All of these violate the intent of the duopoly rule - to maintain diversity of local television outlets by preventing one entity from owning two out of a limited number of local outlets - and the Commission's failure to attribute LMAs enables this violation. LMAs could also allow holders to violate the intent of the national ownership caps - by combining outright ownership and LMAs to reach over 35% of the national audience.13
The notion that LMAs may rescue struggling licensees is irrelevant for purposes of the ownership rules. Same market LMAs do not preserve the number of editorial voices in a market, they reduce them by one. Indeed, there is evidence that common station operations actually decrease, not increase, public affairs and informational programming. MAP, et al. Duopoly Comments at 9. In light of the recent strength of the market for purchase of licensees, it is likely that in a large number of LMA situations, the licensee could have found another buyer, thereby maintaining the same number of voices.
The importance of tight, effective attribution of same market LMAs is also magnified in light of the recent and ongoing relaxation of broadcast ownership rules, as noted above, at 9. Finally, and perhaps most important, these licensees many times present the best, most affordable avenue for entry by minority and female owners. See MAP, et al. Duopoly Comments at 20. Therefore, allowing licensees to enter into LMAs works against the Commission's longstanding goals of promoting equal opportunity in broadcasting.
LMAs should also be attributed for purposes of the national audience reach cap. Again starting from the observation that LMAs give the holder editorial control, the Commission must recognize that LMAs held by a group owner increase the number of viewers nationwide that the owner reaches.
The Commission has requested comment on whether to increase the percentages of voting stock that parties may hold in a licensee without triggering attribution from 5 to 10 percent for active investors and from 10 to 20 percent for passive investors. This proposal dates back to the Capital Formation Notice, released in 1992 and incorporated into the 1994 NOPR. 7 FCCRcd 2654 (1992). In the FNOPR the Commission renews the call for empirical evidence to support this tentative conclusion, and invites comment on a study conducted by Commission staff. Id. at ¶37.
With this proposal, the Commission risks allowing a significant reduction in editorial diversity in exchange for unproven, and possibly negligible benefits. The risks to editorial diversity from allowing up to 10% voting stock holdings are readily apparent. Indeed, it strains credibility to think that an investor could hold a 9.9% interest in the voting stock of a licensee and not have a significant degree of influence over editorial decisions.
Indeed, the Commission has determined this itself, holding in the 1984 Attribution Order that adoption of a benchmark higher than 5% might "result in many substantial and influential interests being overlooked." 1984 Attribution Order, 97 FCC2d at 1006. Just eight years later, in the Capital Formation Notice, the Commission abandoned this holding, speculating that the economic and competitive conditions had changed and inviting commenters to provide evidence to confirm this conclusion. It discovered by the time of the 1994 NOPR that, although the majority of commenters supported raising the voting stock benchmarks, none of them could produce "specific, empirical evidence" in support of their position. FNOPR at ¶36. Specifically, none of those commenters could explain the changes in the economic marketplace that would justify raising the benchmark, nor could they verify the link between raising the benchmark and producing more capital investment. 1994 NOPR at 3617.
Today, over two years later, they still have not and still cannot. Once again, at a minimum, the Commission should not act to increase the existing voting stock benchmarks unless parties supporting the increase provide evidence that it would not risk nonattribution of influential interests. Similarly, it should require proof that there would be significant benefits from the increase. To date, no parties supporting the increase have produced evidence that it would stimulate investment, and in any event, as Commenters have noted above, the need to encourage investment is already vastly overestimated.
The attribution rules are the crucial keystone supporting the entire structure of the Commission's ownership rules. Yet in their current state, they have been singularly open to exploitation. For that reason, the Commission should adopt the Equity or Debt Plus proposal, should attribute LMAs, and should not raise its current thresholds for attribution of voting stock.
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Of Counsel: Angela J. Campbell February 7, 1997 |
Respectfully Submitted, Joseph S. Paykel Andrew Jay Schwartzman Gigi B. Sohn MEDIA ACCESS PROJECT Counsel for MAP, et al. Law Student Intern: |
Back to diversity main page2. This approach is narrower than the proposal discussed in the first Notice of Proposed Rulemaking in this docket, 10 FCCRcd 3606 (1995), which would have eliminated the nonvoting stock and single majority shareholder exceptions altogether. To that extent, Commenters applaud the Commission for protecting the interests of viewers, while not adopting a rule which is overbroad and unduly discouraging passive capital investments if they are structured so as to prevent influence over a licensee's editorial decisionmaking.
3. The Commission's statement that it "anticipate[s] [the conversion] to be costly," is an inauspicious admission that neither the agency, nor Congress, has undertaken any effort to determine whether broadcasters have been candid about their cost estimates. Unfortunately, Congress' decision not to auction the so-called "digital" spectrum has been, in large part, rooted in the concern over so-called high transition costs. Similarly, there are indications that some Commissioners may also mistakenly believe that these costs are very high, and that, as a result, broadcasters should not be subject to any new public interest obligations.
4. With six television networks (and possibly a seventh, Silver King, on the way) there are few true "independent" stations that will not have the aid of a network.
5. Just one week ago, the National Association of Broadcasters held a briefing on digital TV in New York for investment bankers. "NAB Study to Document Broadcasting Benefits to Public," Communications Daily, January 30, 1997 at 3.
6. For example, one group owner has even likened himself to a farmer of spectrum, tending to the property until the "big pay-off" when digital TV service begins. Chris Stern, "Broadcast Exex Urge Loose Regs," Daily Variety, January 14, 1997, at 14.
7. The public's standing to participate in licensing proceedings before the Commission is well-established and longstanding. In Office of Communication of United Church of Christ v. FCC, 359 F.2d 994 (D.C. Cir. 1966), then-judge Warren Burger wrote that the court could see "no reason to exclude those with such an obvious and acute concern as the listening audience." Id. at 1002.
8. Furthermore, in those cases where the investor is a network, obtaining contracts will be made even more difficult by the Commission's proposal, in a still-pending proceeding, to discontinue public filing requirements for network-affiliation contracts. Filing of Network Affiliation Contracts, 10 FCCRcd 5677 (1995).
9. Commenters also believe that there should be no difference for purposes of the attribution rules between the major networks, ABC, NBC, CBS, and Fox; emerging networks, such as WB and UPN; and other limited purpose networks, such as TeleNoticias, or sports and religious programming networks. The incentives to influence licensee decisions will be equally strong for all these types of entities.
10. In fact, this ability is much greater now than it has ever been, a result of many of the Commission's recent actions, such as repeal of the financial interest and syndication rules, prime time access rule, and proposals to repeal most of the rules governing the network-affiliate relationship.
11. While the Commission will always consider all indicia of ownership, it should pay particular attention if the ownerhsip concerns are raised in a petition to deny.
12. Commenters' only question to the Commission on this proposal is "What took you so long?" Many of the parties filing these comments have opposed the use of LMAs since they first appeared in the early 1990s. See MAP, et al. Duopoly Comments at 28.
13. For example, in the Dallas-Ft. Worth market, New World holds an LMA over KDFI, clearly extending the number of households it reaches. The combined holding of News Corp/New World owned stations already reaches 34.841% of the national TV audience. Id.