Collins | Boosting Minority Ownership Hits Roadblock

Last summer, Rep. G.K. Butterfield (D-N.C.), along with five other members of Congress, introduced H.R. 3957, the “Expanding Broadcast Opportunities Act.” At about the same time, Sen. Gary Peters (D-Mich.), introduced S. 2433 in the Senate. Both are intended to revive the FCC’s Tax Certificate Policy. The legislation, if enacted, would direct the FCC to take proactive steps to increase diversity of ownership in the broadcasting industry, reviving a policy that was repealed in 1995.

The tax certificate program addresses the issue that appears to be at the heart of the decision by the three-judge panel of the U.S. Court of Appeals for the Third Circuit to set aside the FCC’s 2017 decision to relax broadcast ownership rules. The court has been focused on data surrounding female and minority station ownership.

Most recent statistics, which are admittedly at least five years old, show that women in the United States own fewer than 6% of radio and television stations. Data collected at about the same time show that African Americans own only 10 (or fewer) TV stations, less than 1% of the total, and 1.2% of commercial FM radio stations. Of course, these numbers do not include the 11 television stations recently acquired by Byron Allen’s Entertainment Studios.

This 17-year saga between the FCC and the Third Circuit was examined by two of our experts for the January/February 2020 issue of MFM’s member magazine, The Financial Manager. Sally Buckman and Meredith Senter, both from the law firm Lerman Senter looked more closely into the standoff between the two, as the commission considers taking the issue to the Supreme Court.

Senter offers some of the history behind the contretemps, saying it goes back to 2003 when the Prometheus Radio Project, a public interest group, filed an appeal in the Third Circuit seeking a review of the FCC’s reevaluation of its ownership rules. In 2004, two of the judges set aside the FCC’s 2003 decision telling them they required a better explanation of why the ownership rules should be relaxed.

While Senter says it is not unusual for the U.S. Court of Appeals to set aside a rule adopted by a federal agency, in this case it was “remarkable because the court said that it retained jurisdiction over the case.” In other words, moving forward Judges Ambro, Scirica, and Fuentes would be the ones considering all appeals. Senter says: “Two of the three have consistently thwarted the FCC’s ownership-relaxation efforts.” This despite the FCC’s composition having changed three times, under the Bush, Obama and Trump administrations.

The court’s decision upset the plans of many media companies for acquisitions based on the 2017 changes. That 2017 FCC decision, says Lerman Senter’s Buckman, repealed a rule that prohibited the common ownership of a daily newspaper and a radio or television station in the same market, and limited the number of radio and TV stations that an entity can own in the same market.

The same decision also relaxed the local television ownership rules by eliminating the prohibition on one company owning two stations in a market only if eight independently owned stations would remain in the market after the acquisition.

Senter believes that the court’s decision ignores the current realities in the media business, citing for instance the newspaper-broadcast crossownership ban as one that has lost relevance. In analyzing the reasons behind it, he says that the rulings “appear to be based more upon the policy considerations the two judges believe are of paramount importance than upon whether the rules adopted by the FCC are unlawful.”

The law, he goes on to say, requires the FCC to review its rules every four years. The review is of current ownership rules; the FCC is directed to repeal or modify those that are no longer in the public interest as determined by market competition. The judges, however, have focused primarily on whether the FCC adequately analyzed the impact of the rule changes on women and minorities.

In her “Dear Expert” column, Buckman wrote that it does not appear that the FCC will be changing its ownership rules anytime soon. “The FCC has signaled that it’s unlikely to approve transactions that don’t comply with pre-2017 rules.” She also finds it unlikely the agency will move forward with further changes.

As she points out, the 2017 ownership rules decision was the catalyst for some of the industry’s major acquisitions, including the Nexstar Media Group’s acquisition of Tribune Media, which included “two top-four ranked stations in the Indianapolis and Norfolk markets.”

The FCC was in the process of conducting its quadrennial review of ownership rules when the court issued its September 2019 decision. That decision instructed the FCC to provide additional data about how the relaxed ownership rules would affect minority and female ownership. The commission’s position is that the information sought by the panel simply might not exist, and the delays have held up their attempts to modernize its media ownership rules for a decade and a half.

They say the same judges keep rejecting the FCC attempts to justify its ownership decisions and the full Court should step in and conduct a rehearing. Not surprisingly says Senter the Third Circuit denied the request.

According to David Oxenford’s Broadcast Law Blog, industry groups have emphasized that the decision was overbroad — overturning all aspects of the FCC’s decision — even parts that had not been challenged by the petitioning parties. Industry participants also say that real hardships are being imposed on media companies, as the FCC had not been able make changes in its ownership rules to reflect the changes in the industry that had occurred in what may have been the most dynamic 15 years in the history of the mass media.

The outstanding question, when Buckman prepared her column, was whether these “now non-compliant acquisitions would be ‘grandfathered.’ ”

In late December, David Oxenford’s  Broadcast Law Blog reported that “the FCC issued an order reinstating the FCC’s 2016 ownership rules, recognizing that the changes made to those rules in 2017 were no longer effective because the Third Circuit Court of Appeals had thrown out the 2017 decision.” As part of this action, the FCC issued two Public Notices, which place additional requirements on license renewals as well as for assignments or transfers. In both cases, parties involved must report on whether the applications comply with the 2016 rules.

Senter closes his column by saying that the FCC’s next step is to ask the U.S. Supreme Court to intervene, although it is not required to take the case. But unless it does, he says the commission’s decade-long efforts to liberalize the broadcast ownership rules may continue to be “stymied by the two judges.”

The columns by Sally Buckman and Meredith Senter appear in the January/February 2020 issue of TFM. Non-MFM members may view the column on the association’s website until early March when we move it to our members-only area.

This is an issue that has the potential to affect the P&Ls and balance sheets of both broadcast and newspaper businesses. As such, it is one we at MFM will continue to watch. It’s certainly going to be one of the topics discussed during our March CFO Summit in Fort Lauderdale and in May when we meet in Los Angeles for Media Finance Focus 2020.

Mary M. Collins is president and CEO of the Media Financial Management Association and its BCCA subsidiary, the media industry’s credit association. She can be reached at [email protected] and via the association’s LinkedIn, Facebook, Instagram, and Twitter accounts.