FCC 2016

A party-line vote by the Federal Communications Commission rolling back a number of media ownership rules, while limited in its scope for radio, has set the stage for what could be additional changes in the coming quadrennial review. The vote on Thursday included a surprise move by the FCC to tackle how it counts stations in embedded markets. It also brought calls by some commissioners for more to be done for radio.

Nearly all of what was voted on had been included in a draft proposal released last month when the agency announced it would take a second look at the outcome of the Aug. 2016 quadrennial ownership order. But the Media Bureau had concluded changing the way it counts stations in embedded markets had been supported by “reasoned explanation” and a market-specific waiver requests could offer a “more suitable approach” than a blanket rewriting of the rules. That led Connoisseur Media, which has led the charge seeking a revamp of the formula, to lobby the Commission to reconsider its conclusions. The company argued the FCC had confused how an embedded radio station is designated as being “above the line” in the parent market and enlisted the support of Nielsen and BIA/Kelsey.

Armed with that evidence, Republican commissioners Michael O’Rielly and Brendan Carr approached FCC chair Ajit Pai and convinced him that the draft order should have handled embedded markets differently. Rather than leaving the status quo or rewriting the rule entirely, the majority decided to embrace a presumptive waiver approach for the time being. That means any company contemplating adding a station in an embedded market will likely secure a waiver to the FCC’s ownership limits. Carr said adopting a presumptive waiver approach will provide “some relief” to broadcasters operating in the shadows of New York and Washington, DC.

O’Rielly said the shift will also bring “more certainty” to companies in embedded markets considering adding stations to their clusters. But he would have preferred to see the Commission completely revise how it counts stations in embedded markets, calling them a “reflection of geography and not an analysis of competition.” He pointed to analysis showing that even if a company had all the top-rated stations it was allowed in New York’s embedded markets it would only rank third in the overall New York metro area with an 11.2% share of the radio market. The same scenario in Washington would rank that owner in sixth place. But O’Rielly said before any larger shift can be adopted the Commission deferred to the Media Bureau, which indicated it wants to gather more data about embedded markets. “I understand the Commission will reconsider this decision in the 2018 quadrennial review,” he said.

Connoisseur Media CEO Jeff Warshaw said he’s “very appreciative” of how things turned out. “Connoisseur views this change as an important one for it, but as only a start for the radio industry generally to address the ownership rules that apply to it,” he said in a statement. “We look forward to the opportunity to actively participate in the discussion of how the rules relating to radio ownership can be changed to reflect the current media marketplace, as we believe that the radio industry today faces as much if not more change and disruption than do television and newspapers.”

Cross-Ownership Ban Falls

The sudden shift in how it will address embedded markets hadn’t been expected, but the Commission stuck to the script when it came to planned repeals of the newspaper-broadcast and radio-television cross-ownership bans. It also made several changes to the television ownership rules—including eliminating the attribution rule for TV joint sales agreements and eliminating the so-called eight voices test.

Pai said the agency’s rules have remained “stuck in the past” and the changes approved simply match its regulations to the current marketplace. “After too many years of cold shoulders and hot air, this agency finally drags its broadcast ownership rules into the digital age,” he said. “Our hope is going forward that especially in small to mid-sized markets these pro-competitive combinations can create more local news.”

O’Rielly said although the cross-ownership rule changes are a positive step, he’s disappointed the Commission in reality offered “very little” help to radio. “I wish the Commission would have gone further in drafting our local radio ownership rules,” he said. “For starters, it’s time to review the Commission’s AM/FM subcaps.” Procedural issues—no petitions of reconsideration were filed directly addressing the subcaps—meant that it wasn’t addressed. But O’Rielly pointed out that next year’s quadrennial review will offer another opportunity to reexamine the rules.

Sinclair Deal Hangs Over FCC Decision

The revisions to the media ownership regulations have proved controversial as critics of Sinclair Broadcast Group’s proposed $3.9 billion deal to buy Tribune Broadcasting view the updates as a way for the Trump administration to weaken standards to boost right-leaning Sinclair.

Commissioner Mignon Clyburn, who cast one of the two votes against the changes, worries the rule changes will open the floodgates to more consolidation. “It is not really about helping small struggling broadcasters or newspapers—this is really about helping large media companies grow even larger,” she said. “Today’s action, coupled with recent FCC actions, including the reinstatement of the UHF discount and the elimination of the main studio rule, we have paved the way for a new crop of broadcast media empires that will be light years removed from the very local communities they are supposed to serve.”

Pai rejected calls from congressional Democrats that he he’d played favorites and should have recused himself from Thursday’s vote. “Elected officials can say anything, and some do,” he fired back.

Commissioner Jessica Rosenworcel—who cast the other vote against the proposal—suggested more than politics were at play. She said it was “striking” that so many members of Congress have asked the FCC’s inspector general to look into how the Sinclair deal is being handled. “I don’t remember in my history of working here that ever happening before,” Rosenworcel told reporters.

But Pai pointed out he’s called for modernizing media rules since he joined the FCC in 2012. “Our decision is based on the law, the facts in the record, and sound economics,” he said. “Some say we’ve gone too far. Others say we haven’t gone far enough. I think we’ve gotten it just right.”

Incubator Proposal Moves Forward

While much of the attention is focused on the rollback of several media ownership rules, the Commission on Thursday also advanced a rulemaking that will look to create an incubator program designed to boost ownership by women and minorities. In a Notice of Proposed Rulemaking, the FCC begins the process of seeking public comment on how it should be designed—including what reward current broadcasters should receive for their participation.

Clyburn said the proposal asks the right questions, but the proposal was placed in the “wrong order.” Instead she said the FCC should launch a proceeding that would examine the impact of further consolidation on localism and competition. “I propose that this data collection be undertaken expeditiously and completed prior to the start of the 2018 quadrennial review,” she said. Clyburn said only then can the FCC make an accurate assessment about what kind of impact an incubator could have.

But Pai said after eight years the Obama administration had nothing to show for its lip service about the need for promoting diversity. “It was all a talking point,” Pai said. “But this FCC takes concrete action.” He dismissed critics who said the rulemaking undercuts the efforts of the FCC’s Diversity Advisory Committee, saying their work continues in tandem.

Court Fight Comes Next

The changes adopted by the Commission on Thursday won’t take effect until next month at the earliest. But in all likelihood whether they become the new standard will rest with a federal appeals court. The public interest group Free Press said the Commission’s decision will “weaken the standards” on a variety of media regulations and is vowing to file a legal challenge to block.

“Free Press will take the FCC to court,” Free Press president Craig Aaron vowed. For more than a decade opponents to relaxing media ownership rules have used legal challenges to block updates from taking effect, and Aaron said the agency has once again failed to run a “fair and transparent process” as in the past. “The FCC has repeatedly lost in court on this very issue for ignoring these concerns. It can’t keep ignoring them and hope to escape court scrutiny and public outrage,” he said. In a fundraising appeal sent out by the group, Free Press said it had a “generous donor” who’d match every dollar raised up to $50,000 to help pay for the court case.

While federal agencies don’t typically welcome legal tests to their decisions, commissioners Clyburn and Rosenworcel said they expect to be vindicated by an appeal. “I look forward to the day when the court issues a decision to right this sad wrong,” Clyburn said.

NAB ‘Grateful’ For Changes

The National Association of Broadcasters has dismissed allegations that the FCC is playing favorites saying the rule changes are bigger than any one company. “These rules are not only irrational in today’s media environment, but they have also weakened the newspaper industry, cost journalism jobs and forced local broadcast stations onto unequal footing with our national pay-TV and radio competitors,” NAB president Gordon Smith said in a statement. “We are grateful the Commission has adopted a common-sense approach to media regulations that will foster innovation, reinvestment in investigative reporting and better service to our tens of millions of listeners and viewers.”

The newspaper industry was equally happy with seeing the cross-ownership bans repealed at long last. “This long-overdue decision recognizes the vastly different landscape that exists today, as compared to when the rule was created over 42 years ago,” News Media Alliance president David Chavern said. The Alliance joined with the NAB to file the petition for reconsideration in Oct. 2016 which led to Thursday’s vote.

Yet the FCC’s vote drew fire from Democrats on Capitol Hill. Senator Bill Nelson (D-FL) called it a “blow to localism and diversity” in broadcast media. “This act will pave the way for massive broadcast conglomerates to increasingly provide local viewers with nationalized cookie-cutter news and corporate propaganda that’s produced elsewhere,” Nelson said.

House Energy and Commerce ranking member Rep. Frank Pallone (D-NJ) said the changes to the media ownership rules amount to a “major handout” to companies like Sinclair that are trying to grow larger. “Unfortunately, today’s action demonstrates the FCC’s relentless desire to please the corporate interests,” Pallone said.