FCC Ownership Caps

Believing there’s an opening for further deregulation of the local radio ownership rules in this year’s quadrennial media ownership review, the National Association of Broadcasters is making its pitch to the Federal Communications Commission to roll back some of the current limits. While the vote wasn’t unanimous, the NAB Radio Board last week endorsed a proposal that, if adopted, could bring significant changes to radio ownership in the biggest markets.

The NAB proposed the FCC change its rules to allow a company to own up to eight FMs in the top 75 markets while at the same time permitting the operator to own or control a limitless number of AM stations. Beyond the top 75 markets and in unrated markets, the NAB proposes all local radio ownership restrictions should be removed allowing an operator to control as many stations as they’d like.

The Radio Board also endorsed a proposal tied to the FCC’s ongoing rulemaking that’s focused on creating an incubator program. In order to encourage broadcasters to take part in the incubator program, the NAB suggests those companies be permitted to own or control two additional FMs—for as many as ten FMs in the top 75 markets.

“NAB believes the existing radio ownership limits are not needed to promote competition in today’s audio marketplace and, in fact, impede terrestrial radio stations’ ability to compete and serve their local communities,” it wrote in a letter to Media Bureau chief Michelle Carey on Friday. The trade group said that when the current radio ownership caps were adopted more than two decades ago, satellite radio, streaming and podcasts weren’t in existence. Having to live under those outdated rules has hampered over-the-air radio’s ability to compete. “This fact is particularly salient in smaller markets, with more limited available advertising revenue,” NAB said.

When the FCC moves forward on its quadrennial review process later this year, one of its challenges will be to justify any changes it makes since those decisions are all but certain to face legal challenges. In its letter the NAB suggested that the agency alter how it views the radio marketplace to include not only AM/FM stations but also any audio outlets that compete for listeners and advertising dollars. “Outdated rules that apply only to radio have a real-world impact on stations’ ability to serve their local areas,” it said.

It’s a proposition that commissioner Michael O’Rielly has said he’s open to considering. “Defining the marketplace is really important to me,” O’Rielly said. “I’ve critiqued the Dept. of Justice and FCC merger reviews in the past—AM radio only competes with AM radio. FM radio only competes with FM radio. And newspapers only compete with newspapers. That’s a crazy perspective that no longer applies, if it ever did.”

The NAB Radio Board’s embrace of altering the local radio ownership rules so dramatically came after a board committee studied the options and made its recommendation. While the vote wasn’t unanimous, a majority of board members backed the proposal. The proposal may be an opening bid of sorts with the Commission, as ultimately the framework of how to go about changing the radio ownership caps may be the most significant aspect of what the NAB presented to the Media Bureau.

A Receptive Audience At The FCC

FCC chair Ajit Pai hasn’t publicly offered any specifics of what he’s got in mind for the upcoming quadrennial media ownership review, which is said to still be in its planning stages. But since he took over the agency last January, the Commission has taken several steps to relax media ownership limits, including eliminating the newspaper-broadcast and radio-TV cross-ownership prohibitions. Pai said in November that he believed the Commission has, for too many years, offered “cold shoulders and hot air” to those seeking modernization and that he believes it’s time to update regulations “stuck in the past.”

In recent months commissioners O’Rielly and Brendan Carr have also signaled they might be willing to roll back some ownership limits, especially the AM-FM subcaps.

If the FCC does move forward with the NAB’s proposal to allow companies to own more radio stations in a market, some brokers predict it will jumpstart the largely stagnant deal market. “It would be an inflection point like 1996 was,” broker Larry Patrick said in a recent interview. With higher caps, such changes could pave the way for some larger groups to combine in ways not seen since the late 1990s. Patrick thinks some sellers could even get a slight pricing premium if one of the big consolidators makes them an offer, something that hasn’t happened in nearly two decades.