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FCC Eases Newspaper-Broadcast Cross-Ownership Rules;
Changes Scheduled To Go Into Effect September 4

[Aug. 2003]

For many years, the Federal Communications Commission ("FCC") has enforced rules preventing the common ownership of daily newspapers and broadcast stations in the same markets. For purposes of these rules, the FCC defines a "daily newspaper" as one that is published four or more days per week, circulated generally in the community of publication, and printed in the primary language of the market. In a controversial decision released on July 2, 2003, the FCC loosened its prohibition to allow such cross-ownership if permitted under the new Cross-Media Limits ("CML") calculation. The use of CML is intended to prevent a single entity from assuming a dominant position in local media markets in terms of its ability to dominate public debate through combinations of cross-media properties.

Under these modified rules:

• No newspaper-broadcast cross-ownership is permitted in markets having three or fewer television stations, as determined using Nielsen Designated Market Areas. However, the FCC may grant a waiver if an entity can show that the broadcast station does not serve the area served by the daily newspaper.
  
  
• In markets having four to eight television stations, the FCC allows ownership combinations are limited to one of the following:

  (a) One daily newspaper, one television station, and up to half of the radio station limit for that market (e.g., if the radio station limit for the market is six, an entity may own one daily newspaper, one television station, and three radio stations);

  (b) One daily newspaper and up to the radio station limit for the market (i.e., no television stations); or

  (c) Two television stations (if permissible under the local television ownership rule) and up to the radio station limit for the market (i.e., no daily newspapers).

  Under the local radio station ownership limits, (1) in a radio market with 45 or more commercial radio stations, a party may own, operate, or control up to eight commercial radio stations, not more than five of which are in the same service (AM or FM); (2) in a radio market with between 30 and 44 (inclusive) commercial radio stations, a party may own, operate, or control up to seven commercial radio stations, not more than four of which are in the same service (AM or FM); (3) in a radio market with between 15 and 29 (inclusive) commercial radio stations, a party may own, operate, or control up to six commercial radio stains, not more than four of which are in the same service (AM or FM); and (4) in a radio market with 14 or fewer commercial radio stations, a party may own, operate, or control up to five commercial radio stations, not more than three of which are in the same service (AM or FM), except that a party may not own, operate or control more than 50% of the stations in such market.

• In markets having nine or more television stations, the FCC eliminated the prohibition against newspaper-broadcast cross-ownership.

The FCC said that it is not aware of any existing newspaper-broadcast combinations previously grandfathered or approved by the FCC that would be barred under the new rules. However, to the extent that any such combinations exist, they will be subject to the grandfathering and transition provisions in the new rules. Under these provisions, the FCC will grandfather existing combinations and will not require divestiture to come into compliance with the new cross-media limits.

In general, the FCC will prohibit the sale of existing combinations that violate the new ownership rules. That is, parties must comply with the ownership rules that are in place at the time an application for transfer of control or assignment of license is filed. However, the prohibition against the transfer of grandfathered stations will not apply to pro forma changes in ownership or to involuntary changes in ownership due to the death or legal disability of the licensee. The transfer prohibition also does not apply to transfers by certain "eligible entities," as long as the transaction does not result in a new violation of the rules. An eligible entity is an entity that would qualify as a small business consistent with Small Business Administration (SBA) standards for its industry grouping. The SBA small business standard for radio stations is $6 million or less in annual revenue and for television stations is $12 million.

In order for an entity to be eligible to purchase a grandfathered combination, the entity must hold either:

(a) 30% or more of the stock/partnership shares of the corporation/ partnership, and more than 50 % voting power;

(b) 15% or more of the stock/partnership shares of the corporation/ partnership, more than 50% of the voting power, and no other person or entity controls more than 25% of the outstanding stock; or

(c) More than 50% of the voting power, if the purchasing entity is a publicly traded company

An eligible entity may transfer an existing grandfathered combination to any other eligible entity at any time and to any non-eligible entity after it has held the combination for a minimum of three years. An eligible entity may not grant options to purchase or rights of first refusal to prevent non-eligible entities from financing an acquisition in exchange for an option to purchase the combination at a later date.

These changes to the newspaper-broadcast cross-ownership rules are scheduled to go into effect on September 4, 2003. However, these rule changes were adopted as part of a larger decision on media ownership which has come under attack from numerous sources, including both houses of Congress and from two FCC Commissioners who dissented from the decision. These efforts, as well as the expected court challenges, may modify or otherwise rollback these changes to the newspaper-broadcast cross-ownership rules.