New FCC Biennial Ownership Reports for Commercial Broadcasters Due Dec. 15, 2009
With the recent approval of the Federal Communications Commission’s (FCC) revisions to its Form 323 Ownership Report, the FCC has announced that all commercial AM, FM, TV, low power television (LPTV), and Class A LPTV stations must file a Biennial Ownership Report on the new FCC Form 323 by Dec. 15, 2009. This includes sole proprietors and general partnerships composed of individuals, which previously were not required to file a Biennial Ownership Report.
Similarly, licensees of Class A TV and LPTV stations, which were not required to file Ownership Reports in the past, must also now file. Thus, all commercial broadcast stations, regardless of the service in which they operate, must pay close attention to this filing requirement.
While the revised Form 323 generally collects the same basic ownership information as before, it does so in a manner that will require additional work on the part of licensees. While the form is not yet available online in the Commission’s electronic filing system, broadcast licensees are advised to begin preparing for this filing deadline now, since the necessary information may take some time to assemble and input—possibly a significant amount of time for some licensees.
The FCC’s new Form 323 and the Dec. 15 filing date apply only to commercial broadcast stations. The FCC is currently conducting a rule making proceeding to revise the reporting rules for noncommercial licensees; in the meantime noncommercial broadcast stations are to follow the Commission’s previous reporting rules. Similarly, FCC Form 323-E for noncommercial stations has not been revised.
Accordingly, by Dec. 1, 2009, noncommercial radio stations in Alabama, Connecticut, Georgia, Massachusetts, Maine, New Hampshire, Rhode Island and Vermont, and noncommercial television stations in Colorado, Minnesota, Montana, North Dakota and South Dakota, must prepare and file electronically a Biennial Ownership Report with the Commission using the current FCC Form 323-E.
Obtaining an FCC Registration Number
Probably the most important and time-consuming new requirement in connection with the new form is the need for all entities and individuals reported on the Form 323 as having an attributable interest in the station to obtain their own FCC Registration Number (FRN). This FRN will identify the entity or individual and allow their interests to be tracked across multiple license companies and Ownership Reports in order to give an accurate picture of an individual’s reportable interests.
In order to obtain an FRN, an entity or individual is required to register in the FCC’s Commission Registration System (CORES) database and provide its name, address, phone number, and, most importantly, a tax identification number or employer identification number in the case of an entity, or a Social Security number in the case of individuals. Thus, all officers, directors and most substantial owners of broadcast stations will be required to provide this information and obtain an FRN. While this information is confidential and is not available for public consumption, it is required in order to obtain an FRN from the FCC. Thereafter, the FRN will be used exclusively to identify the party in its dealings with the FCC.
Electronic filing requirements
The Ownership Report must be filed electronically, and the revised version of the Form 323 should be available in the Commission’s filing system on or about Nov. 16, 2009, at which point licensees can begin filing. The data contained in the report must be current as of Nov. 1, 2009. The primary changes to the report, aside from the fact that all reported interest holders must provide an FRN, include the fact that all data must be entered into the form and filers can no longer rely on narratives or attached exhibits.
Information about ownership percentages, interests in other broadcast stations or newspaper entities in the same market, as well as relationships in the corporate structure must now be entered into the FCC’s electronic form instead of reported in an exhibit or attachment. This can require significant time for owners with many broadcast interests. The one exception to the “no attachment” rule is a new requirement that licensees provide a flowchart or similar document showing the vertical ownership of the entity, including the license company and all persons and entities that have an attributable interest in the license company.
One additional note, the FCC had initially required that certain non-attributable interests be reported on the revised Form 323, but it has backtracked from that position and is now seeking further input regarding that proposed change. So for now, licensees are required to include only attributable interests on the Biennial Ownership Report.
Basic questions when preparing the Biennial Ownership Report
The station’s information should be reviewed carefully and any necessary corrections made in order to ensure that the information is accurate as of Nov. 1, 2009. In particular, you should consider the following basic information as you review the report. While the FCC should be notified when some of this information changes, even apart from the ownership filing deadline, the preparation of the Biennial Ownership Report gives the licensee a good opportunity to review the continuing accuracy of all this information.
- Is the licensee's contact information still accurate? If the address of the licensee has changed, that should be reported on FCC Form 5072 when the change occurs.
- Are the call signs and communities of license listed on the form still accurate? Make sure that the actual community of license for each station is reported on the form, not the market the station may serve.
- Have any of the officers, directors or other parties directing the management of the licensee changed since the last report?
- Are the voting and equity percentages listed for each shareholder, partner or member correct?
- Is the percentage of equity plus debt listed for each shareholder, partner or member correct? Please note, this question is different from the equity held by each person or entity, and requires a determination of the combined equity and debt of the company.
- Have any of the names or addresses of the principals changed since the last report?
- Has the station entered into any agreements that need to be filed at the Commission pursuant to Section 73.3613 or made any changes to existing agreements? If so, those agreements or changes need to be listed on the Ownership Report. Such documents deal principally with agreements that could affect future ownership, or ones that in some way restrict the operations of the licensee. Examples of such agreements include Options, Rights of First Refusals, Stock Pledge Agreements, Security Agreements that place significant restrictions on the operations of the licensee, and programming agreements such as Time Brokerage Agreements or Television Network Affiliation Agreements.
The accuracy of all information is paramount. In its Report and Order adopting the new form and the new requirements, the Commission announced plans to randomly audit all licensees who filed Ownership Reports—similar to the audit process now used for Equal Employment Opportunity filings. Thus, the failure to file, or the filing of inaccurate or incomplete information, could result in fines or other FCC disciplinary actions.
Reports for companies with attributable owners who are not individuals
If the licensee company has attributable owners who are not individuals, then separate Ownership Reports also need to be filed for each entity that holds an “attributable interest” in the licensee. These reports will provide the FRN for the license company, as well as the entity above the company in the corporate ownership chain (if any).
Ownership reporting is cut off only when an owner “up the chain” is insulated from control (in the case of a limited liability company or limited partnership) or if their interest held is less than 5 percent in a corporate licensee (the Form 323 sets out a “multiplier” formula to be used for companies to compute whether their holdings in other companies exceed the 5 percent benchmark).
What are "attributable interests"?
An attributable interest is essentially one that counts for multiple ownership purposes. While this is a very detailed subject that could take an entire memo to fully explain, certain generalizations can be made.
Officers and directors are attributable interests. In a corporation, any interest of 5 percent or more of the voting stock is attributable (except in situations where there is a single majority shareholder, i.e., one shareholder that has more than a 50 percent interest in the company, in which case only the majority shareholder is attributable). General partners are attributable, as are the voting members in a limited liability company.
In general, nonvoting interests are not attributable, although in many entities (especially limited partnerships and limited liability companies) specific FCC-approved language must be included in the organizational documents of the company that restrict the control rights of the nonvoting owners in order to shield their interests from attribution. Note that, under the FCC's Equity Debt Plus (EDP) rule, an interest holder whose interests are normally not attributable can be considered attributable if the amount of their investment, plus the amount of any loans they have made to the company, exceed one-third of the money put into the company, and these interest holders either provide more than 15 percent of the programming to the station or have an attributable interest in another station in the same market.
There are other types of ownership interests that may raise additional attribution questions, which you should discuss with your counsel to get definitive answers.
Additional considerations for public companies
Public companies and other companies with widely dispersed ownership need to ensure that they comply with the FCC's restrictions on alien ownership. If the company cannot, by simply reviewing the rolls of its shareholders, determine that 80 percent of the corporate licensee's stock (or 75 percent of a parent company) is owned by U.S. citizens, then the company must take other steps to make sure that the company is in compliance.
A random survey of shareholders has been suggested by the FCC as one means for a licensee to make such a determination. Alien ownership considerations for non-corporate entities are complex. Counsel should be consulted with any questions.
While character qualifications are not actually filed with the Ownership Report, Section 1.65 of the Commission's rules requires that each licensee report to the Commission any adverse legal findings that could affect the character qualifications of a licensee. If there has been an adverse finding of a felony, any antitrust or unfair competition issue relating to media matters, any fraudulent statement to another government agency, or any discrimination matter, then the licensee must file a report with the Commission.
A report must also be filed if any business owned or controlled by an attributable owner is involved in such conduct, or if an attributable owner is directly involved in such conduct at another business. That report is to be filed on the anniversary date of the filing of the license renewal.
Preparing and filing the Biennial Ownership Report
The FCC Form 323 Ownership Report must be filed with the FCC electronically. Accordingly, the report must be prepared and submitted through the FCC's online Consolidated Database System (CDBS). If you do not already have a CDBS filing account, you can create one by following the directions at the FCC's Web site. In addition to the CDBS account number and password, you will need the licensee's FRN and password when you are ready to submit the form.
Once the report has been submitted electronically, commercial stations must then submit the necessary FCC filing fee, which is currently $60 per call sign. The fee can either be paid electronically via credit card, or in paper with a check payable to the FCC.
The FCC anticipates that it will have numerous questions about the new form and the electronic filing, and it plans to establish a Web page with information including answers to frequently asked questions, however, that Web site has not yet been established. Questions may also be directed to the FCC at the following e-mail address: [email protected].
For more information about the FCC's ownership rules, or for assistance in preparing and filing the revised Form 323 Ownership Report, please contact any of the lawyers in the Davis Wright Tremaine LLP broadcast group.