FCC Does the Waive - Broadcasting & Cable

FCC Does the Waive

Shows the way for small-market duops–with strings attached
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For the first time, the FCC has opened the door for small-market TV duopolies, but a restriction on selling station pairs intact has broadcasters questioning whether the door has opened wide enough.

"The restriction is completely counterproductive because it eliminates the incentive to create duopolies," said LIN Television lobbyist Greg Schmidt after examining the official text of new ownership rules released last week.

Schmidt and other broadcasters said TV owners will lose one of the major justifications for expending capital to buy and improve a second station if the return on that investment can't be recouped by selling the stations as a pair.

Despite those reservations, waivers to the FCC's duopoly restrictions apparently will be much easier to come by under new broadcast-ownership rules.

On June 2, the FCC relaxed many of its ownership rules for TV and radio, including the so-called duopoly rules that limits the number of markets in which a single company may own two TV stations.

Prior to the June 2 rulings, ownership of two stations was limited to the top 50 markets or so. By simplifying the rule on June 2, the FCC opened up dozens of midsize markets for additional or first-time duopolies. But the ruling still bars duopolies in small markets by banning pairings among the market's four top-rated stations. In effect, duopolies are off-limits in markets with fewer than five commercial stations.

However, details of the rules released last week say that the FCC will consider waivers of its duopoly limits for a variety of reasons.

As with the old rules, duopoly waivers will be considered if one of the stations has failed or is failing or if the deal would advance an unbuilt construction permit.

Now, however, sellers do not need to demonstrate that an out-of town buyer could not be found. Where once the FCC viewed an out-of-town buyer as preferable because a separate voice would remain in the market, the commission now says that an in-market buyer is often the most likely to deliver public-interest benefits. "The efficiencies associated with operation of two same-market stations, absent unusual circumstances, will always result in the buyer being the owner of another station in that market," the FCC said.

Waivers also will be considered on a case-by-case basis in markets with fewer than 11 stations, which encompasses all but 38 of the country's 210 markets. The largest markets eligible for such waivers are Detroit (No. 10), Sacramento (19) and Pittsburgh (21), Baltimore (24) and San Diego (26).

Criteria for consideration:

  • Pairing would "reduce a significant competitive disparity" between the merged stations and the market's dominant station.
  • At least one station is UHF.
  • One of the merged stations could better complete the transition to digital transmission.
  • Owner documents that the merger is needed to preserve a local newscast.
  • Buyer certifies that increased news or other public-interest programming benefits will result.
  • Stations' outer, or "grade B," signal contours don't overlap and are not to the same geographic areas via cable or satellite TV.

One deregulation opponent, already incensed by other changes in the ownership rules, was ambivalent about the liberalized waiver criteria. "The bottom line is that the waivers allow even more combos, but we're gratified the FCC will require at least some recipients to demonstrate they are fulfilling commitments" to increasing news and local programming, said Cheryl Leanza, deputy director of Media Access Project.

Another industry observer questioned whether station operators will bother bulking up given the restriction on selling duopolies obtained with waivers. For a top-four duopoly to be sold intact, a second waiver must be obtained, industry officials presume, demonstrating public-interest benefits beyond those achieved by the original owner. "Entities that create a duopoly and improve the performance of the stations will also have difficulty selling the combination," said Blair Levin, a Legg Mason analyst.

In another revelation from last week's order, Salt Lake City, Phoenix and Washington appear to be surprising candidates for three-station TV triopolies. The new rules permit triopolies for the first time, as long as the market contains 18 TV stations. Those three markets meet the 18-station quota because relatively distant cities or towns are considered part of their Nielsen Designated Market Area. In the case of Salt Lake City, the 36th-ranked DMA, the market also includes Provo and Ogden, Utah. Phoenix, ranked 16, includes Flagstaff, Ariz., and Washington, with only 10 stations serving the city directly, encompasses Virginia's Front Royal and Maryland's Frederick and Hagerstown. Six of the seven largest markets are also eligible for triopolies: New York City, Los Angeles, San Francisco, Philadelphia, Boston and Dallas/Ft. Worth.

Meanwhile, deregulation opponents renewed their calls for reregulation by Congress. Sen. Byron Dorgan (D-N.D.) vowed to push for a "legislative veto" that would block implementation of the FCC's changes. "These new rules are wrong-headed and will result in more consolidation and less competition in broadcasting," he said.

In addition to liberalizing the duopoly rules, the FCC's June 2 action raised the audience-reach cap for TV-station groups from 35% to 45%, and it allowed ownership of broadcast stations and newspapers in the same market.

Dorgan backs Senate Commerce Committee-passed legislation that would roll back the national ownership cap to 35% and reinstate the ban on broadcast/newspaper crossownership. The committee continues its examination of deregulation with a July 8 hearing on radio consolidation.

FCC Commissioner Jonathan Adelstein, one of the two dissenting votes against the changes, supplemented his shorter June 2 statement with a 39-page attack last week. "Public outrage from all sides of the political spectrum continues to mount against the FCC's decision," he said. "We've now heard from nearly 2 million people, almost all opposed to the decision, an unprecedented outpouring of public concern. Yet we march ahead with our new rules. I'm disappointed my colleagues have refused to suspend the effective date of the new rules, despite the overwhelming public reaction and ongoing Congressional deliberations to overturn the decision."

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