Pandora To FCC: Consider A Rule Change For Us


On Tuesday, the FCC posted this Public Notice regarding Pandora’s planned purchase of Connoisseur’s KXMZ-FM in South Dakota. The sticking point for this sale is Pandora’s inability to prove foreign ownership is less than 25 percent. Pandora has told the FCC that it believes it complies with the rule, however due to SEC shareholder privacy regulations, it cannot be sure. Pandora is asking for a ruling that will allow foreign investors to hold up to a 49.99 percent voting interest and 100 percent equity interest in the company. To help us break this request down, we turned to Broadcast Attorney John Garziglia.

Here’s Garziglia’s take on the Pandora request:
Most of our radio industry is focused on the music streaming licensing issues that arise from Pandora’s FCC application to acquire KXMZ(FM), Box Elder, South Dakota. The FCC, however, has focused instead on the possible foreign ownership of Pandora, a publically-traded corporation.

The possible foreign ownership of Pandora matters because, under the Communications Act, non-U.S. citizen ownership of a radio broadcast station parent corporation is limited to 25 percent, absent an FCC finding that the public interest would be served by a greater foreign ownership. Up until recently, the FCC pretty much refused to consider any radio station foreign ownership greater than 25 percent. In a 2013 declaratory ruling, however, the FCC stated, without further elaboration, that it would consider approving foreign ownership of greater than 25 percent in the parent corporation of a broadcast station.

Pandora has now filed with the FCC asking that foreign ownership in Pandora be approved up to 100 percent of ownership, but no greater than 49.99 percent of voting control, or alternatively foreign ownership and control up to 100 percent provided that no currently unidentified non-institutional foreign investor increases ownership or voting control to 5 percent or greater.

Pandora states that it believes that over 80 percent of its stock is voted by U.S. citizens. But, relying upon a sampling procedure developed by the FCC in 1974, the FCC has refused to accept Pandora’s calculations of stock ownership.

Pandora’s predicament is that, under current SEC rules, there is hidden ownership of much of the publicly traded stock now owned in U.S. entities. Stock ownership often is listed in the broker’s name rather than in the name of the person or entity actually owning and/or voting the stock. At issue are millions of shares. Publically-traded stock is constantly being bought and sold. It is therefore a difficult, if not impossible, task, according to Pandora, to come up with any reliable count of the percentages of Pandora stock owned by U.S. citizens.

Pandora points out that, as a new entrant to broadcasting, it is particularly hampered since it has never needed in the past to go through the exercise of determining the citizenship of who owns its stock in terms that the FCC will recognize. Pandora implies that existing publicly traded broadcast entities have systems and procedures in place to determine the citizenship of stockholders. But, there is also the underlying suggestion that there may be existing publicly traded broadcasters who, if asked by the FCC to prove the same thing that Pandora is now being asked to prove, may likewise not be able to show accurate ownership by citizenship to the FCC’s  satisfaction.

Pandora’s petition makes it clear that it has given up trying to show the Commission that it is not greater than 25 percent owned or controlled by non-U.S. citizens. Rather, Pandora is asking for a more expansive interpretation of the prohibition against foreign ownership to allow foreign stock control of up to 49.99 percent and ownership of up to 100 percent.

The FCC stated last year that any such determinations allowing for in excess of 25 percent foreign ownership will be a case-by-case analysis. Pandora being allowed to own a U.S. radio broadcast station with up to 49.99 percent control, and up to 100 percent equity, by non-U.S. citizens, does not automatically allow any other entity that has the same ownership counting issues to receive FCC approval for a station purchase.

It is noteworthy that the battle being fought by Pandora at the FCC is not over music licensing, even though its opposition in the acquisition of KXMZ is ASCAP, but rather is over the procedures by which Pandora proves its ownership. In the true regulatory traditions of the FCC, ASCAP has learned that even though it may not have a claim before the FCC for Pandora’s radio station acquisition ploy to impact its music streaming costs, FCC processes can be used to block radio station purchases for any number of reasons. At the very least, it will be many more months before the FCC makes a determination as to whether Pandora has FCC consent to acquire KXMZ.



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