Yesterday, the never-ending story of the FCC’s unexplainable and unsupportable broadcast station ownership rules met head-on for a third go-round with an implacable U.S. Court of Appeals in a decision that will be known as Prometheus III. The Court issued a warning to the FCC in Prometheus III that “[r]arely does a trilogy benefit from a sequel” in advocating for a quick conclusion to the mandated comprehensive quadrennial ownership rule reviews commenced by the FCC in 2010 and 2014 and twice-reviewed in Court decisions now known as Prometheus I and Prometheus II.
Yesterday’s Prometheus III Court decision addressed three elements: (1) the FCC’s failure to complete the required 2010 and 2014 quadrennial ownership rule reviews; (2) the FCC’s 12 year delay in adopting a definition of an “eligible entity” to fulfill the Commission’s obligation to promote minority and female broadcast station ownership; and (3) the FCC’s recent rule change on television joint sales agreements. While the initial focus on yesterday’s Court decision appears to be the remand of the FCC’s rules on television joint sales agreements, there appears to be the potential in Prometheus III to impact radio regulation as much as television.
The Telecommunications Act of 1996 mandates that the FCC review its broadcast station ownership rules every four years to determine “whether any of such rules are necessary in the public interest as the result of competition” with the proviso that the FCC “shall repeal or modify any regulation it determines to be no longer in the public interest.” There are five categories of broadcast station ownership rules impacted by this Telecommunications Act mandate: the television ownership rule; the local radio ownership rule; the newspaper/broadcast cross-ownership rule; the radio/television cross-ownership rule: and the dual network rule.
Several of the petitioners before the Court in Prometheus III argued that because of the FCC’s multi-year delay in fulfilling its statutory responsibilities to determine “whether any of such rules are necessary”, the Court should throw out all of the FCC’s rules in these five categories thus wiping the slate clean. If this was ordered by the Court, in the absence of the Commission immediately issuing new ownership rules, there would no longer be numerical and cross-ownership limits in our broadcasting industry.
The Court concluded in Prometheus III that a wholesale elimination of the broadcast ownership rules as requested “would invite chaos”. The Court, however, subtly threatened the FCC that if a current justification for the five rules, along with a determination of the effect of the ownership rules on minority and female ownership, is not quickly issued, the Court in a later decision may very well consider a broad elimination of broadcast ownership restrictions or other extreme measure.
The Court noted that the FCC Chairman promised to circulate by June 30th of this year an order completing the 2010 and 2014 quadrennial ownership rule reviews, and to adopt such an order by the end of 2016. The Court commented in Prometheus III that if the FCC fails to meet this self-imposed deadline, “it does so at its own risk”.
For the failure of the FCC to reach a definition of an “eligible entity” (to fulfill the Commission’s obligation to promote minority and female broadcast station ownership), the Court ordered mediation between the petitioners and the FCC. If the parties in mediation are unable to agree within 60 days on an appropriate timeline for Commission action, the Court threatens to impose its own deadline.
The Court noted the complexities facing the FCC in adopting an “eligible entity” definition for the promotion of minority and female broadcast station ownership, such as the Commission argument that inadequate data was part of the reason for delay as well as a Supreme Court decision limiting the ways in which race and gender may be considered in FCC licensing decisions. Previously, the Commission had tried a revenue-based eligible entity standard only to have that definition struck down in Prometheus II as not being based upon evidence that its use would increase minority and female broadcast station ownership.
The FCC claimed that it then considered an eligible entity definition that gives an advantage to “socially and economically disadvantaged businesses” which likewise faces the challenge of showing how favoring such businesses will promote minority and women broadcast station ownership. The only thing certain in the adoption of an eligible entity standard is that, given both the legal and social complexities of what is more commonly known as affirmative action, whatever the FCC decides or fails to decide will be subject to further litigation.
The Court’s decision regarding television joint sales agreements is possibly the least complex of the three elements decided in Prometheus III. With the FCC’s decision to make television joint sales agreements attributable (in the same fashion as the FCC did over a decade ago with radio joint sales agreements), the Court found that the FCC did things backwards. The Court held that because the FCC has the statutory obligation to justify the broadcast station ownership rules every four years, the FCC could not, on an ad hoc basis, adopt a new television ownership restriction without first justifying that the underlying television ownership caps are in the public interest. The remand to the FCC on joint sales agreements requires that the Commission first evaluate the current television ownership restrictions and only then may it, if justified, make joint sales agreements an attributable ownership interest for the purpose of the television ownership caps.
Where this all goes next is difficult to forecast. The FCC has committed to the Court that its 2010 and 2014 ownership reviews will be completed by the end of 2016. The easy way out for the FCC is to find broad justifications for most of the existing radio and television ownership rules, and then repeal one or two cherry-picked rules over which the broadcasting industry has raised the most ruckus and public interest groups seem the least interested in (the newspaper/broadcast cross-ownership rule appears to be among the likely candidates). If the FCC does this, it is unlikely that the broadcast station ownership rules will appreciably change in the next several years.
There is another almost equally likely outcome, however. The zeal in which the broadcasting industry and public interest groups argue over absolutely every facet of the current rules make any consensus for change highly unlikely. The FCC, being a regulatory body that is politically swayed by both constituencies, has a potential to freeze in place, doing nothing, which would continue the multi-year delay which the Court finds so objectionable.
If the FCC does nothing, the Court may seriously consider extreme measures, with such extreme measures ranging from throwing out all of the FCC’s broadcast station ownership rules (which would send public interest groups into apoplexy) to ruling that the Commission is prohibited from taking any regulatory actions in which the ownership rules are implicated (which would kill almost all broadcast station transactional activity), or both.
Radio broadcasters, in particular, should be careful of what they wish. In the past several decades, radio has moved from national ownership limits of seven stations in each service, with no-same-service area contour overlap and no more than three stations within 100 miles of each other, to the present scheme of no national ownership limits and up to eight stations in a market.
The loosening of radio ownership restrictions, while arguably allowing the radio business to hold its own against unregulated competitors, resulted in a sea change to radio station operations. A complete lack of FCC ownership limits can be thought of in the same way as a lack of zoning for real estate — un-zoned strip malls are often a community blight. Unregulated radio ownership could be equally repugnant. If total radio consolidation occurs, it would likely break the community bonds and rapport that until now have been the core of radio’s exceptionality. The very nature of radio could be forever and irredeemably altered if all ownership restrictions were jettisoned.
John F. Garziglia is a Communications Law Attorney with Womble Carlyle Sandridge & Rice in Washington, DC and can be reached at (202) 857-4455 or [email protected]