(by John Garziglia) The FCC in a just-adopted decision made it easier for a foreign investor to own a part of, or all of, a US broadcast station. Further, an entity with a foreign-ownership interest, once approved by the FCC, will be able to apply that approval to the subsequent acquisition of any other television or radio stations. The FCC also made more efficient the process by which publicly traded entities may demonstrate ownership by the requisite percentage of US citizens.
The full text of yesterday’s FCC order is yet to be released. Here is how, as a practical matter, the FCC decision is likely to affect radio station ownership and, through expanded investment opportunities, possibly increase station values.
Foreign ownership of U.S. radio stations is limited by the Communications Act — only a US citizen can directly own a broadcast station. That will not change. For a corporate entity licensee, the Communications Act sets a firm 20% limit on direct ownership by non-US citizens.
The FCC’s streamlining of foreign ownership procedures impacts the indirect, or parent level, ownership of broadcast station entities. Indirect foreign ownership in broadcast station licensee entities under the Communications Act is subject to a 25% benchmark limit above which FCC must issue a specific approval. The FCC adopted streamlined procedures for approvals of up to 100% foreign ownership in a controlling US parent corporation of a broadcast station licensee entity.
Until 2013, the FCC banned any foreign investment in US broadcast stations that were greater than 25%. Even with the relaxation of this 25% limit in 2013, however, there were no standardized FCC approval procedures for indirect ownership in excess of 25%.
Previously, the FCC adopted standardized procedures for non-broadcast FCC-regulated entities such as common carriers owning telephone companies. Now, as a result of this decision, there is also a standardized filing and review process for indirect foreign ownership of broadcast stations in excess of 25%. Additionally, once an entity’s foreign ownership in excess of 25% is approved, that entity will be able to acquire additional stations in any service (AM, FM, or TV), and in any geographic area, without further foreign ownership approvals.
Equally as significant is a change in FCC procedures on how foreign ownership is calculated for a publicly traded entity. Previously, the FCC required that surveys or random samples of stockholders be performed to ascertain citizenship. This survey or sample exercise was often meaningless since upwards of 85% of publicly traded shares are held by institutions or individuals on behalf of third-parties.
Now, the FCC will focus only on the citizenship of those stockholders with a greater than 5% interest in the publicly-traded entity. This greatly reduces the burden of assessing whether an entity falls within the FCC’s 20% direct foreign interest restriction and the more relaxed 25% indirect foreign ownership benchmark. Non-broadcaster publicly traded entities that, under the previous procedures could not easily prove their US citizen ownership, may now be encouraged to more actively consider broadcast station ownership.
The FCC’s streamlining of indirect foreign ownership in excess of 25% will have two effects on our radio industry. First, it brings broadcasters closer to the regulatory scheme of other industries in terms of restrictions on non-US citizen ownership. Just as our neighborhood grocery stores or movie theaters may now be owned by a foreign entity, indirect foreign ownership of radio stations may also become more prevalent. More radio station investors often results in bumps in station values.
Second, because other nations often reciprocate in regulatory spheres, US broadcasters may find future foreign nation radio station ownership opportunities. US broadcasting is the envy of the world. There are likely many nations to which US broadcasting excellence is both transferable and welcome. The reciprocal opening of foreign opportunities to US broadcasters may be one of the ancillary benefits of today’s FCC streamlining of foreign ownership rules and procedures.
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]