Regulators Open Airwaves to Increased Foreign Ownership

The rules began to relax in 2012, and policy seems unlikely to tighten soon
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The Federal Communications Commission has slowly opened the door to indirect parent entity foreign ownership of broadcast station licenses. This gradual relaxation of longstanding U.S. federal policy has continued to the point where overseas communications and media companies may consider ownership of U.S. media facilities as a legitimate business opportunity.

The governing U.S. law, Section 310 of the Communications Act of 1934, as amended, prohibits foreign individuals, governments and corporations from directly owning more than 20 percent of the capital stock of a broadcast station licensee. This same law places a 25 percent benchmark for indirect non-U.S. stock ownership in a parent entity in U.S.-organized broadcast station entities. How is increased indirect foreign ownership of up to 100 percent now allowed?

FCC EASES UP

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The change started in 2012, when the commission decided to “forbear” from applying the foreign ownership limits with respect to non-broadcast station common carrier licensees. This forbearance authority was codified a year later, but was not extended at that time to broadcast licensees. That same year, however, the FCC adopted its 2013 Broadcast Declaratory Ruling articulating and clarifying U.S. policies and procedures for evaluating potential broadcast station foreign investment.

In this 2013 ruling, the FCC stated it would conduct a fact-specific, case-by-case review of each application or petition for declaratory ruling involving non-U.S. broadcast station ownership exceeding the 25 percent benchmark.

Starting in 2013, the commission viewed non-U.S. ownership in a parent entity in excess of 25 percent as “a trigger” for the agency’s exercise of discretion. The FCC supported this change by recognizing that the U.S. media landscape and marketplace has changed significantly and that increased foreign investment could strengthen the broadcast industry.

In a significant extension of this shift, the FCC in 2016 adopted the Foreign Ownership Order, permitting broadcast station owners to request from the FCC:

1) the approval of up to and including 100-percent aggregate foreign ownership (voting and/or equity) by unnamed and future foreign investors in the controlling U.S. parent of a broadcast licensee (subject to certain conditions);
2) the approval for any named foreign investor that proposes to acquire a less than 100 percent controlling interest to increase the interest to 100 percent at some future time; and
3) the approval for any non-controlling named foreign investor to increase its voting and/or equity interest up to and including a non-controlling interest of 49.99 percent at some future time.

PROSPECTIVE FOREIGN OWNERS SEIZE OPENING

Since the 2016 Foreign Ownership Order was adopted, the FCC has, first in 2017 and again in 2018, approved station acquisitions involving foreign companies/individuals who, post-transaction, will fully control the parent entity holding the TV or radio licenses in question.

The first to test the FCC’s new openness were Richard and Sharon Burns, a husband and wife who were Australian citizens and long-time U.S. residents. The couple, who prior to the filing of the applications each owned a 10 percent direct interest in the parent company (i.e., 20 percent combined), desired to acquire full control of a broadcast station group consisting of seven AM radio stations, eight FM radio stations, 13 FM translators and one UHF translator.

The FCC’s Burns Order, approving the transfer of control to the Australian couple, noted that the Burns’ petition made mention of their long involvement in civic and commercial activities in Juneau, Alaska, where many of the broadcast stations were located, and also that Richard Burns had acted as CEO of several broadcast stations since 2006. Citing “the need to encourage new sources of investment in the broadband industry, including foreign investment,” the commission granted the Burns’ acquisition of 100 percent of the parent entity of the broadcast stations.

The commission revisited the issue in May 2018 when it adopted the Grupo Multimedia Order. In this case, two radio stations were controlled by a series of wholly-owned companies, with the ultimate parent company owned 75 percent by an American citizen and 25 percent by two Mexican citizens. The applications for transfer of control sought to have the two Mexican citizens assume 100 percent control of the shares of the ultimate parent company.

Just as in Burns, the commission in Grupo Multimedia found that granting the application would likely:

1) increase the likelihood of continued service to the broadcast stations’ communities by authorizing investment by individuals who are ready, willing and able to operate the facilities based on their current involvement and extensive broadcasting experience;
2) facilitate foreign investment in the U.S. broadcast radio market; and
3) encourage reciprocal investment opportunities for U.S. companies in Mexico.

As is customary, the FCC “consulted with the relevant executive branch agencies with expertise on issues related to national security, law enforcement, foreign policy and trade policy,” and the agencies responded “that they have no objection to grant of the requests and have not requested that [the FCC] impose any conditions on grant.”

What do the various FCC regulatory actions mean for non-U.S. citizens desiring to own and operate TV and radio stations in the United States? If the Burns and Grupo Multimedia approvals are any indication, it appears that the government is open to overseas acquisitions of U.S. broadcast stations, provided the investors pass the necessary background investigations — and open their wallets.

NEW CASES ON THE HORIZON

The FCC is considering at two more foreign ownership applications.

The first case involves four Italian citizens who wish to own several FM stations and translators, and the second case involves a British/Polish couple who wish to acquire a radio station in upstate New York. In the latter case, the U.S. Department of Justice “Team Telecom” released a notice on July 24, announcing it found no “potential national security, law enforcement and public safety issues” with 100 percent foreign ownership by the couple in question.

The two-step process required to obtain the FCC’s approval of foreign ownership of TV and radio stations in the United States involves both an FCC application filing and a petition for declaratory ruling. This is not a simple endeavor. However, for those individuals and companies outside of the U.S. with broadcasting experience and wish to invest in American broadcasting media, now is the time to consult with an attorney to take advantage of this recent change in policy on foreign broadcast station ownership.

The bottom line? Changes in FCC policies now make it easier for non-U.S. citizens to buy substantial ownership interests in U.S. commercial TV and radio stations.

Daryl Zakov is attorney at Womble Bond Dickinson LLP.

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