Foreign Ownership Caps Under Scrutiny - Radio World

Foreign Ownership Caps Under Scrutiny

NAB says FCC should modernize procedures used in evaluations of foreign ownership of radio and TV stations
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The question of increased foreign ownership of U.S. broadcast properties has long been a sticky one. The rules on this have their roots in national security concerns about editorial control over broadcast transmissions during wartime. Broadcasters and regulators now are debating how to make it easier for radio and TV licensees to secure government OK in cases where indirect foreign ownership would exceed the statutory 25 percent benchmark that currently triggers FCC review.

In October the FCC proposed to streamline the process with rules similar to those that now apply to wireless licenses. Below we publish excerpts of comments filed by the National Association of Broadcasters in late December.

Note that rules about foreign ownership are complicated and the language can be arcane. Further, it’s important to understand what is not being considered for change; rules about direct ownership would not be affected. For more on that and further background, including observations by legal observer John Garziglia, see the box.

A link to NAB’s full comments, including footnotes and source references, appears at the end of the article.

Excerpts of whatNAB wrote:

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iStockphoto/LIVINUS NAB supports the commission’s stated goal and applauds the commission’s proposal to ease burdens faced by broadcasters. There is no legal or policy basis for broadcasters to be subject to disparate regulations that impede their ability to attract foreign investment.

Approximately 70 to 80 percent of publicly traded shares are held in “street name,” which, under the commission’s current broadcast radio and TV foreign ownership rules, puts that sizeable capital off limits to broadcasters. Modernizing the foreign ownership rules will better account for this reality and its impact on today’s communications marketplace, enhancing the ability of broadcasters to attract investment capital and compete in the marketplace, and encouraging diversity of ownership and greater innovation. …

A more clearly defined review and approval process will provide licensees greater transparency and predictability. As the commission has previously stated, providing a clearer statement about foreign ownership policies has “the potential to spur new and increased opportunities for capitalization for broadcasters, and particularly for minority, female and small business entities and new entrants.” Uncertainty in the commission’s approach to reviewing broadcasters’ foreign ownership petitions leads to risks that deter investments in broadcast companies.

[Under the heading, “Revising the current foreign ownership rules and policies will encourage competition in the communications marketplace, increase investment in the broadcast industry and enhance diversity of services and ownership,” NAB wrote:]

Though the commission’s current rules … provide that the commission will consider indirect foreign investment in broadcasters above the 25 percent threshold, practice has demonstrated that in today’s economy the rules unduly restrict broadcasters’ ability to compete in the communications marketplace and obtain needed investment.

A: Modernizing the Restrictions on Foreign Ownership Will Allow Broadcasters to Better Compete in Today’s Marketplace
When the commission amended the foreign ownership rules in 2013 for wireless licensees, it recognized that “foreign investment has been and will continue to be an important source of financing for U.S. telecommunications companies, fostering technical innovation, economic growth and job creation.” The same rings true for broadcast TV and radio companies. Providing broadcast companies with the same opportunity as other commission regulatees for new sources of financing is not only fair, but also it will promote robust competition in the communications marketplace, affording broadcasters needed resources to invest more in their existing program services and to finance new diverse offerings.

Modernizing the commission’s foreign ownership rules also has the potential to promote increased diversity of ownership. Women and racial and ethnic minorities continue to be underrepresented in the ownership of broadcasters, and as NAB, minority organizations, the commission and Congress have all recognized, access to capital is a leading — if not the leading — barrier to business ownership for women and minorities, in broadcasting and small businesses more generally. …

Amending foreign ownership limitations will also help foster reciprocal opportunities for American broadcasters to invest in foreign radio and television markets. The limitations on foreign ownership of American broadcasters … “[have] been used over the years as an excuse by other nations to retain indefensible trade barriers that harm U.S. companies.” NAB, and the more than 30 national minority and civil rights organizations that have previously commented, echo the commission’s goal that by amending domestic restrictions on foreign investment, “other countries ... will liberalize restrictions on investment in their media market” so that domestic entities may invest abroad.

B: NAB Applauds the Commission for Recognizing that Broadcasters Are Unduly Burdened Under the Current Broadcast Foreign Ownership Standards
… [O]ther media outlets offer content to consumers without any foreign ownership limitations, and other telecommunications companies, such as wireless providers, operate under the more flexible 2013 standard. As the commission recognized in its 2013 Second Report and Order, the 25 percent threshold, for instance, limits the flexibility of companies to sell their equity securities, unnecessarily impedes foreign investment and “may be unnecessary to protect against potential harms to competition or other relevant public interest concerns.”

The commission was correct to amend the rules in 2013, and there is no rational basis for broadcasters to be subject to disparate regulations. …

C: Under Revised Foreign Ownership Rules, the Commission and Executive Branch Agencies Will Retain the Ability to Determine Whether Investments Pose Any Security Risk
The commission has asserted that there are unique public policy and national security concerns in the broadcast context, and has used this rationale as justification for maintaining stricter foreign ownership policies for broadcast companies.

This concern is misplaced for at least two reasons. First, the proposals in the notice address standards for indirect foreign ownership under Section 310(b)(4) [of the Communications Act], not direct ownership under Section 310(b)(3). Second, the revised rules will encourage investment by publicly-traded corporate investors, many of whom are domestic, and few of whom have a large enough share in any given company to exercise real power to influence content or operations decisions.

Ultimately, even in the context of revised foreign ownership rules, the commission and executive branch agencies will retain the ability to evaluate transactions and protect against security threats. Broadcasters will still need to certify compliance. As Commissioner Rosenworcel noted, “just as horses and bayonets are not the tools of modern warfare, the cyber threats we face today are not especially well-guarded by this prohibition. Moreover, as scores of civil rights groups have acknowledged, this historical anomaly may have the effect of diminishing investment in small and minority-owned broadcasters.” …

[From the section “NAB supports the FCC’s stated intent to harmonize broadcast foreign ownership policies with common carrier and aeronautical radio licensee policies”:]

A: Broadcasters Should be Permitted to Seek Commission Approval for up to 100 Percent Aggregate Foreign Ownership and for Approved Investors to Later Acquire a 100 Percent Controlling Interest
Specifically, the commission should harmonize its petition requirements, subject to the exceptions described herein and set forth in the notice, by enabling broadcasters to file petitions seeking commission approval for (i) up to 100 percent aggregate foreign ownership by unnamed and future, nonattributable foreign investors in the controlling U.S. parent of a broadcaster and (ii) any named foreign investor that proposes to acquire a less than 100 percent controlling interest to increase the interest to 100 percent at some time in the future.

B: The Commission Should Adopt a New Presumption Permitting Nonattributable Foreign Ownership in Broadcasters of up to 49.99 Percent Without Prior Commission Approval
… On its face, Section 310(b)(4) provides the commission with a means of fundamentally reducing the regulatory burden imposed by the statute while fully achieving its public policy objectives.

As a result of the multitude of disparate media resources available to U.S. consumers today, Section 310(b)(4)’s foreign ownership limitations do not meaningfully limit the ability of foreign entities to make programming and information available to the American public.

In addition to television and radio, which are subject to foreign ownership limitations under Section 310(b), U.S. consumers also regularly access programming, news and other information via cable and satellite television, satellite radio, and an ever increasing variety of Internet audio and video streaming and download services, including smartphone and smart TV apps. None of these alternative media are subject to foreign ownership restrictions.

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MONEY MATTERS

Many U.S. broadcast advocates feel that easier access to foreign capital would help the industry grow and also benefit smaller and minority-owned organizations.

Rules about this are complicated. Further, it’s important to understand what is not being considered for change; direct ownership would not be affected. Communications lawyer John Garziglia of Womble Carlyle Sandridge & Rice emphasizes that only a U.S. citizen can directly own a broadcast station and that for corporations and other licensee entities, there is a 20 percent limit on direct ownership by non-U.S. citizens.

Those parameters would not change; discussion in the accompanying article involves a more flexible 25 percent limit on indirect ownership of parent entities. Broadcasters feel the commission’s rigid application of this cap has been too hard and fast, essentially creating an unintended ceiling on beneficial investment, though the FCC in 2013 emphasized that it considers its benchmark merely a “trigger” for closer review.

The process of approving exceptions also came under scrutiny when Pandora asked the commission to OK its acquisition of an FM station in South Dakota; Pandora could not verify that its parent met the 25 percent limit. The commission approved an exception in the case, which helped raise awareness of the foreign ownership waiver process (though news coverage focused on Pandora’s strategy to seek music royalty rate relief).

In October 2015 the FCC proposed to simplify things by proposing streamlined rules for radio and TV that are similar to those for common carrier licenses. NAB’s comments in the accompanying article were filed in response.

Among other things, NAB says “nonattributable” foreign ownership should be allowed up to 49.99 percent without FCC approval; these interests are generally non-voting stock or certain “insulated” limited partnership interests that don’t carry a vote or other indicia of control.

The changes also set out procedures under which a broadcaster could ask for approval up to 100 percent indirect foreign ownership in the licensee entity. But it’s unclear what the implications of this might be or whether the commission would seriously consider such a request.

The commission also is studying the methodology licensees use to assess compliance with the 25 percent benchmark; and it made several other proposals. 

Overall, Garziglia told Radio World the actions being discussed are “unlikely to open the floodgates” to broader foreign station ownership, as the FCC will continue to consider national security, law enforcement, foreign policy and trade policy issues that may be raised by proposed foreign ownership. The revised foreign ownership review procedures are likely, however, to open lucrative new sources of investment capital for the U.S. broadcasting industry, he said.

Read the FCC NPRM at http://tinyurl.com/rw-fcc-foreign. Read NAB’s comments in full at http://tinyurl.com/rw-nab-foreign.

— Paul McLane

Accordingly, any role that Section 310(b) may once have had in enabling the commission to control the ability of foreign entities to disseminate programming in the United States has been extremely diluted by past (cable and satellite television and radio) and more recent (Internet) technological advances. Moreover … Section 310(b)’s foreign ownership restrictions competitively disadvantage broadcasters by restricting their access to foreign capital relative to these competitors.

Section 310(b)(4) provides the commission with ample authority to take into account the evolution of the media landscape when implementing the statute. Rather than imposing a 25 percent cap on foreign ownership absent a commission waiver of the cap, Section 310(b)(4) instead requires the commission to affirmatively determine that the public interest would be served by the refusal or revocation of a license if the licensee has indirect controlling foreign ownership in excess of 25 percent. Absent such a determination by the commission, licensees presumptively may exceed the 25 percent indirect foreign ownership threshold set forth in the statute. Thus, the commission should promulgate the proposed rule that, on a generally applicable, blanket basis, nonattributable foreign ownership in a broadcast licensee of up to 49.99 percent is not contrary to the public interest.

Even if the commission maintains that it has a continuing obligation … to protect the public interest by regulating the ability of foreign entities to influence the programming decisions of broadcasters, the proposed blanket presumption does not undermine this objective because it only would be applicable to nonattributable interests. The commission repeatedly has held that its broadcast attribution rules “seek to identify those interests in or relationships to licensees that confer on their holders a degree of influence or control such that the holders have a realistic potential to affect the programming decisions of licensees or other core operating functions.” Accordingly, none of the nonattributable foreign interest holders in a broadcaster that would be newly permitted without prior commission approval under this approach will have the capability to influence programming decisions. Therefore, this additional liberalization of the commission’s implementation of Section 310(b)(4) does not pose any potential public interest harms.

In addition to not impeding the commission’s policy objectives under Section 310(b)(4), such a blanket presumption would provide affirmative and practical benefits to broadcasters.

First, it would clearly decrease the frequency with which broadcasters are required to file petitions, thus reducing unnecessary regulatory burdens on broadcasters and agency staff.

Second, this approach will provide broadcasters with additional “headroom” when determining their compliance with Section 310(b)(4). Once a broadcaster has determined that it has no attributable ownership, which … can be accomplished through publicly available Securities and Exchange Commission filings, and that it is more than 50 percent domestically owned and controlled (rather than the current 75 percent), the broadcaster will not need to continue to expend resources in an attempt to determine the identity and citizenship of any additional interest holders.

NAB also argued that the commission should extend to broadcasters certain petition procedures that are now applicable to wireless licensees. The section deals with attributable interest disclosures, retroactive filings, calculation of voting interests of “uninsulated limited partners” and other rule details. Also, in discussing methodologies for certifying foreign ownership levels, NAB said the FCC should adopt a “practical, workable and realistic mechanism” to determine compliance: “As the commission recognized in the 2015 Pandora Radio LLC proceeding, the procedures currently required of broadcasters are unduly burdensome and unnecessary,” it wrote. And NAB said the FCC should provide guidance about how often broadcasters are required to conduct foreign ownership studies.

Read NAB’s comments at http://tinyurl.com/rw-nab-foreign.

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