NAB Pushes FCC to Revamp Ownership Rules

Critics fear “breathtaking” deregulatory move, the possible “death of AM”
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WASHINGTON — A majority on the NAB Radio Board thinks the time is right for the FCC to revise radio ownership rules when it conducts its next quadrennial media ownership review. That process is expected to start later this year.

The NAB would like the commission to change the number of terrestrial radio stations that one company may own in a radio market. Current market caps were established 22 years ago as part of the historic 1996 Telecommunications Act, which placed ownership limits on a sliding scale. In the largest of radio markets an entity can own as many as eight radio stations, with a “subcap” of five in a given service (FM or AM). In the smallest markets, the cap is two stations, limited to one in each service.

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The association wants the commission to change these market subcaps to allow a company to own up to eight FM stations in a given top 75 market and permit an operator to own or control an unlimited number of AMs, among other changes. In smaller markets, there would be no cap at all.

The NAB’s plan is controversial and finds at least two of the largest broadcast groups in the country, iHeartMedia and Townsquare Media, on opposite sides.

NAB made the proposal in a letter in June to Michelle Carey, chief of the FCC’s Media Bureau. The proposal, approved by the Radio Board, was sent by the association’s Legal and Regulatory Affairs department and signed by General Counsel/EVP Rick Kaplan.

The NAB noted that current ownership rules were set before the launch of streaming services like Pandora and Spotify, before satellite radio, podcasts or Facebook. All of these services compete with terrestrial radio for advertising dollars.

Critics of the plan, including the Multicultural Media, Telecom and Internet Council, say the proposal would devalue AM radio as big owners stop investing in those properties and buying AM broadcast equipment, and that it would ultimately hurt ownership diversity. However, NAB argues in its request that “increased common ownership should enhance radio programming diversity.”

In fact, NAB proposes that owners who “incubate” the ownership of stations by new entrants into broadcasting be allowed to own up to two additional FM stations in a market program, bringing the limit to 10 FMs under single ownership in top 75 markets.

The proposal didn’t spell out how an existing owner would qualify for such a limit waiver. But FCC Chairman Ajit Pai is circulating an incubator proposal among the commissioners that would establish requirements to govern an incubator program. Such a program was detailed in a 2017 NPRM aimed at supporting the entry of new and diverse voices into the broadcast industry. His item will be on the agenda for the commission’s August meeting.

“THE RIGHT CLIMATE”

The industry seems divided on the radio ownership issue, according to several insiders. They said the vote of the NAB Radio Board to float the proposal was not unanimous. It’s been widely reported that iHeartMedia voted against the proposal while Townsquare Media gave a yes vote. (Reports indicating that Cumulus Media voted against the plan were not accurate, a company spokesperson told Radio World in an email, declining further comment.)

Under Chairman Pai, the commission has set an aggressive agenda of relaxing limits on media ownership. Last fall it ended the newspaper/broadcast cross-ownership ban. In addition, it has eliminated a rule requiring that broadcast stations have a main studio in their local coverage area.

Most observers interviewed seemed to think the commission is likely to remain on its generally deregulatory track and said they’d be surprised if this NAB idea doesn’t win approval at least in some form.

“I was surprised by the proposal, but it’s the right climate for this type of proposal,” said Melodie Virtue, a communications attorney at Garvey Schubert Barer, who specializes in FCC filings and applications.

Virtue said that despite some opposition, she expects numerous radio groups would be eager to take advantage, initiating sales and swaps.

“I would expect such a change would increase the value of FMs unless the market gets overheated,” she said. “AM properties would go down in value.”

Another observer congratulated the NAB on “crystallizing the radio ownership debate in a constructive way” that allows the FCC to move forward.

“At least the FCC can now delve into radio ownership deregulation in specific terms rather than nearly an abstract goal,” said Scott Flick, communications attorney with Pillsbury Winthrop Shaw Pittman LLP in Washington. “I certainly think that we will see changes to the subcaps, but it’s far more difficult to say what sorts of changes will be implemented in terms of local ownership caps. There will be many more proposals made before the FCC reaches any conclusions, but the NAB’s proposal is what those proposals will now be compared against.”

“FINANCIAL VIABILITY”

The NAB’s push comes as the growth in non-broadcast sources of digital content continues to put competitive and revenue pressures on local stations.

David Oxenford, a communications attorney with Wilkinson Barker Knauer LLP, wrote on his Broadcast Law Blog that the changes in competition for local advertising have been dramatic, “with some sources showing that over 50 percent of local advertising revenue (the bread and butter of local radio) is now going to digital competitors — with Facebook, Google and even the digital music services selling advertising to local advertisers throughout the country, even in the smaller markets.”

NAB’s letter put the question in existential terms: “For radio to remain a free, over-the-air option able to provide quality entertainment and informational programming to all consumers, broadcasters must be able to create ownership structures that better ensure their financial viability today and into the future.”

Oxenford doesn’t expect a NPRM in the quadrennial review until late this year and no final decisions from the commission until late 2019. He described the NAB’s proposal as controversial, as evidenced by the reported Radio Board vote.

“Proponents of more diversity in broadcast ownership will suggest that consolidation will hinder opportunities. Additionally, opponents will likely contend that consolidation since 1996 has not benefitted the economics of radio companies, but instead led to some being financially overextended,” Oxenford posted on his blog.

Paul Rotella, president and CEO of the New Jersey Broadcasters Association, thinks NAB’s request is aptly timed.

“I think they see an opportunity to look at things from a clean slate with Chairman Pai. Given the benefits to broadcasters that some of these rules changes will provide to the industry, success is probable.”

“BREATHTAKING” DEREGULATION

Optimism about ownership rule changes is not shared by the country’s largest radio group. In a company memo in June released on several websites, iHeartMedia Chairman/CEO Bob Pittman and COO Rich Bressler said the NAB request is bad for the industry.

“A faction within the board of directors of the National Association of Broadcasters wants the Federal Communications Commission to change these limits in favor of breathtaking deregulation, while other board members do not. When it was put to a board vote, the faction in favor of deregulatory overreach did win the vote — but the vote was not even close to unanimous, emphasizing that among the membership of the NAB, this was — and remains — a divided issue,” the iHeartMedia executives said.

The pair specifically cited the potential impact on the value of AM properties, of which it owns many in big markets like Tampa and Denver.

“By permitting increased or unlimited ownership of FM stations, NAB’s proposal would potentially decimate the value of AM radio. With no limits on FM ownership, companies would logically buy FM stations instead of AMs, and would probably divest themselves of AMs — and, at the very least, would not be interested in acquiring more AMs. With that kind of sell-off or lack of demand, the value of AMs would most certainly decline,” they wrote in the memo.

But Dhruv Prasad, co-CEO of Townsquare Media and newly elected this spring to the NAB Radio Board, told Radio World in an e-mail that the emergence of digital and social media has fundamentally disrupted how information is disseminated.

“Given the expansive competitive landscape, radio can no longer be considered on a protected island, and it follows logically that the rules that were intended to limit advantage and undue influence must themselves adapt or be eliminated altogether,” Prasad said. “After all, on the internet, none of our competitors are subject to any of these limitations.”

Prasad said Townsquare has an abiding interest in AM. Of its 317 total stations, 85 are on the senior dial, making it the third largest owner of AM stations in the United States.

“The best way to ensure the value of AM stations, and to deliver for the listeners of this service, is to provide essential and important programming, and unique and valuable benefits to advertisers,” Prasad said.

He believes the FCC’s AM revitalization efforts gives those stations and owners opportunities to ensure their success and longevity.

A WARNING CALL

Mark Lipp, a communications attorney with Fletcher, Heald & Hildreth, agrees with the NAB that radio is facing increased competition from digital sources, but that “doesn’t mean owning more stations” will solve the problem, he said.

“In the larger markets, some number of additional stations would be acceptable, but I would also factor in the HD channels (of large broadcast groups) that offer separate programming. There should be some recognition that these stations compete for advertising as well. The FCC should also consider FM translators that rebroadcast the HD channel in analog to its listeners,” Lipp said.

“I am not saying they should be counted as much as a full-service station, but they should factor into the mix to some degree. Many FM translators provide as much coverage as Class A FM stations and have ratings that are significant.”

The idea that an incubator program would help small minority-owned stations is invalid, Lipp said, if there is no viable competition in a radio market. “In order for the incubator program to succeed, there should not be a dominant force in the market.”

The Multicultural Media, Telecom and Internet Council, an advocate for minority broadcast interests, had yet to comment specifically on the NAB Radio Board’s idea as of early July. But in ex-parte comments filed with the FCC earlier this year, MMTC said it believes if the radio market subcaps were eliminated, most broadcast companies would promptly find a way to expand to the eight FM limit.

“When the largest companies stop investing in AM radio, AM equipment manufacturers will stop designing improved AM equipment and the top engineering firms will stop doing AM work. This will lead to a rapid deterioration in the AM service and undermine the commission’s AM revitalization effort. Elimination of subcaps would be the death knell for AM broadcasting,” according to the MMTC.

The quadrennial review process remains in the planning process, according to observers. Chairman Pai had not offered public comment on it at press time, although he has been firmly on record as exasperated by the FCC’s repeated failure to carry out that quadrennial duty in a timely way.

The NAB said it would file additional comments to justify radio ownership rule changes as the review progresses.

ON THE TABLE?

Here are the NAB Radio Board’s specific recommendations to the FCC:

● In the top 75 Nielsen markets, allow a single entity to own or control up to eight commercial FM stations, with no limit on AM ownership;

● To promote new entry into broadcasting, an owner in these top 75 markets should be permitted to own up to two additional FM stations (for a total of 10 FMs) by participating in the FCC’s incubator program; and

● In Nielsen markets outside of the top 75 and in unrated markets, there should be no restrictions on the number of FM or AM stations a single entity may own or control.

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