The state of the audio industry will no doubt be a crucial consideration in the next Quadrennial Review of the FCC’s ownership rules, expected to start late this year or early next. But, before that Review begins, the FCC has been tasked by Congress to write a report on the state of competition in the audio marketplace. In order to gather information for that report to Congress, the FCC is seeking public comment on the state of the industry, asking questions about the state of completion for listeners and advertisers – questions which we summarized here. A summary of the request for comments on the “Status of Competition in the Marketplace for Delivery of Audio Programming” was published in the Federal Register today, setting the comment deadline for September 24, 2018, with reply comments due by October 9.
With this report being prepared just as the FCC is beginning to consider what issues to tackle in the Quadrennial Review, we cannot help but believe that the FCC’s findings won’t be taken into consideration in the Quadrennial Review. The initial document to be released in the Quadrennial Review will be a Notice of Proposed Rulemaking putting forth the FCC’s initial take on whether any of its ownership rules are no longer in the public interest and therefore need to be modified or eliminated. The radio rules have not been subject to any changes in a dozen years, when the FCC switched from using a contour methodology to using Nielsen Audio (then Arbitron) data to compute the number of stations in a rated market. The number of stations any party is able to own in any market has remained unchanged since 1996, though audio competition has clearly grown (see our article here). The facts gathered in this report, while meant for consumption by Congress in its consideration of various legislative matters, will also be the FCC’s most thorough look at the marketplace in which radio competes in 20 years and will likely inform the FCC’s judgement as to whether the radio ownership rules should be amended (see our article here summarizing the NAB’s proposal for changing the rules). Thus, broadcast companies interested in changes in the radio ownership rules should be thinking about providing information to the FCC about the state of competition in the audio marketplace by the September 24 deadline.
FCC Chairman Ajit Pai, in a speech this week at the Michigan Association of Broadcasters Summer Convention (the text of the speech is available here), announced that he has circulated to the other Commissioners for review and approval a Notice of Proposed Rulemaking looking to make changes to AM interference standards. Specifically, he said that the NPRM would look at Class A AM interference standards. I was in the audience for the Chairman’s remarks, and audience reaction was muted – perhaps because so few people regularly use the term “Class A AM” when referring to what many call the “clear channel” stations – those big 50 kW AM stations that can often be heard halfway across the country at night because of their “skywave” service bouncing off the atmosphere to be received hundreds and sometimes thousands of miles from where the signal originates.
What to do about Class A AM stations was an issue teed up by the FCC in the AM Revitalization proceeding initiated several years ago (see our post here summarizing the issued raised by the FCC back in 2013). While these clear channel stations are enjoyed by listeners far from their own city of license (often bringing sports broadcasts to distant fans, or programs like the Grand Ole Opry that have become national institutions), the huge service areas of these stations does come at a cost to local service – as many lower powered AM stations operating on the same channel as these Class A stations have to either drastically reduce their power or cease operations all together during nighttime hours. While some AM licensees have received FM translators to fill in those service gaps, those translators do not bring listeners back to the AM band itself. So, in the Revitalization proceeding, the FCC asked for ideas as to what it should do with these stations – e.g. if it should advance proposals to reduce protection to the clear channel stations in order to allow more local AMs to increase their nighttime power. It appears that the NPRM announced by the Chairman on Tuesday will crystalize the comments received in response to the 2013 Notice into more specific proposals for action.
In his comments in Michigan, the Chairman said “our rules should reflect the reality of the current noise floor and appropriately balance the interests of Americans who want to listen to smaller local stations in their communities with those who enjoy listening to Class A stations.” Exactly how the FCC proposes to achieve that balance may not be clear until we see the release of the new NPRM. This is a controversial issue, as many owners of clear channel AMs argue that these stations are what keep listeners tuned to the AM dial and allowing more interference could weaken their ability to provide the attractive programming that many of them do. Of course, owners of the weaker AM stations want to serve their communities during all hours, not just during daylight hours. This further NPRM will no doubt be carefully watched, and we will see the arguments raised on both sides in the coming months.
At its meeting last week, the FCC adopted a Report and Order creating an incubator program to incentivize existing broadcasters to assist new entrants to get into broadcast ownership. The FCC in its order last year relaxing TV local ownership rules and abolishing the newspaper-broadcast cross-ownership rule had agreed to adopt an incubator program (see our articles here and here). In fact, the US Court of Appeals for the Third Circuit, which is reviewing the FCC’s ownership order, stayed the processing of that appeal to await the rules on the incubator program (see our article here), as the Court has previously indicated that considerations of how changes in the ownership rules affect new entrants is part of its analysis of the justification for such changes. What rules did the FCC adopt?
The FCC will encourage an existing broadcaster who successfully incubates a new entrant into broadcasting by giving them a “presumptive waiver” of the ownership rules. To understand what this means requires looking at several questions including (1) what services does the existing broadcaster have to provide to qualify for the credit; (2) which new entrants qualify for incubation; (3) what is a successful incubation; and (4) what does the presumptive waiver provide to the broadcaster providing the incubation services. Let’s look at each of these questions.
What services qualify as incubation? The FCC did not lay down hard and fast rules as to exactly what constitutes an incubation of an entrant. But it did say that incubation will likely consist of either financial assistance or management and operational services and training, or a combination of both. Any incubation plan needs to be submitted to the FCC for approval either with an application by the new entrant to acquire the station or in a petition for declaratory ruling if the new entrant already owns the station and is seeking incubation to help make it a success. As part of the plan, a written contract setting out the relationship between the parties must be submitted for FCC review.
The FCC did, however, put limits on the incubation. If the existing station provides financing by taking an equity interest in the company that is being incubated, the new entrant must retain voting control of the licensee of the incubated station. In addition to control, the new entrant will have to have at least a 15% equity interest in the company, and that interest will need to be at least 30% if some other entity (such as the broadcaster providing the incubation services) has more than 25% of the entity.
The new entrant must also have an option to buy back any interest that the existing station takes in the incubated station at the end of three years, at no more than fair market value. The new entrant may decide not to exercise the option at the end of three years, or it may decide to sell the incubated station – but the incubation will only be considered successful if the new entrant holds on to control of the incubated station or sells it and turns around and uses its proceeds to buy another radio station.
The new entrant must at all times maintain control of the licensee of the incubated station. The existing station cannot provide programming services to the new entrant through an LMA. It can do a JSA or Shared Services Agreement but, as the goal of the program is to end up with a successful, independent operation, the JSA or SSA must end after two years.
Who qualifies to be incubated? Initially, this program will only apply to radio stations. The FCC decided that radio offers the best opportunity for new entrants to get into the broadcasting business, though it may reevaluate that conclusion in the new Quadrennial Review to determine if incubation should be extended to television as well. While we have termed the entity being assisted by the incubator program as a “new entrant,” in fact that entity can have up to three other radio stations in addition to the station being incubated. So this program is also designed to assist small owners become more successful.
In addition to having no more than three existing radio ownership interests, any party being incubated must also meet Small Business Administration standards for being a small business. To be a small business under SBA rules, an entity must have less than $38.5 million in revenue. Note that the SBA rules attribute revenue from some affiliates of the entity being evaluated, so a big company can’t set up a shell corporation to be incubated. The FCC will also require certifications that the entity being incubated could not have acquired the incubated station or operated it successfully without the assistance of the company providing the incubation assistance. The new entrant will also be required to disclose all family broadcast interests to show that the entity is independent. The FCC reserves the right to investigate these certifications, and notes that it will revoke permission for an incubation program if it finds that the company being incubated in fact had access to a source of funds that made the incubation unnecessary (e.g., a “trust fund” in the example given by the FCC).
The existing station can help to incubate no more than one station in any given market. If it seeks to incubate stations in multiple markets, it will need to demonstrate that it has the capacity to do so.
When is an Incubation Successful? The incubation is normally to be for a period of three years. However, an incubated entity can ask for early termination if things take off, or one extension of up to three years. As noted above, the incubation will be successful if, at the end of three years, the incubated station can stand on its own, or if it has been sold with the new entrant buying another AM or FM station with the proceeds.
At the end of the incubation period, the parties must file a joint certified statement setting out the results of the incubation, and describing how the incubation assisted the new entrant to become a stable operation. If the FCC’s Media Bureau does not conclude that the incubation was unsuccessful within 120 days (or any longer period that the Bureau determines is necessary to review the final certifications), the station that provided the incubation services will get a presumptive waiver allowing it to exceed the multiple ownership rules in any comparably sized market.
What is the benefit of a Presumptive Waiver? The entity providing the incubation services will receive a Presumptive Waiver allowing it to acquire one station more than is allowed under the current FCC radio ownership rules. That waiver can be used for an acquisition of any station in a comparably sized market, i.e. one that has the same limits on the number of stations that can be owned in the market where the incubated station is located. So if an entity incubates a station in a market where one owner is allowed to own up to 6 stations, no more than 4 of which can be FM stations, that entity can acquire a 7th station in any market subject to the same ownership limits. The waiver can also be used in the same market as the incubated station. Once acquired, that additional station can be sold as part of the cluster of stations in the same market without any need for divestiture.
However, there are limits on the use of the waiver. The waiver cannot be used if the entity using the waiver would end up with more than 50% of the stations in the market. In addition, the market must have at least the same number of independent radio owners as the market in which the incubation occurred (at the time of the start of the incubation). Thus, if there were six independent radio station owners in the market where the incubation occurs, there must be at least 6 independent owners in the comparable market for the waiver to be used. The waiver must be used within 3 years of the end of the successful incubation.
There are many additional nuances to the incubator program, so if you are interested in taking advantage of the program, either to incubate a station to get a possible waiver of the radio ownership limits, or to help assure the success of a new station, read the Order and accompanying rules carefully, and seek assistance of an attorney familiar with FCC practice. These rules will become effective after they are approved under the Paperwork Reduction Act, and after the necessary changes to the FCC forms have been made.
The Free Radio Alliance is dedicated to strengthening the future of free, local radio. The Alliance is launching a massive effort to sign up more individual members to help fight policies that could hurt stations’ ability to serve their communities and impact jobs, such as a crippling performance tax. The Nevada Broadcasters Association encourages members to sign up for the Free Radio Alliance to keep local radio stations thriving, innovating, accessible and free.
The FCC routinely, at the request of Congress, does a study of the Video Marketplace. That study is submitted to Congress so that Congress can use it as a factual basis for any legislative issues that may come up dealing with the TV marketplace. The FCC has not previously done this sort of routine study of the audio marketplace. However, in recent legislation, Congress included a requirement that the FCC, in the last quarter of every even numbered year, provide such a report. Yesterday, the FCC released a Public Notice asking a number of questions about the marketplace, to which they seek information to be included in the report.
The questions asked include:
The FCC is looking for data from 2016 and 2017, as well as any new information that is available from this year. What will this data be used for?
While this information is being requested for a report to Congress that may be used to craft legislation, the facts gathered for this report may well have a bearing on the FCC’s consideration of the radio ownership rules. As we wrote here, it is expected that the FCC will consider possible revisions to the radio ownership rules later this year as part of its next Quadrennial Review. The NAB, as we wrote here, has already weighed in with a proposal for a significant change in the local radio ownership rules. One of the principal issues in the debate about changes to the rules will be defining the appropriate market in which competition should be assessed. If the market is a broad one, in which all competitors for advertising dollars and listening time are assessed, ownership changes may well be justified. If radio is found to still compete only with other radio stations, then ownership rules may not be dramatically changed. This study would seem to be looking at exactly the same issues that the FCC will be considering in the Quadrennial Review.
Comments on the questions raised in this study will be due 30 days after the publication of notice of this study is published in the Federal Register. Reply comments will be due 45 days after Federal Register publication.
The FCC has announced some significant changes in EAS rules, now allowing “Live Code” tests, the use of the EAS attention tones in “educational” PSA’s, and requiring stations to report “false” EAS activations within 24 hours of discovery.
Click HERE for the full 21-page order which is summarized in the release below.
Rochelle Cohen, (202) 418-1162
For Immediate Release
FCC PROMOTES EMERGENCY ALERT RELIABILITY
Action Supports More Effective Local Emergency Alert Tests and PSAs,
Addresses False Alerts, and Seeks to Improve Wireless Alerts
WASHINGTON, July 12, 2018—The Federal Communications Commission today took the latest in a series of actions to bolster the reliability of the nation’s emergency alerting systems and support greater community preparedness.
In a Report and Order adopted today, the Commission set forth procedures for authorized state and local officials to conduct “live code” tests of the Emergency Alert System, which use the same alert codes and processes as would be used in actual emergencies. These tests can increase the proficiency of local alerting officials while educating the public about how to respond to actual alerts. The procedures adopted by the Commission require appropriate coordination, planning, and disclaimers to accompany any such test.
To further enhance public awareness, today’s action will also permit authorized Public Service Announcements (PSAs) about the Emergency Alert System to include the system’s Attention Signal (the attention-grabbing two-tone audio signal that precedes the alert message) and simulated Header Code tones (the three audible tones that precede the Attention Signal) so long as an appropriate disclaimer is included in the PSA.
Today’s action also requires Emergency Alert System equipment to be configured in a manner that can help prevent false alerts and requires an Emergency Alert System participant, such as a broadcaster or cable system, to inform the Commission if it discovers that it has transmitted a false alert. In addition, in an accompanying Further Notice of Proposed Rulemaking, the Commission seeks comment on other specific measures to help stakeholders prevent and correct false alerts.
The Commission also seeks comment on the performance of Wireless Emergency Alerts, including how such performance should be measured and whether, and if so how, the Commission should address inconsistent delivery of these messages.
Action by the Commission July 12, 2018 by Report and Order and Further Notice of Proposed Rulemaking (FCC 18-94). Chairman Pai, Commissioners Carr, and Rosenworcel approving. Commissioner O’Rielly approving in part and dissenting in part. Chairman Pai, Commissioners O’Rielly, Carr, and Rosenworcel issuing separate statements.
PS Docket Nos. 15-94, 15-91
ASL Videophone: (844) 432-2275; TTY: (888) 835-5322
This is an unofficial announcement of Commission action. Release of the full text of a Commission order constitutes official action. See MCI v. FCC, 515 F.2d 385 (D.C. Cir. 1974).
The FCC recently released a Public Notice reminding all EAS participants that they need to file ETRS Form One by August 27, 2018. This form needs to be filed by all radio and TV stations, including LPFM and LPTV stations (unless those LPTV stations simply act as a translator for another station). While the FCC has not announced another nationwide EAS test for this year, the FCC still requires that the form be updated on a yearly basis – with a separate Form One being filed for each encoder, decoder, or combined unit used by any station or cluster.
The Public Notice provides information about where to file the form, and also links to this help page on the FCC website that provides information about completing the form. These Frequently Asked Questions are also helpful. They note the information that needs to be submitted in the ETRS form, including the geographic coordinates of the station (with latitude and longitude in NAD83), and various information about the station’s “designation”, monitoring assignments and “geographic zone” – all information that should be set out in the state EAS plan for the state in which the station is located. As it may take some time to locate all of the required information to make sure that any station’s Form One is current and accurate, stations should not delay in beginning to work on this form.
PUBLIC SAFETY AND HOMELAND SECURITY BUREAU OPENS THE EAS TEST REPORTING SYSTEM FOR 2018 FILINGS
PS Docket No. 15-94
Today, the Public Safety and Homeland Security Bureau of the Federal Communications Commission provides notice to all Emergency Alert System (EAS) Participants that the EAS Test Reporting System (ETRS) is now open and accepting 2018 filings.
I. FILING IDENTIFYING INFORMATION IN THE EAS TEST REPORTING SYSTEM
Pursuant to Section 11.61 of the Commission’s rules, EAS Participants must renew their identifying information required by ETRS Form One on a yearly basis. Accordingly, all EAS Participants must complete the 2018 ETRS Form One on or before August 27, 2018. Each EAS Participant should file a separate copy of Form One for each of its EAS decoders, EAS encoders, or units combining such decoder and encoder functions. For example, if an individual is filing for a broadcaster (or cable headend) that uses two units combining decoder and encoder functions, that individual should file two copies of Form One.
Filers can access ETRS by visiting the ETRS page of the Commission’s website at https://www.fcc.gov/general/eas-test-reporting-system. Instructional videos regarding registration and completion of the ETRS Form One are available on the ETRS page.
To access the ETRS, filers must use their registered FCC Username (Username) that is associated with the FCC Registration Numbers (FRNs) for which they will file. Filers that have already created a Username for use with another FCC system may access the ETRS with that Username. Filers that do not remember the password that corresponds with their Username may reset it at https://apps2.fcc.gov/fccUserReg/pages/reset-passwd-identify.htm. Filers that have not previously created a Username may do so by visiting the User Registration System at https://apps2.fcc.gov/fccUserReg/pages/createAccount.htm. Filers can associate their Username to an FRN by logging in at https://apps.fcc.gov/cores/userLogin.do and clicking on the appropriate option. Additional information regarding creating and associating FRNs with a Username can be found on the CORES FAQs page at https://apps.fcc.gov/coresWeb/publicHome.do?faq=true.
II. FILING INFORMATION
All EAS Participants – including Low Power FM stations (LPFM), Class D non-commercial educational FM stations, and EAS Participants that are silent pursuant to a grant of Special Temporary Authority – are required to register and file Form One in ETRS, with the following exceptions:
Filers can update previously filed forms in ETRS by clicking on the “My Filings” menu option and then clicking on the record for that form. Broadcasters can pre-populate Form One by completing the FRN and Facility ID fields. Cable systems can pre-populate Form One by completing the FRN and Physical System ID (PSID) fields. EAS Participants that pre-populate Form One using a Facility ID number or a PSID number are urged to review their pre-populated data to ensure accuracy. EAS Participants are urged to review Form One as soon as possible to allow sufficient time for possible corrections. EAS Participants are allowed thirty days after submission (i.e., on or before September 26, 2018) to submit any updates or corrections to their 2018 Form One filings.
III. FURTHER INFORMATION
For further information regarding ETRS, contact Austin Randazzo, Attorney Advisor, Policy and Licensing Division, Public Safety and Homeland Security Bureau, at (202) 418-1462 or firstname.lastname@example.org, or Gregory Cooke, Deputy Chief, Policy and Licensing Division, Public Safety and Homeland Security Bureau, at (202) 418-2351 or email@example.com.
Filers may contact the CORES Help Desk for assistance with creating a Username or resetting a password at CORESHelpDesk@fcc.gov or (202) 418-4120. Filers may contact Bureau staff for assistance in completing ETRS Form One at ETRS@fcc.gov.
The National Association of Broadcasters radio board last week voted on a proposal to revise the FCC rules limiting the number of stations that one company can own in a radio market. This proposal was forwarded to the FCC for consideration in the next Quadrennial Review of the FCC’s ownership rules, scheduled to commence at some point later this year, in a letter delivered to the FCC’s Chief of the Media Division. The NAB suggests that one party should be able to own up to 8 FM stations in any of the Top 75 Nielsen radio markets. It proposes that there should be no FCC ownership limits in markets smaller than the Top 75, and that AMs do not need to be counted against the ownership limits. Owners who incubate the ownership of stations by new entrants into broadcasting would be allowed to own up to two additional FM stations in a market. Why would the NAB take this position?
The letter sets forth many of the same issues that we cited in our article on radio ownership here. Competition is significantly different than it was in 1996, when the current rules setting limits at 8 stations in a market (only 5 of which can be AM or FM) in the largest markets, and in the smallest markets, only two stations (one AM and one FM). As we wrote in our April article, competition for listening like Pandora, Spotify or even YouTube did not exist in 1996 (not arriving on the scene for another decade). Changes in competition for local advertising has been even more dramatic, with some sources showing that over 50% 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.
Obviously, a proposal like this one will be controversial – and the NAB notes that its Board’s decision was not unanimous. 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.
Parties will have plenty of time to comment on these issues and the various suggestions as to how the rules should be changed. While some radio trade publications have been suggesting that a Notice of Proposed Rulemaking in the Quadrennial Review was imminent, in fact we are hearing that the Notice may not be out until significantly later in the year. That NPRM will set out tentative findings of the FCC and proposals for reform of the rules. The public will likely have at least 60 days to comment on any proposals, and then there will be a period for replies. After that, the Commission will take the issues under consideration, and no doubt interested parties will meet with the decision makers to argue their positions, with no decision likely until at least late in 2019.
So any changes to ownership rules for a new radio industry will take some time to implement –if any of them are implemented at all. Watch as these issues are argued over the course of the next year.