Federal Communications Commission fcc 12-81 Before the Federal Communications Commission

512 Advertisers and audiences are mutually dependent. Television stations need to attract audiences in order to earn money from advertising. They need advertising revenues in order to make investments in programming that will attract audiences. See David S. Evans & Richard Schmalensee, The Industrial Organization of Markets with Two-Sided Platforms, Competition Pol’y Int’l 151, 155-56 (2007) (discussing the economics of two-sided platforms and its application to competition policy issues especially as it relates to advertising-supported media).

513 “[B]roadcasting in any and all of its forms is an audience aggregation business.” See Vogel, supra, n. 463, at 288.

514 Under Commission rules, broadcast television stations serve a community of license. See supra, n. 148.

515 See, e.g., Nexstar Broadcasting Group, Inc., SEC Form 10-K for the Year Ended December 31, 2010, at 1, 5 (“Nexstar 2010 Form 10-K”); Sinclair Broadcast Group, Inc., SEC Form 10-K for the Year Ended December 31, 2010, at 4, 21 (“Sinclair 2010 Form 10-K”).

516 Gray Television, Inc., SEC Form 10-K for the Year Ended December 31, 2010, at 3-4 (“Gray 2010 Form 10-K”); Sinclair 2010 Form 10-K at 4-5; LIN Television Corp., SEC Form 10-K for the Year Ended December 31, 2010, at 8-10 (“LIN 2010 Form 10-K”).

517 47 U.S.C. §309(j)(14)(A). Full-power analog television service therefore has terminated. See, e.g., Pending Applications and Pleadings Related to Proceedings for New Analog Full-Power Television Stations for Communities in Several States, Order, 26 FCC Rcd 14301, ¶ 1 (Video Div., MB 2011). Low-power stations are not required to complete their digital conversion until September 1, 2015. See Amendment of Parts 73 and 74 of the Commission's Rules to Establish Rules for Digital Low Power Television, Television Translator, and Television Booster Stations and to Amend Rules for Digital Class A Television Stations, MB Docket No. 03-185, Second Report and Order, 26 FCC Rcd 10732, 10733, ¶ 2 (2011).

518 Multicasting allows broadcast stations to offer digital streams or channels (i.e., digital multicast signals) of programming simultaneously, using the same amount of spectrum previously required for analog programming. See FCC, DTV.gov: What is DTV?, http://www.dtv.gov/whatisdtv.html.

519 For example, Bounce TV is a network targeting African Americans and Retro Television features classic television programs. See Bounce Media, LLC, FAQs: What is Bounce TV?, http://www.bouncetv.com/faq/bounce-tv/what-is-bounce-tv.html (visited Feb. 27, 2012); Retro Television, Inc., RTV Shows, http://myretrotv.com/shows.html (visited Feb. 27, 2012). Under Commission rules, digital stations asserting must-carry rights are entitled to carriage only of a single programming stream and other programming-related content on that stream. See Carriage of Digital Television Broadcast Signals, CS Docket No. 98-120, First Report and Order and Further Notice of Proposed Rulemaking, 16 FCC Rcd 2598, 2622, ¶ 57 (2001).

520 In this Report, we focus on commercial, full-power broadcast stations because of their impact on competition in the market for the delivery of video programming and the limitations on available data for other types of stations.

521 A television translator station rebroadcasts the programs of a full-power television broadcast station. Television translator stations typically serve communities that cannot receive the signals of free over-the-air television stations because they are too far away from a full-power television station or because of geographic limitations. See, e.g., FCC Consumer Advisory: The DTV Transition and LPTV/Class A and Translator Stations, http://www.fcc.gov/cgb/consumerfacts/DTVandLPTV.html. In 2000, the Commission established the Class A television service to implement the Community Broadcasters Protection Act of 1999. See Community Broadcasters Protection Act of 1999, Pub. L. No. 106-113, § 5008, 113 Stat. 1501, 1501A-594-98 (1999) (codified as amended at 47 U.S.C. § 336(f)). Thus, certain qualifying low-power television (LPTV) stations are accorded Class A status, which indicates that these stations have “primary” status as television broadcasters and have a measure of interference protection from full service television stations. Pursuant to Commission rules, stations eligible for this status must provide locally originated programming, often to rural and certain urban communities that have little or no access to such programming. See Establishment of a Class A Television Service, MM Docket No. 00-10, Report and Order, 15 FCC Rcd 6355, 6357, ¶ 1 (2000). Created by the Commission in 1982, low-power television service has been a secondary spectrum priority. See Inquiry Into the Future Role of Low-power Television Broadcasting and Television Translators in the National Telecommunications System, Report and Order, BC Docket No. 78-253, 51 Rad. Reg. 2d (P & F) 476, 486 (1982), aff’d sub nom. Neighborhood TV Co. v. FCC, 742 F.2d 629 (D.C. Cir. 1984).

522 See FCC, Licensed Broadcast Station Totals, http://transition.fcc.gov/mb/audio/BroadcastStationTotals.html.

523 See, e.g., Comcast 6/8/11 Comments at 3; NAB 6/8/11 Comments at 5.

524 NAB 6/8/11 Comments at 21 (citing SNL Kagan). See also SNL Kagan, TV Stations Deals Databook, 2011 Edition, at 7 (2011) (“2011 SNL Kagan TV Stations Databook”).

525 2011 SNL Kagan TV Stations Databook at 7.

526 Id. at 6-7. See also Justin Nielson, TV Stations Multiplatform Analysis ’11 Update: Multicasting Expands Programming Options, Mobile TV Goes Live, SNL Kagan, Jan. 28, 2011, at 3-4. Moreover, as of year-end 2010, 60 commercial mobile digital television (“mobile DTV”) stations were broadcasting more than 80 live video channels in several major cities. For a more detailed discussion of mobile DTV, see infra, Sec. III.B.3.b.

527 See also 2011 SNL Kagan TV Stations Databook at 7. Of those total digital noncommercial stations covered, 262 are affiliated with PBS. Id.

528 The Digital Transition: Update on the Digital Readiness of U.S. Households, Nielsen, Sept. 8, 2009, at 1. Nielsen stopped tracking the readiness of U.S. television households after the digital transition was completed.

529 BIA Financial Network, Inc. (“BIA”), Broadcast Television Station database. The Los Angeles DMA had 5.7 million television households as of the 2010-2011 television season. See Local Television Market Universe Estimates, Nielsen, Sept. 25, 2010 (“Nielsen 2010-11 Local Market Estimates”). Estimates were effective as of January 1, 2011, and used throughout the 2010-2011 television season. Nielsen estimates several measurements, including the number of television households within each DMA, by broadcast television seasons, which run from September through August.

530 BIA, Broadcast Television Station database. The Harrisonburg DMA had 94,700 television households as of the 2010-2011 television season. See Nielsen 2010-11 Local Market Estimates. The other eight markets with one full-power television station are: Alpena, Michigan; Glendive, Montana; Lafayette, Indiana; Mankato, Minnesota; North Platte, Nebraska; Parkersburg, West Virginia; Presque Isle, Maine; and Zanesville, Ohio.

531 The Commission defines broadcast television networks as “any person, entity, or corporation which offers an interconnected program service on a regular basis for 15 or more hours per week to at least 25 affiliated television licensees in 10 or more states; and/or any person, entity, or corporation controlling, controlled by, or under common control with such person, entity, or corporation.” 47 C.F.R. § 73.3613(a)(1). Stations affiliated with a network may be owned and operated by the network (O&Os) or owned by other entities that have agreements with a network for distribution of the network’s programming.

532 Nexstar 2010 Form 10-K at 5; Gray 2010 Form 10-K at 7. Station groups differ in the importance they ascribe to network affiliation contracts with respect to their broadcast licenses. See infra, n. 601.

533 FCC staff analysis based on 2011 data from BIA, Broadcast Television Station database.

534 Nexstar 2010 Form 10-K at 14.

535 Id.

536 See, e.g., Entravision Communications Corp., SEC Form 10-K for the Year Ended December 31, 2010, at 6-7 (“Entravision 2010 Form 10-K”); Trinity Broadcasting Network, Watch Us: Broadcast Schedule, http://www.tbn.org/watch-us/broadcast-schedule (visited Mar. 20, 2012).

537 Some firms specialize in one of these functions and form partnerships. For example, Harpo Studios and Sony Pictures Television (“SPT”) co-produce The Dr. Oz Show and The Nate Berkus Show first-run syndicated series, and SPT licenses them for distribution to television stations. See Harpo Productions, Inc., Sony Pictures Television to Distribute the Dr. Oz Show (press release), Oct. 15, 2009; Harpo Productions, Inc., Harpo, Sony Pictures Television, NBC Local Media to Launch The Nate Berkus Show (press release), Feb. 1, 2010. Financial arrangements between syndicators and stations vary. Some syndication rights are acquired for a per episode or series fee, but others involve sharing advertising time or barter. Vogel at 212-15. Under a barter agreement, a national program distributor retains a fixed amount of advertising time within the program in exchange for the programming its supplies. The television station may pay a fixed fee for such programming. Gray 2010 Form 10-K at 7; LIN 2010 Form 10-K at 12.

538 Nexstar 2010 Form 10-K at 7; Gray 2010 Form 10-K at 8.

539 1996 Act, § 202(c); 47 C.F.R. §73.3555(e). See also infra, ¶ 178.

540 Tuna N. Amobi & Erik B. Kolb, Industry Surveys: Broadcasting, Cable & Satellite, Standard & Poor’s, Feb. 18, 2010, at 9.

541 Kim McAvoy, TV Group Ranking Could See Shake-Up in ’11, TVNewsCheck, Mar. 30, 2011, http://www.tvnewscheck.com/article/2011/03/30/50206/tv-group-ranking-could-see-shakeup-in-11#group-19 (visited Jan. 10, 2012).

542 Tony Lenoir, Top 50 Station Groups by U.S. TVHH Coverage: Sinclair up 6 Percentage Points Through Acquisitions, SNL Kagan, Jan. 31, 2012, at 12.

543 Ch. 13’s New Owners Cut 20-Plus Jobs, ToledoBlade.com, Apr. 12, 2011, http://www.toledoblade.com/TV-Radio/2011/04/12/Ch-13-s-new-owners-cut-20-plus-jobs.html (visited Apr. 26, 2012).

544 See 47 C.F.R. §73.3555(b). See also infra, ¶ 178. In the context of the Media Ownership proceeding, the Commission is considering revising this rule. See 2010 Quadrennial Regulatory Review – Review of the Commission’s Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996; Promoting Diversification of Ownership In the Broadcasting Services, MB Docket Nos. 09-182, 07-294, Notice of Proposed Rulemaking, 26 FCC Rcd 17489, 17493, 17498-511, ¶¶ 8, 25-59 (2011) (“Media Ownership NPRM”).

545 Commission staff estimates based on BIA, Broadcast Television Station database. For purposes of this FCC staff estimate, we count full-power stations within a DMA that have a common parent company (i.e., co-owned) as a duopoly. We also count local marketing agreements (LMAs), if the programmer under its ownership limits provides more than 15 percent of a station’s weekly broadcast programming. See 47 C.F.R § 73.3555 note 2(j). For the purposes of this Report, the Commission has not verified the BIA data.

546 47 C.F.R. § 73.658(g).

547 BIA, Broadcast Television Station database. In addition, San Juan, Puerto Rico, which is not part of any DMA, has six television station combinations.

548 These markets are ranked one, two, five, six, and twelve respectively as of the 2010-2011 television season.

549 This is not the case with syndicators. Columbia/Tristar (Sony), the only major syndicator unaffiliated with a broadcast network, does not own television stations.

550 Comcast, Viacom, News Corp., and The Walt Disney Company also control production studios, which are the primary source of programming for their networks, and hold ultimate distribution rights for their programming, subject to contractual negotiations. See infra, Sec. V.A.

551 Belo Corp., SEC Form 10-K for the Year Ended December 31, 2010, at 3 (“Belo 2010 Form 10-K”); Allbritton Communications Co., TBD: About Us, http://www.tbd.com/about/ (visited Mar. 20, 2012). See also infra, Appendix C, Table C-2.

552 See Viacom Inc., CBS Separation, http://www.viacom.com/investorrelations/Pages/separationfromcbs.aspx (visited Feb. 14, 2012); E.W. Scripps Co., Scripps Controlling Class of Shareholders Approves Company’s Planned Separation (press release), June 13, 2008.

553 Scripps Networks Interactive (owner of cable networks) has 10 members of the board of directors and E.W. Scripps (owner of broadcast stations) has nine members. Of those, three directors on the boards of both companies: Nackey E. Scagliotti (Chairman of E.W. Scripps), John H. Burlingame, and Mary McCabe Peirce. Likewise, Viacom Inc. has 11 board members and CBS Corporation has 14 members. Their boards share three members: Sumner Redstone (Chairman of both boards), Shari E. Redstone (Vice Chairman of both boards), and Frederic V. Salerno.

554 Comcast’s cable systems overlap with NBC Universal’s stations in six markets: San Francisco, Philadelphia, Chicago, Miami, Hartford, and Washington, DC. Comcast-NBCU Order, 26 FCC Rcd at 4289, ¶ 126 n. 302.

555 See News Corp-DirecTV Order, supra, n. 101.

556 In the Orlando-Daytona Beach-Melbourne DMA, Cox owns television stations WFTV and WRDQ, as well as a cable system serving Ocala, Florida. See Cox Media Group, Orlando, http://www.coxmediagroup.com/orlando/ (visited Jan. 11, 2012); Cox Communications, Inc., Welcome, http://ww2.cox.com/ (visited Jan. 11, 2012).

557 47 U.S.C. § 301.

558 47 U.S.C. §§ 303(c), 308(a), 309(a).

559 See, e.g., FCC v. RCA Communications, Inc., 346 U.S. 86, 90 (1953) (“In choosing among applicants, the Commission was to be guided by the ‘public interest, convenience, or necessity[.]’ . . . The statutory standard no doubt leaves wide discretion and calls for imaginative interpretation.”); FCC v. Pottsville Broadcasting Co., 309 U.S. 134, 137-38 (1940) (“In granting or withholding permits for the construction of stations, and in granting, denying modifying or revoking licenses for the operation of stations, ‘public convenience, interest, or necessity’ was the touchstone for the exercise of the Commission's authority. While this criterion is as concrete as the complicated factors for judgment in such a field of delegated authority permit, it serves as a supple instrument for the exercise of discretion by the expert body which Congress has charged to carry out its legislative policy.”).

560 47 U.S.C. § 310(d).

561 47 U.S.C § 307(c); 47 C.F.R. § 73.1020. Among other things, each licensee is required to maintain a main studio in its communities of license (47 C.F.R § 73.1125(a)), maintain and carry out an equal opportunity program (47 C.F.R. § 73.2080), and maintain an accessible public inspection file (47 C.F.R §§ 73.3526-27).

562 47 C.F.R. §§ 73.3555(a)-(e), 73.658(g). The Commission also has developed rules to attribute both direct and indirect ownership in broadcast licenses, cable television systems, and daily newspapers in order to enforce its media ownership rules. Among other parties, these rules apply to investment companies; limited partnerships; officers and directors of a broadcast licensee, cable television system or daily newspaper; and entities participating in local marketing agreements. 47 C.F.R. § 73.3555 notes 1-2. Moreover, the Communications Act limits the extent on non-U.S. ownership of companies that own U.S. broadcast stations. Under this restriction, a U.S. broadcast company may have no more than 25 percent non-U.S. ownership (by vote and equity). 47 U.S.C. § 310(b)(4).

563 Media Ownership NPRM, 26 FCC Rcd at 17494-96, ¶¶ 10-17.

564 See supra, n. 585.

565 47 C.F.R. § 73.3555(b). Similarly, the local radio ownership rule limits the number of commercial radio stations one entity may own in a local market. 47 C.F.R. § 73.3555(a).

566 47 C.F.R. § 73.3555(d). In the Media Ownership NPRM, the Commission proposed relaxing this rule for the top 20 DMAs, provided that the television station is not ranked among the top four, and eight independenly owned major media voices remain with the DMA. See Media Ownership NPRM, 26 FCC Rcd at 17525-32, ¶¶ 99-116.

567 47 C.F.R. § 73.3555(c).

568 1996 Act, § 202(h).

569 Media Ownership NPRM, supra, n. 567.

570 47 C.F.R. § 73.658(b).

571 47 C.F.R. §§ 73.658(m), 76.53. An exception is made, however, for communities located in hyphenated markets, i.e., television markets that include more than one city (e.g., Dallas-Fort Worth, TX). 47 C.F.R. §§ 73.658(m), 76.51.

572 See Middle Class Tax Relief and Job Creation Act of 2012, Pub. L. No. 112-96, §§ 6401-05, 126 Stat. 156, 222-30 (2012).

573 Id. at 225.

574 Innovation in the Broadcast Television Bands: Allocations, Channel Sharing and Improvements to VHF, ET Docket No. 10-235, Report and Order, 27 FCC Rcd 4616, 4622 ¶ 12 (2012).

575 “The broadcast sector historically has been highly levered. It’s the recession’s impact on revenues and cash flow that has magnified financial strain.” Price Colman, TV Groups Cope with Leverage Troubles, TVNewsCheck, Mar. 4, 2009, http://www.tvnewscheck.com/article/2009/03/04/30075/tv-groups-cope-with-leverage-troubles (visited Jan. 12, 2012). Lenders impose restrictions (covenants) on the ratio of debt to equity and earnings before interest and taxes (EBIT) to interest. LIN 2010 Form 10-K at 23-24; Sinclair 2010 Form 10-K at 23-24; Nexstar 2010 Form 10-K at 12-13; Gray 2010 Form 10-K at 16-17.

576 LIN 2010 Form 10-K at 23-24; Sinclair 2010 Form 10-K at 23-24; Nexstar 2010 Form 10-K at 12-13; Gray 2010 Form 10-K at 16-17.

577 “[W]hen credit markets froze in 2007, a big no-exit sign was hung over TV broadcasting. The gap between bid and ask is more like a gulf.” Price Colman, Hot Trend: Outsourcing Management, TVNewsCheck, Aug. 25, 2010, http://www.tvnewscheck.com/article/2010/08/25/44718/hot-trend-outsourcing-station-management (visited Jan. 12, 2012).

578 Broadcasters differ in the value they place on programming with respect to a station’s purchase price. For example, Gray and LIN believe that the value of a television station is derived primarily from the attributes of its broadcast license, rather than its type of programming, i.e., whether or not it is an affiliate of one of the major four broadcast networks. Gray 2010 Form 10-K at 53-54; LIN 2010 Form 10-K at 38. LIN notes that other companies ascribe a belief that network affiliations are the most important component of a station’s value. LIN 2010 Form 10-K at 38.

579 Stations compete against in-market broadcast stations for exclusive access to syndicated programming within their markets. In addition, cable networks occasionally acquire programs that might otherwise be offered to stations, and some programs are available via OVDs. Nexstar 2010 Form 10-K at 7; LIN 2010 Form 10-K at 12. Stations usually purchase syndicated programming two to three years in advance, and sometimes must make multi-year commitments. Gray 2010 Form 10-K at 20; Sinclair 2010 Form 10-K at 25.

580 See FCC, Licensed Broadcast Stations Totals, http://transition.fcc.gov/mb/audio/BroadcastStationTotals.html.

581 WDCP, University Center, MI, did not obtain a construction permit for digital operation; the Commission canceled its analog license. In November 2009, KOFT, Farmington, NM, returned its analog license to the Commission. In February 2008, KBGH, Filer, ID, notified the Commission that it would not transition to digital. In July 2009, after Equity Broadcast Holdings, LLC filed for bankruptcy and failed to find a buyer for the stations KLMN, Great Falls, MT, KMMF, Missoula, MT, and KBTZ, Butte, MT, it returned the licenses for the stations to the Commission.

582 See Volker Moerbitz, Freedom Buy Catapults Sinclair to No. 2 in Stations Owned, SNL Kagan, Nov. 25, 2011, at 6-7.

583 2011 SNL Kagan TV Stations Databook at 13.

584 Newport Television, About Us, http://www.newporttv.com/content/aboutus.aspx (visited Mar. 5, 2012). See also Reuters, Clear Channel Sale Complete, MediaPost News, Mar. 17, 2008, http://www.mediapost.com/publications/article/78604/clear-channel-tv-station-sale-complete.html

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