2014 Quadrennial Regulatory Review

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 73

[MB Docket Nos. 14-50, 09-182, 07-294, and 04-256; FCC 16-107]

2014 Quadrennial Regulatory Review

AGENCY:

Federal Communications Commission.

ACTION:

Final rule.

SUMMARY:

This document retains the broadcast ownership rules with minor modifications in compliance with section 202(h) of the Telecommunications Act of 1996 which requires the Commission to review its broadcast ownership rules quadrennially to review these rules to determine whether they are necessary in the public interest as a result of competition. In addition, this document adopts an eligible entity definition pursuant to the remand of the Commission's 2008

Diversity Order

by the U.S. Court of Appeals for the Third Circuit. This document also readopts the Television Joint Sales Agreement (JSA) Attribution Rule, which was vacated on procedural grounds by the Third Circuit. Lastly, this document adopts a definition of Shared Service Agreements (SSAs) and requires commercial television stations to disclose those SSAs by placing the agreements in each station's online public inspection file.

DATES:

Effective December 1, 2016, except for the amendment to § 73.3526, which contains information collection requirements that are not effective until approved by the Office of Management and Budget (OMB). The Commission will publish a document in the

Federal Register

announcing the effective date of these changes. A separate notice will be published in the

Federal Register

soliciting public and agency comments on the information collections and establishing a deadline for accepting such comments.

FOR FURTHER INFORMATION CONTACT:

Benjamin Arden, Industry Analysis Division, Media Bureau, FCC, (202) 418-2605. For additional information concerning the PRA information collection requirements contained in the

Second Report and Order,

contact Cathy Williams at (202) 418-2918, or via the Internet at

PRA@fcc.gov.

SUPPLEMENTARY INFORMATION:

This

Second Report and Order,

in MB Docket Nos. 14-50, 09-182, 07-294, and 04-256; FCC 16-107, was adopted on August 10, 2016, and released on August 25, 2016. The complete text of this document is available electronically via the search function on the FCC's Electronic Document Management System (EDOCS) Web page at

https://apps.fcc.gov/edocs_public/.

The complete document is available for inspection and copying during normal business hours in the FCC Reference Information Center, 445 12th Street SW., Room CY-A257, Washington, DC 20554. To request materials in accessible formats for people with disabilities (Braille, large print, electronic files, audio format), send an email to

fcc504@fcc.gov

or call the FCC's Consumer and Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 418-0432 (TTY).

Synopsis

I. Introduction

1. The Commission brings to a close the 2010 and 2014 Quadrennial Review proceedings with this

Second Report and Order

(

Order

). In this

Order,

the Commission maintains strong media ownership rules and adopts rules that will help to promote diversity and transparency in local television markets. The

Order

readopts the Television JSA Attribution Rule, which was vacated on procedural grounds by the Third Circuit. Also, pursuant to the Third Circuit's remand in

Prometheus Radio Project

v.

FCC,

652 F.3d 431 (3d Cir. 2011) (

Prometheus II

), of certain aspects of the Commission's 2008

Diversity Order

(73 FR 28361, May 16, 2008, FCC 07-217, rel. March 5, 2008), the

Order

also reinstates the revenue-based eligible entity standard, as well as the associated measures to promote the Commission's goal of encouraging small business participation in the broadcast industry, which will cultivate innovation and enhance viewpoint diversity. Finally, the

Order

adopts a definition of SSAs and requires commercial television stations to disclose those SSAs by placing the agreements in each station's online public inspection file.

II. Background

2. The media ownership rules subject to this quadrennial review are the local television ownership rule, the local radio ownership rule, the newspaper/broadcast cross-ownership rule, the radio/television cross-ownership rule, and the dual network rule. Congress requires the Commission to review these rules every four years to determine whether they are necessary in the public interest as the result of competition and to repeal or modify any regulation the Commission determines to be no longer in the public interest. The Third Circuit has instructed in

Prometheus Radio Project

v.

FCC,

373 F.3d 372 (3d Cir. 2004) (

Prometheus I

) that necessary in the public interest is a plain public interest standard under which necessary means convenient, useful, or helpful, not essential or indispensable. The court also concluded that the Commission is required to take a fresh look at its regulations periodically to ensure that they remain `necessary in the public interest. No presumption in favor of repealing or modifying the ownership rules exists. Rather, the Commission has the discretion to make the rule more or less stringent. This 2014 Quadrennial Review will focus on identifying a reasoned basis for retaining, repealing, or modifying each rule consistent with the public interest.

3.

Policy Goals.

The Commission continues to find that the longstanding policy goals of competition, localism, and diversity represent the appropriate framework within which to evaluate the Commission's media ownership rules. Accordingly, the Commission rejects suggestions in the record that the Commission should adopt any additional or different policy goals. While those proposals generally represent worthwhile pursuits, the Commission does not believe that they can be meaningfully promoted through the structural ownership rules and/or are outside the Commission's statutory authority.

III. Media Ownership Rules

A. Local Television Ownership Rule

1. Introduction

4. The current Local Television Ownership Rule allows an entity to own two television stations in the same Nielsen Designated Market Area (DMA) only if no Grade B contour overlap between the commonly owned stations exists, or at least one of the commonly owned stations is not ranked among the top-four stations in the market (top-four prohibition) and at least eight independently owned television stations remain in the DMA after ownership of the two stations is combined (eight-voices test). Based on the record that was compiled for the 2010 and 2014 Quadrennial Review proceedings, the Commission finds that the current Local Television Ownership Rule, with a limited contour modification, remains necessary in the public interest.

5. Under the revised Local Television Ownership Rule, an entity may own up to two television stations in the same DMA if: (1) The digital NLSCs of the stations (as determined by § 73.622(e) of the Commission's rules) do not overlap;

or (2) at least one of the stations is not ranked among the top-four stations in the market and at least eight independently owned television stations would remain in the DMA following the combination. In calculating the number of stations that would remain post-transaction, only those stations whose digital NLSCs overlap with the digital NLSC of at least one of the stations in the proposed combination will be considered.

2. Discussion

6.

Market.

The Commission finds that the record supports its conclusion from the

FNPRM

(79 FR 29010, May 20, 2014, FCC 14-28, rel. Apr. 14, 2014) that non-broadcast video offerings still do not serve as meaningful substitutes for local broadcast television. Accordingly, the Commission's analysis regarding the Local Television Ownership Rule must continue to focus on promoting competition among broadcast television stations in local television viewing markets. Competition within a local market motivates a broadcast television station to invest in better programming and to provide programming tailored to the needs and interests of the local community to gain market share. Community-tailored programming, which includes local news and public interest programming, is largely limited to broadcast television as online video and cable network programming is largely national in scope. By thus strengthening its position in the local market, a television broadcaster also strengthens its ability to compete for advertising revenue and retransmission consent fees, an increasingly important source of revenue for many stations. As a result, viewers in the local market benefit from such competition among numerous strong rivals in the form of higher quality programming.

7. While the Commission recognizes the popularity of video programming delivered via MVPDs, the Internet, and mobile devices, it finds that competition from such video programming providers remains of limited relevance for the purposes of analysis. Video programming delivered by MVPDs such as cable and DBS is generally uniform across all markets, as is online video programming content. Unlike local broadcast stations, such programming providers are not likely to make programming decisions based on conditions or preferences in local markets. No commenter in this proceeding offered evidence of non-broadcast video programmers modifying their programming decisions based on the competitive conditions in a particular local market. This strengthens the Commission's determination that, while non-broadcast video programming may offer consumers additional programming options in general, they do not serve as a meaningful substitute in local markets due to their national focus. Unlike broadcast television stations, national programmers are not responsive to the specific needs and interests of local markets, and as the Commission has previously stated, competition among local rivals most benefits consumers and serves the public interest.

8. In addition, the Commission finds that broadcast television's strong position in the local advertising market supports the Commission's view that non-broadcast video programming distributors are not meaningful substitutes in local television markets. The current data do not support the claim that advertisers no longer distinguish local broadcast television from non-broadcast sources of video programming when choosing how to allocate spending for local advertising, as advertising revenues for broadcast television stations remain strong and are projected to grow through 2019. While advertising revenues on cable, satellite, and digital platforms have risen, those gains do not appear to be at the expense of broadcast television stations. The Commission finds that broadcast television continues to play a significant role in the local advertising market, particularly when it comes to political advertising. Broadcast stations receive considerable revenue from political advertising every other year, which further highlights broadcast television's unparalleled value to advertisers for reaching local markets.

9. With regard to an economic study submitted by the National Association of Broadcasters, the Commission does not find the study relevant or informative in this proceeding for multiple reasons. First, the Commission finds significant issues with the statistical methods employed within the study and with the interpretation of those results. In addition, the study critiques the local broadcast television market relied on by the Department of Justice (DOJ) in its merger reviews pursuant to Section 7 of the Clayton Act—which focuses solely on the impact of the transaction in the local advertising market—and not the market definition relied on by the Commission for analyzing its Local Television Ownership Rule pursuant to Section 202(h), as discussed herein. While the Commission's market definition for purposes of the Local Television Ownership Rule is similar to the market definition used by DOJ when evaluating broadcast television mergers, in that the scope of the Commission's rule is limited to broadcasters, DOJ focuses on competition for advertising, whereas the Commission's rule is premised on multiple factors, including audience share. Therefore, the Commission finds that the study does not inform the current proceeding.

10. The Commission concludes that broadcast television stations continue to play a unique and vital role in local communities that is not meaningfully duplicated by non-broadcast sources of video programming. In addition to providing viewers with the majority of the most popular programming on television, broadcast television stations remain the primary source of local news and public interest programming. Accordingly, the Commission concludes that, for purposes of determining whether the Local Television Rule remains necessary in the public interest, the relevant product market is the delivery of local broadcast television service.

11.

Contour Overlap/Grandfathering Existing Ownership Combinations.

Consistent with the tentative conclusions in the

FNPRM,

the Commission declines to adopt the DMA-only approach. Instead, the Commission will retain the existing DMA and contour overlap approach but replace the analog Grade B contour with the digital NLSC, which the Commission has treated as the functional equivalent of the Grade B contour in previous proceedings. By contrast, there is no digital counterpart to a station's analog city grade contour, which is an aspect of the Commission's satellite station inquiry. Accordingly, consistent with case law developed after the digital transition, the Commission continues to evaluate all future requests for new or continued satellite status on an ad hoc basis. The Commission finds that this modified approach accurately reflects current digital service areas while minimizing any potential disruptive impact. In addition, consistent with previous Commission decisions, the Commission finds that retaining the DMA and contour overlap approach serves the public interest by promoting local television service in rural areas. That is, such an approach continues to allow station owners in rural areas to build or purchase an additional station in remote portions of the DMA, so long as no digital NLSC overlap exists.

12. The Commission confirms that the digital NLSC is an accurate measure of a station's current service area and thus is an appropriate standard. The Local Television Ownership Rule must take into account the current digital service

area of a station. Thus, the Commission continues to define the geographic dimensions of the local television market by referring to DMAs under the adopted modified rule but replaces the analog Grade B contour with the digital NLSC, with the effect that within a DMA an entity may own or operate two stations in a market if the digital NLSCs of those stations do not overlap. The Commission previously determined that the DMA is the most appropriate definition of the geographic dimensions of the local television market, and it does not disturb that finding. The approach adopted in this

Order

is consistent with the approach under the prior Local Television Ownership Rule. Where digital NLSC overlap exists, the combination will be permitted only if it satisfies the top-four prohibition and the eight-voices test.

13. The Commission also adopts the proposal to grandfather existing ownership combinations that would exceed the numerical limits by virtue of the revised contour approach instead of requiring divestiture. Under these circumstances, the Commission does not believe that compulsory divestiture is appropriate. In the Local Radio Ownership Rule section, the Commission confirms the disruptive impact of compulsory divestitures but determine that divestitures would be appropriate if it tightened the local radio ownership limits. In adopting the digital NLSC standard, the Commission is not reducing the number of stations that can be commonly owned by all licensees; rather, it is adopting a technical change that may result in a small number of station combinations no longer complying with the criteria necessary to permit such common ownership. Accordingly, compulsory divestiture is not appropriate in these circumstances. The Commission continues to believe that the disruption to the marketplace and hardship for individual owners resulting from forced divestiture of stations would outweigh any benefits of forced divestiture to its policy goals, including promoting ownership diversity. Furthermore, the Commission notes that the replacing the Grade B contour with the digital NLSC—given the similarity in the contours—effectively maintains the status quo for most, if not all, owners of duopolies formed as a result of the previous Grade B contour overlap provision.

14. However, the Commission concludes that where grandfathered combinations are sold, the ownership rule governing television stations in effect at the time of the sale must be complied with. If the digital NLSC of two stations in the same DMA overlap, then the stations serve the same area, even if there was no Grade B contour overlap before the digital transition. Accordingly, requiring that a grandfathered combination be brought into compliance with the new standard at the time of sale is consistent with the Commission's rationale for adopting the digital NLSC-based standard and does not cause hardship by requiring premature divestiture. Consistent with Commission precedent, the Commission finds that the public interest would not be served by allowing grandfathered combinations to be freely transferable in perpetuity where a combination does not comply with the ownership rules at the time of transfer or assignment. Under the adopted approach, the Commission continues to allow grandfathered combinations to survive

pro forma

changes in ownership and involuntary changes of ownership due to death or legal disability of the licensee.

15.

Numerical Limits.

The Commission concludes that the local television marketplace has not changed sufficiently to justify tightening the current numerical limits of the rule and returning to a single-license television rule. The record data demonstrate that the duopolies permitted subject to the restrictions of the current rule have created tangible public interest benefits for viewers in local television markets that offset any potential harms that are associated with common ownership. Such benefits include substantial operating efficiencies, which potentially allow a local broadcast station to invest more resources in news or other public interest programming that meets the needs of its local community.

16. Likewise, the Commission does not find that there have been sufficient changes in the local television marketplace to justify ownership of a third in-market station. Growing competition from non-broadcast alternatives and the economic efficiencies of owning multiple stations are cited generally as the reasons why the Commission should permit ownership of more than two stations. As with the decision to define the relevant product market as broadcast television, the Commission concludes that it is not appropriate to consider competition from non-broadcast sources in evaluating whether the rule remains necessary. Despite the aforementioned benefits that duopolies can create, excessive consolidation remains likely to threaten the Commission's competition and diversity goals by jeopardizing small and mid-sized broadcasters. Without significant evidence of the public interest benefits that could result from the ownership of three stations in a local market that are not already available from the ownership of two stations, the Commission does not believe that adequate justification exists at this time for increasing the numerical limits.

17.

Top-Four Prohibition.

The Commission concludes that the top-four prohibition remains necessary to promote competition in the local television marketplace; accordingly, it retains the top-four prohibition in the Local Television Ownership Rule. First, the Commission continues to find that audience share is the appropriate metric for purposes of the top-four prohibition, and the record does not offer persuasive reason to depart from this determination. Second, the Commission finds that there typically remains a significant cushion of audience share points that separates the top-four stations in a market from the fifth-ranked station. Further, the court has twice upheld the Commission's rationale for retaining the top-four prohibition. The Commission notably has never based the top-four prohibition solely on the existence of the ratings cushion in every market. The Commission previously determined that the cushion existed in two-thirds of the markets with five or more full-power commercial television stations and the court in

Prometheus I,

cited specifically to this finding as evidence to support the Commission's line-drawing decision. Therefore, the Commission finds unconvincing any claim that the top-four prohibition cannot be supported because the ratings cushion is not present in every market. The cushion continues to exist in most markets and, as such, it continues to support the Commission's decision to retain the top-four prohibition. The Commission is not persuaded by NAB's assertions regarding the revenue of fourth- and fifth-ranked stations in a market. As noted in the

FNPRM,

NAB's analysis evaluates revenue share and does not sufficiently examine audience share, which the Commission has utilized when evaluating the need for the top-four prohibition. The Commission continues to find that the ability to attract mass audiences distinguishes the top ranked stations in local television markets, which is why ratings appropriately serve as the basis for the top-four prohibition. The only data NAB offers regarding audience share relate to the shares of the third and fourth ranked stations in comparison to the top ranked station in Nielsen markets, but do not compare

them to the fifth ranked station in the market. The court in

Prometheus I

rejected a similar argument when upholding the Commission's decision to retain the top-four prohibition. Therefore, NAB's evidence does not disturb the Commission's previous determinations that the relevant metric for purposes of the top-four prohibition is audience share and does not rebut the evidence in this proceeding that a cushion still exists between the fourth- and fifth-ranked stations in most markets.

18. The Commission reaffirms its belief that top-four combinations would generally result in a single firm obtaining a significantly larger market share than other firms in the market and that such combinations would create welfare harms. Top-four combinations reduce incentives for local stations to improve their programming by giving once strong rivals incentives to coordinate their programming to minimize competition between the commonly owned stations. The Commission is not persuaded by assertions that commonly owned stations have no incentive to coordinate their programming based solely on anecdotal showings from Nexstar-owned stations in two DMAs. While the Commission recognizes that duopolies permitted subject to the restrictions of the current rule can create operating efficiencies, which allow the commonly owned stations to invest in news and other local programming, the Commission finds that this potential benefit is outweighed by the harm to competition where a single firm obtains a significantly larger market share through a combination of two top-four stations. Accordingly, the Commission finds that the public interest is best served by retaining the top-four prohibition.

19.

Affiliation Swaps.

The Commission finds that application of the top-four prohibition to affiliation swaps is consistent with previous Commission action and policy; the Commission is merely closing a potential loophole and preventing circumvention of its rules. Parties can achieve through an affiliation swap the same result as a transfer of control or assignment of license, which would be subject to Commission review and be required to comply with the Local Television Ownership Rule. Absent Commission action, parties could utilize affiliation swaps to achieve a result otherwise prohibited by the Local Television Ownership Rule. Therefore, the Commission finds that its statutory authority to extend the Local Television Ownership Rule to include affiliation swaps derives from the same general rulemaking authority that supports all of the Commission's broadcast ownership rules, as the Supreme Court has repeatedly held. In the

1999 Ownership Order

(64 FR 50651, Sept. 17, 1999, FCC 99-209, rel. Aug. 6, 1999) that adopted the top-four prohibition, the Commission did not make a statement regarding its authority to require divestiture if two merged stations both became ranked among the top-four rated stations in the market; it stated only that it would refrain from doing so to further certain, specific public interest benefits. By allowing combinations between a large station and a small station, the Commission sought to enable the smaller station to improve its operations and local program offerings. The Commission wanted to avoid penalizing a station whose operations improved to the point that it became a top-four station. By contrast, the Commission was concerned that mergers involving top-four stations would harm competition and viewpoint diversity. Affiliation swaps, by their design, implicate the specific harms to public interest that led the Commission to adopt the top-four prohibition. Aside from the assignment/transfer of a station license, an affiliation swap is essentially indistinguishable in its effect on the policy underlying the Commission's duopoly rule from a top-four merger described by the Commission in the

1999 Ownership Order.

If compelling evidence exists that an affiliation swap involving a top-four station and a non-top-four station would not result in the non-top-four station becoming a top-four station after the swap (

e.g.,

a station's top-four ratings are driven by non-network programming that is unaffected by the affiliation swap), the parties are free to seek a waiver of this prohibition under Section 1.3 of the Commission's rules.

20. Moreover, the Commission cautioned in 1999 that future transactions, such as license transfers, that do not satisfy the top-four prohibition may not be granted. This demonstrates that the Commission sought to distinguish instances where a station organically becomes a top-four station through station improvement from situations where a station actively transacts to become a top-four station via an ownership transfer or assignment. As the Commission said in the

FNPRM,

acquiring control over a second in-market top-four station through affiliation swap transactions can be distinguished easily from other, legitimate actions a station may undertake to increase ratings at the expense of a competitor, such as producing higher quality or more extensive local programming or acquiring higher quality syndicated programming. Moreover, the adopted extension of the top-four prohibition would not apply in situations where a network offers an existing duopoly owner (one top-four station and one station ranked outside the top four) a top-four-rated affiliation for the lower-rated station, perhaps because the network is no longer satisfied with the existing affiliate station and the duopoly owner has demonstrated superior station operation (

i.e.,

earned the affiliation on merit). Such a circumstance represents organic growth of the station and not a transaction that is the functional equivalent of an assignment or transfer of control.

21. While the Commission said in the

1999 Ownership Order

that the top-four determination would be made at the time of the initial transaction, the Commission signaled its intent to review future transactions involving assignments or transfers of ownership resulting in a single entity owning two top-four stations in the same market. A contrary conclusion would greatly diminish the effectiveness of the top-four prohibition, as an entity could essentially transact to acquire a top-four station through an affiliation swap as soon as the Commission approved the initial duopoly. Although the Commission decided in 1999 not to prohibit licensees from owning two top-four stations when a station's top-four status resulted from organic growth, transactions involving the sale or swap of network affiliations between in-market stations that result in an entity holding an attributable interest in two top-four stations serve as the functional equivalent of a transfer of control or assignment of license. Therefore, affiliation swaps undermine the purpose of the top-four prohibition and the Local Television Ownership Rule as a whole. Application of the top-four prohibition to affiliation swaps is necessary to prevent circumvention of the Local Television Ownership Rule.

22. The Commission rejects any assertion that extending the top-four prohibition to affiliation swaps amounts to impermissible content regulation and is subject to strict scrutiny. The adopted clarifying amendment does not regulate content any more than the top-four prohibition and the media ownership rules that consistently have been upheld by the courts, and it is therefore subject to rational basis review. The decision to prohibit affiliation swaps involving two top-four stations, as described herein, does not consider content but rather the

content's ratings only. In that regard, the extension of the top-four prohibition to affiliation swaps operates exactly as the existing top-four prohibition does. The rule is predicated entirely on content-neutral objectives, primarily the public interest goal of promoting competition in local markets. The rule does not limit a licensee's discretion to air the content of its choice but rather limits the number of stations in a single market that a licensee may own if common ownership would result in significantly reduced competition.

23. The

Prometheus II

court found under the rational basis standard of review that the media ownership rules do not violate the First Amendment because they are rationally related to substantial government interests in promoting competition and protecting viewpoint diversity. The court rejected broadcasters' claims that the rules are impermissible attempts by the FCC to manipulate content and rejected Sinclair's argument that the Local Television Ownership Rule violates the First Amendment because it `singles out television stations. Instead, the court recognized that these rules apply regardless of the content of the programming. The adopted extension of the top-four prohibition merely clarifies that the top-four prohibition applies to agreements that are the functional equivalent of a transfer of control or assignment of license from the standpoint of the Commission's Local Television Ownership Rule. The Commission noted in the

1999 Ownership Order

that a duopoly may not automatically be transferred to a new owner if the market does not satisfy the eight voice/top four-ranked standard. Accordingly, this application of the top-four prohibition remains subject to the same constitutional analysis, and the amended rule is rationally related to the substantial government interests in promoting competition and diversity. Pursuant to that constitutional analysis, courts repeatedly have found that the Local Television Ownership Rule, which includes the top-four prohibition, does not violate the First Amendment.

24. The Commission also rejects the assertion that extension of the top-four prohibition constitutes unlawful interference in the network affiliation marketplace. The Commission does not believe that its action is likely to have a significant impact on the marketplace, as affiliation swaps are, at this point, rare. Indeed, the record demonstrates only a single instance of an affiliation swap that would be subject to the rule adopted herein. Evidence in the record demonstrates that the negotiation of affiliation agreements typically does not involve affiliation swaps; therefore, most negotiations will be unaffected by the amendment clarifying the top-four prohibition. The Commission confirms that extension of the top-four prohibition to affiliation swaps would not prevent a station from obtaining an affiliation through negotiating with a national network outside the context of an affiliation swap. While affiliation swaps have not occurred often to date, given the potential of such transactions to undermine the Local Television Ownership Rule, the Commission finds that the application of the top-four prohibition to such transactions is necessary to ensure the continued effectiveness of that rule. Such action is necessary because the Commission does not believe a reliable marketplace solution exists that would restrain the future use of affiliation swaps to evade the top-four prohibition should it decline to extend the top-four prohibition to affiliation swaps, nor is there a less restrictive means to accomplish the goal.

25. Accordingly, to close this loophole, the Commission finds that affiliation swaps must comply with the top-four prohibition at the time the agreement is executed. Specifically, an entity will not be permitted to directly or indirectly own, operate, or control two television stations in the same DMA through the execution of any agreement (or series of agreements) involving stations in the same DMA, or any individual or entity with a cognizable interest in such stations, in which a station (the new affiliate) acquires the network affiliation of another station (the previous affiliate), if the change in network affiliations would result in the licensee of the new affiliate, or any individual or entity with a cognizable interest in the new affiliate, directly or indirectly owning, operating, or controlling two of the top-four rated television stations in the DMA at the time of the agreement. In addition, for purposes of making this determination, the new affiliate's post-consummation ranking will be the ranking of the previous affiliate at the time the agreement is executed, determined in accordance with § 73.3555(b)(1)(i) of the Commission's rules. The Commission will find any party that directly or indirectly owns, operates, or controls two top-four stations in the same DMA as a result of such transactions to be in violation of the top-four prohibition and subject to enforcement action. Application of this rule to affiliation swaps is prospective; therefore, all future transactions will be required to comply with the Commission's rules then in effect. Parties that acquired control over a second in-market top-four station by engaging in affiliation swaps before the release date of this

Order

will not be subject to divestiture or enforcement action.

26.

Eight-Voices Test.

The Commission does not find that there have been any changes in the local television marketplace that would warrant modification of the eight-voices test at this time. Nearly every market with eight or more full-power television stations—absent a waiver of the Local Television Ownership Rule or unique circumstances—continues to be served by each of the Big Four networks and at least four independent competitors unaffiliated with a Big Four network. Competition among these independently owned stations serves an important function by motivating both the major network stations and the independent stations to improve their programming, including increased local news and public interest programming. This competition is especially valuable during the parts of the day in which local broadcast stations do not transmit the programming of affiliated broadcast networks and rely on local content uniquely relevant to the stations' communities.

27. The Commission continues to believe the minimum threshold maintained by the eight-voices test helps to ensure robust competition among local television stations in the markets where common ownership is permitted under the rule. The eight-voices test increases the likelihood that markets with common ownership will continue to be served by stations affiliated with each of the Big Four networks as well as at least four independently owned and operated stations unaffiliated with these major networks. In addition, the Commission disagrees with the interpretation that the eight-voices test implies that at least eight competing over-the-air TV stations are the minimum necessary to ensure competition and so each market must have at least eight independent stations. The eight-voices test only establishes the minimum level necessary to permit common ownership of stations in a market, subject to the other requirements in the rule. Therefore, markets with fewer than eight independent stations can still maintain a significant level of competition given the absence of duopolies in these markets. Also, because a significant gap in audience share persists between the top-four stations in a market and the remaining stations in most markets—demonstrating the dominant position of

the top-four-rated stations in the market—the Commission continues to believe that it is appropriate to retain the eight-voices test, which helps to promote at least four independent competitors for the top-four stations before common ownership is allowed. Accordingly, the Commission retains the eight-voices test.

28. The Commission also sought comment on whether the

Sinclair Broadcasting Group

v.

FCC,

284 F.3d 148 (D.C. Cir. 2002) (

Sinclair

), opinion compels the Commission to include other voices in addition to full-power television stations in the eight-voices test. The Commission finds that it does not. In

Sinclair,

the court rejected the eight-voices test, finding that the Commission had failed to justify its decision to define voices differently in the radio-television cross-ownership rule and the Local Television Ownership Rule. The primary purpose of the Local Television Ownership Rule and the eight-voices test is to promote competition among broadcast television stations in local television viewing markets. By contrast, the primary purpose of the radio-television cross-ownership rule is to promote viewpoint diversity; therefore, it is appropriate to consider a broader range of voices there than in the context of the Local Television Ownership Rule. Accordingly, the Commission continues to include only full-power television stations in the voice count for purposes of the Local Television Ownership Rule.

29. The Commission's conclusion adheres to

Prometheus II,

where the court upheld the Commission's rationale in the

2006 Quadrennial Review

(73 FR 9481, Feb. 21, 2008, FCC 07-216, rel. Feb. 2008) proceeding for limiting voices in the Local Television Ownership Rule to full-power television stations. The Commission had determined in that proceeding that the primary goal of the Local Television Ownership Rule was to promote competition among local television stations, and not to foster viewpoint diversity because there were other outlets for diversity of viewpoint in local markets. Therefore, although other types of media contribute to viewpoint diversity, the Commission determined that they should not be counted as voices under the Local Television Ownership Rule. The court agreed and upheld the Commission's decision.

30.

Attribution of Television JSAs.

In the

JSA Order

(79 FR 28996, May 20, 2014, FCC 14-28, rel. Apr. 14, 2014), the Commission adopted a rule that attributed television JSAs under which a television station (the broker) sold more than 15 percent of the weekly advertising time for another same-market television station (the brokered station). Pursuant to the new rule, in such circumstances, the brokering station was deemed to hold an attributable interest in the brokered station. Among other implications associated with attribution, this resulted in counting the brokered station toward the brokering station's permissible ownership totals. While one purpose of the attribution rules is to determine compliance with the Commission's various broadcast ownership rules, including the Local Television Ownership Rule, the Commission's attribution rules are relevant in many other contexts, as well (

e.g.,

Form 323 ownership reporting, auctions, retransmission consent negotiations, and foreign ownership). Accordingly, even if the Commission were to eliminate all its ownership caps, the attribution rules would remain relevant in connection with a large number of other rules. As such, the Commission must retain the ability to update its attribution rules, as appropriate. In addition, the Commission provided a two-year period from the effective date of the

JSA Order

(March 31, 2014) for parties to existing, same-market television JSAs whose attribution resulted in a violation of the ownership limits to terminate or amend those JSAs or otherwise come into compliance with the ownership rules. Following the adoption of the

JSA Order,

Congress twice extended this compliance period, ultimately extending the relief through September 30, 2025.

31. The Third Circuit vacated the Television JSA Attribution Rule in

Prometheus

v.

FCC,

824 F.3d 33 (3d Cir. 2016) (

Prometheus III

), finding that the adoption of the rule was procedurally invalid as a result of the Commission's failure to also determine that the Local Television Ownership Rule served the public interest. The court stated that the Commission could readopt the rule if it was able to justify readopting the ownership rules to which television JSA attribution applies or to adopt new ownership rules. The court specifically noted that it offered no opinion on substantive challenges to the Television JSA Attribution Rule.

32. Consistent with

Prometheus III,

having concluded that the Local Television Ownership Rule (with minor modifications) continues to serve the public interest, the Commission now readopt the Television JSA Attribution Rule first adopted in the

JSA Order.

In so doing, the Commission incorporates by reference the rationale articulated in the

JSA Order

for the adoption and application of the rule. The Commission notes that television JSA attribution is also relevant in the other adopted broadcast ownership rules that involve ownership of a broadcast television station. The Commission continues to find attributing certain television JSAs under the Commission's attribution standards appropriate. Upon the effective date of this

Order,

the following rules, which were not modified or removed from the CFR, shall again be effective as they relate to television JSAs: 47 CFR 73.3555, Note 2(k)(2)-(3) and 47 CFR 73.3613(d)(2). The Commission finds that readopting the rule serves the public interest by ensuring compliance with its broadcast ownership rules, and anecdotal evidence exists that suggests the attribution of television JSAs has helped promote minority and female ownership opportunities.

33. In addition, the Commission adopts different transition procedures than those adopted in the

JSA Order.

Specifically, the Commission retains the previous effective date for application of the grandfathering relief—March 31, 2014—and will extend the compliance period through September 30, 2025. Until that time, such grandfathered agreements will not be counted as attributable, and parties will be permitted to transfer or assign these agreements to other parties without terminating the grandfathering relief. Any television JSAs adopted or revised following the Third Circuit's decision to vacate the Television JSA Attribution Rule are not provided any transition relief and must immediately be brought into compliance with the Commission's rules. This is consistent with the treatment of television JSAs executed after the release of the

JSA Order,

which were not provided any transition period. The Commission believes that it is reasonable to adopt a similar measure here given that parties were on notice following

Prometheus III

that the Commission could readopt the Television JSA Attribution Rule if the Commission were to conclude, following completion of its Section 202(h) review, that the existing Local Television Ownership Rule should be retained or replaced with a new rule—which has been done herein. In addition, any television JSA that previously lost grandfathering relief as a result of a condition imposed by the Commission in the approval of a transaction may seek to have the condition rescinded. Upon request of the transferee or assignee of the station license, the Commission will rescind the condition and permit the licensees of the stations whose advertising was

jointly sold pursuant to such agreement to enter into a new JSA—to the extent that both parties wish to enter into the agreement—on substantially similar terms and conditions as the prior agreement. The Commission delegates authority to the Media Bureau to review these requests and grant relief, as appropriate. While the Commission notes that this grandfathering relief is not typical of the relief normally provided by the Commission—generally grandfathered combinations cannot be assigned or transferred unless they comply with the ownership rules in effect at the time—it believes that the relief is warranted given the various expressions of Congressional will in this regard.

34. In addition to readopting the Television JSA Attribution Rule, the Commission finds that such attribution does not change its determination here that the existing Local Television Ownership Rule should be retained, with a minor contour modification. The analysis underlying the various components of the Local Television Ownership Rule (

e.g.,

the numerical limits, the top-four prohibition, and the eight-voices test) assumes that independently owned and operating stations are just that—independent. The Commission's attribution rules are designed to help to ensure that independence, or, stated differently, to reflect a determination of when stations are

not

truly independent, because of common ownership or other relationships that provide the ability to exercise influence or control over another station's core operating functions. The Local Television Ownership Rule is a bright-line rule designed to promote competition. Accordingly, Commission analysis focuses on concepts that are generally applicable across all markets and this approach is favored by broadcasters. The bright-line approach, however, precludes full consideration of changing economic conditions within a particular local market or all of the variations that may exist across markets. To take account of such considerations, the Commission would need to adopt a case-by-case approach. However, such an approach provides less certainty to the market, imposes higher administrative burdens on the Commission than the bright-line approach, and may delay Commission decision-making, which could ultimately chill marketplace activity. The Commission does not find any support in the record for such an approach. Accordingly, arguments that the Commission's analysis regarding the Local Television Ownership Rule and/or television JSAs fails to account for market-by-market differences are unavailing, as an approach that takes those differences into account would be inconsistent with the bright-line rule favored by broadcasters.

35. The attribution of certain television JSAs, which prevents those agreements from being used to circumvent the ownership limits by compromising the independence of a same-market station, helps to ensure that the goals of the Local Television Ownership Rule are realized. This mechanism applies to any circumstances in which an individual or entity has an attributable interest in more than one station in a market. The arguments that television JSAs should not be attributed because they produce public interest benefits are essentially indistinguishable from arguments that the ownership limits should be relaxed because common ownership produces public interest benefits. The Commission acknowledges and addresses these arguments throughout; however, it has ultimately determined that the Local Television Ownership Rule should be retained, with a minor modification to the contour standard. The Commission's responsibility under section 202(h) is to ensure that the Local Television Ownership Rule continues to serve the public interest, not to manipulate the rule to counterbalance the attribution of television JSAs. As discussed in this section, the Commission finds that the adopted rule serves the public interest.

36.

Waiver Policy.

Under the existing failed/failing station waiver policy, to obtain a waiver of the local television rule, an applicant must demonstrate that one of the broadcast television stations involved in the proposed transaction is either failed or failing and that the in-market buyer is the only reasonably available candidate willing and able to acquire and operate the station; and selling the station to an out-of-market buyer would result in an artificially depressed price. A station is considered to be failed if it has not been in operation due to financial distress for at least four consecutive months immediately before the application, or is a debtor in an involuntary bankruptcy or insolvency proceeding at the time of the application; a television station is considered to be failing if it has an all-day audience share of no more than four percent and it has had negative cash flow for three consecutive years immediately before the application. Under the failing station standard, the applicants must also demonstrate that consolidation of the two stations would result in tangible and verifiable public interest benefits that outweigh any harm to competition and diversity.

37. Waiver of the Commission's rules is meant to be exceptional relief, and the Commission finds that the existing waiver criteria effectively establish when relief from the rule is appropriate. The Commission remains concerned that loosening the existing failed/failing station waiver criteria—such as by eliminating the four percent audience share requirement or by reducing the negative cash flow period from three years to one—would result in a waiver standard that is more vulnerable to manipulation by parties seeking to obtain a waiver. Also, such changes may not be rationally related to improving the Commission's ability to evaluate the viability of a station subject to the waiver request. The Commission declines to adopt any industry-proposed waiver standard that would significantly expand the circumstances in which a waiver of the Local Television Ownership Rule would be granted, absent sufficient demonstration that the stations could not effectively compete in the market. Such relaxation of the waiver standard would be inconsistent with the Commission's determination that the public interest is best served by retaining the existing television ownership limits to promote competition. Therefore, the Commission concludes that the existing waiver standard is not unduly restrictive and that it provides appropriate relief in all television markets. The Commission also declines to adopt a 180-day shot clock for waiver request reviews. No record evidence indicates that waiver requests are subject to undue delay; on the contrary, the Commission believes that the current process works effectively and that applications are processed in a timely and efficient manner. In addition, the Commission currently endeavors to complete action on assignment and transfer of control applications (including those requesting a failed/failing station waiver) within 180 days of the public notice accepting the applications. Routine applications are typically decided within the 180-day mark, and all applications are processed expeditiously as possible consistent with the Commission's regulatory responsibilities. However, several factors could cause the Commission's review of a particular application to exceed 180 days. Certain cases will present difficult issues that require additional consideration, and the Commission does not believe that artificially constraining its review is appropriate.

38.

Multicasting.

The Commission finds that the ability to multicast does not justify tightening the current numerical limits. Based on evidence in the record, broadcasting on a multicast stream does not typically produce the cost savings and additional revenue streams that can be achieved by owning a second in-market station. Therefore, tightening the numerical limits might prevent those broadcasters in markets where common ownership is permitted under the existing rule from achieving the efficiencies and related public interest benefits associated with common ownership. Accordingly, the Commission's view, based on the most recent record, is that adjusting the numerical limits as a result of stations' multicasting capability is not appropriate.

39. As proposed in the

FNPRM,

the Commission declines to regulate dual affiliations via multicast, including dual affiliation with more than one Big Four network, at this time. A significant benefit of the multicast capability is the ability to bring more local network affiliates to smaller markets, thereby increasing access to popular network programming and local news and public interest programming tailored to the specific needs and interests of the local community. The Commission finds that the strongest public interest concerns posed by dual affiliations via multicasting involve affiliations between two Big Four networks. However, based on the record, dual affiliations involving two Big Four networks via multicasting are generally limited to smaller markets where there are not enough full-power commercial television stations to accommodate each Big Four network or where other unique marketplace factors responsible for creating the dual affiliation exist. Marketplace incentives, at present, appear to limit the occurrence of dual affiliations via multicasting involving multiple Big Four networks largely to these smaller markets. Therefore, the Commission concludes that the nature of the local television market supports the Commission's decision to decline regulation of dual affiliations via multicasting at this time. However, the Commission will continue to monitor this issue and take action in the future, if appropriate; moreover, the Commission can consider issues that impact the Commission's policy goals in the context of individual transactions such as transfers of control or assignments of licenses.

40. The factors that justify the Commission's decision not to restrict dual affiliations via multicast are not present in circumstances involving affiliation swaps. Dual affiliations via multicasting do not result in an entity owning two television stations rated in the top four in the market in violation of the Local Television Ownership Rule, which is the case with affiliation swaps now subject to the top-four prohibition, and no marketplace forces exist that would limit affiliation swaps absent the Commission's action in this

Order.

Indeed, given the marketplace conditions that tend to give rise to dual affiliations, prohibiting dual affiliation with more than one Big Four network could result in some Big Four networks becoming unavailable over the air in certain markets because there are not enough commercial television stations to accommodate each Big Four network in these markets. Prohibiting affiliation swaps would not create such a result since affiliation swaps, by definition, involve separate licensees affiliated with each network.

41.

Minority and Female Ownership.

The Commission affirms its tentative conclusion from the

FNPRM

that the current rule remains consistent with the Commission's goal to promote minority and female ownership of broadcast television stations. While the Commission retains the existing Local Television Ownership Rule for the reasons stated above, to promote competition among broadcast television stations in local markets, and not with the purpose of preserving or creating specific amounts of minority and female ownership, the Commission finds that retaining the existing rule nevertheless promotes opportunities for diversity in local television ownership. The competition-based rule helps to ensure the presence of independently owned broadcast television stations in the local market, thereby indirectly increasing the likelihood of a variety of viewpoints and preserving ownership opportunities for new entrants. The Commission notes also that it retains without modification the current failed/failing station waiver policy, including the requirement that the waiver applicant attempt to first solicit an out-of-market buyer, which promotes possible new entry in a market by ensuring that out-of-market entities interested in purchasing a station are aware of station sale opportunities.

42. The Commission is unconvinced by arguments made by the Coalition of Smaller Market Television Stations that sharing agreements, such as JSAs and SSAs, promote minority and female ownership. While the record demonstrates that some stations that are owned by minorities and women participate in JSAs, the record also indicates that many such stations do not. The Smaller Market Coalition provides statistics regarding only full power television stations owned by women and African Americans. By their own data, the majority of stations owned by women do not participate in JSAs; moreover, they do not offer any statistics for stations owned by other minority groups, which make up the largest portion of minority station owners. No evidence shows that current minority or female station owners utilized such agreements to acquire those stations. To the contrary, anecdotal evidence suggests that JSAs, in particular, have been used by large station owners to foreclose entry into markets and that the Commission's decision to attribute JSAs has actually led to greater ownership diversity—a proposition supported by multiple parties throughout this proceeding.

43. Additionally, the Commission finds the claim that tightening the Local Television Ownership Rule will promote increased opportunities for minority and female ownership to be both speculative and unsupported by existing ownership data. No data provided in the record support a contention that the duopoly rule has reduced minority ownership or suggest that a return to the one-to-a-market rule would increase ownership opportunities for minorities and women. On the other hand, while the data reflect an increase in minority ownership following relaxation of the Local Television Ownership Rule, the Commission has no evidence in the record that would permit it to infer causation and thus it declines to loosen the rule on this basis.

44. Finally, the Commission finds that, at the present time, analyzing the implications of the incentive auction for the Local Television Ownership Rule generally, or minority and female ownership specifically is impossible. In the auction proceeding, the Commission has considered the effects of the auction on diversity, stating that voluntary participation in the reverse auction, via a channel sharing, ultra-high frequency (UHF)-to-very-high frequency (VHF), or high-VHF-to-low-VHF bid, offers a significant and unprecedented opportunity for these owners to raise capital that may enable them to stay in the broadcasting business and strengthen their operations. A licensee's participation in the reverse auction does not mean it has decided to exit the business, even if its bid is accepted. The auction provides for bid options that allow the licensee to obtain a share of auction proceeds but still remain on the air: (i) Channel sharing; (ii) a UHF station could bid to move to a VHF channel; and (iii) a high VHF station

(channels 7-13) could bid to move to a low VHF channel (2-6).

45. The broadcast television incentive auction is ongoing and its implications will not be known for some time. Broadcasters interested in participating in the reverse auction filed their applications in January 2016. Entities interested in bidding in the forward auction on the spectrum made available through the reverse auction filed applications in February 2016. The clock round bidding for the reverse auction commenced on May 31, 2016, and concluded on June 29, 2016; the Commission announced August 16, 2016, as the start date for the initial stage of the forward auction. Under statute, the identities of the broadcasters participating in the reverse auction are confidential. After the conclusion of the auction—the date of which is unknown—the Commission will release a public notice announcing the reverse and forward auction winners, and identifying those television stations that will be reassigned to new channels (or repacked). Reassigned stations will have up to 39 months after release of that public notice to complete the transition to their new channels, while winning bidders who will relinquish their spectrum entirely or move to share a channel with another station must do so within a specified number of months from receipt of their incentive payment.

46. Because of these factors, and because the incentive auction is a unique event without precedent, the Commission cannot evaluate or predict the likely impacts of the auction at this time. The Commission will soon commence its evaluation of the broadcast marketplace post-auction, and the Commission will address the implications of the incentive auction for the media ownership rules in the context of future quadrennial reviews. Further, the court in

Prometheus III

indicated that the Commission should consider how the ongoing broadcast incentive auction affects minority and female ownership. Consistent with this direction and the Commission's previous requests for comment on this issue, the Commission has evaluated the record and the status of the ongoing incentive auction, and its determination is that it is too soon to assess the impact of the auction on minority and female ownership.

B. Local Radio Ownership Rule

1. Introduction

47. Based on the record in the 2010 and 2014 Quadrennial Review proceedings, the Commission finds that the current Local Radio Ownership Rule remains necessary in the public interest and should be retained without modification. The Commission finds that the rule remains necessary to promote competition and that the radio ownership limits promote viewpoint diversity by ensuring a sufficient number of independent radio voices and by preserving a market structure that facilitates and encourages new entry into the local media market. Similarly, the Commission finds that a competitive local radio market helps to promote localism, as a competitive marketplace tends to lead to the selection of programming that is responsive to the needs and interests of the local community. Also, the Commission finds that the Local Radio Ownership Rule is consistent with its goal of promoting minority and female ownership of broadcast television stations. The Commission finds that these benefits outweigh any burdens that may result from retaining the rule without modification.

48. Accordingly, the Local Radio Ownership Rule will continue to permit the following: An entity may own (1) up to eight commercial radio stations in radio markets with 45 or more radio stations, no more than five of which can be in the same service (AM or FM); (2) up to seven commercial radio stations in radio markets with 30-44 radio stations, no more than four of which can be in the same service (AM or FM); (3) up to six commercial radio stations in radio markets with 15-29 radio stations, no more than four of which can be in the same service (AM or FM); and (4) up to five commercial radio stations in radio markets with 14 or fewer radio stations, no more than three of which can be in the same service (AM or FM), provided that an entity may not own more than 50 percent of the stations in such a market, except that an entity may always own a single AM and single FM station combination.

2. Discussion

49. Under section 202(h), the Commission considers whether the Local Radio Ownership Rule continues to be necessary in the public interest as a result of competition. In determining whether the rule meets that standard, the Commission considers whether the rule serves the public interest. While the Commission believes that the competition-based Local Radio Ownership Rule is consistent with its other policy goals and may promote such goals in various ways, the Commission does not rely on these other goals as the basis for retaining the rule. Consistent with Commission precedent, upheld by the court in

Prometheus II,

the Commission finds that the Local Radio Ownership Rule continues to be necessary to protect competition, which provides a sufficient ground on which to retain the rule.

50.

Market.

In this

Order,

the Commission adopts its tentative conclusion from the

FNPRM

that the relevant product market for review of the Local Radio Ownership Rule is the radio listening market and that including non-broadcast audio sources in that market is not appropriate. When determining the appropriate market definition for the Local Radio Ownership Rule, the Commission must determine whether alternate audio platforms provide consumers with a meaningful substitute for local broadcast radio stations. For purposes of Commission review, the nature of broadcast radio must be considered when determining whether an alternate source of audio programming provides a meaningful substitute for broadcast radio—the ability to access audio content alone is not sufficient to demonstrate substitution. Broadcast radio stations provide free, over-the-air programming tailored to the needs of the stations' local markets. In contrast, Internet radio requires either a fixed or mobile broadband Internet connection, and satellite radio requires a monthly subscription to access programming. Neither of these sources is as universally and freely available as broadcast radio, and neither typically provides programming tailored to the needs and interests of specific local markets.

51. As noted in the

FNPRM,

despite the growing popularity of non-broadcast platforms such as satellite radio and Internet-delivered audio in the commercial audio industry, broadcast radio continues to dominate in its reach among listeners. Moreover, no data was submitted to the record to refute the findings stated in the

FNPRM,

and recent data confirm that broadcast radio listenership remains essentially unchanged. In addition, the vast majority of Americans prefer to use broadcast radio as their in-car audio entertainment over new technology options. Lastly, the Commission notes that the growth of online radio listening likely includes audiences that are listening to streams of broadcast radio stations online instead of or in addition to listening over the air. One data source cited by NAB to establish the competitive impact of online radio define online radio as listening to AM/FM radio stations online and/or listening to streamed audio content available only on the Internet. To the extent that online audio merely allows

listeners to access broadcast radio station content over the Internet rather than over the air, it may not be a true alternative to broadcast radio. Ultimately, broadcast radio remains the most easily accessible and popular way for consumers to listen to audio programming, and the only one that focuses on the needs and interests of local markets.

52. In addition, the Commission disagrees with NAB's assertion regarding the lack of significance of non-broadcast radio's national platform. The local character of broadcast radio is a significant aspect of the service that must be considered when determining whether alternate audio platforms provide a meaningful substitute. The record fails to demonstrate that non-broadcast radio programmers make programming decisions to respond to competitive conditions in local markets. As the Commission has stated previously, competition among local rivals most benefits consumers and serves the public interest.

53. The Commission also disagrees with NAB's characterization that the Commission has recognized non-broadcast radio programming as meaningful substitutes for broadcast radio simply by virtue of the Commission's acknowledgment of the potential impact of alternate audio platforms on AM radio. While the Commission has recognized that AM radio is susceptible to audience migration due to its technical shortcomings, recognition of this fact does not mean that non-broadcast audio alternatives are a meaningful substitute for AM radio, specifically, or broadcast radio, in general. As discussed earlier, non-broadcast audio alternatives do not respond to competitive conditions in local markets and are not available to all consumers in a local market to the same extent as broadcast radio, which are critical considerations when determining substitutability. While the Commission does not take the position that advanced telecommunications/broadband deployment and adoption must be universal before it will consider Internet-delivered audio programming to be a competitor in the local radio listening market, the Commission finds that the current level of penetration and adoption of broadband service remains relevant when considering the extent to which this platform is a meaningful substitute for broadcast radio stations.

54. Ultimately, the Commission finds that the record demonstrates that alternative sources of audio programming are not currently meaningful substitutes for broadcast radio stations in local markets; therefore, the Commission declines to depart from its tentative conclusion to exclude non-broadcast sources of audio programming from the relevant market for the purposes of the Local Radio Ownership Rule. The Commission's approach to limit the relevant market to broadcast radio stations in local radio listening markets is consistent with current DOJ precedent in evaluating proposed mergers involving broadcast radio stations. The Commission finds that the Local Radio Ownership Rule should continue to focus on promoting competition among broadcast radio stations in local radio listening markets.

55.

Market Size Tiers.

As the

FNPRM

stated, the Commission's experience in applying the Local Radio Ownership Rule supports retention of the existing framework to promote competition. The Commission consistently has found that setting numerical ownership limits based on market size tiers remains the most effective method for preventing the acquisition of market power in local radio markets. This bright-line approach helps to keep the limited available radio spectrum from becoming locked up in the hands of one or a few radio station owners. Furthermore, the Commission believes that this approach benefits transaction participants by expediting the processing of assignment or transfer of control applications and by providing clear guidance on which transactions comply with the local radio ownership limits.

56. The Commission received two proposals for alternative methodologies for determining market size tiers. Mid-West Family proposes that the Commission assign different values to stations of different classes when calculating how many stations an entity owns in a local market (

e.g.,

Class C FM station = 1 station; Class A FM station = .5 station) or adopt a case-by-case analysis that would allow a station owner to acquire more stations than otherwise permitted under the rule to equalize the population coverage achieved by an in-market competitor. Connoisseur proposes that acquisitions involving stations in embedded markets—smaller radio markets that are located within the boundaries of a larger radio market (parent market)—should not be required to include stations owned in other embedded markets when demonstrating compliance with the ownership limits of a parent market.

57. The Commission declines to adopt Mid-West Family's proposals. First, the Commission disagrees with Mid-West Family's contention that the

Prometheus I

decision mandates an adjustment to the rule's current methodology in the way proposed by Mid-West Family. Second, as the Commission has said previously, adopting Mid-West Family's approach would permit potentially significant consolidation in local radio markets, which would be inconsistent with the rationale for the Commission's retention of the existing numerical ownership limits discussed below. Specifically, Mid-West Family's proposal to assign different values to stations of different classes does not account for the possibility of a relatively low power radio station potentially reaching a larger audience than a station with a larger service contour.

58. Moreover, service contour (and the associated population coverage) is just one of many aspects of station operations that may impact the ability to compete in a local market. Each station serves as a voice in its local market, and the Commission is not inclined to discount the value of certain voices, particularly based on criteria that may have a limited impact on a station's ability to compete. For these reasons, the Commission declines to change the methodology for determining market size tiers, as proposed by Mid-West Family.

59. The Commission also declines to adopt Mid-West Family's proposal for a case-by-case analysis of population coverage. The Commission does not believe that population coverage alone is an appropriate basis on which to judge the competitiveness of a station (or cluster of stations) or the impact of these voices in the local market. The existing rule already provides for economies of scale that help stations compete; the Commission does not believe it is appropriate (or even possible) to revise the rule based on population coverage in an attempt to achieve a competitive equilibrium, which is effectively what Mid-West Family seeks. Moreover, the ability to seek a waiver of the ownership limits already provides parties with an opportunity to assert that special circumstances justify deviation from the rule in a particular case.

60. The Commission also declines to alter the methodology for determining market size tiers as proposed by Connoisseur. Under the current methodology, owners wishing to acquire a radio station in an embedded market must satisfy the numerical limits in both the embedded market and the overall parent market. In the

2002 Biennial Review

(68 FR 46286, Aug. 5, 2003, FCC 03-127, rel. July 2, 2003) that adopted the Nielsen Audio Metro (formerly Arbitron Metro) methodology for determining radio markets, the Commission specifically declined to treat embedded markets differently. The

Commission found that requiring proposed combinations to comply with the Local Radio Ownership Rule in each Nielsen Audio Metro implicated by the proposed combination (

i.e.,

in both the embedded and parent markets) comports with its general recognition that Nielsen Audio's market definitions are the recognized industry standard. The Commission rejected a proposal to apply a different test for embedded markets because it concluded that the proposed scheme would be inconsistent with the general reliance on Nielsen Audio's market definition and cumbersome to administer. The Commission finds that Connoisseur has not presented evidence of changes in the radio industry that would warrant an across-the-board departure from the Commission's longstanding reliance on Nielsen Audio's market analysis as reported by BIA as the basis for multiple ownership calculations for embedded and parent markets. In these situations, a station's above-the-line listing in the parent market (

i.e.,

stations that are listed by BIA as home to that Metro) reflects a determination by Nielsen Audio and BIA that the station at issue competes in the parent market. For this reason, all embedded market stations that are listed as home to the parent market, like any other above-the-line stations, must be taken into account when demonstrating multiple ownership compliance in the parent market. This principle is consistent with Commission treatment of stations whose communities of license are outside the geographic boundaries of a Metro but are listed by BIA as home to the Metro. Such stations must comply with the multiple ownership limits in both the Metro market in which they are listed as home and the market in which their community of license is located, because they are considered to compete in both. Connoisseur conflates the embedded and parent market analyses, suggesting that the parent market analysis erroneously introduces stations from one embedded market to another, which may have tenuous economic or listenership ties to the first. This contention misses the point that, as a separate application of the Commission's multiple ownership rules, the parent market analysis necessarily includes all stations that compete in that market, whether or not they also compete in another embedded Metro market.

61. However, the Commission recognizes Connoisseur's concerns that Nielsen Audio and BIA's practice of designating all embedded market stations as home to the parent market—regardless of actual market share—could result in certain stations being counted for multiple ownership purposes in a market in which they do not actually compete. Although the Commission does not believe that the record justifies a blanket exception to the rule, it will entertain market-specific waiver requests under section 1.3 demonstrating that the BIA listings in a parent market do not accurately reflect competition by embedded market stations and should thus not be counted for multiple ownership purposes.

62.

Numerical Limits.

The Commission concludes that the competitive conditions in the radio marketplace that supported the Commission's decision to retain the existing numerical limits in the

2006 Quadrennial Review Order

and to propose to retain the limits in the

FNPRM

remain largely unchanged. No data was provided in the record to contradict this conclusion. As demonstrated in the record, following the relaxation of the local radio ownership limits by Congress in the 1996 Act, there was substantial consolidation of radio ownership both nationally and locally. In local markets, the largest firms continue to dominate in terms of audience and revenue share.

63. The Commission also concludes that the record in this proceeding does not reflect changes in the marketplace that warrant reconsideration of the Commission's previous decision not to make the limits more restrictive. The Commission continues to believe that tightening the restrictions would disregard the previously identified benefits of consolidation in the radio industry and would be inconsistent with the guidance provided by Congress in the 1996 Act. Further, the Commission continues to find that tightening the rule, absent grandfathering, would require divestitures that it believes would be disruptive to the radio industry and would upset the settled expectations of individual owners. The record does not indicate that the benefits derived from tightening the limits would outweigh these countervailing considerations. For these reasons, and consistent with prior decisions, the Commission concludes that tightening the limits would not be in the public interest.

64.

Clarification of Application of Local Radio Ownership Rule.

In the

2002 Biennial Review Order,

the Commission established safeguards to deter parties from attempting to manipulate Nielsen Audio Metro market definitions for purposes of circumventing the Local Radio Ownership Rule. Specifically, the restrictions prohibit a party from receiving the benefit of a change in Nielsen Audio Metro boundaries or home market designation unless that change has been in place for at least two years (or unless the station's community of license is within the Metro, in the case of a home designation change). In general, a licensee seeking to demonstrate multiple ownership compliance may rely upon the removal of a station from BIA's list of home stations in a Metro, without a two-year waiting period, when the exclusion results from an FCC-approved change in the community of license from a community that is within a Metro's geographic boundaries to one that is outside the Metro. In the

FNPRM,

the Commission proposed to clarify that this exception applies only where the community of license change also involves the physical relocation of the station facilities to a site outside the relevant Nielsen Audio Metro market boundaries. Otherwise, the licensee of a station currently located in a Nielsen Audio Metro market could use the exception to reduce the number of its stations listed as home to that Metro, without triggering the two-year waiting period and without any change in physical coverage or market competition, merely by specifying a new community of license located outside the Metro. No objections to this clarification of the exception to the two-year waiting period were voiced in the record. Accordingly, the Commission adopts this clarification as it will ensure that the local radio ownership limits cannot be manipulated based on Nielsen Audio market definitions.

65. Note 4 to § 73.3555 of the Commission's rules (Note 4) grandfathers existing station combinations that do not comply with the numerical ownership limits of § 73.3555(a). However, the Commission recognizes that certain circumstances require applicants to come into compliance with the numerical ownership limits even though the relevant station may have been part of an existing grandfathered cluster. One such circumstance is a community of license change, which occasionally can lead to difficulty when an applicant with a grandfathered cluster of stations seeks to move a station's community of license outside the relevant Nielsen Audio Metro market. Given that the Commission relies on the BIA database for information regarding Nielsen Audio Metro home designations, such an applicant cannot concurrently demonstrate compliance with the multiple ownership limits at the time of

application filing, because the station proposing to change its community will continue to be listed by BIA as home to the Metro. To resolve this administrative issue, the Commission adopts the proposal in the

FNPRM

to allow a temporary waiver of the radio multiple ownership limits in this limited instance for three months from grant of the community of license modification application to allow BIA sufficient time to change the affected station's home designation following a community of license relocation. Grant of the application will be conditioned on coming into compliance with the applicable multiple ownership limits within three months. If the relevant station is still listed by BIA as home to the Metro at the end of this temporary waiver period, the Commission will rescind grant of the application and re-specify the original community of license.

66. The Commission also proposed to exempt intra-Metro community of license changes from the requirements of Note 4. In 2006, the Commission introduced a streamlined procedure allowing an FM or AM broadcast licensee or permittee to change its community of license by filing a minor modification application. The Commission has found that strict application of Note 4 has produced disproportionately harsh results from what is now otherwise a minor and routine application process. The Commission also agrees with commenter Results Radio that the reasoning supporting the proposed exemption should apply not only to community of license changes within the physical boundaries of the Metro market, but to any community of license change where the station remains designated as home to the Metro market. Such an exemption would, in limited circumstances, provide equitable relief from the divestiture requirements of Note 4. Moreover, the Commission finds that such intra-market community of license changes in most cases will have little or no impact on the concentration of ownership within the local market. Accordingly, the Commission adopts these exemptions to Note 4.

67. Since 2003, the Commission has regularly waived the Nielsen Audio Metro market definition for Puerto Rico, which defines Puerto Rico as a single market, instead relying on a contour overlap analysis for proposed transactions. The Commission has held that the unique characteristics of Puerto Rico present a compelling showing of special circumstances that warrant departing from the Nielsen Audio Metro as the presumptive definition of the local market. This practice is based on Puerto Rico's extremely mountainous topography, large number of radio stations and station owners, and division into eight Metropolitan Statistical Areas (MSAs) as defined by the Office of Management and Budget (OMB), which demonstrate that Puerto Rico has more centers of economic activity than are accounted for by the single Puerto Rico Nielsen Audio Metro definition.

68. In previous waiver proceedings involving the Puerto Rico radio market, the Commission utilized the contour-overlap methodology that normally applies to defining markets in non-Nielsen Audio rated markets. The contour-overlap methodology is generally permitted to define the local radio market only when a station's community of license is located outside of a Nielsen Audio Metro boundary. Under this methodology, the relevant radio market is defined by the area encompassed by the mutually overlapping principal community contours of the stations proposed to be commonly owned. The Commission has determined previously that this methodology was appropriate to apply when examining the Puerto Rico radio market because of Puerto Rico's unique characteristics. Therefore, the Commission concludes that adoption of the contour-overlap market definition will facilitate the most appropriate application of the Local Radio Ownership Rule in Puerto Rico, and there is no opposition to this proposal in the record. Accordingly, the Commission adopts the market definition based on contour overlap for Puerto Rico that it has applied consistently in previous waiver proceedings.

69.

AM/FM Subcaps.

The AM/FM subcaps limit the number of stations from the same service—AM or FM—that an entity may own in a single market. Just as the Commission has found that the public interest is served by retaining the existing numerical limits, it finds appropriate to retain the existing subcaps. The subcaps, as originally adopted by Congress, were premised on the ownership limits adopted in the 1996 Act. As the Commission has stated previously, tightening one or both of the subcaps absent a corresponding change to the numerical ownership limits (or a tightening of one subcap absent a loosening of the other) would result in an internal inconsistency in the rule, as such a tightening would result in an entity not being permitted to own all the stations otherwise permitted under certain numerical tiers. The Commission sought comment on whether any reason supports adopting different subcaps despite this potential inconsistency and received no comments arguing for tightening the subcaps. The Commission also finds that loosening or abolishing the subcaps would create public interest harms by potentially permitting excessive consolidation of a particular service—an outcome the subcaps are designed to prevent—and reducing opportunities for new entry within local radio markets.

70. The Commission is not persuaded by suggestions that eliminating the subcaps would result in public interest benefits sufficient to justify that action. While flexibility in ownership structuring may benefit existing licensees, such benefits may not extend to new entrants who potentially would see opportunities for radio ownership diminish through the increased concentration of ownership in a particular service that elimination of the subcaps would permit. The Commission also does not agree that eliminating or modifying the AM subcap would be an effective way to revitalize AM radio. NAB's assertion that elimination of the subcap would revitalize AM radio is unsupported, as NAB fails to explain how additional consolidation of AM stations will improve the ability of those stations to overcome existing technological and competitive challenges.

71. The Commission continues to believe that broadcast radio, in general, remains the most likely avenue for new entry in the media marketplace—including entry by small businesses and entities seeking to serve niche audiences—as a result of radio's ability to more easily reach certain demographic groups and the relative affordability of radio stations compared to other mass media. As the Commission has stated previously, AM stations are generally the least expensive option for entry into the radio market, often by a significant margin, and therefore permit new entry for far less capital investment than is required to purchase an FM station. Nothing in the record of this proceeding indicates that this marketplace characteristic has changed. Therefore, the Commission concludes that the public interest remains best served by retaining the existing AM subcap, which limits concentration of AM station ownership and thereby promotes opportunities for new entry that further competition and viewpoint diversity. In addition, FCC Form 323 data for 2011 and 2013 notably indicates that minority and female ownership of radio stations (and AM stations, in particular) exceeds that of television stations.

72. Furthermore, despite the general technological limitations of AM stations, there continue to be many markets in which AM stations are significant radio voices. No data was offered in the record to refute the Commission's tentative conclusion in the

FNPRM

that AM stations continue to be significant radio voices in many markets. Also, AM stations are among the top revenue earners in some of the largest radio markets (

e.g.,

New York, Chicago, and Los Angeles). The Commission therefore finds that, in addition to the general promotion of new entry across all markets described above, retention of the existing AM subcaps is also necessary to prevent a single station owner from acquiring excessive market power through concentration of ownership of AM stations in those markets in which AM stations are significant radio voices.

73. The Commission also concludes that there continue to be technical and marketplace differences between AM and FM stations that justify retention of both the AM and FM subcaps to promote competition in local radio markets. As the Commission has noted previously, FM stations enjoy unique advantages over AM stations, such as increased bandwidth, superior audio signal fidelity, and longer hours of operation. These technological differences often, but not always, result in greater listenership and revenues for FM stations that justifies a limit on the concentration of FM station ownership, in particular. Nothing in the record of this proceeding indicates that the Commission should depart from the tentative conclusions in the

FNPRM

regarding the differences between AM and FM radio. Therefore, the Commission concludes that retaining the existing FM subcap continues to serve the public interest as well. Accordingly, the Commission retains both the AM and FM subcaps without modification.

74. The Commission also finds that the digital radio transition and the changes to the FM translator rules have not yet meaningfully ameliorated the general differences between AM and FM stations, such that the justifications described above have been rendered moot. Recent digital radio deployment data support previous findings that FM stations are actually increasing the technological divide through greater adoption rates of digital radio technology than AM stations. The trends noted in the

FNPRM

have continued. Also, the recent changes to the FM translator rules, to allow AM stations to use currently authorized FM translator stations to retransmit their AM service within their AM stations' current coverage areas, have not yet significantly impacted the technological and marketplace differences between AM and FM stations. While the change to the FM translator rule benefited many AM stations, more than half of all AM stations continue to operate without associated FM translators. The Commission received no objections or material in the record to refute its findings; however, the Commission will continue to monitor the impact of the digital radio deployment and the FM translator rule change in future media ownership proceedings.

75.

Waiver Criteria.

The Commission declines to adopt specific waiver criteria for the Local Radio Ownership Rule and will continue to rely on the general waiver standard. The Commission finds that the considerations in proposals for specific waiver criteria can be advanced adequately in the context of a general waiver request under § 1.3 of the Commission's rules and notes that the Commission has an obligation to take a hard look at whether enforcement of a rule in a particular case serves the rule's purpose or instead frustrates the public interest. Therefore, the Commission concludes that adoption of a specific waiver standard is not appropriate at this time.

76.

Minority and Female Ownership.

The Commission affirms its tentative conclusion from the

FNPRM

that the current rule remains consistent with the Commission's goal to promote minority and female ownership of broadcast radio stations. While the Commission retains the existing Local Radio Ownership Rule for the specific reasons stated above, it finds that retaining the existing rule nevertheless promotes opportunities for diverse ownership in local radio ownership. This competition-based rule indirectly advances the Commission's diversity goal by helping to ensure the presence of independently owned broadcast radio stations in the local market, thereby increasing the likelihood of a variety of viewpoints and preserving ownership opportunities for new entrants. The Commission has also retained the AM/FM subcaps, in part, to help promote new entry—as noted, the AM band in particular has historically provided lower-cost ownership opportunities for new entrants.

77. Consistent with Commission analysis of the local television ownership rule above, however, the Commission finds the claim that tightening the Local Radio Ownership Rule would promote increased opportunities for minority and female ownership to be speculative and unsupported by existing ownership data. No data in the record support a contention that tightening the local radio ownership limits would promote ownership opportunities for minorities and women.

78. In addition, the Commission does not believe that Media Ownership Study 7, which considers the relationship between ownership structure and the provision of radio programming targeted to African-American and Hispanic audiences, supports the contention that tightening the local radio ownership limits would promote minority and female ownership. While the data suggest the existence of a positive relationship between minority ownership of radio stations and the total amount of minority-targeted radio programming available in a market, the potential impact of tightening the ownership limits on minority ownership was not part of the study design, nor something that can be reasonably inferred from the data.

79. Nothing in the data or any other evidence in the record permits the Commission to infer causation; therefore, the Commission declines to loosen the existing ownership limits on the basis of any trend reflected in the data. The Commission remains mindful of the potential impact of consolidation in the radio industry on ownership opportunities for new entrants, including small businesses, and minority- and women-owned businesses, and the Commission will continue to consider the implications in the context of future quadrennial reviews.

C. Newspaper/Broadcast Cross-Ownership Rule

1. Introduction

80. The Newspaper/Broadcast Cross-Ownership (NBCO) Rule prohibits common ownership of a daily newspaper and a full-power broadcast station (AM, FM, or TV) if the station's service contour encompasses the newspaper's community of publication. The rule currently in effect prohibits the licensing of an AM, FM, or TV broadcast station to a party (including all parties under common control) that directly or indirectly owns, operates, or controls a daily newspaper, if the entire community in which the newspaper is published would be encompassed within the service contour of the station, namely: (1) The predicted or measured 2 mV/m contour of an AM station, computed in accordance with § 73.183 or § 73.186; (2) the predicted 1 mV/m contour for an FM station, computed in accordance with § 73.313; or (3) the

Grade A contour of a TV station, computed in accordance with § 73.684.

81. In analyzing the NBCO Rule under section 202(h), the Commission's focus is on the rule's primary purpose—to promote viewpoint diversity at the local level. As the Commission noted in adopting the NBCO Rule, if a democratic society is to function, nothing can be more important than insuring a free flow of information from as many divergent sources as possible. Broadcast stations and daily newspapers remain the predominant sources of the viewpoint diversity that the NBCO Rule is designed to protect. The proliferation of (primarily national) content available from cable and satellite programming networks and from online sources has not altered the enduring reality that traditional media outlets are the principal sources of essential local news and information. The rapid and ongoing changes to the overall media marketplace do not negate the rule's basic premise that the divergence of viewpoints between a cross-owned newspaper and broadcast station cannot be expected to be the same as if they were antagonistically run.

82. After careful consideration of the record, the Commission concludes that regulation of newspaper/broadcast cross-ownership within a local market remains necessary to protect and promote viewpoint diversity. The Commission continues to find, however, that an absolute ban on newspaper/broadcast cross-ownership is overly broad. Accordingly, and consistent with the Commission's approach in the 2006 proceeding, the adopted rule generally prohibits common ownership of a broadcast station and daily newspaper in the same local market but provides for a modest loosening of the previous ban on cross-ownership consistent with the Commission's view that an absolute ban may be overly restrictive in some cases. The Commission finds that the benefits of the revised rule outweigh any burdens that may result from adopting the rule.

2. Discussion

a. Policy Goals

83.

Viewpoint diversity.

The record reaffirms the Commission's view that the NBCO Rule remains necessary to promote diversity, specifically viewpoint diversity. The

FNPRM

commenters that oppose this position do not present evidence persuading the Commission to alter its tentative conclusion in the

FNPRM

that newspapers and broadcast television stations, and their affiliated Web sites, continue to be the predominant providers of local news and information upon which consumers rely. For the most part, opponents of the rule reiterate the two principal arguments put forth by commenters to the initial

NPRM,

namely that: (1) Ownership does not necessarily influence viewpoint and (2) an array of diverse viewpoints is widely available from an abundance of outlets, particularly via the Internet. The Commission addressed these arguments extensively in the

FNPRM

and does not find them any more persuasive after reviewing the

FNPRM

comments.

84. With regard to the first argument, in the

FNPRM,

the Commission acknowledged that

NPRM

commenters provided examples of instances when cross-owned properties diverged in viewpoint. The Commission noted, however, that, although similar examples were provided during the Commission's 2002 and 2006 reviews, the Commission continued to restrict newspaper/broadcast cross-ownership given that an owner has the opportunity, ability, and right to influence the editorial process of media outlets it owns, regardless of the degree to which it exercises that power. The Third Circuit affirmed the Commission's reasoning that the possibility of a connection between ownership and viewpoint is not disproved by evidence that a connection is not always present. Moreover, the Commission has noted previously the existence of ample evidence pointing in the other direction, namely that ownership can affect viewpoint. In any event, the Commission's goal is to maximize the number of distinct voices in a market, which the Commission believe is achieved more effectively by relying on separate ownership rather than on a hope or expectation that owners of cross-owned properties will maintain a distance from the editorial process. The Commission's concern is not alleviated by the broadcasters' argument that consumers' ideological preferences have a greater influence on editorial slant than ownership does. Indeed, the Commission believes that such influence only increases the importance of ensuring that a multiplicity of voices are available to consumers.

85. With regard to the second argument, in the

FNPRM,

the Commission addressed arguments that the NBCO Rule is obsolete because today's consumers have access to a vast array of news sources. The Commission tentatively concluded that a cross-ownership restriction remains necessary, despite the increase in media outlets. Supporters of the rule agreed with the Commission that traditional news providers, and their affiliated Web sites, continue to be the most relied-upon sources of local news and information. In the

FNPRM,

the Commission pointed to evidence suggesting that, despite the Internet's increased role in news distribution, traditional news providers are still critical to ensuring viewpoint diversity at the local level. The record showed that independent online sources currently cannot substitute for the original reporting by professional journalists associated with traditional local media.

86. After reviewing the

FNPRM

comments, which raise substantially the same points that were addressed in the

FNPRM,

the Commission's position is unchanged. Several

FNPRM

commenters reiterate that the Commission's focus on traditional media is too narrow because other media outlets contribute to viewpoint diversity. Evidence shows, however, that the contributions of cable, satellite, and Internet sources serve as a supplement, but not as a substitute, for newspapers and broadcasters providing local news and information. A U.S. District Court judge recently rejected an argument that online sources of local news present sufficient competition to local newspapers in Orange County and Riverside County in Southern California (

United States

v.

Tribune Publishing Co.,

No. 16 CV 01822 AB (PJWx) (C.D. Cal. Mar. 18, 2016)). The judge concluded that, as creators of local content, local newspapers continue to serve a unique function in the marketplace and are not reasonably interchangeable with online sources of news. He was not convinced that the Internet renders geography and distinctions between kinds of news sources obsolete. The news and information provided by cable and satellite networks generally targets a wide geographic audience, and the record demonstrates that local news and information available online usually originates from traditional media outlets. As discussed in the

NPRM

and

FNPRM,

considerable evidence shows that most online sources of local news are affiliated with newspapers or broadcast stations or contain content that originates from those traditional sources. The Commission affirms its earlier finding that local, hyperlocal, and niche Web sites generally do not fill the role of local television stations or daily newspapers. Local television continues to dominate despite the increasing use of social media as a source of news. Moreover, the social media platforms that consumers turn to for news, such as Facebook, Twitter,

and Google, generally aggregate news stories from other sources and those sources do not focus necessarily on local news.

87. The Commission concludes that the NBCO Rule should continue to apply to newspaper/radio cross-ownership. The Commission finds that the newspaper/radio cross-ownership restriction serves the public interest because the record shows that radio stations contribute in meaningful ways to viewpoint diversity within their communities. The Commission is persuaded that radio adds an important voice in many local communities such that lifting the restriction could harm viewpoint diversity. Although the Commission tentatively concluded earlier in this proceeding that radio stations are not the primary outlets that contribute to viewpoint diversity in local markets and that consumers rely predominantly on other sources for local news and information, the Commission finds that radio's role in promoting viewpoint diversity is significant enough to warrant retention of the restriction. Therefore, the Commission declines to eliminate the restriction or to adopt a presumptive waiver standard, such as the one proposed in the

NPRM,

favoring newspaper/radio mergers in the top 20 DMAs.

88. As discussed in the

FNPRM,

the Commission's conclusion that radio contributes sufficiently to viewpoint diversity to warrant retention of the newspaper/radio cross-ownership restriction is consistent with the longstanding position that newspaper/radio combinations should be prohibited even though radio generally plays a lesser role in contributing to viewpoint diversity. A lesser role does not mean that radio plays no role. The record shows that broadcast radio stations produce a meaningful amount of local news and information content that is relied on by a significant portion of the population and, therefore, provide significant contributions to viewpoint diversity.

89. With over 90 percent of Americans listening to radio on a weekly basis, radio's potential for influencing viewpoint is great. Moreover, recent evidence suggests that radio stations air a substantial amount of local news programming. Evidence in the record also indicates that members of certain communities may rely more heavily on broadcast radio stations for local news and information. Such reliance may be especially strong when radio stations target particular demographic groups or offer news programs in a foreign language. A community radio station recently licensed in Minneapolis reports local news stories in the Somali language and provides information of particular interest to the local Somali-American community. Although the NBCO Rule does not apply to that particular station due to its low-power status, the example nonetheless demonstrates the important contributions that radio can make to viewpoint diversity.

90. Evidence of reliance on broadcast radio for local news and public information programming is important for assessing radio's contributions to viewpoint diversity; however, to be a meaningful source of viewpoint diversity in local markets, broadcast radio stations must increase the diversity of local information, not simply its availability. The record demonstrates that radio stations still contribute to viewpoint diversity by producing a meaningful amount of local news and public interest programming that is responsive to the needs and concerns of the community. Moreover, invitations to call-in to a radio program offer local residents unique opportunities to participate interactively in a conversation about an issue of local concern.

91. For the foregoing reasons, the Commission finds that radio provides an important contribution to viewpoint diversity such that lifting the newspaper/radio cross-ownership restriction in all markets across-the-board could sweep too broadly. The Commission finds that it must take care not to overlook the contributions to viewpoint diversity offered by radio stations, particularly to the extent that dedicated audiences of radio stations rely on radio as a valuable source of local news and information, and that radio stations provide an additional opportunity for civic engagement, as certain commenters attest. Thus, while the Commission previously has recognized that a radio station generally cannot be considered the equal of a newspaper or television station when it comes to providing news, in fact, for a significant portion of the population radio may play an influential role as a source for news or the medium turned to for discussion of matters of local concern.

92. Accordingly, the Commission finds that radio stations can contribute in a meaningful way to viewpoint diversity within local communities and that a newspaper's purchase of a radio station in the same local market could harm viewpoint diversity in certain circumstances. As a result, the Commission retains both the newspaper/radio and the newspaper/television cross-ownership restrictions. However, consistent with previous Commission findings, the Commission believes that enforcement of the NBCO Rule may not be necessary to promote viewpoint diversity in every circumstance and that there could be situations where enforcement would disserve the public interest. Furthermore, the Commission reaffirms its earlier findings that the opportunity to share newsgathering resources and realize other efficiencies derived from economies of scale and scope may improve the ability of commonly owned media outlets to provide local news and information. In certain circumstances, newspaper/broadcast cross-ownership may benefit the news offerings in a local market without causing undue harm to viewpoint diversity. In recognition of this, the Commission will ease the application of the prohibition through a waiver process and other modifications to the scope of the rule.

93.

Localism.

The Commission affirms its belief stated in the

FNPRM

that the nation's interest in maintaining a robust democracy through a multiplicity of voices justifies maintaining certain NBCO restrictions even if doing so prevents some combinations that might create cost-savings and efficiencies in news production. While

FNPRM

commenters proffer further examples in support of the proposition that such cost-savings and efficiencies may allow cross-owned properties to provide a higher quality and quantity of local news, these additional examples do not change the Commission's conclusion. The Commission has long accepted that proposition but also recognized that increased efficiencies do not necessarily lead to localism benefits. Furthermore, even if cost-savings are used to increase investment in local news production, the purpose of this rule is to promote and preserve the widest possible range of viewpoint; it is not, as NAB seems to suggest, to promote localism. The Commission therefore disagrees with NAB's argument that retaining cross-ownership restrictions will stymie the rule's intended benefits. Allowing media owners to achieve economies of scale and scope may enable them to disseminate a greater amount of local news over one or both of their cross-owned properties, but the costly result would be fewer independently owned outlets in the market. The loss of a local voice runs counter to the Commission's goal of promoting viewpoint diversity, regardless of whether cross-ownership is more or less likely to produce localism benefits. Although the Commission has found previously that

the NBCO Rule is not necessary to promote its localism goal, that determination, which the Commission affirms in this

Order,

does not undermine the viewpoint diversity rationale for the rule.

94.

Competition.

Promoting competition was not the Commission's primary concern when it considered implementation of the NBCO Rule, and in its 2002 biennial review the Commission found that the rule was not necessary to promote competition because newspapers and broadcast stations do not compete in the same product markets. The

FNPRM

record does not present a convincing case that is contrary to the Commission's longstanding position. The fact that broadcasters and newspapers both sell to local advertisers does not mean they compete with each other for advertising.

95. Although the Commission does not find that the rule is necessary to promote competition, it has concluded that the rule is necessary to promote viewpoint diversity. Therefore, the Commission is not swayed by the media industry's arguments that the NBCO Rule should be eliminated because it potentially limits opportunities for newspapers and broadcasters to expand their businesses. As stated in the

FNPRM,

the Commission does not believe that viewpoint diversity in local markets should be jeopardized to enable media owners to increase their revenue by pursuing cross-ownership within the same local market. Moreover, the application of the NBCO Rule has a very limited geographic scope. Even if the potential efficiencies of inter-market consolidation are fewer than those to be gained from in-market acquisitions, the rule does not prevent media owners that seek new revenue streams from acquiring properties in other markets or alternative media outlets that are not subject to the NBCO Rule.

b. Scope of the Rule

96.

Newspaper/Television Combinations.

The current rule prohibits common ownership of a daily newspaper and a television station when the Grade A contour of the station encompasses the entire community in which the newspaper is published. The Commission retained the Grade A contour approach when it revised the NBCO Rule in 2006. The trigger for the newspaper/television cross-ownership restriction therefore relies on a station's Grade A contour, which was rendered obsolete by the transition to digital television service.

97. The Commission adopts its uncontested proposal in the

FNPRM

to update the geographic scope of the restriction by incorporating both a television station's DMA and its digital service contour. Specifically, cross-ownership of a full-power television station and a daily newspaper will be prohibited when: (1) The community of license of the television station and the community of publication of the newspaper are in the same Nielsen DMA, and (2) the principal community contour (PCC) of the television station, as defined in § 73.625 of the Commission's rules, encompasses the entire community in which the newspaper is published. For the reasons provided in the

FNPRM,

the Commission will maintain the current definition of a daily newspaper as one which is published four or more days per week, which is in the dominant language in the market, and which is circulated generally in the community of publication. The Commission explained its disinclination to revise the definition such as by imposing a minimum circulation requirement. Both conditions need to be met for the cross-ownership prohibition to be triggered. The DMA requirement ensures that the newspaper and television station serve the same media market, and the contour requirement ensures that they actually reach the same communities and consumers within that larger geographic market.

98.

Newspaper/Radio Combinations.

The current rule prohibits cross-ownership when the entire community in which the newspaper is published would be encompassed within the service contour of: (1) The predicted or measured 2 mV/m contour of an AM station, computed in accordance with § 73.183 or § 73.186, or (2) the predicted 1 mV/m contour for an FM station, computed in accordance with § 73.313. Consistent with arguments made in the record, the Commission will not replace radio contours, but instead the Commission will include an additional requirement that the radio station and the newspaper be located in the same Nielsen Audio Metro market, where one is defined. In circumstances in which neither the radio station nor the newspaper is geographically located within a defined Nielsen Audio Metro market, then the trigger will be determined, as before, solely on the basis of the station's service contour. The Commission finds that the added Nielsen Audio Metro market condition will serve a valid limiting role because Nielsen Audio designations are based on listening patterns, which will focus the restriction on properties serving the same audience.

99. Specifically, in areas designated as Nielsen Audio Metro markets, cross-ownership of a full-power radio station and a daily newspaper will be prohibited when: (1) The radio station and the community of publication of the newspaper are located in the same Nielsen Audio Metro market, and (2) the entire community in which the newspaper is published is encompassed within the service contour of the station, namely: (a) The predicted or measured 2 mV/m groundwave contour of an AM station, computed in accordance with § 73.183 or § 73.186; or (b) the predicted or measured 1 mV/m contour for an FM station, computed in accordance with § 73.313. Both conditions need to be met for the cross-ownership restriction to apply, except when both the community of publication of the newspaper and the community of license of the radio station are not located in a Nielsen Audio Metro market, then only the second condition need be met. Consistent with the Local Radio Ownership Rule, the Commission will rely on Nielsen to determine whether a radio station is in the same Nielsen Audio Metro market as the newspaper's community of publication. The Local Radio Ownership Rule relies, in part, on Nielsen Audio Metro markets in applying the radio ownership limits. In that context, the Commission has developed certain procedural safeguards to deter parties from attempting to manipulate Nielsen Audio market definitions to evade the Local Radio Ownership Rules. By relying on Nielsen Audio Metro markets, where available, the revised NBCO Rule is susceptible to similar manipulation by parties; accordingly, the Commission will apply the procedures adopted in the context of the Local Radio Ownership Rule to the adopted NBCO Rule. Specifically, for purposes of this rule, a radio station will be counted as part of the Nielsen Audio Metro market in which the station's community of license is geographically located and any other Nielsen Audio Metro market in which the station is listed by BIA as home to that market. This approach will ensure that a radio station is considered to be part of each Nielsen Audio Metro market in which that station is either geographically located or competes. The Commission believes Nielsen's determination of a radio market's boundaries is useful in considering whether particular communities rely on the same media voices. The Commission believes that such a determination, combined with the actual service areas of the respective facilities, gives a stronger picture of the relevant market and instances in which the Commission should prohibit common ownership. Therefore, the

Commission believes that including consideration of the Nielsen Audio Metro market (if one exists) in the determination of when the cross-ownership prohibition is triggered will help focus the restriction specifically on those circumstances where the newspaper and broadcast facility truly serve the same audience.

c. Exception for Failed and Failing Broadcast Stations and Newspapers

100. For the reasons expressed in the

FNPRM,

the Commission will not create an exception for failed/failing stations or newspapers and no commenters addressed this issue. The current approach will not preclude waiver applicants from attempting to show how such a commitment could enhance viewpoint diversity in the local market. However, applicants seeking a waiver in part or in whole on that basis should recall the Commission's previously stated concerns that such a commitment would be impracticable to enforce and arguably might require the Commission to make content-based assessments.

101. Consistent with its proposal in the

FNPRM,

the Commission will adopt an express exception for proposed combinations involving a failed or failing newspaper, television station, or radio station. For the reasons explained below in connection with the timing of a waiver request, the Commission will require television and radio licensees to file for an exception to the NBCO Rule before consummating the acquisition of a newspaper. It stands to reason that a merger involving a failed or failing newspaper or broadcast station is not likely to harm viewpoint diversity in the local market. If the entity is unable to continue as a standalone operation, and thus contribute to viewpoint diversity, then preventing its disappearance from the market potentially can enhance, and will not diminish, viewpoint diversity.

102. The Commission adopts failed/failing criteria consistent with those proposed in the

FNPRM,

which are similar to those used for the Local Television Ownership Rule and the Radio/Television Cross-Ownership Rule. That is, a failed newspaper or broadcast station must show that, as applicable, it had stopped circulating or had been dark due to financial distress for at least four months immediately before the filing of the assignment or transfer of control application, or that it was involved in court-supervised involuntary bankruptcy or involuntary insolvency proceedings. To qualify as failing, the applicant would have to show that: (1) If a broadcast television station is the failing entity, that it has had a low all-day audience share (

i.e.,

4 percent or lower); (2) the financial condition of the newspaper or broadcast station was poor (

i.e.,

a negative cash flow for the previous three years); and (3) the combination would produce public interest benefits. In addition, as with the exemption for satellite television stations pursuant to Note 5 of § 73.3555, in the event of an assignment of license or transfer of control of the broadcast/newspaper combination, the proposed assignee or transferee would need to make an appropriate showing demonstrating compliance with the elements of the failed/failing entity exception at the time of the assignment or transfer if it wishes to continue the common ownership pursuant to this exception. Further, although the Commission is not including this failed/failing exception in Note 7 of § 73.3555 of the Commission's rules (which addresses the failed/failing waiver criteria applicable to the local television ownership rule and the radio/television cross-ownership rule), given the similarities, the precedent established in the application of Note 7 shall apply to the application of the NBCO failed/failing criteria, as appropriate. In addition, the applicants must show that the in-market buyer is the only reasonably available candidate willing and able to acquire and operate the failed or failing newspaper or station and that selling the newspaper or station to any out-of-market buyer would result in an artificially depressed price. One way to satisfy this requirement would be to provide an affidavit from an independent broker affirming that active and serious efforts had been made to sell the newspaper or broadcast station, and that no reasonable offer from an entity outside the market had been received.

103. Because the Commission is creating an exception to the NBCO Rule, rather than a waiver opportunity, applicants seeking a failed/failing entity exception need not show, either at the time of their application or during subsequent license renewals, that the tangible and verifiable public interest benefits of the combination outweigh any harms. As the Commission has concluded that the exception serves the public interest in diversity simply by preserving a media outlet, licensees need not demonstrate that the additional benefits outweigh the potential harms. Recognizing that an absolute ban on newspaper/broadcast cross ownership is overly broad, the Commission believes providing greater flexibility and certainty in the context of this rule is appropriate. Thus, the Commission believes a clear exception to the rule for failed and failing entities, rather than a waiver requiring a balancing of the harms and benefits, is appropriate to provide certainty for relief, as the Commission believes such combinations will have a minimal impact on viewpoint diversity.

d. Waiver Standard

104. Consistent with the tentative conclusion in the

FNPRM,

the Commission declines to adopt a bright-line rule that would exempt certain combinations from the newspaper/broadcast cross-ownership rule based on a certain set of criteria. Given the variability among local markets, the Commission maintains its view that blanket exemptions should not be built into the rule. As the Commission explained in the

FNPRM,

while a rule with built-in exemptions might lend greater certainty to parties considering a merger, it would not lead necessarily to the best result in an individual market. The Commission reiterates its concern that such a rule would be too blunt an instrument to be used for these types of mergers. Rather, the Commission believes that the more prudent way to ease the rule's application is through a case-by-case waiver process with a particular focus on the impact the proposed merger would have on viewpoint diversity in the market.

105. Therefore, consistent with other efforts to ease the rule's application, the Commission provides for the consideration of waiver requests of the NBCO Rule on a case-by-case basis. The Commission believes a case-by-case waiver approach will produce sensible outcomes and also improve transparency and public participation in the process. To facilitate public participation further, the Commission will require television and radio licensees to file a request for waiver of the NBCO Rule before consummating the acquisition of a newspaper, rather than at the time of the station's license renewal. As the Commission explained in the

FNPRM,

a broadcast licensee that triggered the NBCO Rule with the purchase of a newspaper previously was required, absent a waiver, to dispose of its station within one year or by the time of its next renewal date, whichever was longer. Alternatively, it could have pursued a waiver in conjunction with its license renewal, at which point interested parties could comment on the waiver request. As a result, the opportunity to comment on a licensee's acquisition of a newspaper might have arisen years after the purchase. The Commission's remedy will enable the public to comment on such acquisitions in a timely and effective manner before

the purchase is consummated. Moreover, by requiring prior approval, this approach will provide certainty to transaction participants that the proposed combination will not be subject to potential divestiture after the operations already have been integrated—a certainty that is not provided by the current approach. To alert interested parties to a proposed newspaper acquisition, the Commission will require that the Media Bureau place such waiver requests on public notice and solicit public comment on the proposed acquisition.

106. With regard to the two case-by-case options described in the

FNPRM

for considering waivers, the Commission adopts what is termed a pure case-by-case approach. That is, the Commission will evaluate waiver requests by assessing the totality of the circumstances for each individual transaction, considering each waiver request anew without measuring it against a set of defined criteria or awarding the applicant an automatic presumption based on a

prima facie

showing of particular elements. Waiver applicants will have the flexibility to present their most compelling reasons why strict application of the rule is not necessary to promote the goal of viewpoint diversity in that particular local market. Furthermore, consistent with its tentative conclusion in the

FNPRM,

the Commission declines to adopt the four-factor test that applied to waiver requests under the 2006 rule because the Commission concludes that the factors would be vague, subjective, difficult to verify, and costly to enforce. As the Commission stated in the

FNPRM,

evidence supporting considerations like those reflected in the four factors, although not required, is also not discouraged if a waiver applicant believes it would be useful in supporting its request. Thus, an applicant seeking a waiver under this approach will have to show that grant of the waiver will not unduly harm viewpoint diversity. Likewise, opponents of a transaction can respond with a range of arguments and evidence they consider most pertinent to that case. The Commission believes this approach will provide the Commission the flexibility needed to allow due consideration of all factors relevant to a case, without spending time and resources assessing presumptive criteria that may not be useful for a particular review. The 2006 rule required a waiver applicant attempting to overcome a negative presumption to show, with clear and convincing evidence, that the merged entity would increase diversity and competition. In the

FNPRM,

the Commission proposed not to incorporate the requirement into any presumptive waiver standard that the Commission might adopt.

FNPRM

commenters did not address the issue, and the Commission's concern remains that the requirement would impose an overly burdensome evidentiary standard. Although the issue arguably is mooted by the Commission's decision not to adopt a presumptive waiver standard, the Commission also will not incorporate that standard into the adopted waiver approach. Thus, the Commission can hone in quickly on the most important considerations of the proposed transaction and approach them with an openness that might not occur with a set framework. The Commission believes that, as a result, it will be able to determine more accurately and precisely whether a proposed combination will have an adverse impact on viewpoint diversity in the relevant local market. If a proposed combination does not present any undue harm to viewpoint diversity, which is the underlying purpose of the rule, then prohibiting the combination is not necessary in the public interest.

107. The Commission recognizes that a case-by-case approach with presumptive guidelines, such as the one described in the

FNPRM,

potentially could offer waiver applicants greater certainty and consistency. The criteria proposed in this proceeding, however, were widely criticized and rejected by commenters. Ultimately, the Commission is persuaded by the criticism in the record that the proposed presumptive guidelines should not be adopted. Moreover, the Commission is concerned that any presumptive approach could result in an unduly rigid evaluation of a waiver application. Instead, the Commission believes that the pure case-by-case approach is the appropriate way to assess requests for waiver of the NBCO Rule. For all the reasons that favor a pure case-by-case approach, plus those stated in the

FNPRM,

the Commission declines to adopt Cox's proposal for a two-part test that would measure every proposed transaction against the same set of fixed criteria. As the Commission stated in the

FNPRM,

it believes that the first part of Cox's proposed test would define independent media voices too broadly and that the second part of Cox's proposed test would be difficult to apply and enforce in an objective, content-neutral manner.

108. In addition, the Commission disagrees with Cox that a pure case-by-case approach is necessarily a retreat from a presumptive waiver standard. Rather, a pure case-by-case approach lifts the potential burden of having to overcome a negative presumption. Regardless, the Commission's intent in choosing a pure case-by-case approach over a presumptive waiver standard is not to increase or decrease the number of waiver approvals; it is to increase the likelihood of achieving the proper result in each individual case. Applying presumptive criteria can work well in other contexts and for other rules, but, under the current record and given the nature of viewpoint diversity and its dependency on the particular facts and circumstances of a specific market, the Commission finds that a pure case-by-case approach is best suited for handling requests for waiver of this rule.

109. The Commission also disagrees with Cox that a pure case-by-case approach is the equivalent of not having a waiver standard. To be clear, the Commission's standard requires applicants seeking a waiver of the NBCO Rule to show that their proposed combination would not unduly harm viewpoint diversity in the local market. The pure case-by-case approach describes the method by which the Commission will determine whether this standard is met. The method of examining the totality of the circumstances may entail a broad review, but the standard to be met is narrowly focused on the impact on viewpoint diversity. The Commission anticipates that the precedent that evolves from future waiver decisions will provide further guidance to entities considering a merger.

110. The Commission clarifies that this waiver standard is distinct from the traditional waiver standard under section 1.3, which requires a showing of good cause and applies to all Commission rules. By specifically allowing for a waiver of the NBCO Rule in cases where applicants can demonstrate that the proposed combination will not unduly harm viewpoint diversity, the Commission signals its recognition that there may be instances where enforcing the prohibition against ownership of a newspaper and broadcast station is not necessary to serve the rule's purpose of promoting viewpoint diversity in the local market. Indeed, the Commission's determination herein is that the public interest would not be served by restricting specific combinations that do not unduly harm viewpoint diversity. While in the context of section 1.3 waiver requests the Commission has considered showings of undue hardship, the equities of a particular case, or other good cause, in this particular context an applicant is

required to make a narrower showing, and a waiver will be granted so long as the applicants can demonstrate that viewpoint diversity will not be unduly harmed as a result of the proposed combination. The NBCO waiver standard does not replace or limit a waiver applicant's available options under section 1.3. Indeed, while the NBCO waiver standard articulated focuses specifically on the impact of the proposed merger on viewpoint diversity in the local market and requires applicants to make a showing as to such impact, waiver requests under section 1.3 could include a broader public interest showing, under which parties can assert any variety of considerations they believe warrant waiver of the rule consistent with established precedent. Waiver of the Commission's policies or rules under section 1.3 is appropriate only if both (1) special circumstances warrant a deviation from the general rule, and (2) such deviation will serve the public interest. Under this section, the Commission may take into account considerations of hardship, equity, or more effective implementation of overall policy on an individual basis. Although the Commission must give waiver requests a hard look, an applicant for waiver under section 1.3 faces a high hurdle even at the starting gate and must support its waiver request with a compelling showing.

111.

FNPRM

commenters did not address the Commission's question whether a case-by-case approach should incorporate, or disavow, these waiver criteria, which remain in effect along with the current rule. Accordingly, because of the lack of comment on these criteria (for or against), and for the reasons discussed above, the Commission is adopting a new waiver standard that replaces these earlier divestiture waiver criteria.

e. Grandfathering

112. The Commission will grandfather, to the extent required, any existing newspaper/broadcast combinations that no longer comply with the NBCO Rule as a result of the changes to the scope of the rule. In addition, as stated in the

FNPRM,

the Commission will continue to allow all combinations currently in existence that have been grandfathered or approved by permanent waiver to the extent that grandfathering/permanent waivers are still necessary to permit common ownership. As the Commission explained, it leaves in place any filing deadlines the Commission has imposed previously on specific parties related to cross-ownership proceedings. Consistent with Commission precedent, grandfathered combinations, including those subject to permanent waivers, are not transferrable. The Commission disagrees with assertions that, contrary to longstanding Commission precedent, grandfathered and approved combinations should be freely transferable in perpetuity. As stated in the

FNPRM,

the Commission will continue to allow grandfathered status to survive

pro forma

changes in ownership and involuntary changes of ownership due to death or legal disability of the licensee. The Commission's approach strikes the appropriate balance between avoiding imposition of the hardship of divestiture on owners of existing combinations that have owned a combination in reliance on the rules and moving the industry toward compliance with current rules when owners voluntarily decide to sell their properties. A transferee or assignee of the properties must comply with the NBCO Rule in effect at the time of the transaction or obtain a new waiver. This requirement applies to the transfer of existing combinations already grandfathered or approved and to the transfer of combinations grandfathered as a result of becoming non-compliant due to the changes to the scope of the rule.

f. Minority and Female Ownership

113. The Commission has declined to adopt the potential rule changes that commenters argue could lead to increased consolidation to the possible detriment of minority- and women-owned businesses. Instead, the adopted rule generally prohibits common ownership of a broadcast station and daily newspaper in the same local market but provides for a modest loosening of the previous ban on cross-ownership through revisions to the rule's geographic scope, creation of an exception for failed/failing entities, and adoption of a viewpoint diversity-based waiver standard. The Commission does not believe that these modest revisions are likely to result in significant new combinations, nor does the record establish that significant demand exists for newspaper/broadcast combinations; indeed, the trend is in the opposite direction, as cross-owned combinations are being severed. Moreover, as discussed in the

FNPRM,

the Commission finds that the record fails to demonstrate that the modifications to the adopted NBCO Rule are likely to result in harm to minority and female ownership. Additionally, the study that Free Press proposes, which involves examining grandfathered combinations separately from waived combinations, would be unlikely to provide useful results given the small sample size available for each of those categories (Free Press's own criticisms of the MMTC Cross-Ownership Study are instructive in this regard). Nor is such a study necessary given the existing record evidence and the modest revisions adopted.

114. Ultimately, while the Commission adopts the revised NBCO Rule based on its viewpoint diversity goal, and not with the purpose of preserving or creating specific amounts of minority and female ownership, the Commission finds that this rule nevertheless helps to promote opportunities for diversity in broadcast television and radio ownership. The rule helps to increase the likelihood of a variety of viewpoints and to preserve potential ownership opportunities for new voices.

D. Radio/Television Cross-Ownership Rule

1. Introduction

115. The Radio/Television Cross-Ownership Rule prohibits an entity from owning more than two television stations and one radio station within the same market, unless the market meets the following size criteria. The rule applies only to commercial stations. If at least 10 independently owned media voices would remain in the market post-merger, an entity may own up to two television stations and four radio stations. If at least 20 independently owned media voices would remain in the market post-merger, an entity may own either: (1) Two television stations and six radio stations, or (2) one television station and seven radio stations. In all instances, entities also must comply with the local radio and local television ownership limits. The market is determined by looking at the service contours of the relevant stations. The rule specifies how to count the number of media voices in a market, including television stations, radio stations, newspapers, and cable systems.

116. After consideration of the full record, including the further comments received in response to the

FNPRM,

the Commission concludes that the Radio/Television Cross-Ownership Rule continues to be necessary given that radio stations and television stations both contribute in meaningful ways to promote viewpoint diversity in local markets. The Commission's finding is consistent with its decision in the

2006 Quadrennial Review Order

to retain the rule, which the Third Circuit upheld. In the

NPRM

and

FNPRM,

the Commission asked whether the rule continues to serve the public interest by preserving

viewpoint diversity in local markets or whether the local radio and television ownership rules alone would protect these goals adequately. The Commission has concluded that the rule continues to play an independent role in serving the public interest separate and apart from the local radio and television ownership rules, which are designed primarily to promote competition. Accordingly, given the important policy interests at stake, the Commission will retain the cross-ownership rule to ensure that consumers continue to have access to a multiplicity of media voices.

2. Discussion

117. The Commission concludes that the Radio/Television Cross-Ownership Rule should be retained because it finds that radio stations are meaningful contributors to viewpoint diversity within their communities. The Commission finds that broadcast radio and television stations are valuable mediums for viewpoint expression such that losing a distinct voice through additional consolidation could disserve the public interest. The Commission recognizes that the current rule permits a degree of common ownership, especially in larger markets, but that latitude is not a sufficient reason to ignore the potential harms to viewpoint diversity that may result from further consolidation. The Commission believes that a significant risk of harm exists in potentially reducing the number of diverse and antagonistic information sources within a market. Therefore, the Commission retains the Radio/Television Cross-Ownership Rule, with modifications limited to updating its obsolete references to analog television service contours, to protect viewpoint diversity in local markets. Consistent with Commission analysis in the NBCO context, it finds that Radio/Television Cross-Ownership Rule is not necessary to promote competition or localism in local markets. In the

FNPRM,

the Commission recognized that cross-ownership can create efficiencies that may result in public interest benefits, such as localism. However, there is no guarantee that owners will use any gains produced by such efficiencies to benefit consumers.

118.

Retaining the Rule.

While broadcast television stations and newspapers may be the primary sources of viewpoint diversity in local markets, the current record shows that broadcast radio contributes to viewpoint diversity in meaningful ways. Moreover, platforms such as the Internet or cable do not contribute significantly to viewpoint diversity in local markets and therefore do not meaningfully protect against the potential loss of viewpoint diversity that would result from increased radio/television cross-ownership. The Commission is cognizant of the fact that consumers' reliance on radio for local news and information has declined over time, as has the number of all-news commercial radio stations. While broadcast radio stations have historically been a less significant source of viewpoint diversity than newspapers and broadcast television stations, the Commission has still been justified in its efforts to regulate cross-ownership. Nonetheless, the Commission finds that it would be inconsistent with the goal of preserving viewpoint diversity to rescind the Radio/Television Cross-Ownership Rule and allow greater consolidation to diminish the viewpoint diversity available in local markets.

119. As acknowledged in the

FNPRM,

the existing rule already permits various levels of cross-ownership, based on the size of the market. The Commission sought comment in the

FNPRM

on the extent to which the rule constrains consolidation beyond what is permitted under the local television and local radio ownership rules and whether those rules would be sufficient to protect Commission policy goals absent the Radio/Television Cross-Ownership Rule. The Commission tentatively concluded that eliminating the rule would have no effect on the number of television stations an entity could own in a market and would permit the acquisition of only one or two additional radio stations in large markets. As the Commission has found previously, however, the existing limits strike an appropriate balance between the protection of viewpoint diversity and the potential public interest benefits that could result from the efficiencies gained by common ownership of radio and television stations in a local market. While relying solely on the local television and local radio ownership rules, each designed to promote competition, might result in only limited additional consolidation, there would still be a loss to viewpoint diversity if the Radio/Television Cross-Ownership Rule were eliminated. Although the Commission continues to find that, in general, newspapers and television stations are the main sources that consumers turn to for local news and information, and the Commission previously has held that radio generally plays a lesser role in contributing to viewpoint diversity, it nevertheless concludes that radio contributes meaningfully to viewpoint diversity. The record shows that broadcast television and radio are both important sources of viewpoint diversity in local markets; accordingly, the Commission finds that the public interest is best served by retaining the existing rule to protect viewpoint diversity in these markets. The

FNPRM

referenced

Prometheus I

for the proposition that mergers involving media that are not significant sources of local news do not pose a serious threat to viewpoint diversity. The cited discussion in

Prometheus I

does not contradict the Commission's conclusion that radio's contributions to viewpoint diversity are significant enough to warrant the rule's retention. Rather,

Prometheus I

supports the Commission's current view that cable and satellite television and the Internet are not significant sources of independently produced local news and information.

120. Finally, the Commission asked in the

NPRM

how the results of Media Ownership Studies 8A and 8B, which found little to no correlation between radio/television cross-ownership and viewpoint diversity, should inform its analysis. As explained in the

FNPRM,

Media Ownership Study 8A analyzes the impact of radio/television cross-ownership on viewpoint diversity available in local markets by examining how consumers react to content. Media Ownership Study 8B examines the impact of media ownership, including radio/television cross-ownership, on the amount of programming provided in television news programs in three categories: Politics, local programming, and diversity in coverage of news topics. The Commission did not receive meaningful comment on how the results of these studies should inform its analysis. Based on Commission review, these studies provide some evidence that common ownership does not always limit viewpoint diversity. The Commission already has recognized that some evidence exists that cross-ownership does not always limit viewpoint diversity. However, the Commission also has found that the possibility of a connection between ownership and viewpoint is not disproved by evidence that a connection is not always present. Indeed, the Commission has noted previously the existence of ample evidence that ownership can affect viewpoint. As noted in the context of the NBCO Rule, the Commission believes the best way to promote viewpoint diversity is by maximizing the number of independently owned stations in a market, not by relying on a hope or expectation that cross-owned properties will maintain distinct voices. The

Commission finds, however, that the conclusions in these studies are too limited to serve as a basis for a rule change. The authors of Media Ownership Study 8A caution that their evidence does not provide any conclusive basis for policymaking, that they do not make any claims of causality, and that their findings are based on limited data. The authors of Media Ownership Study 8B, while forming more detailed conclusions than in Media Ownership Study 8A, concede that they were forced to rely on limited variation in many policy variables, a constraint that leads to less precise estimates, making it difficult to identify the effects of interest. Ultimately, while the studies do present interesting findings based on indirect means of measuring viewpoint diversity, the Commission does not find that the results—standing in contrast to the record evidence demonstrating the importance of broadcast radio and television stations to viewpoint diversity in local markets—justify elimination of the Radio/Television Cross-Ownership Rule.

121.

Contour Modifications.

In the

NPRM,

the Commission sought comment on how the Radio/Television Cross-Ownership Rule could be modified to account for the fact that the analog broadcast television contours upon which the rule relies became obsolete with the transition to digital television service. The Commission observed that the digital NLSC approximates the Grade B contour but that the Grade A contour does not have a digital equivalent. Given that the Commission is retaining the rule and did not receive any comments on this issue in the context of this rule, the Commission will draw from the relevant discussions and comments in the context of other rules to make the modifications necessary to update the Radio/Television Cross-Ownership Rule.

122. The first of these modifications updates the television contour used to determine when the rule is triggered. The digital PCC, as defined in § 73.625 of the Commission's rules, will replace the analog Grade A contour when assessing whether a television station's contour encompasses a radio station's community of license. This change is consistent with the Commission's replacement of the Grade A contour for purposes of the NBCO Rule. Additionally, as stated in the

FNPRM,

a television station's PCC ensures reliable service for the community of license, is already defined in the Commission's rules, and can be verified easily in the event of a dispute.

123. The second modification updates the use of a television station's Grade B contour for purposes of determining how many media voices would remain in a market following a station acquisition. A television station's digital NLSC, the digital approximate of the Grade B contour, will replace that analog measurement. Therefore, the Commission will count as media voices those independently owned and operating full-power broadcast television stations within the DMA of the television station's (or stations') community (or communities) of license that have digital NLSCs that overlap with the digital NLSC(s) of the television station(s) at issue. This digital NLSC substitution is consistent with the Commission's replacement of the Grade B contour in the Local Television Ownership Rule.

124.

Grandfathering.

Due to the contour modifications the Commission adopts herein, there may be circumstances in which an existing combination now will be impermissible under the revised rule. Consistent with the Commission's approach in adopting technical modifications to the Local Television Ownership Rule and the NBCO Rule, the Commission will grandfather any existing combinations, so long as they are held by their current owners, to avoid imposing the hardship of divestiture on owners previously compliant with the rules. However, subsequent purchasers must either comply with the rule in effect at that time or obtain a waiver. Thus, stations that are subject to license assignment or transfer of control applications will be required to comply with the applicable rules, except that grandfathering will continue to apply to stations that are subject to

pro forma

changes in ownership and involuntary changes of ownership due to death or legal disability of the licensee.

125.

Minority and Female Ownership.

While the Commission retains the existing Radio/Television Cross-Ownership Rule (with minor contour modifications) based on its viewpoint diversity goal, and not with the purpose of preserving or creating specific amounts of minority and female ownership, the Commission finds that retaining the existing rule nevertheless helps to promote opportunities for diversity in broadcast television and radio ownership. The rule helps to increase the likelihood of a variety of viewpoints and to preserve ownership opportunities for new entrants.

E. Dual Network Rule

1. Introduction

126. Based on the record compiled in the 2010 and 2014 Quadrennial Review proceedings, the Commission finds that the Dual Network Rule, which permits common ownership of multiple broadcast networks but prohibits a merger between or among the top-four networks (specifically, ABC, CBS, Fox, and NBC), continues to be necessary to promote competition and localism and should be retained without modification. The rule provides that a television broadcast station may affiliate with a person or entity that maintains two or more networks of television broadcast stations

unless

such dual or multiple networks are composed of two or more persons or entities that, on February 8, 1996, were networks as defined in § 73.3613(a)(1) of the Commission's regulations. The Third Circuit upheld the Commission's decision in the

2006 Quadrennial Review Order

to retain the dual network rule to promote competition and localism. The Commission finds that, in comparison to other broadcast and cable networks, the top-four broadcast television networks have a distinctive ability to attract larger primetime audiences on a regular basis, which enables the top-four networks to earn higher rates from those advertisers seeking to reach large, national mass audiences consistently. By reducing the number of choices available to such advertisers, a combination among top-four broadcast networks could substantially lessen competition and lead the networks to pay less attention to viewer demand for innovative, high-quality programming. The Commission also finds that the Dual Network Rule remains necessary to preserve the ability of affiliates to influence network decisions in a manner that best serves the interests of their local communities, thereby maintaining the balance of bargaining power between the top-four networks and their affiliates. The Commission concludes that the benefits of retaining the rule outweigh any potential burdens.

2. Discussion

127.

Competition.

The Commission concludes that the Dual Network Rule continues to be necessary in the public interest to foster competition in the provision of primetime entertainment programming and the sale of national advertising time. The Commission continues to believe that at present these four major networks continue to constitute a strategic group in the national advertising marketplace and

compete largely among themselves for advertisers that seek to reach comparatively large, national audiences. Accordingly, the Commission finds that a top-four network merger would substantially lessen competition for advertising dollars in the national advertising marketplace, which would, in turn, reduce incentives for the networks to compete with each other for viewers by providing innovative, high-quality programming. Based on their distinctive characteristics relative to other broadcast and cable networks, the Commission concludes that the top-four broadcast networks continue to serve a unique role in the provision of primetime entertainment programming and the sale of national advertising time that justifies the retention of this rule specific to them.

128. The Commission finds that the top-four broadcast networks continue to attract primetime audiences that are more consistent and larger than those achieved by other broadcast or cable networks, as measured both by the audience size for individual programs and by the audience size for each network as a whole. The primetime entertainment programming supplied by the top-four broadcast networks generally is designed to appeal to a mass audience, and financing such programming on the scale needed for a consistent primetime lineup, in turn, requires investment of substantial revenues that only a consistently large, mass audience can provide. Thus, the primetime entertainment programming that the top-four networks provide to their affiliated local stations is intended to attract on a regular basis both mass audiences and the advertisers that want to reach them. This is in contrast to other broadcast networks, and many cable networks, which tend to target more specialized, niche audiences. Due to their targeted approaches, programming on these networks attracts smaller audiences than the top-four networks.

129. The Commission notes that in recent years some cable networks may have modified their primetime lineups to more closely resemble those of broadcast networks and that some online video providers have started offering original programming that may also attract sizable audiences. Nonetheless, at this time the Commission does not believe that cable networks or online providers have assembled a platform of programming that is consistently of the same broad appeal and audience share, on the whole, as the primetime enter

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