Policies and Rules Regarding Minority and Female Ownership of Mass Media Facilities

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 73

[MM Docket Nos. 94-149 and 91-140; FCC 94-323]

Policies and Rules Regarding Minority and Female Ownership of

Mass Media Facilities

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: The Notice of Proposed Rule Making seeks comment on a number

of initiatives aimed at increasing minority and female ownership of

mass media facilities. These initiatives include an incubator program

whereby existing operators assist minority and female operators in

purchasing facilities, an exception to the Commission's attribution

rules to permit an individual to hold a larger interest in minority or

female-controlled properties than is generally permissible,

modifications to the Commission's existing tax certificate policy, and

other mechanisms designed to facilitate minority and female ownership.

The actions proposed in the Notice of Proposed Rule Making are needed

to provide greater opportunities for minorities and women to become

operators of mass media facilities and, where applicable, to expand

their present holdings.

DATES: Comments are due April 17, 1995 and reply comments are due May

17, 1995.

ADDRESSES: Federal Communication Commission, Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT:

Jane Hinckley Halprin or Diane Conley, Mass Media Bureau, Policy and

Rules Division, (202) 418-2130.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's

Notice of Proposed Rule Making in MM Docket Nos. 94-149 and 91-140,

adopted December 15, 1994, and released January 12, 1995.

The complete text of the Notice of Proposed Rule Making is

available for inspection and copying during normal business hours in

the FCC Reference Center (Room 239), 1919 M Street, NW., Washington,

DC, and also may be purchased from the Commission's duplicating

contractor, International Transcription Service, 2100 M Street, NW.,

Washington, DC 20036, (202) 857-3800.

Synopsis of Notice of Proposed Rule Making

1. The Commission initiates this proceeding to explore ways to

provide minorities and women with greater opportunities to enter the

mass media industry, specifically including the broadcast, cable,

wireless cable and low power television services. Its purpose in doing

so is to further the core Commission goal of maximizing the diversity

of points of view available to the public over the mass media, and to

provide incentives for increased economic opportunity.

2. While the Commission's existing minority ownership incentives

(including the tax certificate and distress sale policies and the

minority ownership rules) have facilitated the acquisition of broadcast

and cable [[Page 6069]] properties by minorities, the overall

representation of minorities among broadcast station or cable owners

remains for below their presence in the national population and the

civilian labor force. Women have likewise traditionally been

underrepresented among mass media owners.

3. The Commission requests that commenters provide current data

regarding female ownership of mass media facilities. The Commission

invites commenters to discuss whether, if it is ultimately established

that women are underrepresented, each of the initiatives proposed below

to promote minority ownership should also be applied to women. The

Commission notes that, in the past, female owners were eligible for a

preference in comparative broadcast hearings, but that policy was

invalidated by the U.S. Court of Appeals for the District of Columbia

in Lamprecht v. FCC, 958 F.2d 382 (DC Cir. 1992). Lamprecht found that

the Commission had failed to show a nexus between women's ownership of

broadcast stations and diversity of programming. The Commission asks

commenters to specifically address the extent to which female ownership

contributes to diversity of programming distributed by the mass media

and to provide evidence.

4. As an alternative legal justification for providing incentives

for greater ownership of mass media facilities by both minorities and

women, apart from diversity of programming, the Commission solicits

comment on whether it should instead rely on an economic rationale.

This concept was espoused by Congress in 1993 when it adopted Section

309(j) of the Communications Act, 47 U.S.C. Sec. 309(j), in which

Congress specifically recognized that it is consistent with the public

interest to adopt competitive bidding procedures that promote economic

opportunity for a wide variety of applicants, including minorities and

women. The Commission seeks comment on economic disadvantages faced by

minorities and women.

5. The Notice proposes specific mechanisms intended to increase

minority and female ownership of mass media facilities, and

particularly seeks to increase those groups' access to capital. The

suggestions presented in the Notice are not intended to be exhaustive;

the Commission encourages commenters to propose other ways to advance

minority and female ownership of mass media outlets.

Incubator Programs

6. First, the Commission discusses ways to refine the Commission's

previous proposal to create an ``incubator'' program whereby existing

mass media entities would be encouraged, through ownership-based

incentives, to assist new entrants to the communications industry. In

return for providing certain types of assistance to a minority or

female entrepreneur seeking to acquire a mass media facility, the

incubating entity would be permitted to exceed the otherwise applicable

ownership limits.

7. The Commission seeks comment on the structure of an acceptable

incubator program. The Commission proposes that an acceptable incubator

program must include, at a minimum, three elements: (1) substantial

financial assistance (e.g., direct equity participation, loan

guarantees or long-term low interest loans at, for example, one-half

the market rate); (2) operational assistance (such as technical advice

or assistance with station operations and management); and (3) training

programs for new broadcasters and/or station personnel.

8. The Commission also asks commenters to discuss at what point the

incubating owner should be permitted to acquire additional facilities.

For example, should the Commission adopt a one-year waiting period

i.e., an incubator program must have been in place for one year before

the incubating entity may purchase additional facilities? In the

alternative, given that the purpose of an incubator program is to

enable the incubated entity to purchase a facility, the incubating

entity could be permitted to acquire an additional facility as soon as

the incubated facility is purchased and operational, subject to a one-

year holding requirement on the part of the incubated owner.

9. In addition, the Commission seeks comment on how many mass media

properties a group owner participating in such a program should be

permitted to acquire above the applicable ownership limit. Should a TV

licensee, for example, be allowed to acquire one additional TV station

for every two TV stations it incubates? Further, the Commission

proposes to require that the additional facilities acquired by the

incubating owner are of comparable value to the incubated station. It

would not permit, for example, an owner incubating an FM radio station

to acquire an additional VHF TV station. It also proposes that the

facility acquired by the incubating entity must be within five markets

above the incubated facility's market rank, or must be in a market

ranked below the incubated facility's market. A parallel formulation

would also be needed in the cable television context so that the

additional facilities or ``households'' passed in excess of what is

ordinarily permitted by the rules has comparable size or value in

relationship to the incubated facility. The Commission also asks

whether broadcasters participating in the incubator program should be

allowed to exceed both the national and local multiple ownership

limits.

Attribution Rules

10. Next, the Commission seeks comment on whether and how to modify

its ownership attribution rules to increase investment in minority and

female-controlled properties and further to benefit minority and female

owners. The Commission's broadcast attribution rules, set forth in the

notes to 47 CFR 73.3555, are used to determine whether particular media

holdings will be considered ownership interests for purposes of

applying the Commission's multiple ownership rules. Parallel provisions

appear in the cable television rules, 47 CFR 76.501. In general, any

interest that represents five percent or more of the outstanding voting

stock of a company is an attributable ownership interest and thus is

counted in determining compliance with the multiple ownership limits.

11. The Commission suggests that one of the options made available

to ``designated entities'' bidding for PCS licenses could be adapted as

follows: If a minority or female individual or entity or group of

individuals or entities holds more than 50 percent of the voting stock

of a corporate broadcast licensee or other mass media entity, with at

least 15 percent of the company's equity, then no other interests in

that entity will be attributable. The Commission asks whether the rule

should apply locally as well as nationally, and, if so, whether the

rule should be limited to large markets with a specified number of

outlets and independent voices.

12. The above rule, as proposed, would permit an investor to hold

49.9 percent of the voting stock in an unlimited number of minority or

female-controlled entities. The Commission seeks comment on whether to

adopt a numerical limit on the number of interests in minority or

female-controlled stations that would, under this exception, be

considered not attributable to the investor.

13. Further, this proposed rule would require that the minority or

female owner or owners actually control the licensee. The Commission

questions [[Page 6070]] how control should be determined. The

Commission proposes to require, as a safeguard against misuse, that

each licensee wishing to qualify for the benefits of the rule certify

on its application for transfer, assignment or renewal that investors

taking advantage of this exception (i.e., non-minority or male

investors holding shares above the applicable attribution benchmark who

seek to have their interests deemed non-attributable) do not exercise

control over the day-to-day operations of the broadcast station.

Tax Certificates

14. The Commission next explores ways to expand its existing tax

certificate policy to encourage entities to sell their mass media

holdings to minorities and women, and to make it easier for minority

and female operators to upgrade their facilities.

15. Exercising the authority conferred upon it by Section 1071 of

the Internal Revenue Code, 26 U.S.C. 1071, the Commission has, since

1978, issued tax certificates to promote minority ownership of

broadcast stations. Under the current policy, tax certificates are

available to (1) individuals and entities that sell a broadcast station

or cable system to a minority-controlled purchaser and (2) equity

holders in a minority-controlled broadcasting or cable entity upon the

sale of their equity, provided that their interest assisted in

financing the acquisition of a broadcast or cable property or was

purchased within the first year after broadcast license issuance, thus

contributing to the stabilization of the entity's capital base.

16 A tax certificate enables the seller to defer for two years the

gain realized by (1) treating it as an involuntary conversion, under 26

U.S.C. 1033, with the recognition of gain avoided by the acquisition of

qualified replacement property; or (2) electing to reduce the basis of

certain depreciable property, under 26 U.S.C. 1071, or both.

17. Over the past several years, a number of parties have suggested

that the policy could be of even greater benefit to minority owners if

the Commission and the Internal Revenue Service set up a working group

to change certain IRS rules regarding tax certificates. They proposed,

for example, that the Commission ask the IRS to revise its 1966 ruling

that requires a holder of a tax certificate to reinvest the proceeds of

a sale in a corporation that directly operates a communications

business, as opposed to a holding company. They also proposed that the

Commission ask the IRS to revisit revenue rulings holding that the

purchase of interests in a partnership does not qualify as replacement

property. In addition, they urge the Commission to ask the IRS to

increase the deferred period from two years to at least four years.

Another suggestion that has come up in informal discussion with

minority mass media operators in that the Commission seek to expand the

definition of suitable reinvestment property for a mass media seller to

include any communications business. The Commission seeks comment on

these proposals and invite commenters to suggest other ways the tax

certificate policy could be used to further the goals set out in the

Notice.

18. Further, the Commission notes that it has been suggested that

the tax certificate policy be extended to investors that provide start-

up capital for minority-controlled cable programmers, and seeks comment

on this proposal. The Commission also asks whether it should grant tax

certificates to minority MMDS operators or minority video programmers.

The Commission also raises the issue of making a tax certificate

available to a minority operator that sells its facility to a non-

minority buyer if the minority seller uses the proceeds to invest in a

controlling interest in a more valuable mass media property. In

addition, commenters are requested to discuss how the tax certificate

policy could be modified to increase female ownership of mass media

facilities.

Other Mechanisms

19. The Commission discusses other ideas that might also contribute

to greater minority and female ownership of mass media facilities,

including (1) proposing legislation regarding an investment tax credit

for investors in minority-controlled communications corporations; (2)

streamlining certain aspects of its broadcast application procedures

for applicants funded by Specialized Small Business Investment

Companies (SSBICs); and (3) adopting a local radio ownership cap that

would permit a minority-controlled entity to own up to three AM

stations of any type and up to three Class A FM stations in markets

with at least 15 stations, subject to a combined audience share

limitation of 30 percent. The Commission seeks comment on these

proposals, and specifically asks whether it should adopt a national

ownership cap for women similar to its national TV and radio ownership

caps for minority, or any other parallel proposal.

Data Collection

20. Finally, the Commission seeks comment on whether to revise its

Annual Ownership Report form, FCC Form 323, to include a section

requiring owners to identify their race or ethnicity and their gender.

The Commission also asks commenters to submit relevant data regarding

any apparent impact that increased consolidation of facilities

resulting from relaxation of the multiple ownership rules has had on

minority and female owners, including the impact of local marketing

agreements (LMAs) between stations.

21. Ex Parte Rules--Non-Restricted Proceeding. This is a non-

restricted notice and comment rulemaking proceeding. Ex parte

presentations are permitted, except during the Sunshine Agenda period,

provided that they are disclosed as provided in the Commission's Rules.

See 47 CFR 1.1202, 1.1203, 1.1206.

22. Comment Information. Pursuant to applicable procedures set

forth in Sections 1.415 and 1.419 of the Commission's Rules, interested

parties may file comments on or before April 17, 1995, and reply

comments on or before May 17, 1995. All relevant and timely comments

will be considered by the Commission before final action is taken in

this proceeding. To file formally in this proceeding, participants must

file an original and four copies of all comments, reply comments and

supporting comments. If participants want each Commissioner to receive

a personal copy of their comments, an original plus nine copies must be

filed. Comments and reply comments should be sent to the Office of the

Secretary, Federal Communications Commission, Washington, DC 20554.

Comments and reply comments will be available for public inspection

during regular business hours in the FCC Reference Center (Room 239) of

the Federal Communications Commission, 1919 M Street NW., Washington,

DC 20554.

23. Initial Regulatory Flexibility Analysis.

I. Reason for the Action

This proceeding was initiated to explore ways to increase minority

and female ownership of broadcasting facilities.

II. Objective of This Action

The actions proposed in the Notice are intended to facilitate

minority and female entry into mass media services, and are

particularly aimed at increasing those groups' access to capital.

III. Legal Basis

Authority for the actions proposed in this Notice may be found in

sections 4 and 303 of the Communications Act of 1934, as amended, 47

U.S.C. 154, 303. [[Page 6071]]

IV. Reporting, Recordkeeping and Other Compliance Requirements Inherent

in the Proposed Rule

The Notice seeks comment as to whether to add to the Commission's

annual ownership report form a section in which owners would disclose

their gender and their race or ethnicity.

V. Federal Rules Which Overlap, Duplicate or Conflict With the Proposed

Rule

None.

VI. Description, Potential Impact and Number of Small Entities Involved

Approximately 11,000 existing television and radio broadcasters,

approximately 11,000 cable television operators and approximately 150

MMDS operators of all sizes may be affected by the proposals contained

in this decision.

VII. Any Significant Alternatives Minimizing the Impact on Small

Entities and Consistent With the Stated Objectives

The proposals contained in this Notice do not impose additional

burdens on small entities.

As required by section 603 of the Regulatory Flexibility Act, the

Commission has prepared an Initial Regulatory Flexibility Analysis

(IRFA) of the expected impact on small entities of the proposals

suggested in this document. Written public comments are requested on

the IRFA. These comments must be filed in accordance with the same

filing deadlines as comments on the rest of the Notice, but they must

have a separate and distinct heading designating them as responses to

the Regulatory Flexibility Analysis. The Secretary shall send a copy of

this Notice of Proposed Rule Making, including the IRFA, to the Chief

Counsel for Advocacy of the Small Business Administration in accordance

with paragraph 603(a) of the Regulatory Flexibility Act (Pub. L. No.

96-354, 94 Stat. 1164, 5 U.S.C. Section 601 et seq. (1981)).

List of Subjects in 47 CFR Part 73

Radio broadcasting.

Federal Communications Commission.

William F. Caton,

Acting Secretary.

[FR Doc. 95-2420 Filed 1-31-95; 8:45 am]

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