Broadcast Services; Television and Radio Broadcasting

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 73

[MM Docket Nos. 94-150, 92-51, and 87-154; FCC 94-324]

Broadcast Services; Television and Radio Broadcasting

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commission, through Notice of Proposed Rule Making (NPRM)

initiates a thorough review of its broadcast media attribution rules

contained in Notes to 47 CFR 73.3555. This Notice of Proposed Rule

Making requests comment on the many issues pertinent to our analysis of

whether the current attribution rules continue to be effective in

serving their goals or whether changes to the rules are required. This

proceeding is appropriate to ensure that the broadcast attribution

rules conform with other related Commission rules and to ensure that

these rules effectively implement the Commission's broadcast multiple

ownership rules by identifying those interests that have the potential

to influence the licensee in core operating areas. such as programming.

Comments are sought with respect to the current corporate stockholding

attribution benchmarks, the single majority shareholder exemption, the

nonattribution of nonvoting stock, and the treatment of limited

partnership interests. Additionally, comment is sought on how to treat

Limited Liability Companies and Registered Limited Liability

Partnerships for attribution purposes. The attribution rules are a

critical enforcement mechanism for the Commission as it applies its

multiple ownership rules. Comments are also sought on the remaining

aspects of the Commission's cross-interest policy and on what multiple

``cross-interests'' or otherwise nonattributable interests, when viewed

in combination, raise diversity and competition concerns warranting

regulatory oversight.

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

by May 17, 1995.

ADDRESSES: Federal Communications Commission, Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT: Mania K. Baghdadi, Mass Media Bureau,

Policy and Rules Division (202) 418-2130, or Robert Kieschnick, Mass

Media Bureau, Policy and Rules Division (202) 418-2170.

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

Notice of Proposed Rule Making in MM Docket Nos. 94-150, 92-51, and 87-

154, FCC 94-324, adopted December 15, 1994, and released January 12,

1995. The complete text of this NPRM is available for inspection and

copying during normal business hours in the FCC Reference Center (Room

239), 1919 M Street, N.W., Washington, D.C., and also may be purchased

from the Commission's copy contractor, International Transcription

Service, (202) 857-3800, 2100 M Street, N.W., Suite 140, Washington, DC

20037.

Synopsis of Notice of Proposed Rule Making

1. This NPRM initiates a thorough review of the Commission's

broadcast media attribution rules (found in 47 CFR 73.3555), which

``define what constitutes a `cognizable interest' for the purpose of

applying the multiple ownership rules to specific situations.''\1\

\1\Report and Order in MM Docket No. 83-46, 49 FR 19482, May 8,

1984 (Attribution Order), On recon., Memorandum Opinion and Order in

MM Docket No. 83-46, 50 FR 27438, July 3, 1985 (Attribution

Reconsideration), on further recon., Memorandum Opinion and Order in

MM Docket No. 83-46, 52 FR 01630, January 15, 1987 (Attribution

Further Reconsideration).

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The multiple ownership rules limit the number of broadcast stations

that a single person or entity, directly or indirectly, is permitted to

own, operate, or control, so as to foster programming diversity by

encouraging diversity of ownership, and to assure competition in the

provision of broadcast services.

2. The broadcast industry and other Commission rules have changed

since these rules were last revised. For example, the multiple

ownership rules themselves have been relaxed, and, concurrently with

this decision, the Commission has adopted a Further Notice of Proposed

Rule Making (Further Notice of Proposed Rule Making in MM Docket No.

91-221, FCC 94-322, adopted December 15, 1994), which seeks comments as

to whether we should relax national and local multiple ownership limits

for television stations, including the one-to-a-market rule. Also, in

an additional separate proceeding published elsewhere in this edition

of the Federal Register, the Commission is considering a variety of

measures, including relaxing our attribution rules, to aid the entry of

minorities and, if deemed necessary, women into broadcasting. The

Commission wishes to ensure that the attribution rules remain effective

in light of the previous and proposed relaxation of the multiple

ownership rules.

3. Additionally, the Commission is concerned that certain

nonattributable investments, while completely permissible, may permit a

degree of influence that warrants their attribution for multiple

ownership purposes. Moreover, the Commission is also concerned that

otherwise permissible cooperative arrangements between broadcasters are

being used in combination by those broadcasters to obtain, indirectly,

controlling interests in multiple stations that they would be

prohibited from holding directly under the multiple ownership rules.

Further, this proceeding will consider how to treat, for attribution

purposes, new business forms, such as Limited Liability Companies

(LLCs). Finally, this review will ensure that any differences between

the broadcast attribution rules and recently adopted or revised

attribution rules for other regulated services are justified by other

factors, such as differences between the media or our policies

regulating them.

4. While the Commission's focus is on the issues of influence or

control, at the same time, the attribution rules must be tailored to

permit arrangements in which a particular ownership or positional

interest involves minimal risk of influence, in order to avoid unduly

restricting the means by which investment capital may be made available

to the broadcast industry. The Commission intends to ensure that any

revisions to the attribution rules meet these stated goals, are clear

to broadcast regulatees, provide reasonable certainty and

predictability to allow transactions to be planned, ensure case of

processing, and provide for the

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reporting of all the information necessary to make the Commission's

public interest finding with respect to broadcast applications.

5. This NPRM also consolidates and comprehensively reexamines other

pending proceedings that directly or indirectly implicate the

attribution rules. Specifically, in 1992, in a Notice of Proposed Rule

Making and Notice of Inquiry in MM Docket No. 92-51, 57 FR 14684, April

22, 1992, (``Capital Formation Notice''), comments were sought

regarding whether the Commission should relax several of its

attribution rules in a number of specific contexts in order to

stimulate investment in the broadcast industry and to benefit new

entrants, who have historically experienced significant difficulties in

securing adequate startup funding. The Notice inquired as to whether

the Commission should relax its attribution benchmarks for active and

passive stockholders, and modify its insulation criteria as to widely-

held limited partnerships, including business development companies

organized as such. The Commission will incorporate the record from MM

Docket No. 92-51 into the record of this proceeding to the extent that

it is relevant to our consideration of the foregoing issues.\2\

\2\The Capital Formation Notice also asked whether the

Commission could, under the Communications Act, and should, for

policy reasons, permit the holding of security and reversionary

interests in licenses. That issue will be resolved in a separate

proceeding.

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6. The Commission will also consider in this proceeding the

comments received in response to the Further Notice of Inquiry/Notice

of Proposed Rule Making in MM Docket No. 87-154, 54 FR 10026, March 9,

1989 (``Cross-Interest Notice''), in which comment was sought on

whether Commission should maintain its cross-interest policy in three

areas--key employees, non-attributable equity interests, and joint

ventures. In the Cross-Interest Notice, we also invited comment as to

whether to amend the attribution rules to incorporate the key employee

portion of the cross-interest policy. The Commission will incorporate

the record from MM Docket No. 87-154 into the record of this

proceeding.

7. The Commission notes that this proceeding is complementary with,

and will affect our actions in, two rulemaking proceedings which appear

elsewhere in this edition of the Federal Register. The first is a

Further Notice of Proposed Rule Making in MM Docket No. 91-221, which

concerns the multiple ownership rules for television stations. The

second is a Notice of Proposed Rule Making in MM Docket Nos. 94-149 and

91-140, which seeks comment on a number of proposed rule changes and

initiatives to provide minorities and women with greater opportunities

to enter the mass media industry. Because the content of the

attribution rules is critical to issues raised in both proceedings, the

Commission will review the comments received in those proceedings in

conjunction with the comments received in the instant proceeding to

assure a coordinated approach to the three proceedings.

8. In this undertaking, we are guided by basic economic concepts as

to the essential nature of firms, their control, and their conduct.

Comment is invited on our analysis and parties are encouraged to

support their views with relevant empirical analysis and business and

economic theories. Commenters are also invited to propose alternative

analytical frameworks for establishing the specific interests that

should be deemed cognizable under our various multiple ownership rules.

The Commission's analysis will focus essentially upon the effect that

financial claims on, and associated voting or contractual rights in,

broadcasting companies have on their conduct. The economic conduct of

concern to us relates to a broadcasting company's programming choices,

including affiliation choices, and competitive practices, including

advertising pricing. To address these issues with a desirable degree of

confidence, the Commission will need as much information as is

available to establish the connections and thresholds of concern

between financial claims on a firm and its conduct.

9. Accordingly, with respect to each specific ownership or

relational interest discussed herein, the Commission seeks comment on

whether the level or degree of ownership interest in, or relationship

to, a licensee would be likely to impart the ability to influence or

control the operations of the licensee, including core functions such

as programming, such that the multiple ownership rules should be

implicated. The Commission intends to base its judgment with respect to

each specific attribution limit or criterion considered in this NPRM on

as much empirical data as can be obtained, as well as economic and

business theories on levels of influence in business organizations, as

discussed above, and comments are specifically invited that contain

such data and are grounded in rigorous economic theories and analyses.

In setting a specific attribution limit or determining whether a

particular interest should be cognizable or not, the Commission asks

commenters to address the degree to which we should attempt to

accommodate the competing concerns that have motivated us in the past,

such as not inhibiting legitimate business opportunities and

encouraging the flow of capital investment into the broadcast industry.

An important consideration is the extent to which the Commission can

and should accommodate these interests directly. In every case, if the

new rule or exemption proposed represents a departure from the

commission's current rules and standards, commenters should demonstrate

the justification for such a departure. Additionally, in light of our

desire to promote ownership opportunities for minorities and women in

the broadcasting industry, the Commission invites comment on whether

there are other attribution rules, besides those discussed in MM Docket

Nos. 94-149 and 91-140, that should be adjusted to promote access to

capital for minorities and women.

10. The Commission seeks empirical data and analysis that would

indicate the ownership level that would likely impart to its holder

some ability to influence the operation of a broadcast station in a

manner that is intended to be limited by our multiple ownership rules.

Also, the Commission seeks data and/or analysis, based on sound

economic principles, to demonstrate that changing the attribution rules

would have a significant effect on capital investment and new entry.

The Commission also seeks detailed economic data regarding how the

capital needs and outlays of broadcasters have changed since the

current attribution rules were set, as well as since the earlier set of

comments were submitted in response to the Capital Formation Notice,

and any impediments to adequate financing imposed by the current rules.

11. The Commission is concerned that any action taken in this

proceeding not inhibit capital investment nor disrupt existing

financial arrangements, and we seek comment as to both of these areas

with respect to our proposals herein. The Commission also seeks comment

on whether, and, if so, to what extent, we should grandfather existing

situations if any modifications we make to the attribution rules, for

example, restricting the availability of the single majority

shareholder exemption or attributing nonvoting stock, would result in a

new attribution of ownership to an entity for a previously held

interest, and that new attribution would result in a violation of the

multiple ownership rules. Alternatively, should the Commission permit a

transition period, during which

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licensees could come into compliance with the multiple ownership rules,

as affected by any changes we make in the attribution rules?

12. The Commission recognizes that any specific benchmark or limit

that is adopted will not include every influential interest that might

be limited by the multiple ownership rules. A particular holding or

interest not considered cognizable under our rules may, in the context

of the structure of a particular business, including the relative

distribution of ownership interests in that company, permit a degree of

influence or control that should be regulated under the multiple

ownership rules. On the other hand, a rule of general applicability

drawn so strictly as to include every possible influential interest

would ensnare innumerable interests that have no ability to impart

influence or control over a licensee's core decision-making processes

to their holders. Weighing these considerations, the Commission

preliminarily concludes that our goals of predictability and certainty

can best be achieved if we continue to use benchmarks and specific

attribution limits rather than proceeding on an ad hoc basis. Of

course, the Commission retains the discretion to treat specific factual

situations on a case-by-case basis. Commenters may, of course, address

these basic propositions.

Stockholding Benchmarks

13. In devising our attribution rules, the Commission proceeds on

the basis of certain assumptions. As noted above, the attribution rules

focus on the issues of influence on and control of a firm. Thus, this

NPRM first concentrates on equity holders and addresses whether or not

particular equity holdings have the potential to control or influence

the firm and its activities.-

A. Voting Stock

14. The Commission now attributes ownership to holders of 5 percent

or more of the voting shares of corporations. The Commission does not

attribute the shares of nonvoting shareholders, regardless of the

percentage of the equity of the corporation contributed by those

shareholders or the percentage of the nonvoting shares that they hold.

The current benchmarks were adopted in 1984. We selected the 5 percent

benchmark because, according to our examination, a 5 percent

shareholder in a widely-held corporation would typically be one of the

two or three largest corporate shareholders and thus could potentially

influence a licensee's management and operations. Further, this

benchmark corresponds with Security and Exchange Commission regulations

that require the reporting of ownership interests of 5 percent or

greater.\3\ We also concluded that adoption of a benchmark higher than

5 percent may result in many substantial and influential interests

being overlooked and that the need to adopt a higher threshold was

unclear since every demonstrable benefit to be derived from relaxing

the attribution rules would be achievable in large measure from

adopting a 5 percent benchmark.

\3\Securities and Exchange Act Section 13(d), 15 U.S.C. 78m(d).

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15. In the Capital Formation Notice, the Commission proposed to

increase the general attribution benchmark for voting stock from 5

percent to 10 percent in order to stimulate capital investment. The

Commission asked commenters how we might preserve investment

flexibility while adequately accounting for all influential interests

that merit scrutiny under our rules. The record thus far does not

contain information sufficient to justify raising the benchmark to 10

percent. Commenters addressing this issue unanimously supported raising

the benchmark due to changes in the economic and competitive

environment of the media marketplace since the mid 1980s, but they did

not provide enough information on the changes in the economic climate

and competitive marketplace to justify raising the benchmark or explain

and verify the link between raising the attribution benchmark and

precipitating additional capital investment.

16. While commenters argued that a less than ten percent

stockholding is not, in itself, sufficient to presume that the holder

could exert control or influence over the corporation, they do not

explain the basis for that claim or provide any specific information

that would allow us to devise a methodology to assume that such a

stockholder would remain inactive in the affairs of the company in most

or all cases. Moreover, comment is requested on whether such factors as

the size, composition of management, and minority shareholder rights of

individual corporations might not be increasingly relevant where larger

nonattributable stockholdings are permitted. Therefore, commenters are

asked to provide detailed illustrations of the role of minority

shareholders in the management of a corporation. In addition, the

Commission seeks more detailed information about the impact of minority

shareholder rights on corporate management generally, particularly in

those instances where individual minority shareholders might act in

concert with others to affect the decision making of the corporate

licensee or permittee.

17. With respect to the issue of facilitating increased capital

investment, the Commission seeks answers to the following questions. Is

there support for the assumption that an increased attribution

benchmark will result in greater capital investment? If so, how would

any increased availability of or reduced cost of capital resulting from

an increased attribution benchmark be likely to be allocated between

smaller, less established broadcasters and larger, more established

ones? Should we be concerned that proportionately increasing the

capital available to larger entities or reducing its cost to them might

actually strengthen those licensees that already dominate the broadcast

industry, thereby threatening competition and diversity? Analyses of

these effects at several different hypothetical attribution benchmarks

are requested.

18. Commission Attribution Rules in Other Services. The Commission

seeks comment on the relevance of attribution rules applied in other

FCC services. A critical matter on which we seek comment is whether and

how a change in the Commission's broadcast attribution benchmark would

affect the many services that rely on it. The Commission invites

comment on the relevance of the attribution criteria for other services

detailed in paragraphs 26-36 in the full text of this NPRM, as well as

on others not discussed therein, to our consideration of the broadcast

attribution rules. Does broadcasting have unique factors that make

comparison with other Commission services inapposite, or, to the

contrary, should we consider our action in other services as

precedential? Is broadcasting sufficiently different from these other

services in nature, function of the service or otherwise so as to

justify any differences? Or, are the purposes of the broadcasting

attribution and multiple ownership rules sufficiently distinct so as to

justify any differences between those rules and those of the other

Commission services?

19. Other Agency Benchmarks. In addition to taking note of the

attribution rules used in other Commission services, the Commission

also seeks comment as to regulatory benchmarks used by other federal

agencies, including those discussed in the full text of this NPRM and

other standards that commenters may bring to our attention. The

strength of the analogy to

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other benchmarks will, of course, depend on whether the purpose of the

particular benchmark in question parallels the Commission's objective

in identifying ownership interests that confer on their holders the

ability to influence the day-to-day operations of a licensee, and

commenters should address, in detail, why a particular agency's

benchmark may or may not be applicable, by analogy, to our analysis.

The Commission is particularly interested in whether the purposes

underlying other regulatory benchmarks are comparable to our

competition and diversity concerns, and why that agency believed the

percentage it selected reflects a substantial enough interest to

constitute the level of influence or control that implicates its

underlying ownership limitation, and, in particular, whether is

analytical methodology would be applicable to our rules.

20. The Commission seeks comment on how to devise rules that are

consistent with the administrative concerns expressed in our section

devoted to our underlying principles, and that would accommodate the

principles as discussed in the full text of his NPRM. Should there be

an exemption, similar to the single majority stockholder exemption, for

stockholders in firms where management holds some threshold level of

stock, on the ground that the inherent control afforded managers would

preclude significant influence by other stockholders? Can the

Commission's stockholding benchmarks rely on, or take cognizance of,

the size of a stockholding relative to others in the firm?

B. Voting Stock: Passive Investors

21. In the Attribution Order, the Commission adopted a 10 percent

attribution benchmark for certain institutional investors (bank trust

departments, insurance companies, and mutual funds) that we deemed to

be ``passive'' in nature in order to ``increase the investment

flexibility of these entities and, in so doing, expand the availability

of capital to the broadcast and cable industries without significant

risk of attribution errors.'' The Capital Formation Notice proposed

increasing the passive investor benchmark from 10 percent to 20

percent. The commenters who addressed this issue unanimously supported

increasing the voting stock attribution level for passive investors,

but provided no basis on which to conclude such a change is

appropriate. Commenters are invited to delineate what specific

assurances we would have that passive investors that hold large stock

interests cannot or would not exert influence or control over broadcast

licensees and that raising the benchmark would therefore not exclude

from attribution holders of interests that have a significant and

realistic potential to influence station operations. Are there common

factors, intrinsic to all passive investors, or institutional or other

safeguards that could provide such assurance? Moreover, the comments do

not, in the Commission's view, dispose of the Commission's concern

regarding the impact on corporate decision-making that could result,

even unintentionally, by the trading and voting of large blocks of

stock of assertedly passive investors. Commenters are asked to address

the foundations of the Commission's concern about the possible effect

of large stock trades and whether there have, in fact, been any stock

transactions of this nature. If so, how substantial have such stock

transactions been, and do the costs of the exclusion of such interests

from attribution outweigh any potential benefits that might be realized

from an increased attribution benchmark?

22. The Commission seeks additional analysis on the degree of

increased investment that would likely stem from any adjustment of our

rules and on the need for such increased investment. Additionally, the

commenting parties did not adequately address the Commission's concerns

that any increase in these attribution levels not implicate our

concerns about the potential for influence. Finally, if the benchmark

for all investors is raised to 10 percent, does that reduce any need

there might be to facilitate broadcast investment by increasing the

passive investor benchmark?

23. Several commenters raised a closely related issue not discussed

in our Capital Formation Notice. They requested that the Commission

further expand the passive investor class to include other

institutional investors, such as pension funds, investment and

commercial banks, and certain investment advisors. The Commission does

not intend to revisit its decision of 1984 in order to broaden the

category of passive investors to include such entities. However,

commenters are invited to argue why this tentative conclusion is

incorrect. Similarly, the Commission is not prepared to expand the

category of passive investors to include Small Business Investment

Companies (``SBICs'') and Specialized Small Business Investment

Companies (``SSBICs''), formerly known as Minority Enterprise Small

Business Investment Companies (``MESBICs''), as proposed in the Capital

Formation Notice. The Commission has received no evidence in the

comments made thus far to alter our first conclusion that these

entities do not meet our definition of ``passive.'' In the above cited

NPRM in MM Docket Nos. 94-149 and 92-140, adopted simultaneously with

this NPRM, the Commission is, however, considering other rule changes

to facilitate capital investment and entry by minorities and women

without broadening our definition of ``passive'' investors.

C. Minority Stockholdings in Corporations With a Single Minority

Shareholder

24. Minority voting stock interests held in a corporate licensee

are not attributable if there is a single majority shareholder of more

than 50 percent of the corporate licensee's outstanding voting stock.

The Commission invites comment as to whether we should restrict the

availability of this exemption. The Commission is concerned that this

exemption not be used to evade the multiple ownership limits and that

our previous conclusion that a minority stockholder could not exert

significant influence on a licensee where there is a single majority

stockholder may not be a valid conclusion in all circumstances. For

example, if the minority voting stockholder has contributed a

significant proportion of the equity, holds 49 percent of the voting

stock, and combines that holding with a large proportion of the

nonvoting shares or debt financing, would that minority shareholder

have the potential to influence the licensee such that the multiple

ownership rules would be implicated? The Commission invites comment on

how we should approach our concerns in this area. Should the

availability of the exemption be restricted? If so, should the

Commission do so on a case-by-case basis or restrict it in specified

circumstances?

D. Non-Voting Stock

25. Under the Commission's attribution rules, all non-voting stock

interests (including most preferred stock classes) are generally

nonattributable. The Commission solicits comment on whether to amend

the attribution rules to consider nonvoting shares as attributable, at

least in certain circumstances. The Commission is concerned, for

example, that a nonvoting shareholder who has contributed a large part

or all of the equity of a corporate licensee may carry appreciable

influence that is not now attributed. If the Commission decides to

attribute nonvoting shares, should we do so only where substantial

equity holdings are held in combination with

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other rights, such as some voting shares or contractual relationships?

If the Commission decides to attribute nonvoting shares without

reference to the existence of other contractual relationships, should

we adopt a separate benchmark at the same level as we apply either to

voting shares or to ``passive'' investors? The Commission tentatively

believes that we should, if we decide to attribute nonvoting shares,

adopt a benchmark at least as high as that applied to ``passive

investors'' since there is a common assumption of less potential for

influence or control in both instances.

Partnership Interests

26. The Commission generally attributes all partnership interests,

except for sufficiently insulated limited partnership interests,

regardless of the degree of equity holding. There is no apparent

controversy regarding the rule to attribute all general partnership

interests, and the Commission does not intend to revisit this rule. The

Commission currently exempts from attribution those limited partners

that are sufficiently insulated from ``material involvement,'' directly

or indirectly, in the management or operation of the partnership's

media related activities, upon a certification by the licensee that the

limited partners comply with specified insulation criteria. Limited

partnership interests that are not insulated are attributable,

regardless of the amount of equity held. The Commission seeks comment

on the effectiveness of the current insulation criteria for limited

partnership interests. Are additional insulation criteria necessary to

assure that the goals of the attribution rules are achieved? Or, to the

contrary, should the insulation criteria be relaxed to any degree, at

least in certain circumstances, to attract increased capital investment

or encourage new entry, and can this be done without implicating the

purposes of the multiple ownership rules to encourage diversity and

competition?

27. Business Development Companies and Other Widely-Held Limited

Partnerships. The Capital Formation Notice proposed to relax insulation

criteria with respect to business development companies organized as

limited partnerships so as to eliminate, as much as possible, the

current conflict with state and federal securities laws. Alternatively,

the Capital Formation Notice asked whether the Commission should

combine an equity ownership standard specific to these partnerships

with a more limited relaxation of specific insulation requirements. The

Capital Formation Notice also solicited comments on whether the

Commission should modify the insulation criteria applicable to all

``widely-held'' limited partnerships to recognize insulation where

limited partners hold an insignificant percentage of the total

interests in the partnership. The Commission asked whether a 5 percent

or other ownership benchmark would be appropriate in certain

circumstances.

28. The Commission seeks additional comments in this area. In

particular, we would like updated information and additional empirical

information on the growth and prevalence of business development

companies and widely-held limited partnerships as investment vehicles

generally, as well as applied to the broadcast industry in particular,

including the percentage of equity typically represented by their

investment. In this regard, it will be helpful for commenters to

discuss with specificity the operation of business development

corporations and widely-held limited partnerships and whether the

existing insulation criteria have hindered capital flow from these

entities to licensees.

29. The Commission asks parties to address the standards that could

be used to define widely-held limited partnerships eligible for

application of any revised insulation criteria. Comment is particularly

sought on whether there is anything inherent in the nature of state or

federal regulation of business development companies that would insure

that they remain widely held and whether such a guarantee, if it

exists, is an adequate substitute for any of our current insulation

criteria. Parties may also wish to offer additional suggestions for

defining widely-held limited partnerships that reflect our concerns

that such entities be used exclusively for investment purposes.

30. Additional information is sought, supported by empirical data,

on whether the Commission should revise our decision, on

reconsideration of the Attribution Order, not to adopt an equity

benchmark for noninsulated limited partnerships. In that decision, the

Commission decided to apply insulation criteria to limited

partnerships, instead of applying an equity benchmark. The Commission

is not inclined to change this approach based on the record compiled

thus far. If parties disagree with this conclusion, they must provide

us with more data and analysis to demonstrate that our earlier decision

is no longer valid or effective.

31. In this respect, the Commission seeks information on the

financial and legal structures of limited partnerships to enable us to

determine whether there is a uniform equity level below which the

Commission need not be as concerned or need not be concerned at all

with the application of the insulation criteria. Should equity share be

defined by the amount of cash contribution, the share of proceeds, or

rights on dissolution? How would the Commission evaluate contributions

in the form of services? If the power of a limited partner is not

related to his proportional partnership share (which is the premise of

the current rules), is there a partnership size that would obviate the

power of any one partner, such that ownership should not be attributed

to any partner, regardless of his share? The Commission also asks

whether other state and federal regulations might provide guidance in

this area, and/or the extent that such regulations might provide

sufficient protection so as to make additional Commission regulations.

In this regard, the Commission requests estimates, supported by

economic or other studies that provide their basis, of how much

additional capital might be made more readily or cheaply available to

the broadcast industry by adoption of any of these approaches, as well

as how such capital is likely to be distributed.

Limited Liability Companies and Other New Business Forms

32. The Commission also seeks comment as to how we should treat,

for attribution purposes, the equity interest of a member in a limited

liability company or LLC, a relatively new form of business association

permitted and regulated by statute in at least 45 states. The

Commission has recently received TV and radio assignment applications

where parties have argued that we should exempt certain owners of an

LLC from attribution, either because they should be treated as

nonvoting shareholders or because they should be treated as fully-

insulated limited partners. So that processing of pending applications

is not indefinitely delayed, the Commission plans to process them on a

case-by-case basis until this rule making is completed, using the

tentative proposal delineated above as our interim policy, including

the special exception for minorities discussed therein.

33. Comment is solicited as to how the Commission should treat

LLCs, Registered Limited Liability Partnerships (``RLLPs''), and other

new business forms as well as any other new business forms, that may

arise in the future for attribution purposes. Any approach the

Commission takes with respect to LLCs and similar hybrid entities must

ensure that exemption

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from attribution is granted only where there are sufficient assurances

that the exempted owner is adequately insulated from control of the

entity. In addressing the attribution of LLCs, the Commission hopes to

delineate the principles to be applied and express them in general

terms that can be applied to new business forms that appear in the

future. The Commission invites comment as to the form and content of

any general principles that may be distilled from our analysis of

attribution of LLCs. The Commission also invites comment as to the

advantages of LLCs, in general, and also, in particular, the impact on

minority and female ownership opportunities.

34. The Commission tentatively proposes to treat LLCs and RLLPs as

we now treat limited partnerships. Membership in an LLC or RLLP would

be treated as a cognizable interest for multiple ownership purposes

unless the applicant certifies that the member is not materially

involved, directly or indirectly, in the management or operation of the

media-related activities of the LLC or RLLP. The Commission proposes

that such certification be based on the criteria specified in our

Attribution Reconsideration and Attribution Further Reconsideration.

Comment is invited on whether the insulating criteria developed with

respect to limited partnerships are sufficient to insulate members of

LLCs and RLLPs or whether other criteria would be more effective. The

Commission notes, however, that applying limited partnership

attribution criteria to LLCs would result in attributing all investors

that may provide programming or other services to the LLC. In this

regard, the Commission's recent experience suggests that such

arrangements have been central to proposals that might significantly

advance minority ownership of broadcast facilities. Accordingly, the

Commission seeks comment on whether to provide an exception to our

tentative proposal, on a case-by-case basis, where doing so would

advance our policy of enhancing opportunities for broadcast station

ownership by minorities.

35. The Commission is not inclined to treat LLCs as we currently

treat corporations, exempting from attribution the interests of

``nonvoting'' shareholders without regard to the presence or absence of

insulating provisions in an operating agreement. If, however,

commenters raise significant policy reasons why the Commission should

alter this interim view, we will consider those reasons. The Commission

also invites comment as to what approaches should be taken to LLCs and

RLLPs should we neither adopt the equity benchmark for partnerships nor

retain the existing attribution standards. The Commission also requests

comment on whether there are differences between LLCs and/or RLLPs and

limited partnerships such that we should not treat the former entities

as we treat limited partnerships.

36. The Commission invites comment on whether, if the certification

approach with respect to LLCs is adopted, we should also require

parties to file copies of the organizational filings and/or operating

agreements with the Commission when an application is filed. If so,

what, if any, confidentiality concerns exist, and how should they be

addressed? If the Commission adopts, as our attribution standard, an

ownership benchmark applicable to limited partnerships, comment is

invited on whether it would be appropriate to apply that benchmark to

LLCs and RLLPs as well.

37. If the Commission relaxes insulation standards for widely-held

limited partnerships, should we apply these changes to LLCs and RLLPs?

The Commission invites comment as to whether to take a uniform approach

to widely-held LLCs, RLLPs, and ``business development companies.'' Do

these entities have similarities in organization and/or function that

would mandate such similar treatment or are there significant

distinctions? Alternatively, do the policy goals discussed in the

Capital Formation Notice apply with respect to LLCs and RLLPs so as to

justify such a similar approach? If a uniform approach is warranted,

what should that approach be?

38. Should the Commission treat all LLCs the same or differentiate

those with centralized management from those with decentralized

management? In LLCs where all management authority has been vested in

nonmembers who are selected by the members, should the managers be

treated, for attribution purposes, as equivalent to officers and/or

directors of a corporation? Should the Commission adopt an approach of

exempting from attribution members with limited equity interests,

regardless of lack of compliance with insulating criteria? For

attribution purposes, should the percentage of ``ownership'' be

determined by voting rights among the members, the share divisions

designated by the parties, the extent of capital contribution, or by

some other measure? Under the commission's current attribution rules,

we do not distinguish among partners based on the amount of equity they

contribute or their share division. If the determination is made based

on capital contribution, what should be done about members whose

contribution is in services? How should the Commission treat LLCs in

multi-tiered vertical organizational chains? Should multipliers be

applied, and, if so, under what circumstances?

The Cross-Interest Policy and Multiple Business Interrelationships

39. The Commission also incorporates in this proceeding the pending

issues raised in the Cross-Interest Notice with respect to the

remaining aspects of the Commission's cross-interest policy. The

Commission also seeks comment regarding the appropriate treatment of

nonequity financial interests and multiple business interrelationships

between licensees, in light of the fundamental economic principle that

the conduct and control of business organizations may at times be

influenced by nonequity interests.

A. The Cross-Interest Policy

40. Background. In 1989, the Commission issued a Policy Statement

(54 FR 09999, March 9, 1989) limiting the scope of the cross-interest

policy so that it would no longer apply to consulting positions, time

brokerage arrangements and advertising agency representative

relationships. At the same time, however, the Cross-Interest Notice was

issued to seek further comment concerning key employees,

nonattributable equity interests, and joint ventures. The Commission

solicited comment on whether retention of the remaining cross-interest

policies was necessary to prevent anticompetitive practices, whether

alternative deterrent mechanisms exist to assure competition and

diversity, and whether continued regulation of relationships not

specifically addressed by the Commission's attribution rules is

necessary. The Commission also questioned whether regulatory oversight

of one or more of these interests should be limited to geographic

markets with relatively few media outlets. Only five comments and reply

comments were filed in response to the Cross Interest Notice, and

almost all urged the Commission to eliminate these restrictions.

41. Discussion. The commenters supporting the elimination of the

remaining aspects of the cross-interest policy put forth four general

arguments: (1) The cross-interests that implicate diversity and

competition concerns are now covered by our multiple ownership rules;

(2) The video entertainment marketplace has become increasingly

[[Page 6489]]

competitive, thus diminishing the need for regulatory oversight of

cross-interests; (3) alternative remedies, such as the antitrust laws

and internal conflict of interest policies, will serve to deter abuses

stemming from cross-interests; and (4) The cross-interest policy

imposes significant burdens in terms of administrative costs and

uncertainty, chilling investment in the broadcast industry. The

Commission believes each of these arguments has merit, and continues to

question the continuing need for our cross-interest policy in its

present form. The Commission also strives to clarify aspects of the

policy that may warrant continued enforcement.

42. For a number of reasons, however, the Commission believes it

necessary to develop a more complete and updated record in our review

of the cross-interest policy as applied to key employees, joint

ventures, and nonattributable equity interests. It is necessary as a

general matter to update the record to ensure that changes in

interrelated policies are coordinated. Further, comment is also

requested regarding whether multiple cross interests and business

relationships between stations, when viewed in combination, raise

diversity and competition concerns, an issue that the commenters did

not address.

43. On a more specific level, the Commission also seeks comment

regarding a number of issues either not addressed in the comments or

raised by the comments themselves. First, a number of parties argued

that the Commission's ownership and attribution rules have supplanted

the remaining aspects of the cross-interest policy that implicate

diversity and competition concerns. It is true that the Commission's

attribution rules have evolved to the point where they now apply to a

number of interests formerly covered only by the cross-interest policy.

The Commission seeks comment, however, on whether this argument is

undermined by the proposed changes to our attribution rules. There

remains the question of whether particular situations warrant case-by-

case review to determine whether a cross-interest poses diversity and

competition concerns. The Commission requests commenters to be specific

in defining the particular situations and harms they may believe

require continued application of the cross-interest policy.

44. The Commission also seeks further comment on the argument that

the increased competition facing broadcasters eliminates the need for

the cross-interest policy. We seek comment on whether there are smaller

markets with an insufficient number of media outlets to assume that

competition will deter the abuses our cross-interest policy seeks to

prevent. If parties believe this to be the case, they should define the

size and nature of the markets that raise such concerns.

45. Commenters favoring the elimination of the remaining aspects of

the cross-interest policy point to the burdens and uncertainty it

creates. Parties should submit, if possible, evidence to support the

assertion that the cross-interest policy has impeded the ability of

broadcasters to raise capital. Comment is also sought regarding the

extent, if any, of a shortage of key employees, especially in smaller

markets, that may be exacerbated by the Commission's cross-interest

policy.

46. In addition, commenters raised several questions regarding the

alternative remedies that other parties maintain lessen the need for

the remaining aspects of our cross-interest policy. How common, and how

effective, are the internal conflict of interest policies cited by

parties as providing a means to deter abuses stemming from key employee

cross-interests? While the antitrust laws deter anticompetitive

conduct, do they address the diversity concerns behind the cross-

interest policy? The Commission seeks comment as to these questions and

more generally as to the effectiveness of these alternative remedies.

47. Finally, no comment was received on ways to clarify and

possibly narrow the cross-interest policy in the event the Commission

determines that continued enforcement is appropriate. The Commission

now seeks specific suggestions as to how the cross-interest policy

might be clarified. The Commission also seeks comment on the following

means of narrowing the policy: (1) Should we limit the application of

the cross-interest policy to smaller markets where competition and

diversity are of particular concern, and, if so, how should we define

these markets? (2) Should we enforce the cross-interest policy only

where the cross-interest, if attributable under our attributable rules,

would violate the ownership rules? (3) With respect to nonattributable

equity interests, should we limit review only to those interests

reaching a certain level of ownership, or when those interests exceed

or reach a certain percentage of the licensee's voting equity?

B. Non-Equity Financial Relationships and Multiple Business

Interrelationships

48. In our review of the cross-interest policy, the Commission has

focused on each cross-interest individually. But broadcasters in

particular markets may also at times enter into a number of different

business relationships between themselves. While the Commission

recognizes the important role cooperative arrangements can play, we

seek comment as to whether multiple ``cross-interests'' or otherwise

nonattributable interests, when viewed in combination, raise diversity

and competition concerns warranting regulatory oversight. The nature of

broadcaster interrelationships can vary widely, and can include

nonattributable interests, contractual relationships, family

relationships in conjunction with other interests, and joint

arrangements among stations, including time brokerage agreements (also

referred to as local marketing agreements or LMAs) and joint sales

arrangements. Many of these business interrelationships serve

legitimate purposes and, indeed, have been encouraged by the

Commission. The Commission seeks comment as to whether ostensibly

separately owned stations could so merge their operations, through a

variety of joint enterprises or cooperative agreements, perhaps in

conjunction with other nonattributable interests, and thereby create

such close business interrelationships as to implicate our diversity

and competition concerns.

49. In 1984, the Commission decided to exclude debt from

attribution on the supposition that attributing debt would severely

restrict capital sources for broadcasters, and because debt financing

was the least likely of all financing sources to involve an interest

that implicates the multiple ownership rules. The Commission believes,

at this point, that we should continue to exclude such relationships,

standing alone, from attribution under the multiple ownership rules

because any other approach would severely impair the ability of the

broadcasting industry to obtain necessary capital. The Commission would

neither wish to inhibit such a key means of obtaining capital nor to

disrupt existing expectations and relationships to such a degree. If

any commenters disagree with this conclusion, the Commission invites

them to demonstrate that the benefits of extending our attribution

rules to debt and other similar contractual relationships outweigh the

significant drawbacks. At the same time, there may be circumstances

where debtholding, accompanied by a number of other close

[[Page 6490]]

business interconnections, should be considered to be attributable.

Comment is requested regarding the potential for debt or other

nonattributable interest, in conjunction with a series of cooperative

or contractual arrangements, to provide their holders the ability to

influence the day-to-day operations of a licensee, thus implicating our

competition and diversity concerns.

50. Any regulation of such interrelationships among broadcasters,

given their varying forms, would require case-by-case review in the

context of applications for new stations of transfer or assignment

applications. The Commission seeks comment as to whether the burdens

and uncertainty created by such review would be outweighed by the

perceived benefits of addressing the concerns in this area, and whether

these concerns are best addressed in the context of our real-party-in-

interest rules and de facto transfer of control challenges. The

Commission also seeks comment as to whether any review of such close

business interrelationships should be limited to those markets where

the lack of competition and diversity is a particular concern, and how

such markets should be defined. In addition, should the Commission

focus on combinations of business interrelationships among stations in

the same market only, or do inter-market relationships among stations

also warrant review? The Commission wishes to emphasize that in

considering these issues we are sensitive to the need not to inhibit

capital flow into the broadcast industry or unduly disrupt existing

financial arrangements.

Administrative Matters

51. Pursuant to applicable procedures set forth in Secs. 1.415 and

1.419 of the Commission's Rules, 47 CFR 1.415 and 1.419, 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, you must file an

original plus four copies of all comments, reply comments, and

supporting comments. If you want each Commissioner to receive a

personal copy of your comments, you must file an original plus nine

copies. You should send comments and reply comments to Office of the

Secretary, Federal Communications Commission, Washington, D.C. 20554.

Comments and reply comments will be available for public inspection

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

1919 M Street, N.W., Washington D.C. 20554.

52. This is a non-restricted notice and comment rulemaking

proceeding. Ex parte presentations are permitted, except during the

Sunshine Agenda period, provided they are disclosed as provided in the

Commission Rules. See generally 47 CFR 1.1202, 1.1203, and 1.1206(a).

Initial Regulatory Flexibility Analysis

53. Reason for the Action: This proceeding was initiated to obtain

comment on whether the Commission's broadcast attribution rules

continue to be effective in serving their intended goals, and on

whether they should be revised in certain areas to more effectively

achieve those goals.

54. Objective of this Action: The actions proposed in the Notice

are intended to assure that the Commission's broadcast attribution

rules effectively implement the Commission's broadcast multiple

ownership rules by identifying those interest that have the potential

to influence the licensee in core operating areas, such as programming.

55. Legal Basis: Authority for the actions proposed in this Notice

May be found in Sections 4,303, and 310 of the Communications Act of

1934, as amended, 47 U.S.C. Secs. 154,303,310.

56. Reporting, Recordkeeping and Other Compliance Requirements

Inherent in the Proposed Rule: If the attribution rules are changed,

the Commission would have to change the reporting requirements in the

Commission's annual ownership report form, accordingly, as the

attribution rules determine which broadcast interests must be reported

to the Commission and are counted for multiple ownership purposes.

57. Federal Rules Which Overlap, Duplicate or Conflict with the

Proposed Rule: None.

58. Description, Potential Impact and Number of Small Entities

Involved: Approximately 11,000 existing television and radio

broadcasters of all sizes may be affected by the proposals contained in

this decision. After evaluating the comments in this proceeding, the

Commission will further examine the impact of any rule changes on small

entities and set forth our findings in the Final Regulatory Flexibility

Analysis.

59. Any Significant Alternatives Minimizing the Impact on Small

Entities and Consistent with the Stated Objectives: The Notice solicits

comments on a variety of alternatives.

60. 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

the 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. 96-

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

List of Subjects in 47 CFR Part 73

Radio broadcasting, Television broadcasting.

Federal Communications Commission.

LaVera F. Marshall,

Acting Secretary.

[FR Doc. 95-2545 Filed 2-1-95; 8:45 am]

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