Multipoint Distribution Services

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 21, 73 and 76

[MM Docket No. 94-150, 92-51, 87-154; FCC 96-436]

Multipoint Distribution Services

AGENCY: Federal Communications Commission.

ACTION: Proposed Rule.

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SUMMARY: This Further Notice of Proposed Rule Making (``FNPRM'') seeks

additional comment in our ongoing proceeding to review our broadcast

attribution rules, the rules by which we define what constitutes a

``cognizable interest'' in applying the multiple ownership rules. We

seek comment as to how the relaxation of our ownership rules resulting

from the passage of the Telecommunications Act of 1996 (``1996 Act'')

should affect our review of the attribution rules. We also seek comment

on new proposals, including a provision to attribute the otherwise

nonattributable interests of holders of equity and/or debt in a

licensee or media entity subject to the broadcast cross-ownership rules

where the interest holder is a program supplier to a licensee or a

same-market media entity subject to the broadcast cross-ownership rules

and where the equity and/or debt holding exceeds a specified threshold.

Additionally, we seek renewed comment on a proposal to attribute Local

Marketing Agreements (``LMAs''). We also invite comment on whether we

should revise our approach to joint sales agreements (``JSAs'') in

specified circumstances. We also seek comment on a study conducted by

Commission staff, appended to this FNPRM, on attributable interests in

television broadcast licensees and on the implications of this study

for our attribution rules, particularly on the voting stock benchmarks.

Finally, we invite comment as to whether we should amend the cable/

Multipoint Distribution Service (``MDS'') cross-ownership attribution

rule. The proposed rules are necessary to promote our goals of

maximizing the precision of the attribution rules, avoiding disruption

in the flow of capital to broadcasting, affording clarity and certainty

to regulatees, and facilitating application processing, and the

proposed rules are intended to effect those results. This NPRM contains

proposed or modified information collections subject to the Paperwork

Reduction Act of 1995 (PRA), Public Law 104-13. It has been submitted

to the Office of Management and Budget (OMB) for review under Section

3507(d) of the PRA. OMB, the general public, and other Federal agencies

are invited to comment on the proposed or modified information

collections contained in this proceeding.

DATES: Written comments by the public on the proposed and/or modified

information collections are due February 7, 1997, and reply comments

are due March 7, 1997. Written comments must be submitted by the Office

of Management and Budget (OMB) on the proposed and/or modified

information collections on or before February 11, 1997.

ADDRESSES: In addition to filing comments with the Secretary, a copy of

any comments on the information collections contained herein should be

submitted to Dorothy Conway, Federal Communications Commission, Room

234, 1919 M Street, N.W., Washington, DC 20554, or via the Internet to

[email protected], and to Timothy Fain, OMB Desk Officer, 10236 NEOB,

725--17th Street, N.W., Washington, DC 20503 or via the Internet to

fainX[email protected].

FOR FURTHER INFORMATION CONTACT: For additional information concerning

the information collections contained in this NPRM contact Dorothy

Conway at 202-418-0217, or via the Internet at [email protected].

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

in MM Docket No. 94-150, 92-51, 87-

[[Page 67276]]

154; FCC 96-436, adopted November 5, 1996 and released November 7,

1996. The full text of this FNPRM 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, Inc., 2100 M Street, N.W., Suite 140, Washington, D.C., 20037,

(202)857-3800.

Synopsis of Further Notice of Proposed Rule Making

1. The attribution rules seek to identify those interests in or

relationships to licensees that confer on their holders a degree of

influence or control such that the holders have a realistic potential

to affect the programming decisions of licensees or other core

operating functions. Our current broadcast attribution rules are set

out in the Notes to Section 73.3555 of the Commission's rules, and,

insofar as the broadcast-cable cross-ownership rule is involved, in the

Notes to 47 CFR 76.501.1 We issued the NPRM in this proceeding, 60

FR 6483, (February 2, 1995) broadly to review the attribution rules. In

this FNPRM, we do not specifically discuss a number of issues raised in

the NPRM, including treatment of Limited Liability Companies (``LLCs'')

and treatment of limited partnerships. Nonetheless, these issues remain

outstanding, and we intend to resolve the entire set of issues raised

in the NPRM and in this FNPRM, together, after the comments received in

response to this FNPRM are received and reviewed.

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\1\ We recognize that the attribution standards used in a number

of other cable rules are implicitly or explicitly based on Section

76.501. For example, the attribution standards in the cable

television horizontal ownership, channel occupancy and program

access rules are derived from these attribution Notes. We are

considering initiating a separate proceeding to address whether to

modify the attribution criteria for these rules. In the instant

proceeding, we are addressing only the attribution criteria that

would apply to Section 76.501(a), the cable-broadcast cross-

ownership rule. Additionally, we will consider changes to the cable/

MDS cross-ownership attribution rule.

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Paperwork Reduction Act

2. This NPRM contains either a proposed or modified information

collection. The Commission, as part of its continuing effort to reduce

paperwork burdens, invites the general public and the Office of

Management and Budget (OMB) to comment on the information collections

contained in this NPRM, as required by the Paperwork Reduction Act of

1995, Public Law 104-13. Public and agency comments are due at the same

time as other comments on this NPRM; OMB comments are due 60 days from

date of publication of this NPRM in the Federal Register. Comments

should address: (a) Whether the proposed collection of information is

necessary for the proper performance of the functions of the

Commission, including whether the information shall have practical

utility; (b) the accuracy of the Commission's burden estimates; (c)

ways to enhance the quality, utility, and clarity of the information

collected; and (d) ways to minimize the burden of the collection of

information on the respondents, including the use of automated

collection techniques or other forms of information technology.

OMB Approval Number: None

Title: FNPRM--Attribution

Form No.: FCC 301, FCC 314, FCC 315, FCC 323

Type of Review: Revision of existing collections

Respondents: Businesses or other for-profit

Number of Respondents: 12,216

Estimated Time Per Response: These proposals could cause an

increase in burden of an additional 3.5 hours per respondent

Total Annual Burden: 42,756 hours

Needs and Uses: This Further NPRM seeks comments as to how the

relaxation of the Commission's ownership rules resulting from the

passage of the Telecommunications Act of 1996 should affect our review

of the attribution rules. The attribution rules define what interests

are cognizable for purposes of applying the multiple ownership rules to

specific situations. 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. In its Further

Notice, the Commission invited comment on a proposal to add a new

``equity or debt plus'' attribution standard to its Rules. Under this

proposed standard, where the interest holder is a program supplier or

same-market broadcaster or media entity subject to the broadcast cross-

ownership rules (i.e., cable systems and newspapers), the Commission

would attribute its otherwise nonattributable equity and/or debt

interest in a licensee or other media entity subject to the cross-

ownership rules, if the equity and/or debt holding is greater than 33%.

The Commission also sought comment on: (1) Whether it should attribute

television Local Marketing Agreements (LMAs) and radio or television

joint sales agreements (JSAs) among licensees in the same market,

tentatively concluding that television LMAs should be attributed where

they involve more than fifteen percent of the brokered station's weekly

broadcast hours; (2) a staff study of the attributable interests in

commercial broadcast television licensees, as reported in ownership

reports, particularly with respect to the voting and nonvoting stock

attribution benchmarks; and (3) grandfathering/ transition issues

(except for LMAs, which will be resolved in the television local

ownership proceeding). With respect to grandfathering, the Commission

tentatively concluded that (1) any grandfathering should apply only to

the current holder and should not be transferable; and (2) any

interests acquired on or after December 15, 1994, the date of adoption

of the Notice of Proposed Rulemaking in this proceeding, should be

subject to the final rules adopted in the Report and Order in this

proceeding. Finally, the Commission invited comment on whether to

modify the cable/MDS cross-ownership attribution rules to apply

broadcast attribution criteria, as modified in the attribution

proceeding, in determining cognizable interests in MDS licensees and

cable systems for purposes of applying the ownership restrictions of

Section 21.912 of its Rules.

3. The FCC 301 (OMB Control #3060-0027), FCC 314 (OMB Control

#3060-0031), FCC 315 (OMB Control #3060-0032) and the FCC 323 (OMB

Control #3060-0010) are the data collection devices used to identify

those interests that are counted for purposes of applying the multiple

ownership rules. Depending on the outcome of this proceeding, these

forms may need to be modified to reflect new reportable interest

standards and could cause an increase in burden. In addition,

relaxation of the present attributable interests standards could result

in a reduction in the number of interest-holders required to disclose

their ownership interests in broadcast licensees and permittees. The

overall impact, however, cannot be determined until resolution of the

outstanding rulemaking. The attribution rules seek to identify those

interests in or relationships to licensees or media entities that

confer on their holders a degree of influence or control such that the

holders have a realistic potential to affect programming decisions of

licensees or other core operating functions. The attribution rules are

used to implement the Commission's broadcast multiple ownership rules.

Initial Regulatory Flexibility Analysis

As required by Section 603 of the Regulatory Flexibility Act, 5

U.S.C. 603

[[Page 67277]]

(``RFA''), the Commission is incorporating an Initial Regulatory

Flexibility Analysis (``IRFA'') of the expected impact on small

entities of the policies and proposals in this FNPRM of Proposed Rule

Making in MM Docket Nos. 94-150, 92-51, & 87-154 (``FNPRM'').2

Written public comments concerning the effect of the proposals in the

FNPRM, including the IRFA, on small businesses are requested. Comments

must be identified as responses to the IRFA and must be filed by the

deadlines for the submission of comments in this proceeding. The

Secretary shall send a copy of this FNPRM, 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.3

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\2\ An IRFA pursuant to Public Law Notice 96-354, section 603,

94 Stat. 1165 (1980) was incorporated into the Notice of Proposed

Rule Making in MM Docket Nos. 94-150, 92-51 & 87-154, 10 FCC Rcd

3606 (1995), 60 FR 3606, February 2, 1996 (``NPRM'').

\3\ 5 U.S.C. 603(a).

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Reasons Why Agency Action is Being Considered

After the issuance of the NPRM in this Docket, the

Telecommunications Act of 1996 (``1996 Act'') was signed into

law.4 The FNPRM seeks comment as to how the multiple ownership

rule revisions resulting from passage of the 1996 Act should affect our

review of the attribution rules. The FNPRM also seeks comment on our

new proposal to attribute the otherwise nonattributable interests of

holders of equity and or debt in a licensee or other media entity

subject to the cross-ownership rules where the interest holder is a

program supplier to a licensee or a same-market broadcaster and where

the equity and/or debt holding meets or exceeds specified thresholds.

This proposal is intended to address the concerns expressed in the NPRM

that the current attribution rules may not precisely or fully identify

all the interests in or relationships to broadcast stations that should

be counted in applying the multiple ownership rules. Additionally, the

FNPRM seeks comment on proposals concerning attribution of Local

Marketing Agreements (``LMAs'') and joint sales agreements (``JSAs'')

in specified circumstances. Also, the FNPRM seeks comment on a study

conducted by Commission staff, appended to this FNPRM, on attributable

interests in television broadcast licensees and on the implications of

this study for our attribution rules, particularly on the voting stock

benchmarks. Finally, we invite comment as to whether we should amend

the cable/MDS cross-ownership attribution rule.

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\4\ Public Law Notice 104-104, 110 Stat. 56 (1996).

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Need for and Objectives of the Proposed Rules

The attribution rules seek to identify those interests in or

relationships to licensees or media entities that confer on their

holders a degree of influence or control such that the holders have a

realistic potential to affect the programming decisions of licensees or

other core operating functions. The attribution rules are used to

implement the Commission's broadcast multiple ownership rules. Our

goals in commencing this proceeding and in formulating the proposals in

the FNPRM are to be to maximize the precision of the attribution rules,

avoid disruption in the flow of capital to broadcasting, afford clarity

and certainty to regulatees, and ease application processing.

Legal Basis

Authority for the actions proposed in this FNPRM is contained in

Sections 4(i), 303, 307 and 310 of the Communications Act of 1934, as

amended, 47 U.S.C. 154(i), 303, 307, & 310.

Recording, Recordkeeping, and Other Compliance Requirements

If our attribution rules are made more restrictive so as to

attribute interests not now currently attributable, our ownership

reporting form, FCC Form 323, will need to be modified accordingly so

that such attributable interests will then be reportable on the form.

We invite comment as to whether any additional professional skills

would be needed to complete this form.

Federal Rules that Overlap, Duplicate or Conflict With the Proposed

Rules

The rules proposed in the FNPRM will modify the current attribution

rules, and, similarly to the Commission's current attribution rules,

will be used to implement the multiple ownership rules. Thus, the

proposed rules are intended to promote the same diversity and

competition goals also fostered by the multiple ownership rules.

However, the proposed rules do not overlap, duplicate or conflict with

the multiple ownership rules.

Description and Estimate of the Number of Small Entities to Which the

Proposed Rules Will Apply

Under the RFA, small entities may include small organizations,

small businesses, and small governmental jurisdictions. 5 U.S.C.

601(6). The RFA, 5 U.S.C. 601(3), generally defines the term ``small

business'' as having the same meaning as the term ``small business

concern'' under the Small Business Act, 15 U.S.C. 632. A small business

concern is one which: (1) Is independently owned and operated; (2) is

not dominant in its field of operation; and (3) satisfies any

additional criteria established by the Small Business Administration

(``SBA''). Pursuant to 5 U.S.C. 601(3), the statutory definition of a

small business applies ``unless an agency after consultation with the

Office of Advocacy of the SBA and after opportunity for public comment,

establishes one or more definitions of such term which are appropriate

to the activities of the agency and publishes such definition(s) in the

Federal Register.'' 5

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\5\ While we tentatively believe that the SBA's definition of

``small business'' greatly overstates the number of radio and

television broadcast stations that are small businesses and is not

suitable for purposes of determining the impact of the proposals on

small television and radio stations, for purposes of this FNPRM, we

utilize the SBA's definition in determining the number of small

businesses to which the proposed rules would apply, but we reserve

the right to adopt a more suitable definition of ``small business''

as applied to radio and television broadcast stations or other

entities subject to the proposed rules in this FNPRM and to consider

further the issue of the number of small entities that are radio and

television broadcasters or other small media entities in the future.

See Report and Order in MM Docket No. 93-48 (Children's Television

Programming), 11 FCC Rcd 10660, 10737-38 (1996), citing 5 U.S.C.

601(3). We have pending proceedings seeking comment on the

definition of and data relating to small businesses. In our Notice

of Inquiry in GN Docket No. 96-113 (In the Matter of Section 257

Proceeding to Identify and Eliminate Market Entry Barriers for Small

Businesses), FCC 96-216, released May 21, 1996, 61 FR 33066, June

26, 1996, we requested commenters to provide profile data about

small telecommunications businesses in particular services,

including television, and the market entry barriers they encounter,

and we also sought comment as to how to define small businesses for

purposes of implementing Section 257 of the Telecommunications Act

of 1996, which requires us to identify market entry barriers and to

prescribe regulations to eliminate those barriers. Additionally, in

our Order and Notice of Proposed Rule Making in MM Docket No. 96-16

(In the Matter of Streamlining Broadcast EEO Rule and Policies,

Vacating the EEO Forfeiture Policy Statement and Amending Section

1.80 of the Commission's Rules to Include EEO Forfeiture

Guidelines), 11 FCC Rcd 5154 (1996), 61 FR 9964, March 12, 1996, we

invited comment as to whether relief should be afforded to stations:

(1) Based on small staff and what size staff would be considered

sufficient for relief, e.g., 10 or fewer full-time employees; (2)

based on operation in a small market; or (3) based on operation in a

market with a small minority work force.

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The proposed rules and policies will apply to television

broadcasting licensees, radio broadcasting licensees and potential

licensees of either service. The Small Business Administration defines

a television broadcasting station that has no more than $10.5 million

in

[[Page 67278]]

annual receipts as a small business.6 Television broadcasting

stations consist of establishments primarily engaged in broadcasting

visual programs by television to the public, except cable and other pay

television services.7 Included in this industry are commercial,

religious, educational, and other television stations.8 Also

included are establishments primarily engaged in television

broadcasting and which produce taped television program

materials.9 Separate establishments primarily engaged in producing

taped television program materials are classified under another SIC

number.10 There were 1,509 television stations operating in the

nation in 1992.11 That number has remained fairly constant as

indicated by the approximately 1,550 operating television broadcasting

stations in the nation as of August, 1996.12 For 1992 13 the

number of television stations that produced less than $10.0 million in

revenue was 1,155 establishments.14

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\6\ 13 CFR 121.201, Standard Industrial Code (SIC) 4833 (1996).

\7\ Economics and Statistics Administration, Bureau of Census,

U.S. Department of Commerce, 1992 Census of Transportation,

Communications and Utilities, Establishment and Firm Size, Series

UC92-S-1, Appendix A-9 (1995).

\8\ Id. See Executive Office of the President, Office of

Management and Budget, Standard Industrial Classification Manual

(1987), at 283, which describes ``Television Broadcasting Stations

(SIC Code 4833) as:

Establishments primarily engaged in broadcasting visual programs

by television to the public, except cable and other pay television

services. Included in this industry are commercial, religious,

educational and other television stations. Also included here are

establishments primarily engaged in television broadcasting and

which produce taped television program materials.

\9\ Economics and Statistics Administration, Bureau of Census,

U.S. Department of Commerce, 1992 Census of Transportation,

Communications and Utilities, Establishment and Firm Size, Series

UC92-S-1, Appendix A-9 (1995).

\10\ Id. SIC 7812 (Motion Picture and Video Tape Production);

SIC 7922 Theatrical Producers and Miscellaneous Theatrical Services

(producers of live radio and television programs).

\11\ FCC News Release No. 31327, January 13, 1993; Economics and

Statistics Administration, Bureau of Census, U.S. Department of

Commerce, supra note 42, Appendix A-9.

\12\ FCC News Release No. 64958, September 6, 1996.

\13\ Census for Communications' establishments are performed

every five years ending with a ``2'' or ``7''. See Economics and

Statistics Administration, Bureau of Census, U.S. Department of

Commerce, supra note 42.

\14\ The amount of $10 million was used to estimate the number

of small business establishments because the relevant Census

categories stopped at $9,999,999 and began at $10,000,000. No

category for $10.5 million existed. Thus, the number is as accurate

as it is possible to calculate with the available information.

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Additionally, the Small Business Administration defines a radio

broadcasting station that has no more than $5 million in annual

receipts as a small business.15 A radio broadcasting station is an

establishment primarily engaged in broadcasting aural programs by radio

to the public.16 Included in this industry are commercial,

religious, educational, and other radio stations.17 Radio

broadcasting stations which primarily are engaged in radio broadcasting

and which produce radio program materials are similarly

included.18 However, radio stations which are separate

establishments and are primarily engaged in producing radio program

material are classified under another SIC number.19 The 1992

Census indicates that 96 percent (5,861 of 6,127) radio station

establishments produced less than $5 million in revenue in 1992.20

Official Commission records indicate that 11,334 individual radio

stations were operating in 1992.21 As of August, 1996, official

Commission records indicate that 12,088 radio stations were

operating.22

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\15\ 13 CFR 121.201, SIC 4832.

\16\ Economics and Statistics Administration, Bureau of Census,

U.S. Department of Commerce, supra note 42, Appendix A-9.

\17\ Id.

\18\ Id.

\19\ Id.

\20\ The Census Bureau counts radio stations located at the same

facility as one establishment. Therefore, each co-located AM/FM

combination counts as one establishment.

\21\ FCC News Release No. 31327, January 13, 1993.

\22\ FCC News Release No. 64958, September 6, 1996.

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Thus, the proposed rules will affect approximately 1,550 television

stations; approximately 1,194 of those stations are considered small

businesses.23 Additionally, the proposed rules will affect 12,088

radio stations, approximately 11,605 of which are small

businesses.24 These estimates may overstate the number of small

entities since the revenue figures on which they are based do not

include or aggregate revenues from non-television or non-radio

affiliated companies. We recognize that the proposed rules may also

impact minority and women owned stations, some of which may be small

entities. In 1995, minorities owned and controlled 37 (3.0%) of 1,221

commercial television stations and 293 (2.9%) of the commercial radio

stations in the United States.25 According to the U.S. Bureau of

the Census, in 1987 women owned and controlled 27 (1.9%) of 1,342

commercial and non-commercial television stations and 394 (3.8%) of

10,244 commercial and non-commercial radio stations in the United

States.26 We recognize that the numbers of minority and women

broadcast owners may have changed due to an increase in license

transfers and assignments since the passage of the 1996 Act. We seek

comment on the current numbers of minority and women owned broadcast

properties and the numbers of these that qualify as small entities. To

assist us with our responsibilities under the amended Regulatory

Flexibility Act, we specifically request comments concerning our

assessment of the number of small businesses that will be impacted by

this rule making proceeding, the type or form of impact, and the

advantages and disadvantages of the impact.

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\23\ We use the 77 percent figure of TV stations operating at

less than $10 million for 1992 and apply it to the 1996 total of

1,550 TV stations to arrive at 1,194 stations categorized as small

businesses.

\24\ We use the 96% figure of radio station establishments with

less than $5 million revenue from the Census data and apply it to

the 12,088 individual station count to arrive at 11,605 individual

stations as small businesses.

\25\ Minority Commercial Broadcast Ownership in the United

States, U.S. Dep't of Commerce, National Telecommunications and

Information Administration, The Minority Telecommunications

Development Program (``MTDP'') (April 1996). MTDP considers minority

ownership as ownership of more than 50% of a broadcast corporation's

stock, voting control in a broadcast partnership, or ownership of a

broadcasting property as an individual proprietor. Id. The minority

groups included in this report are Black, Hispanic, Asian, and

Native American.

\26\ See Comments of American Women in Radio and Television,

Inc. in MM Docket No. 94-149 and MM Docket No. 91-140, at 4 n.4

(filed May 17, 1995), citing 1987 Economic Censuses, Women-Owned

Business, WB87-1, U.S. Dep't of Commerce, Bureau of the Census,

August 1990 (based on 1987 Census). After the 1987 Census report,

the Census Bureau did not provide data by particular communications

services (four-digit Standard Industrial Classification (SIC) Code),

but rather by the general two-digit SIC Code for communications

(#48). Consequently, since 1987, the U.S. Census Bureau has not

updated data on ownership of broadcast facilities by women, nor does

the FCC collect such data. However, we sought comment on whether the

Annual Ownership Report Form 323 should be amended to include

information on the gender and race of broadcast license owners.

Policies and Rules Regarding Minority and Female Ownership of Mass

Media Facilities, Notice of Proposed Rule Making, 10 FCC Rcd 2788,

2797, 60 FR 06068 (January 12, 1995).

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In addition to owners of operating radio and television stations,

any entity who seeks or desires to obtain a television or radio

broadcast license may be affected by the proposals contained in this

item. The number of entities that may seek to obtain a television or

radio broadcast license is unknown. We invite comment as to such

number.

Additionally, the proposed changes to the cable/MDS cross-ownership

attribution rule will apply to cable and MDS entities. SBA has

developed a definition of small entities for cable and other pay

television services under Standard Industrial Classification 4841

[[Page 67279]]

(SIC 4841), which covers subscription television services, which

includes all such companies with annual gross revenues of $11 million

or less.27 This definition includes cable systems operators,

closed circuit television services, direct broadcast satellite

services, multipoint distribution systems, satellite master antenna

systems and subscription television services. According to the Census

Bureau, there were 1,323 such cable and other pay television services

generating less than $11 million in revenue that were in operation for

at least one year at the end of 1992.28 This figure is

overinclusive since it includes other pay television services, not only

cable and MDS.

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\27\ 13 CFR 121.201.

\28\ 1992 Census, supra, at Firm Size 1-123. See Memorandum

Opinion and Order and Notice of Proposed Rule Making in MM Docket

No. 92-266 and CS Docket No. 96-157, 11 FCC Rcd 9517, 9531, 61 FR

45356 (August 8, 1996).

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The Communications Act contains a definition of a small cable

system operator, which is ``a cable operator that, directly or through

an affiliate, serves in the aggregate fewer than 1 percent of all

subscribers in the United States and is not affiliated with any entity

or entities whose gross annual revenues in the aggregate exceed

$250,000,000.'' 29 The Commission has determined that there are

61,700,000 subscribers in the United States. Therefore, we found that

an operator serving fewer than 617,000 subscribers is deemed a small

operator, if its annual revenues, when combined with the total annual

revenues of all of its affiliates, do not exceed $250 million in the

aggregate.30 Based on available data, we find that the number of

cable operators serving 617,000 subscribers or less totals

1,450.31 Although it seems certain that some of these cable system

operators are affiliated with entities whose gross annual revenues

exceed $250,000,000, we are unable at this time to estimate with

greater precision the number of cable system operators that would

qualify as small cable operators under the definition in the

Communications Act. We are likewise unable to estimate the number of

these small cable operators that serve 50,000 or fewer subscribers in a

franchise area.

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\29\ 47 U.S.C. Sec. 543(m)(2).

\30\ 47 CFR Sec. 76.1403(b).

\31\ Paul Kagan Associates, Inc., Cable TV Investor, February

29, 1996 (based on figures for December 30, 1995).

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The Commission has developed its own definition of a small cable

system operator for the purposes of rate regulation. Under the

Commission's rules, a ``small cable company,'' is one serving fewer

than 400,000 subscribers nationwide.32 Based on our most recent

information, we estimate that there were 1,439 cable operators that

qualified as small cable system operators at the end of 1995.33

Since then, some of those companies may have grown to serve over

400,000 subscribers, and others may have been involved in transactions

that caused them to be combined with other cable operators.

Consequently, we estimate that there are fewer than 1,439 small entity

cable system operators that may be affected by the proposal adopted in

this NPRM. Under the Commission's rules, a small cable system is a

cable system with 15,000 or fewer subscribers owned by a cable company

serving 400,000 or fewer subscribers over all of its cable systems. We

are unable to estimate the number of small cable systems nationwide,

and we seek comment on the number of small cable systems.

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\32\ 47 CFR Sec. 76.901(e). The Commission developed this

definition based on its determinations that a small cable system

operator is one with annual revenues of $100 million or less.

Implementation of Sections of the 1992 Cable Act: Rate Regulation,

Sixth Report and Order and Eleventh Order on Reconsideration, 10 FCC

Rcd 7393, 60 FR 35854 (June 5, 1995).

\33\ Paul Kagan Associates, Inc., Cable TV Investor, February

29, 1996 (based on figures for December 30, 1995).

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The Commission refined the definition of ``small entity'' for the

auction of MDS as an entity that together with its affiliates has

average gross annual revenues that are not more than $40 million for

the preceding three calendar years.34 This definition of a small

entity in the context of MDS auctions has been approved by the

SBA.35

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\34\ 47 CFR 21.961(b)(1).

\35\ See Amendment of Parts 21 and 74 of the Commission's Rules

With Regard to Filing Procedures in the Multipoint Distribution

Service and in the Instructional Television Fixed Service and

Implementation of Section 309(j) of the Communications Act--

Competitive Bidding, MM Docket No. 94-31 and PP Docket No. 93-253,

Report and Order, 10 FCC Rcd 9589, 60 FR 36524 (June 30, 1995).

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The Commission completed its MDS auction in March 1996 for

authorizations in 493 basic trading areas (BTAs). Of 67 winning

bidders, 61 qualified as small entities. Five bidders indicated that

they were minority-owned and four winners indicated that they were

women-owned businesses. MDS is a service heavily encumbered with

approximately 1,573 previously authorized and proposed MDS facilities

and information available to us indicates that no MDS facility

generates revenue in excess of $11 million annually. We tentatively

conclude that for purposes of this IRFA, there are approximately 1,634

small MDS providers as defined by the SBA and the Commission's auction

rules. We seek comment on this tentative conclusion.

Some of the proposals delineated above may also apply to daily

newspapers that hold or seek to acquire an interest in a broadcast

station that would be treated as attributable under the proposals. A

newspaper is an establishment that is primarily engaged in publishing

newspapers, or in publishing and printing newspapers.36 The SBA

defines a newspaper that has 500 or fewer employees as a small

business.37 Based on data from the U.S. Census Bureau, there are a

total of approximately 6,715 newspapers, and 6,578 of those meet the

SBA's size definition.38 However, we recognize that some of these

newspapers may not be independently owned and operated and, therefore,

would not be considered a ``small business concern'' under the Small

Business Act.39 We are unable to estimate at this time how many

newspapers are affiliated with larger entities. Moreover, the proposal

would apply only to daily newspapers, and we are unable to estimate how

many newspapers that meet the SBA's size definition are daily

newspapers. Consequently, we estimate that there are fewer than 6,578

newspapers that may be affected by the proposed rules in this FNPRM. We

invite comment on this estimate.

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\36\ 13 CFR 121.201 (SIC 2711).

\37\ Id.

\38\ U.S. Small Business Administration 1992 Economic Census

Industry and Enterprise Report, Table 3, SIC Code 2711 (Bureau of

the Census data adapted by the Office of Advocacy of the U.S. Small

Business Administration).

\39\ 15 U.S.C. 632.

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Issues Raised by the Public Comments in Response to the Initial

Regulatory Flexibility Analysis of the 1995 NPRM of Proposed Rule

Making

There were no comments submitted specifically in response to the

IRFA. We have, however, taken into account all issues raised by the

public in response to the proposals raised in this proceeding. In

particular, Association of Independent Television Stations, Inc. (now

known as the Association of Local Television Stations, Inc.), among

others, generally notes that, given the plethora of other media

investment opportunities, relaxation of the attribution rules will

attract capital to broadcasting while tightening of the attribution

rules may restrict capital flow to broadcasting. We note that access to

capital is an issue of profound concern to small entities, and,

accordingly, as discussed in the

[[Page 67280]]

FNPRM, supra, para.1, one of our goals in this proceeding has been to

avoid disruption in the flow of capital to broadcasting. National

Association of Black Owned Broadcasters argues that additional

relaxation of the attribution rules will allow increased concentration

of control of the media industry, which works against minority

ownership. Our goal is neither specifically to relax or to tighten the

attribution rules, but rather to maximize their precision. FNPRM,

supra, para.1. Additionally, Big Horn Communications, Inc., which notes

that it is a small market television station in Montana, argues that

LMAs and time brokerage agreements allow cost efficiencies in small

markets that increase service to small markets and promote the economic

viability of small and financially weak stations. Local Station

Ownership Coalition also urges the Commission not to make television

station LMAs attributable unless it permits ownership of two television

stations in a market because LMAs help financially troubled stations

achieve economic viability. We recognize that LMAs can promote economic

efficiencies, and our proposal is designed to permit those benefits

while providing for attribution of those television station LMAs that

should be counted under our multiple ownership rules.

Any Significant Alternatives Minimizing the Impact on Small Entities

and Consistent With the Stated Objectives

This FNPRM solicits comment on a variety of alternatives discussed

herein. Any significant alternatives presented in the comments will be

considered. In the NPRM, we invited comment on whether to restrict or

eliminate current attribution exemptions for nonvoting shares and for

minority voting shareholders in a corporation with a single majority

shareholder. In addition, we requested comment on whether we should

adopt new attribution rules or policies when multiple financial or

business relationships were held in combination in a licensee. The

``equity or debt plus'' approach discussed in the FNPRM is a

specifically tailored approach, narrower than that discussed in the

NPRM. We seek comment on whether there is a significant economic impact

on any class of small licensee or permittee as a result of our proposed

``equity or debt plus'' approach.

We seek comment on whether there would be a significant economic

impact on small stations resulting from the proposed attribution rules

for LMAs or from the possible application of the attribution rules to

JSAs.

We seek comment on whether there would be a significant economic

impact on small entities from the changes we have proposed to the

cable/MDS cross-ownership attribution rules.

Staff Study of the 1994/95 FCC Annual TV Ownership Reports

Policy and Rules Division

Mass Media Bureau

FCC

Executive Summary

This study collected and analyzed ownership information from the

Commission's 1994/1995 annual ownership reports on the majority (1,009

out of 1,043) of for-profit TV stations. The study draws the following

conclusions.

64.6 percent of broadcast TV stations are closely-held,

where majority control is held by 5 or fewer owners.

As well, 74.9 percent of TV stations are held by group-

owners.

Increasing the attribution benchmark for active

stockholders from 5 percent to 10 percent of voting control would

decrease the number of currently-attributable owners by approximately

one-third. As well, the number of licensees with no attributable owners

(excluding directors and officers) would increase from 81 to 134, or by

65.4 percent.

Broadcast investment by mutual funds, life insurance

companies and other passive investors is relatively small. The proposed

change from a 10 percent to 20 percent passive investor benchmark would

affect 5 of 15 currently-attributable passive investors, and impact 5

stations currently with attributable passive investors. Most reported

passive investment is now in the range of 5 percent to 10 percent

voting control.

Non-passive institutional investment is also small, with

only 57 such interests reported in total. The proposed increase from a

5 percent to 10 percent benchmark would decrease by 16, or 33.3

percent, the number of institutional interests that are currently

attributable.

Only 10 instances of reported limited liability

corporations (LLCs) were found among the stations sampled.

I. Purpose of the Study

The present study was undertaken in conjunction with the

attribution notice to analyze the potential impact of proposed rule

changes on the cognizable and non-cognizable interests in broadcast TV

stations.

II. Study Population of Interest

The scope of the data collection and analysis effort was limited to

for-profit broadcast television stations. Data for non-profit TV

stations, radio stations and low power stations were not collected for

several reasons. With non-profit stations only directors and officers

(D&O) are cognizable, and they remain cognizable under proposed

changes. The choice to focus on broadcast TV station attribution was

made to maximize the use of limited resources.

III. Study Design

Broadcast TV station licensees are required to report cognizable

ownership interests in the form of an annual ownership report. These

ownership interests include

(i) ``active'' stockholders of 5 percent voting interest or greater

in the licensee,

(ii) ``passive'' shareholders, including mutual funds, bank trust

departments and life insurance companies holding 10 percent or greater

voting interest in the licensee,

(iii) single-majority stockholders holding greater than 50 percent

interest (in which cases all other voting interests are not

attributable),

(iv) all general partnership interests,

(v) limited partnership interests that are not ``sufficiently

insulated'' and

(vi) all directors and officers (D&O) involved in the licensee.

Data collection focused on collecting data on all attributable

interests, with the exception of directors and officers with less than

1 percent voting interest in the licensee. Because of their direct

operational involvement with the licensee, this latter group is held

attributable, regardless of the extent of their ownership stake in the

station.

The annual ownership reports also frequently and voluntarily report

ownership percentages for owners not attributable under current rules,

in particular voting shareholders with interests in the 1 percent to 5

percent ownership range. To expand the scope of our analysis, data

collection was extended to include all ``reported'' voting ownership

claims of 1 percent or greater.

IV. Overall TV-Station Results

Ownership information was obtained from the annual ownership

reports required by the Commission. Information from the most recent

report on file was used. Essentially, data was collected manually and

then computer-coded from virtually all of the for-profit broadcast TV

ownership filings, except with group-owned stations where a single

ownership report was filed for the entire group.

Of the total 1542 licensed TV stations, for-profit stations

numbered 1043 and

[[Page 67281]]

non-profit stations numbered 499. Of the for-profit stations, 781

stations or 74.8% were held by group owners, defined as 2 or more

stations owned by the same corporate holding company. The remaining 262

stations were singly-owned stations. The breakdown between for-profit

and non-profit stations, and group-owned versus singly-owned stations

is shown in Table I, presented at the end of this report.

Table II categorizes TV stations by owner type. Of the for-profit

TV stations censused, 64.6 percent are closely-held stations, either

(1) by a sole proprietor, (2) by a single-majority shareholder, (3)

majority family-owned or (4) majority-owned by a small (less than six)

number of individual shareholders. Family-owned stations are those

where five or fewer family members hold more than 50 percent ownership

interest in a particular station. Closely-held stations are similarly

defined but without the family-membership requirement. In contrast,

only 20.1 percent of for-profit stations are categorized as widely-

held, where typically any one shareholder would hold only a small

percent of ownership in the station. These percentages exclude stations

which may be closely or widely held in the context of a general

partnership (GP), limited partnership (LP) or limited liability

corporation (LLC) ownership structure. As well, 4.2 percent of TV

stations are organized as GPs, 8.8 percent as LPs and 1.0 percent as

LLCs. Finally of the remaining stations, 5 are international TV

stations and 8 are currently in receivership.

Separate results for group-owned and singly-owned stations are

given in Table III. As shown in the table, group-owned stations tend to

have less concentrated ownership, with 20.4 percent of these stations

widely held, while only 6.8% of singly-owned stations are widely-held.

V. Voting Shareholders as Cognizable Interests

The Commission currently attributes ownership to stockholders with

5 percent or more of voting rights in a broadcast station. Under

consideration in the NPRM is a proposed increase in the attribution

benchmark for voting stockholders from its current level at 5 percent

to a 10 percent benchmark. Of interest is the impact of a change in the

attribution benchmark on the number of attributable owners.

The distribution of ownership interests that are attributable under

the 5 percent rule is given next. The number of equity holders in the 1

percent to 5 percent range is also given, although with the caveat that

non-attributable interests are voluntarily reported and may undercount

the true number. The table excludes ``passive'' shareholders, single-

majority shareholders, and partnership interests, which are governed by

separate attribution rules. These groups will be separately analyzed

below.

I. Issue Analysis

A. Impact of the 1996 Act

4. The 1996 Act relaxed our broadcast station multiple ownership

rules. Section 202 of the 1996 Act directed the Commission to eliminate

national radio multiple ownership limits, to relax significantly local

radio ownership rules, to eliminate the limit on the number of

television stations that a person or entity may directly own

nationwide, and to raise the national television audience reach cap to

35 percent. The 1996 Act also directed the Commission to extend its

one-to-a-market waiver policy, 47 CFR 73.3555(c), to the top 50

markets, consistent with the public interest, convenience, and

necessity, and to review its television duopoly rule, 47 CFR

73.3555(b).

5. In two Orders released on March 8, 1996 (61 FR 10689, March 15,

1996 and 61 FR 10691, March 15, 1996), the Commission amended its

ownership rules to reflect: (1) The elimination of the numerical

national television ownership caps and the increase in the national

television ownership audience reach cap to 35 percent; and (2) the

elimination of national radio ownership limits and the relaxation of

the local radio ownership limits.40 In a companion Second Further

Notice of Proposed Rule Making in MM Docket Nos. 91-221 & 87-8, adopted

today, the Commission invites further comment on a number of issues

concerning the local television ownership rules, including extension of

the one-to-a-market waiver policy and possible grandfathering of

existing television LMAs, should we ultimately determine that these

arrangements are attributable.41

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\40\ Implementation of Sections 202(a) and 202(b)(1) of the

Telecommunications Act of 1996 (Broadcast Radio Ownership), FCC 96-

90, 61 FR 10689 (March 15, 1996); Implementation of Sections

202(c)(1) and 202(e) of the Telecommunications Act of 1996 (National

Broadcast Television Ownership and Dual Network Operations), FCC 96-

91, 61 FR 10691 (March 15, 1996).

\41\ FCC 96-438, released November 7, 1996 (``TV Ownership

Second FNPRM'').

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6. We invite comment in this proceeding as to whether the changes

resulting from passage of the 1996 Act should affect our discussion of

the attribution and cross-interest issues raised by the NPRM, and, if

so, how. The relaxation of our multiple ownership rules does not itself

require either a relaxation or tightening of the attribution rules. It

does, however, reinforce our belief that the attribution rules must

function effectively and accurately to identify all interests that are

relevant to the underlying purposes of the multiple ownership rules and

that should therefore be counted in applying those rules. As

importantly, we seek to identify clearly those interests that do not

and should not implicate concerns raised by the multiple ownership

rules and that should not, therefore, be counted. We invite comment on

these issues, and we specifically invite commenters to update the

record on the impact of the 1996 Act on the issues raised in the NPRM,

including those not discussed again in this FNPRM, such as LLCs and the

cross-interest policy.

B. New Attribution Issues and Proposals

7. In this FNPRM, we explore additional issues and proposals to

increase the precision of our attribution rules. First, we invite

comment on whether we should add a new ``equity or debt plus''

attribution rule to the current rules. If adopted, such a new rule

would limit, but not eliminate, the single majority shareholder and

nonvoting stock attribution exemptions and would address our concerns,

expressed in the NPRM, about whether certain multiple business

interests should be attributable when held in combination. Under such a

rule, where the interest holder is a program supplier or same-market

broadcaster or media entity subject to the broadcast cross-ownership

rules, 47 CFR 73.3555(c), 73.3555(d), & 76.501(a), we would attribute

its otherwise nonattributable equity and/or debt interest in a licensee

or other media entity subject to the cross-ownership rules if the

equity and/or debt holding is greater than a specified

benchmark.42 Second, we incorporate into this proceeding our

proposal to attribute television time brokerage agreements (or LMAs)

based on the same principles that currently apply to radio LMAs.43

Thus, we

[[Page 67282]]

tentatively conclude that we should treat time brokerage of another

television station in the same market for more than fifteen percent of

the brokered station's weekly broadcast hours as being attributable,

and therefore as counting toward the brokering licensee's national and

local ownership limits. Third, we invite comment as to whether we

should attribute joint sales agreements among broadcasters in the same

markets, at least under certain circumstances, and as to what factors

should make such contractual relationships attributable. With respect

to television stations, the definition of what is the same ``market''

for purposes of applying the ``equity or debt plus'' attribution

standard, if adopted, as well as for applying the proposals to

attribute LMAs and JSAs, will be resolved in the television local

ownership proceeding. For radio stations and other entities covered by

our broadcast attribution rules, we would define the same ``market'' by

reference to the definition of the market used in the underlying

multiple ownership rule that is implicated.

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\42\ We will refer herein to such media entities or outlets

proposed to be subject to the ``equity or debt plus'' approach as

``same-market broadcasters'' simply as a shorthand. Thus, when we

refer to a ``same-market broadcaster'' in this FNPRM in the context

of discussing the ``equity or debt plus'' approach, we include daily

newspapers and cable operators.

\43\ We earlier raised this proposal in the television ownership

proceeding, Further Notice of Proposed Rule Making in MM Docket Nos.

91-221 & 87-8, 10 FCC Rcd 3524, Paras. 138-40 , 60 FR 6483,

(February 2,1995) (``TV Ownership FNPRM''), but now intend to

resolve the issue of treatment of LMAs in this attribution

proceeding. We will resolve the issue of possible grandfathering of

LMAs in the television ownership proceeding.

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1. ``Equity or Debt Plus''

8. Background. In the NPRM, para. 51, we expressed concern that our

earlier conclusion that a minority shareholder could not exert

significant influence on a licensee where there is a single majority

shareholder may not be a valid conclusion in all circumstances.

Therein, para. 53, we also noted our concern that nonvoting

shareholders could, in certain circumstances, carry appreciable

influence that is not now attributed. Accordingly, we invited comment

on whether to restrict or eliminate current attribution exemptions for

nonvoting shares and for minority voting shareholders in a corporation

with a single majority shareholder. In addition, we requested comment

on whether we should adopt new attribution rules or policies when

multiple financial or business relationships were held in combination

in a licensee. We noted that such multiple relationships could in

combination with equity or debt interests create sufficient influence

to warrant attribution. While we expressed these concerns, we did not

delineate specific proposals to address them.

9. We received several comments concerning these issues. Most

commenters urged us to retain the single majority shareholder and

nonvoting stock exemptions from attribution. However, network

affiliates have expressed concerns that the exemptions have allowed

networks to extend their nationwide reach by structuring

nonattributable deals in which the networks effectively exert

significant influence if not control over licensees.44 In

addition, while most parties were generally opposed to a case-by-case

attribution approach, several parties agreed that there is a need to

adopt new policies with respect to multiple business interests, or at

least to clarify our existing policies in this regard.45 One

commenter was generally opposed to relaxing the attribution rules,

commenting that ``[a]ny relaxation of the attribution rules will allow

an increase in the concentration of control of the industry,'' and

adding that an increased concentration of control ``works against

diversity of viewpoints and works against minority ownership.'' 46

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\44\ See Consolidated Comments of AFLAC Broadcast Group

(``AFLAC'') at 15-19; Consolidated Reply Comments of AFLAC at 3-4;

Reply Comments of Network Affiliated Stations Alliance at 2-3, 6-7.

\45\ See, e.g., Consolidated Comments of AFLAC at 15, 21-23.

\46\ Comments of National Association of Black Owned

Broadcasters at 10, 13.

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10. In light of the broad divergence of opinion in the comments, we

believe it would be desirable to explore a balanced, specifically-

tailored approach that would focus the rules more precisely on those

relationships that potentially permit significant influence such that

they should be attributed. Accordingly, based in part on our review of

the comments, which underscore the concerns expressed in the NPRM, and

in response to recent cases, we invite comment on a new ``equity or

debt plus'' attribution rule. Many of the concerns sought to be

addressed by the proposed ``equity or debt plus'' attribution approach

have traditionally been dealt with under the cross-interest policy. A

chief benefit of the new proposed approach, as discussed further below,

is that it would permit greater certainty and predictability in

deciding future cases than the cross-interest policy, which has

traditionally been applied on an ad hoc, case-by-case basis.

11. Overview of Approach. The new rule would operate in addition to

other attribution standards and would attempt to increase the precision

of the attribution rules, address the foregoing concerns about multiple

nonattributable relationships, and respond to concerns about abuses of

the single majority shareholder and nonvoting stock attribution

exemptions. This approach would not eliminate the nonvoting and single

majority shareholder exemptions from attribution, but would limit their

availability in certain circumstances. Under this approach, we would

attribute the otherwise nonattributable debt or equity interests in a

licensee where: (1) The interest holder also holds certain other

significant interests in or relationships to a licensee or other media

outlet subject to the cross-ownership rules that could result in the

ability to exercise significant influence; and (2) the equity and/or

debt holding exceeds specified thresholds. We seek to apply bright line

attribution tests wherever possible. Accordingly, we invite comment on

what the appropriate threshold(s) for these purposes should be and

specifically whether we should set the threshold at 33 percent where

the interest holder is: (1) A program supplier to the licensee, as will

be discussed below, or (2) a same-market broadcaster or other media

outlet subject to the broadcast cross-ownership rules, including

newspapers and cable operators. We emphasize that, under the ``equity

or debt plus'' approach delineated herein, a finding that an interest

is attributable would result in that interest being counted for all

applicable multiple ownership rules, local and national.

12. The ``equity or debt plus'' approach is narrower than that

discussed in the NPRM with respect to resolving our concerns that

multiple nonattributable business interests could be combined to exert

influence over licensees. It also does not go so far as to repeal the

current nonvoting stock and single majority shareholder attribution

exemptions; except in cases involving a same-market broadcaster or a

program supplier or any other relationship category that we delineate,

the single majority shareholder and nonvoting stock exemptions would

continue to apply as they do now. This approach reflects our current

judgment as to the appropriate balance between our goal of maximizing

the precision of the attribution rules by attributing all interests

that are of concern, and only those interests, and our equally

significant goals of not unduly disrupting capital flow and of

affording ease of administrative processing and reasonable certainty to

regulatees in planning their transactions. To the extent that it misses

some situations that might be of concern, we, of course, would reserve

the right to address extraordinary cases on an ad hoc basis and in a

manner consistent with the public interest. We invite comment as to

whether the ``equity or debt plus'' option should be adopted, and, if

so,

[[Page 67283]]

whether the 33 percent benchmark is appropriate and whether other

relationships to or interests in a licensee should also trigger

attribution under an ``equity or debt plus'' approach.

13. Triggering Relationships. The ``equity or debt plus'' approach

would focus directly on those relationships that may trigger situations

in which there is significant incentive and ability for the otherwise

nonattributable interest holder to exert influence such that the

interest may implicate diversity and competition concerns and should be

attributed. As noted above, we seek comment as to whether the

application of the equity and/or debt benchmarks discussed below should

be triggered where the interest holder is either: (1) A broadcaster or

other media entity in any service implicated by any of the current

cross-ownership rules, which operates in the same market; or (2) a

program supplier.

14. The approach of focusing on specified triggering relationships

would extend the Commission's current recognition that the category or

nature of the interest holder is important to whether an interest

should be attributed. For example, under the current broadcast

attribution rules, passive investors are subject to a higher voting

stock attribution benchmark, 47 CFR 73.3555 Note 2(c), since these

parties are subject to fiduciary and other restraints on their exercise

of influence over licensees and are, by their nature, principally

concerned with investment returns rather than direct influence over the

licensee.

15. Same-market broadcasters and certain other same-market media

entities may raise particular concerns because of our goal of

protecting local diversity and competition. Firms with existing local

media interests could use financing or contractual arrangements, such

as LMAs, to obtain a degree of horizontal integration within a

particular local market that should be subject to local multiple

ownership limitations. Indeed, the Commission's cross-interest policy

reflects its concern for competition and diversity where an entity has

an attributable interest in one media outlet and a ``meaningful

relationship'' with another media outlet serving substantially the same

area, i.e., in the same market.47 In such cases, if the ``equity

or debt plus'' approach is adopted, an attributable investment in one

broadcast or other media outlet subject to the broadcast cross-

ownership rules (i.e., cable systems and newspapers), combined with a

substantial non-attributable investment in a second station or media

outlet subject to the cross-ownership rules in the same market, would

trigger attribution of both stations or media interests to the interest

holder, where common ownership of the two entities involved would be

barred by the broadcast cross-ownership rules. We seek comment on this

option. Certainly, television broadcasters should be included as

``same-market broadcasters,'' as should radio stations. We also believe

that other media entities captured by the cross-ownership rules (i.e.,

daily newspapers and cable operators) should be subject to the ``equity

or debt plus'' approach, just as they are subject to our broadcast

cross-ownership rules, but we seek comment on the implications of

including daily newspapers and cable operators within the scope of this

proposal. In particular, how should we define what is the ``same

market'' for purposes of applying the ``equity or debt plus'' proposal

to these latter entities?

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\47\ For a recent application of the policy and statement of

this justification, see Roy M. Speer, FCC 96-258, Paras. 124-25,

released June 14, 1996.

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16. We also invite comment on whether we should include program

suppliers under the ``equity or debt plus'' attribution test to address

our concern and that of some commenters that program suppliers such as

networks could use nonattributable interests to exert influence over

critical station decisions, including programming and affiliation

choices. In recent transactions involving program suppliers, it has

appeared that nonattributable investors can be granted rights over

licensee decisions that might afford them significant influence over

the licensee. We note that radio and television time brokerage

agreements or LMAs are program supply contracts and would be

encompassed under the ``equity or debt plus'' attribution approach, if

we specify program suppliers as a triggering category. Thus, under the

``equity or debt plus'' approach, such agreements might result in

attribution in specific cases if the brokering station holds a

financial interest in or acts as a creditor of the brokered station.

Television time brokerage agreements might also be attributable under

the per se LMA attribution approach discussed below.

17. One recent transaction, for example, required us to decide

whether to attribute complex and substantial financial interests that a

national television network held in the proposed assignee of a

television station and associated translator station.48 The

proposed assignee was a multiple station owner whose stations were

affiliated with the network investor. We found that the collective

interests and relationships in that case ``do not squarely fall within

any of the cases * * * in which the Commission has previously found

multiple relationships between a network and its affiliate

nonattributable.'' 49 We therefore granted the application

conditioned upon the outcome of this rulemaking proceeding.50

Other recent cases have raised similar concerns and are also

conditioned on the outcome of this proceeding.51

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\48\ BBC License Subsidiary L.P (WLUK-TV), 10 FCC Rcd 7926

(1995).

\49\ Id. at para. 43.

\50\ Id. at para. 44.

\51\ These include Roy M. Speer, FCC 96-258, released June 14,

1996; BBC License Subsidiary L.P. (KHON-TV et. al), 10 FCC Rcd 10968

(1995); BBC License Subsidiary L.P (WLUK-TV), 10 FCC Rcd 7926

(1995); Quincy D. Jones, 11 FCC Rcd 2481 (1995); Letter to Heritage

Media, Inc. et al. from Roy J. Stewart, Chief, Mass Media Bureau,

dated January 18, 1996 (FCC File Nos. BTCCT-950911KF-KG and BALCT-

950628KJ-KL); Letter of Roy J. Stewart, Chief, Mass Media Bureau,

dated May 8, 1995, Re File Nos. BALH-940323GE and BAL-940330EA

(Cincinnati, Ohio); Letter of Larry D. Eads, Chief, Audio Services

Division, Mass Media Bureau, Ref. 1800B2, 8910-BD, dated June 8,

1995, Re File Nos. BAL-940525EA, BALH-940525EB (Wellington and Fort

Collins, Colorado). Additionally, on March 27, 1996, the staff,

acting pursuant to delegated authority, conditioned the grant of

applications seeking authorization for the transfer of control of

Noble Broadcast Licenses, Inc., licensee of radio stations serving

communities in Ohio, Missouri, Illinois, and Colorado, to Jacor

Communications, Inc., on the outcome of this proceeding. We do not

seek nor will we consider in this proceeding comments on the merits

of the decisions in these particular cases. If necessary, we will

issue separate orders to apply any new rules resulting from the

instant proceeding to the cases that have been conditioned on its

outcome. We mention these cases here only to illustrate the kinds of

relationships and interests that have aroused concerns about the

need to revise our attribution rules and invite comment, as

discussed below, on these relationships and interests in general.

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18. We tentatively conclude that there is the potential for certain

substantial investors or creditors to have the ability to exert

significant influence over key licensee decisions through their

contract rights, even though they are not granted a direct voting

interest or may only have a minority voting interest in a corporation

with a single majority shareholder, which may undermine the diversity

of voices we seek to promote. They may, through their contractual

rights and their ongoing right to communicate freely with the licensee,

exert as much or more influence or control over some corporate

decisions as voting equity holders whose interests are attributable. We

seek specific comment on this issue.

19. If we were to apply this new attribution approach to program

suppliers, we would need to decide how to define the category of

``program supplier.'' We seek comment on how

[[Page 67284]]

the definition should be set. One potential definition would include

all entities from which a broadcast licensee obtains programming,

including program producers, syndicators and networks. As noted above,

these entities in particular may have inherent interests in influencing

programming decisions. Alternatively, should we limit the definition to

networks or only to program suppliers that supply significant or

substantial quantities of programming to the licensee? If we limit the

definition to networks, how should we define a network for these

purposes? Alternatively, if we were to adopt a criterion based on the

amount of programming supplied, what amount of programming would be

sufficient for us to classify an entity as a program supplier for

purposes of applying the ``equity or debt plus'' approach? In addition,

where the program supplier is an entity in which other persons or

entities hold interests, how great an interest in a program supplier

can a person or entity hold without being deemed to be a program

supplier for purposes of applying the debt or equity plus rule? Should

we treat as program suppliers only those persons or entities that hold

a controlling interest (de facto or de jure) in a program supplier?

Alternatively, should we apply our broadcast attribution rules in

answering this question? Under such an approach, for example, applying

the current attribution rules, the holder of five percent of the voting

stock in a program supplier would be considered to be a program

supplier for purposes of applying the ``equity or debt plus'' approach.

As another alternative, should we establish a separate benchmark to be

applied in making this determination? If the last, what should that

benchmark be?

20. Finally, if we include programming suppliers among the

cognizable relationships that would trigger the equity or debt

thresholds discussed above, we nonetheless wish to avoid disrupting the

flow of capital to television stations to fund, among other things, the

conversion to digital television, which we anticipate will be costly.

We invite comment as to whether the ``equity or debt plus'' approach

would significantly hinder networks or other telecommunications

entities from helping stations to fund the conversion to digital

television, and, if so, if this is a significant problem.

21. Investment Thresholds. Under the foregoing approach, where the

creditor or equity interest holder is a same-market broadcaster or a

program supplier to the station in question, in addition to applying

the existing attribution criteria, we would attribute any financial

interest or investment in the station or other media outlet that

exceeds specified equity or debt thresholds. We would aggregate the

equity interests of such an investor (including both non-voting stock

in whatever form it is held and voting stock) in a licensee or other

media outlet for purposes of applying the equity threshold and would

apply the same approach with respect to aggregating all debt holdings

in applying the debt threshold. We seek comment as to whether preferred

stock should be treated as equity or as debt for purposes of applying

the threshold. Additionally, when the investor's total investment in

the licensee or other media outlet, aggregating all debt and equity

interests, exceeds a specified threshold percentage of all investment

in the licensee (the sum of all equity plus debt), attribution would

also be triggered. In aggregating the different classes of investment,

equity and debt, we propose to use total capitalization as a base. We

invite comment on these views. Is the approach proposed workable? Would

aggregating different classes of investment pose difficulties, and, if

so, how can these difficulties be avoided?

22. We invite comment on what specific percentage threshold(s) we

should set for purposes of applying the foregoing approach, and we

specifically request commenters to provide factual and empirical data

to support the threshold or benchmark they advocate. We are inclined to

set the equity and debt thresholds at the same level because the

rationale for including such investments, i.e., those affording the

ability to influence important station decisions, is the same for all

such forms of investment. A 33 percent benchmark might be reasonable

for these purposes. We invite comment on whether a higher or lower

benchmark would be more effective in achieving our diversity and

competition goals, while not unduly disrupting capital flow. We believe

that the threshold should be at least as high as the passive investor

benchmark, whether that benchmark be 10 percent, as under the current

rules, or 20 percent, as proposed in the NPRM in this proceeding.

Additionally, we do not want to set the limit so low as to unduly

disrupt capital flow to broadcasting. Finally, we note that, in the

context of its cross interest policy, the Commission has permitted a

nonattributable equity interest as large as 33 percent. See Cleveland

Television Corp., 91 FCC 2d 1129, 1132-35 (Rev. Bd. 1982), review

denied, FCC 83-235 (May 18, 1983), aff'd, Cleveland Television Corp. v.

FCC, 732 F.2d 962 (D.C. Cir. 1984) (``Cleveland Television''). Accord,

Roy M. Speer, FCC 96-258, Paras. 124-26, released June 14, 1996. In

Cleveland Television, 91 FCC 2d at 1132-35, the Commission held that a

one-third non-voting preferred stock interest by a broadcaster in

another station in the same market conferred ``insufficient incidents

of contingent control'' to violate the multiple ownership rules or the

cross-interest policy, and that the holders, by virtue of ownership of

the non-voting preferred stock interest would not retain the means to

directly or indirectly control the station. We invite comment on the

validity of this conclusion in the context of the ``equity or debt

plus'' approach. Additionally, we seek comment on the impact of a 33

percent threshold on small business entities, particularly on whether

there would be a disproportionate effect on small or minority entities.

23. With respect to the specific benchmark proposed, the comments

reveal that the networks have substantial nonattributable investments

in affiliated stations and that group owners have nonattributable

investments in other stations.52 We invite commenters to give us

current data as to the typical nonattributable interests held by

networks and group owners in other stations and how those relationships

might be affected by the proposed changes. We ask commenters to

designate whether the station is a small business as defined by the

Small Business Administration (``SBA''),53 and/or is minority or

woman-owned. Such information would be useful in weighing the probable

impact of setting the threshold at the 33 percent level or another

level. Finally, we note that nonvoting shares, debt, and voting

minority shares in a corporation with a single majority shareholder are

not reported under current ownership

[[Page 67285]]

report forms, and, if we adopt the ``equity or debt plus'' proposal, we

would need to modify our ownership forms accordingly. We invite comment

as to how we should modify our ownership report form, FCC Form 323, for

this purpose.

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\52\ For example, according to the Network Affiliated Stations

Alliance Comments, Exhibit 1, filed in May 1995: ABC had a 14.7

percent nonattributable interest in 10 stations in addition to the

stations in which it owned a 100 percent interest; CBS had a 49

percent nonattributable interest in one station in addition to

transactions pending to acquire other nonattributable interests in

connection with a station swap with NBC; Fox had a 20 percent

nonattributable interest in the stations attributed to New World, a

25 percent nonattributable interest in the stations attributed to

SF/Savoy, and a proposed 20 percent nonattributable interest in the

Blackstar stations; and NBC had a 49 percent nonattributable

interest in one station. Of course, this information is over one

year old. Indeed, in the interim, both CBS and ABC have been sold to

other entities that are group owners.

\53\ The SBA defines a small television station as one that has

no more than $10.5 million in annual receipts. 13 CFR Sec. 121.201.

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24. We also invite comment as to whether the targeted approach

outlined above would be preferable to a case-by-case approach that

determines whether an interest should be attributed based directly on

the kinds of powers granted to an interest holder in contract language.

For example, in some recent transactions, currently nonattributable

investments have been accompanied by contractual provisions that

essentially give the investor veto power over decisions normally made

by the board of directors under the authority of the voting

shareholders.54 Such combined provisions could give the investor

undue power to influence operational decisions. One approach to

handling these cases might be to base attribution on the type of

contract language that yields control over decisions of concern to us.

Although such an ad hoc approach is more tailored than a generic rule,

it also might lead to complicated interpretation and processing

difficulties and might add uncertainty to resolution of attribution

cases. Thus, a bright line approach, such as the ``equity or debt

plus'' approach, which clearly defines those business relationships

that cause the greatest concern, could provide certainty and minimize

regulatory costs. We invite comment as to whether a bright line test,

where attribution would be linked to the size of an investor's

interest, can serve as a proxy for these concerns, based on the

assumption that the degree of contractual rights an investor may hold

is typically related to the level of his investment. Also, would the

``equity or debt plus'' approach capture those cases where currently

nonattributable investments are accompanied by contractual provisions

that have aroused the foregoing concerns?

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\54\ For example, in BBC License Subsidiary L.P (WLUK-TV), 10

FCC Rcd 7926 (1995), in addition to holding 45 percent of the cash

equity in the licensee and other contractual rights, the investor

had approval rights over certain major decisions of the licensee,

such as expansion of operations into new business areas, mergers,

consolidations and acquisition of other businesses, the sale of

assets, the sale of securities and issuance of stock, the amendment

of the corporate by-laws and dividend payment decisions.

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2. Attribution of Time Brokerage Agreements or LMAs

25. An LMA or time brokerage agreement is a type of contract that

generally involves the sale by a licensee of discrete blocks of time to

a broker that then supplies the programming to fill that time and sells

the commercial spot announcements to support the programming.55 In

the radio context, time brokerage of another radio station in the same

market for more than fifteen percent of the brokered station's weekly

broadcast hours results in attribution of the brokered station to the

brokering licensee for purposes of applying our multiple ownership

rules. See 47 CFR Sec. 73.3555(a)(4)(i).

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\55\ TV Ownership FNPRM, para. 133. In this FNPRM, we refer to

LMAs or time brokerage agreements. For purposes of applying the

radio LMA rules, the Commission's rules define time brokerage as

``the sale by a licensee of discrete blocks of time to a `broker'

that supplies the programming to fill that time and sells the

commercial spot announcements in it.'' 47 CFR

Sec. 73.3555(a)(4)(iii). While we have generally used the terms

interchangeably, we will refer herein to LMAs as those time

brokerage agreements involving a broker that is a licensee of one or

more stations in the same market as the brokered station.

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26. In our TV Ownership FNPRM, we tentatively proposed to attribute

television LMAs based on the same principles that apply to radio time

brokerage agreements. Thus, time brokerage of another television

station in the same market for more than fifteen percent of the

brokered television station's weekly broadcast hours would be held to

be attributable, and therefore would count toward the brokering

television licensee's national and local ownership limits.56 We

specifically propose here that LMAs, if attributable, would also count

in applying our other ownership rules, including, for example, the

broadcast-newspaper cross-ownership rule (47 CFR 73.3555(d)), the

broadcast-cable cross-ownership rule (47 CFR 76.501(a)) and the one-to-

a-market rule (or radio-television cross-ownership rule) (47 CFR

73.3555(c)). We request comment on these tentative proposals. We also

note that if we adopt this proposal for television LMAs, the radio LMA

rules (47 CFR 73.3555(a)(3)) would have to be modified accordingly,

since radio LMAs are currently considered only for purposes of applying

the radio contour overlap rule (47 CFR 73.3555(a)(1)), and invite

comment on how the radio LMA attribution rules should be modified in

this regard. We also incorporate the tentative proposal that

attributable television LMAs be filed with the Commission in addition

to being kept at the stations involved in an LMA.57 We note that

we asked in the TV Ownership FNPRM, para. 139, whether the program

duplication or simulcasting limits that apply to commonly owned or time

brokered radio stations should apply to TV LMAs. We will also resolve

that issue in this proceeding.

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\56\ TV Ownership FNPRM, para. 138. When the TV Ownership FNPRM

was released, we applied national multiple ownership limits to radio

stations, and the brokered station was attributed to the brokering

station for purposes of applying both those national limits and the

local limits. See Revision of Radio Rules and Policies, 7 FCC Rcd

2755, 57 FR 18089 (April 29, 1992), on reconsideration, 7 FCC Rcd

6387, 6400-01 (``First Radio Ownership Reconsideration Order'') 57

FR 42701 (September 16, 1992), on further reconsideration, 9 FCC Rcd

7183, 7191, 59 FR 62609 (December 6, 1994). Subsequently, the

national ownership limits were eliminated for radio. See

Implementation of Sections 202(a) and 202(b)(1) of the

Telecommunications Act of 1996 (Broadcast Radio Ownership), FCC 96-

90, 61 FR 10689 (March 15, 1996). Accordingly, the interest is

counted only in applying local radio ownership limits. National

multiple ownership limits apply to television stations, however,

and, under our proposal, the brokered television station would be

counted toward the brokering television station's national and local

ownership limits, including the one-to-market rule. We note,

however, that the narrow issue of whether the audience reach of a

brokering and a brokered station serving the same market would both

be counted toward the audience reach cap, with the effect of double

counting the stations, will be decided in our proceeding concerning

the television national multiple ownership rules. Notice of Proposed

Rule Making in MM Docket Nos. 96-222, 91-221 & 87-8, FCC 96-437,

released November 7, 1996.

\57\ See TV Ownership FNPRM, para. 138. See 47 CFR

Sec. 73.3613(d).

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27. The proposed per se LMA attribution standard would apply

whether or not the LMA holder has other multiple business relationships

with the brokered station or otherwise has a financial investment in

the brokered station. While time brokerage agreements not involving a

television station in the same market would not fall under this per se

LMA attribution standard, as discussed above, such time brokerage

agreements could be attributable under the ``equity or debt plus''

approach, if adopted, where the brokering station has an equity and/or

debt interest in the brokered station that exceeds the specified

investment threshold.58 We invite updated comments on all aspects

of the foregoing tentative conclusions and proposals.

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\58\ Thus, under the proposals enumerated in this FNPRM, LMAs

are potentially attributable under a per se LMA attribution rule

and/or under the ``equity or debt plus'' approach discussed above.

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28. In making this proposal to attribute television LMAs in the TV

Ownership FNPRM, we also recognized the need to deal with pre-existing

television LMAs and asked whether we should grandfather television LMAs

entered into prior to December 15, 1994, the date of adoption of the TV

Ownership FNPRM, and whether we should subject such existing LMAs to

renewability and transferability guidelines similar to those governing

radio LMAs.59 However, if we do decide to attribute LMAs as we

propose here,

[[Page 67286]]

we intend to resolve the grandfathering, renewability and

transferability issues in the separate TV local ownership docket, TV

Ownership Second FNPRM, so that we can evaluate the extent to which

grandfathering may be needed based on the nature of the local ownership

rules we adopt.

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\59\ TV Ownership FNPRM, Paras. 138-40.

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29. With respect to our tentative proposal in the TV Ownership

FNPRM, now incorporated within this attribution proceeding, to

attribute certain television LMAs to the brokering station for purposes

of applying the multiple ownership rules, commenters voiced a range of

positions. Some opposed attributing television LMAs for ownership

purposes, particularly if the Commission does not relax its duopoly

rule.60 Others supported using the radio rules as a blueprint for

regulating television LMAs.61 Still other parties argued for more

restrictive rules.62 However, commenters generally failed to

provide the Commission with the kind of factual information we seek.

Consequently we once again request quantitative information on the

number and characteristics of existing television LMAs.

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\60\ See, e.g., Comments of Association of Independent

Television Stations, Inc., now known as Association of Local

Television Stations, Inc. (``ALTV''), filed in MM Docket Nos. 91-221

& 87-8 at 29, n.52; Comments of Kentuckiana Broadcasting, Inc. filed

in MM Docket Nos. 91-221 & 87-8 at 5-6.

\61\ See, e.g., Comments of ABC, filed in MM Docket Nos. 91-221

& 87-8, at 26-27.

\62\ See Comments of Post-Newsweek Stations, Inc., filed in MM

Docket Nos. 91-221 & 87-8, at 8-9.

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30. We are especially interested in information on the typical

geographic proximity of the brokering and brokered stations, the

typical term of television LMAs, the typical renewal provisions, the

typical arrangements between the brokered station and the broker on the

sale of advertising time during brokered time periods, the percent of

brokered station time sold to the program supplier in an LMA, and the

typical arrangements between the brokered station and the broker to

allow the brokered station to reject broker-supplied programming that

the brokered station deems not in the public interest to broadcast. We

ask commenters to provide us with information as to whether such

agreements typically require the broker to make fixed payments to the

brokered station or whether other payment terms are applicable. Do LMAs

typically require that the broker sell all the brokered time? Do they

call for the broker to provide the brokered station with studio

services at the broker's facility? Is there a typical LMA? Are there

typical provisions or do these agreements vary widely? Can we draw

general conclusions about LMAs? Are there classes or categories of LMAs

that should be subject to different attribution treatment? Finally, we

want to emphasize, as we did in our radio ownership proceeding, ``that

the licensee is ultimately responsible for all programming aired on its

station, regardless of its source.'' 63 In this regard, we invite

comment on what, if any, specific safeguards we should adopt with

respect to television LMAs to ensure a brokered station's ability to

exercise its programming responsibility.64

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\63\ First Radio Ownership Reconsideration Order, 7 FCC Rcd

6387, para. 63 (1992).

\64\ For instance, radio time brokerage agreements of the type

described in Section 73.3555(a)(3)(i) of our Rules must be reduced

to writing and contain a certification by the licensee or permittee

of the brokered station verifying that it maintains ultimate control

over the station's facilities, including control over station

finances, personnel, and programming. See 47 CFR 73.3555(a)(3)(ii).

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3. Joint Sales Agreements (JSAs)

31. In the Attribution NPRM, Paras. 94-95, we requested comment on

whether, through multiple cooperative arrangements or contractual

agreements, broadcasters could so merge their operations as to

implicate our diversity and competition concerns. We noted, however,

that we did not intend to re-open our earlier decisions permiting joint

sales practices in radio and television. These decisions, of course,

allowed joint sales practices subject to compliance with the antitrust

laws.

32. Subsequent to issuing the Attribution NPRM, the staff has been

presented with cases involving joint sales agreements (i.e., agreements

for the joint sales of broadcast commercial time) that have raised anew

diversity and competition concerns with respect to such

agreements.65 This leads us to ask whether non-ownership based

mechanisms such as JSAs that might convey influence or control over

advertising shares should be considered, and possibly attributed. For

example, where one station owner controls a large percentage of the

advertising time in a particular market, it could potentially exercise

market power. Accordingly, we invite additional comments on the

potential effects of JSAs among same-market broadcasters on diversity

and competition. We also seek comment as to whether we should attribute

JSAs among licensees in the same market, including both radio and

television licensees, irrespective of whether they are accompanied by

the holding of debt or equity.

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\65\ See, e.g., Letter of Roy J. Stewart, Chief, Mass Media

Bureau, dated May 8, 1995, Re File Nos. BALH-940323GE and BAL-

940330EA (Cincinnati, Ohio); Letter of Larry D. Eads, Chief, Audio

Services Division, Mass Media Bureau, Ref. 1800B2, 8910-BD, dated

June 8, 1995, Re File Nos. BAL-940525EA, BALH-940525EB (Wellington

and Fort Collins, Colorado).

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33. We recognize that a JSA not involving stations in the same

market may permit influence over station operations. Nonetheless, we

distinguish between JSAs in the same market and JSAs among stations not

located in the same market. Our concern for media concentration has

been focused on local markets. For example, in the radio context, only

LMAs among stations in the same market are subject to attribution, and

we apply only local multiple ownership limits. And, in the television

context, we have similarly been more concerned with local markets

because the video program delivery market is a local market.66

Following this traditional concern for local markets, we focus on JSAs

in local markets. We invite comment on this approach.

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\66\ See TV Ownership FNPRM, Paras. 31, 36-45, 87-88.

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34. We seek general information concerning the typical contractual

terms of JSAs. What is the typical length of such agreements, and are

they automatically renewable? How are the station owner and broker

compensated? Are there package deals among several stations? Does the

broker get involved in the operation of the station, including

programming and finances, either directly or indirectly? As a practical

matter, do typical JSAs differ from LMAs or do time brokerage

agreements usually accompany JSAs? What other arrangements typically

occur between parties in terms of station operations, joint sales force

utilization, or joint use of production facilities? In addition, what

kind of efficiencies arise with JSAs, how are these shared among

parties to the JSA, and how do these benefits differ from those of

LMAs? Finally, what impact do JSAs have on competition, and under what

circumstances, if any, should the interest of the broker/JSA holder be

held attributable? If we were to consider JSAs, should such interests

be attributable in all circumstances involving stations in the same

market, or only where the broker also has some influence over the

programming or other operations of the brokered station? Alternatively,

should we apply another criterion in deciding whether to attribute

JSAs, such as attributing JSAs among same-market stations where the

brokering station exceeds a specific market share benchmark? We seek

[[Page 67287]]

comment on these issues and any other relevant questions concerning

whether or not JSAs should be attributable, at least under certain

circumstances.

C. Voting Stock Benchmarks

35. In the NPRM, as discussed above, we requested comment as to

whether we should increase the voting stock benchmarks from five to ten

percent for active investors and from ten to twenty percent for passive

investors. In response, the majority of commenters that responded to

these issues favor increasing the benchmarks. However, commenters did

not submit, in response to the NPRM, the kind of specific, empirical

evidence that we believe may be necessary before we can reasonably

conclude that the benchmarks should be raised, and we invite additional

comments to provide such additional evidence and economic studies.

Accordingly, we ask for specific and empirical information in a number

of areas to justify raising the benchmarks.

36. In this regard, Commission staff has conducted a study of the

attributable interests in commercial broadcast television licensees, as

reported in the ownership reports licensees are required to file. The

results of the staff study are set forth below. One conclusion from

that study is that increasing the attribution benchmark for active

investors from five percent to ten percent would decrease the number of

currently-attributable owners by approximately one-third. The number of

stations for which no stockholder would be attributable would increase

from 81 to 134 stations (out of 389 commercial for-profit television

stations that are incorporated and are not single majority shareholder

stations), under current stock distribution patterns.

37. We invite comment on all aspects of this study, including its

implications for our attribution rules. Does the study suggest that

existing attribution criteria appropriately balance the goals of

identifying those interests that should be counted in applying the

multiple ownership rules, while not unduly disrupting capital flow?

Would stockholding or investment patterns change in response to a

change in the attribution rules? If so, how would they change, and why

would they change? Would there be a significant impact on capital flow,

given the relaxation of the multiple ownership rules resulting from

passage of the 1996 Act? Is there a need to encourage additional

capital investment?

D. Transition Issues

38. In the NPRM, para. 15, we stated our concern that any action

taken in this proceeding not disrupt existing financial arrangements,

and, accordingly, invited comment as to whether we should grandfather

existing situations or allow a transition period for licensees to come

into compliance with the multiple ownership rules if we adopt more

restrictive attribution rules. All commenters that have addressed this

issue in response to the NPRM urge the Commission to grandfather

existing interests indefinitely if it adopts more restrictive

attribution rules because of the disruptive effect and the unfairness

to the parties of mandatory divestiture. According to CBS, Comments at

13-14, the alternative of a transition period would not provide real

relief from restrictive attribution rule changes, such as restricting

the availability of the single majority shareholder exemption.

39. We now seek additional comment on the option of a transition

period, particularly since the national television multiple ownership

rules have recently been relaxed, as have the local radio multiple

ownership rules, and the national radio ownership limits have been

eliminated. Accordingly, we invite commenters again to address the

transition/grandfathering issue in light of these different

circumstances, including the appropriate length for any transition

period that may be adopted. We reiterate that the issue of

grandfathering of television LMAs, should we decide to attribute them,

will be resolved in the television local ownership proceeding; in this

FNPRM, we refer only to transition and grandfathering issues related to

the other (non-LMA) attribution issues raised in this attribution

proceeding.

40. If we grandfather existing interests, what grandfathering

principle should we apply? Such grandfathering would mean that the

relationship would be held attributable, but the holder would not be

required to divest holdings in the event that the attribution resulted

in the holder exceeding our ownership limits. If the joint holdings

were later sold, that ownership grandfathering would not transfer to

the assignee or transferee. We also invite comment as to the extent of

grandfathering that would be required if we restrict attribution rules.

41. Finally, regardless of what policy we ultimately adopt with

respect to either a transition or grandfathering of existing interests,

we tentatively conclude that any interests acquired on or after

December 15, 1994, the date of adoption of the NPRM in this proceeding,

should be subject to the final rules adopted in the Report and Order in

this proceeding. We seek comment on this approach, and whether a

subsequent grandfathering date would be more appropriate. In the event

that we adopt a transition period, what is the appropriate length for

such a transition period? We tentatively propose that any such

transition period adopted to permit divestiture of such interests

should be relatively short and no longer than six months.67

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\67\ See, e.g,, Implementation of Sections 202(c)(1) and 202(e)

of the Telecommunications Act of 1996 (National Broadcast Television

Ownership and Dual Network Operations), FCC 96-91, 61 FR 10691

(March 15, 1996).

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E. Cable/MDS Cross-Ownership Attribution

42. We also take this opportunity to consider changes to the cable/

Multipoint Distribution Service (``MDS'') cross-ownership attribution

rule.68 Section 613(a) of the Act states that ``[i]t shall be

unlawful for a cable operator to hold a license for multichannel

multipoint distribution service * * * in any portion of the franchise

area served by that cable operator's cable system.'' 47 U.S.C.

Sec. 533(a) (emphasis added). The Commission may waive the requirements

of this provision ``to the extent the Commission determines is

necessary to ensure that all significant portions of a franchise area

are able to obtain video programming.'' 47 U.S.C.

Sec. 533(a)(2).69 Section 613(a) was added by Section 11(a) of the

1992 Cable Act. In implementing Section 613(a), the Commission modified

its existing cable/MDS cross-ownership rule in Section 21.912 of the

rules.70 Section 21.912(a) prevents a cable operator from

obtaining an MDS authorization if any portion of the MDS protected

service area overlaps with the cable system's franchise area actually

being served by cable. Section 21.912(b) also prohibits a cable

operator from leasing MDS capacity if its franchise area being served

overlaps with the MDS protected service area. For purposes of this

rule, ``an attributable ownership interest shall be defined by

reference to the definitions

[[Page 67288]]

contained in the Notes to Sec. 76.501, provided however, that:

\68\ For purposes of this item, MDS also includes single channel

Multipoint Distribution Service (``MDS'') and Multichannel

Multipoint Distribution Service (``MMDS'').

\69\ Compare 47 U.S.C. 537(d) (before the 1996 Act, providing

broad authority for ``public interest'' waivers of the cable anti-

trafficking restriction). The cable/MMDS cross-ownership prohibition

does not apply if the cable operator is subject to ``effective

competition'' in its franchise area. Id. section 533(a)(3) (added by

1996 Act).

\70\ Implementation of Section 11 and 13 of the Cable Television

Consumer Protection and Competition Act of 1992, 8 FCC Rcd 6828,

6843, 58 FR 42013 (August 6, 1993) (``Implementation Order''),

reconsidered on other grounds, 10 FCC Rcd 4654, 60 FR 37830 (July

24, 1995).

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(i) The single majority shareholder provisions of Note 2(b) to

Sec. 76.501 and the * * * limited partner insulation provisions of

Note 2(g) to Sec. 76.501 shall not apply; and

(ii) The provisions of Note 2(a) to Sec. 76.501 regarding five

(5) percent interests shall include all voting or nonvoting stock or

limited partnership equity interests of five (5) percent or more.''

71

\71\ 47 CFR 21.912 (note 1(A)).

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43. This strict attribution standard severely restricts investment

opportunities that are compatible with our goal of strengthening

wireless cable and providing meaningful competition to cable operators.

Additionally, we see no reason to have different attribution criteria

for broadcasting and MDS. We have previously observed that ``the

Commission could employ the broadcast attribution criteria contained in

Section 73.3555 (Notes) of its Rules, or such other attribution rules

as the Commission deemed appropriate for this purpose.'' 72 Thus,

the instant proceeding provides us with an opportunity to revisit our

current attribution standard consistent with our responsibility to

achieve the objective of diversity while ``balancing genuine and

significant efficiencies.'' 73 Therefore, we invite comment on

whether we should apply broadcast attribution criteria, as modified by

this proceeding, in determining cognizable interests in MDS licensees

and cable systems for purposes of applying the ownership restrictions

of Section 21.912 of our Rules. In addition, we seek comment as to

whether we should add an ``equity or debt plus'' attribution rule where

the competing entity's holding exceeds 33 percent or some other

benchmark. We believe that these proposed modifications of our

attribution rule will increase the potential for investment consistent

with our responsibility ``[t]o further diversity and prevent cable from

warehousing its potential competition.'' 74

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\72\ Implementation Order at 6843.

\73\ S. Rep. No. 92, 102d Cong., 1st Sess. 46-47 (1991)

\74\ Id.

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IV. Conclusion

44. By this FNPRM, we request comments to update the record in this

proceeding, which is intended to determine whether the attribution

rules continue to be effective in identifying those interests that

should be counted for purposes of applying the multiple ownership

rules. It is important to ensure that these rules operate accurately so

that we apply the multiple ownership limits, which have recently been

relaxed as a result of passage of the 1996 Act, in an appropriate

manner, and that the attribution rules are not used as a means to evade

or circumvent these limits. We believe that the concerns and issues

raised in the comments and in this FNPRM are of utmost importance, and

we look forward to well-reasoned and empirically-based comments with

respect to these issues.

V. Administrative Matters

45. Filing of Comments. Pursuant to applicable procedures set forth

in Sections 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 February 7,

1997 and reply comments on or before March 7, 1997. To file formally in

this proceeding, you must file an original plus four copies of all

comments, reply comments, and supporting comments. Parties are also

asked to submit, if possible, draft rules that reflect their positions.

If you want each Commissioner to receive a 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. Parties should also file one copy

of any documents filed in this docket with the Commission's copy

contractor, International Transcription Services, Inc., 2100 M Street,

N.W., Suite 140, Washington D.C. 20037. Comments and reply comments

will be available for public inspection during regular business hours

in the FCC Reference Center (Room 219), 1919 M Street, N.W.,

Washington, D.C. 20554.

46. Initial Paperwork Reduction Act of 1995 Analysis. This FNPRM

contains either a proposed or modified information collection (i.e.,

revision of Annual Ownership Report, FCC Form 323). As part of its

continuing effort to reduce paperwork burdens, we invite the general

public and the Office of Management and Budget (OMB) to take this

opportunity to comment on the information collections contained in this

FNPRM, as required by the Paperwork Reduction Act of 1995, Public Law

Notice 104-13. Public and agency comments are due at the same time as

other comments on this FNPRM; OMB comments are due 60 days from the

date of publication of this FNPRM in the Federal Register. Comments

should address: (a) Whether the proposed collection of information is

necessary for the proper performance of the functions of the

Commission, including whether the information shall have practical

utility; (b) the accuracy of the Commission's burden estimates; (c)

ways to enhance the quality, utility, and clarity of the information

collected; and (d) ways to minimize the burden of the collection of

information on the respondents, including the use of automated

collection techniques or other forms of information technology.

47. Written comments by the public on the proposed and/or modified

information collections are due February 7, 1997. Written comments must

be submitted by the Office of Management and Budget (OMB) on the

proposed and/or modified information collections on or before 60 days

after the date of publication in the Federal Register. In addition to

filing comments with the Secretary, a copy of any comments on the

information collections contained herein should be submitted to Dorothy

Conway, Federal Communications Commission, Room 234, 1919 M Street,

N.W., Washington DC 20554, or via the Internet to [email protected] and

to Timothy Fain, OMB Desk Officer, 10236 NEOB, 725--17th Street, N.W.,

Washington, DC 20503 or via the Internet to

[email protected].

48. Ex Parte Rules. 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's Rules. See generally 47 CFR Sections

1.1202, 1.1203, and 1.206(a).

49. This FNPRM is issued pursuant to authority contained in

Sections 4(i) and 303 of the Communications Act of 1934, as amended, 47

U.S.C. 154(i), 303.

50. Additional Information. For additional information on this

proceeding, contact Mania K. Baghdadi (202) 418-2130 or Berry Wilson

(202) 418-2024, Policy and Rules Division, Mass Media Bureau.

51. Initial Regulatory Flexibility Analysis. With respect to this

FNPRM, an Initial Regulatory Flexibility Analysis (``IRFA'') as set

forth below. As required by Section 603 of the Regulatory Flexibility

Act, the Commission has prepared an IRFA of the expected impact on

small entities of the proposals contained in this FNPRM. Written public

comments are requested on the IRFA. In order to fulfill the mandate of

the Contract with America Advancement Act of 1996 regarding the Final

Regulatory Flexibility Analysis, we ask a number of questions in our

IRFA regarding the prevalence of small businesses in the radio and

television broadcasting industries. Comments on the IRFA must be filed

in accordance with the same filing deadlines as

[[Page 67289]]

comments on the FNPRM, but they must have a distinct heading

designating them as responses to the IRFA.

The Secretary shall send a copy of this FNPRM, including the IRFA,

to the Chief Counsel for Advocacy of the Small Business Administration

in accordance with Section 603(a) of the Regulatory Flexibility Act,

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

as amended.

List of Subject

47 CFR Part 21

Televison broadcasting.

47 CFR Part 73

Television broadcasting, and radio broadcasting.

List of Subject in 47 CFR Part 76

Cable televison.

Federal Communications Commission.

Shirley S. Suggs,

Chief, Publications Branch.

Table A.--Distribution of Non-Passive Ownership Claims

------------------------------------------------------------------------

Ownership range (percent) Number Percent

------------------------------------------------------------------------

1-

5-50.................................... 417 35.7

50-100.............................................. * 0 0.0

-------------------

Total attributable............................ 1167 100

------------------------------------------------------------------------

Not currently attributable. Also, D&Os holding less than 1 percent

equity are not reported.

*Single-majority shareholders are analyzed below.

The table indicates that among attributable shareholders falling

under the current 5% rule, 37.5 percent have ownership interests

between 5 percent and 10 percent, 15.7 percent with interests between

10 percent and 15 percent, 11.1 percent with interests between 10

percent and fifteen percent and 35.7 percent with interests between 20

percent and 50 percent. Interestingly, the largest concentrations of

ownership are in the 5 percent to 10 percent and 20 percent to 50

percent categories. Under the proposed change in the attribution

benchmark from 5 percent to 10 percent, approximately 37.5 percent of

currently attributable owners would become non-attributable.

Of additional interest is the impact of proposed rule changes on

the number of attributable owners per broadcast station. The following

table gives the distribution of the number of attributable owners per

broadcast TV station under the current 5 percent benchmark and under

the proposed 10 percent benchmark.

Table B.--Distribution of Number of Attributable Owners Per Station

Under 5 Percent and 10 Percent Benchmarks for Non-passive Investors

------------------------------------------------------------------------

Proposed

Current 5 10

Per station number of attributable owners percent percent

benchmark benchmark

------------------------------------------------------------------------

0 *............................................... 81 134

1................................................. 41 27

2................................................. 67 92

3................................................. 56 66

4................................................. 38 43

5................................................. 43 19

6................................................. 24 3

7................................................. 16 5

8................................................. 18 0

9................................................. 0 0

10................................................ 1 0

11................................................ 1 0

12................................................ 3 0

---------------------

Total stations.............................. 389 389

------------------------------------------------------------------------

* D&Os holding less than 1 percent equity are excluded.

The table indicates that the number of stations with no

attributable owners (except directors and officers) would increase from

81 to 134, or by 65.4 percent.

VI. Voting Stock: Passive Investors

A less-restrictive 10 percent attribution benchmark is currently

set for certain institutional investors thought to be restricted by law

or fiduciary responsibility from active involvement in station

operations. These so-called ``passive'' investors include bank trust

departments, mutual funds and insurance companies. Because of their

passive status, the Commission prohibits these investors from serving

as directors or officers of the broadcast station, or from attempting

to otherwise influence station operations.

The distribution of ownership claims for passive investors,

excluding partnerships and single-majority stockholder stations, is

given next.

Table C.--Distribution of Passive Ownership Claims

------------------------------------------------------------------------

Ownership range Number Percent

------------------------------------------------------------------------

1%-

5%-

10%-50%.................................. 10 66.7

50%-100%............................................ 0* 0.0

-------------------

Total attributable.............................. 15 100

------------------------------------------------------------------------

Not currently attributable.

* Single-majority shareholders are analyzed below.

As given in the table, the reported number of passive investors is

relatively small, with only 43 such institutional investors reported in

total for these stations. Of these 43, only 15 hold attributable equity

interests. With the proposed relaxation of the attribution benchmark to

20 percent, 5 of the currently attributable interests would become non-

attributable. As well, the largest number of passive investors fall in

the 5 percent to 10 percent range.

Despite the small number of passive institutional investors, some

of these do in fact have large equity stakes in broadcast stations. For

example, one passive investor owns 50% of the parent company of a

licensee.

The following table gives the distribution of the number of

attributable owners under the current 10 percent and under the proposed

20 percent benchmark for passive investors.

Table D.--Distribution of Number of Attributable Owners Per Station

Under 10 Percent and 20 Percent Benchmarks for Passive Investors

------------------------------------------------------------------------

Current Proposed

10 20

Per station number of attributable owners percent percent

benchmark benchmark

------------------------------------------------------------------------

0................................................. 376 381

1................................................. 11 6

2................................................. 2 2

------------------------------------------------------------------------

VII. Voting Stock: Other Institutional Investors

Institutional investors not considered to be passive investors

include commercial banks (excluding trust departments), investment

banks, brokerage firms and pension funds. These investors are not

judged to be restricted by law or fiduciary responsibility from

involvement in broadcast operations, and are subject to the 5 percent

attribution benchmark of other non-passive voting shareholders. No

change is currently proposed for these passive investors in the NPRM.

The distribution of ownership interests

[[Page 67290]]

for non-passive institutional investors is given next.

Table E.--Distribution of Ownership Interests of Non-Passive

Institutional Investors

------------------------------------------------------------------------

Ownership range Number Percent

------------------------------------------------------------------------

1%-50%.................................. 13 27.1

50%-100%............................................ 4 8.3

-------------------

Total TV stations............................... 57 100.0

------------------------------------------------------------------------

As with passive investors, the number of reported non-passive

institutional investors in broadcast stations is relatively small. With

the proposed relaxation to 10 percent benchmark, 16 or 33.3 percent of

these would become non-attributable.

Despite their small number, some non-passive institutional owners

have large interests in broadcast stations. For example, one bank owns

100 percent of the parent company of three TV broadcast licenses. As

well, a venture capital subsidiary owns 72.05% of the parent company of

two TV licensees.

VIII. Single-Majority Shareholder

Single-majority shareholder investments are those where a single

stockholder controls more than 50 percent of the voting interest in the

licensee. All other shareholders in this case are non-attributable,

regardless of their percent ownership, since the single-majority

shareholder is thought to hold operational control.

As given in Table II, a total of 308, or 30.5% of for-profit TV

stations, are single majority shareholder owned. The following table

lists the distribution of voting shares for these licensees falling

under the single-majority shareholder rule. Sole proprietorships and

sole owners are listed as 100 percent.

Table F.--Distribution of Ownership Interests in Single-Majority Shareholder Licensees

----------------------------------------------------------------------------------------------------------------

Non-passive investors Passive investors

Ownership range ---------------------------------------------------

Number Percent Number Percent

----------------------------------------------------------------------------------------------------------------

1%-50%.......................................... 93 12.5 7 58.3

50%-50%.......................................... 72 30.0 28 19.0

50%-100%.................................................... 84 35.0 0 0.0

---------------------------------------------------

Total................................................. 240 147

----------------------------------------------------------------------------------------------------------------

The results indicate that the majority of general partners have

either small (less than 5 percent) or very large (greater than 20

percent) ownership stakes in the licensee.

The ownership files investigated also indicate that virtually all

limited partners claim insulation of their partnership claim.

XI. Limited Liability Companies and Other New Business Forms

A limited liability company (LLC) is a new hybrid form of ownership

that combines advantages of both a limited partnership and

corporations. Like limited partnerships, profits in an LLC are passed

directly through to investors and therefore taxed only as personal

income, which avoids the double taxation of corporations. However,

unlike limited partnerships, LLC members may exercise management

control without threat of loss of limited liability.

The available ownership records show a total of 10 stations

organized as LLCs and 1 station partially owned by an LLC.

A. Total Profit and Non-Profit Stations

Table I.--Distribution of For-Profit TV Stations Across Type 1994/95

Ownership-Report Data

------------------------------------------------------------------------

Numbers Percent

------------------------------------------------------------------------

For-profit TV stations:

Group-owned stations................................ 781 74.8

Single-owned stations............................... 262 25.2

-------------------

Total for-profit stations....................... *1043 100.0

Number of TV group-owners........................... 180

Not-for-profit TV stations:

Total stations.................................. *499

----------

Total number of stations........................ 1542

------------------------------------------------------------------------

* This break-out between for-profit and not-for-profit stations reflects

the designation self-reported by licensees on their annual ownership

report filed with the Commission. The number of not-for-profit

stations exceeds the number of non-commercial stations (363 as of 11/

20/95, Broadcasting & Cable) by some 130 stations, representing

commercial-band stations that are not-for-profit.

B. Aggregate For-Profit Station Results

Table II.--For-Profit TV Stations by Station Type 1994/95 Ownership-

Report Data

------------------------------------------------------------------------

Number

Type of ownership of Percent

stations

------------------------------------------------------------------------

Single-owner stations............................... 158 15.7

Single-majority-shareholder stations................ 308 30.5

Family-owned stations............................... 72 7.1

Closely-held stations............................... 114 11.3

Widely-held stations................................ 203 20.1

General partnerships (GP)........................... 42 4.2

Limited partnerships (LP)........................... 89 8.8

Limited liability corporations (LLC)................ 10 1.0

International Stations.............................. 5 0.5

In Receivership..................................... 8 0.8

-------------------

1009 100

------------------------------------------------------------------------

Table III.--Group-Owned and Singly-Owned TV Station Results 1994/95

Ownership-Report Data

------------------------------------------------------------------------

Group- Singly-

owned owned

Type of ownership stations stations

percent percent

------------------------------------------------------------------------

Single-owner stations............................... 15.3 22.9

Single-majority-shareholder stations................ 32.2 30.5

Family-owned stations............................... 7.9 4.4

Closely-held stations............................... 10.2 18.9

Widely-held stations................................ 20.4 6.8

General partnerships (GP)........................... 4.0 3.2

Limited partnerships (LP)........................... 8.5 9.6

Limited liability corporations (LLC)................ 1.1 0.4

International Stations.............................. 0.0 2.0

In Receivership..................................... 0.6 1.6

------------------------------------------------------------------------

[FR Doc. 96-32323 Filed 12-19-96; 8:45 am]

BILLING CODE 6712-01-U