# Review of the Commission's Regulations Governing Attribution Ownership Rule

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/fr%3A99-23694

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** September 17, 1999
- **Citation:** 64 FR 50622

## Text

SUMMARY: This document amends the Commission's broadcast, broadcast
cable cross-ownership and cable/Multipoint Distribution Service Cross-
ownership (``MDS'') attribution rules. The intended effect of this
action is to improve the clarity and precision of our current rules
while avoiding disruptions in funding to licensees.

DATES: Effective November 16, 1999, except for Sec. 73.3526(e)(14) and
(e)(16) and Sec. 73.3613(d) and (e) which contain information
collection requirements that are not effective until approved by the
Office of Management and Budget. The FCC will publish a document in the
Federal Register announcing the effective dates for those sections.

FOR FURTHER INFORMATION CONTACT: Mania K. Baghdadi, Jane Gross or Berry
Wilson at (202) 418-2120, Policy and Rules Division, Mass Media Bureau.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order (``R&O''), FCC 99-207, adopted August 5, 1999; released
August 6, 1999. The full text of the Commission's R&O is available for
inspection and copying during normal business hours in the FCC Dockets
Branch (Room TW-A306), 445 12 St. S.W., Washington, D.C. The complete
text of this R&O may also be purchased from the Commission's copy
contractor, International Transcription Services (202) 857-3800, 1231
20th St., N.W., Washington, D.C. 20036.

Synopsis of Report & Order

Introduction

1. The mass media 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. In this R&O, we amend our broadcast and our
cable/Multipoint Distribution Service (``MDS'') attribution rules to
improve the precision of the attribution rules, avoid disruption in the
flow of capital to broadcasting, afford clarity and certainty to
regulatees and markets, and facilitate application processing--our
goals in initiating this proceeding. In taking these steps, we have
sought to avoid undue impact on our goal of promoting the rapid
conversion of broadcast television licensees to a digital mode. We
initiated this long-pending proceeding in 1995, sought further comment
after the passage of the Telecommunications Act of 1996, and have had
the benefit of numerous comments on the variety of issues resolved
herein. The new attribution rules we adopt today are integrally related
to the rules adopted in our companion local television ownership and
national television ownership proceedings. A reasonable and precise
definition of what interests should be counted in applying the multiple
ownership rules is a critical element in assuring that those rules
operate to promote the goals they were designed to achieve.

Background

2. The attribution rules that are the subject of this proceeding
define what constitutes a ``cognizable interest'' in applying the
broadcast multiple ownership rules, the broadcast/cable cross-ownership
rule, and the cable/MDS cross-ownership rule. We issued the Attribution
Notice, 60 FR 6483, February 2, 1995, to review the attribution rules
based on several considerations, including: (1) Changes in the
broadcasting industry and in the multiple ownership rules since our
last revision of the attribution rules over ten years ago and our
consequent desire to ensure that the attribution rules remain effective
in identifying interests that should be counted for purposes of
applying the multiple ownership rules; (2) concerns raised that certain
nonattributable investments, while permissible under current rules,
might permit a degree of influence that warrants their attribution; (3)
concerns that individually permissible cooperative arrangements between
broadcasters are being used in combination so as to result in
significant influence in multiple stations that is intended to be
prohibited by the multiple ownership rules; and (4) the need to address
attribution treatment of Limited Liability Companies (``LLCs'').
3. We solicited comment in the Attribution Notice on several
issues, including: (1) Whether to increase the voting stock benchmark
from 5 percent to 10 percent and the passive investor benchmark from 10
percent to 20 percent; (2) whether to expand the category of passive
investors; (3) whether and, if so, under what circumstances to
attribute nonvoting shares; (4) whether to retain our single majority
shareholder exemption from attribution; (5) whether to revise our
insulation criteria for limited partners, and whether to adopt an
equity benchmark for noninsulated limited partners; (6) how to treat
interests in LLCs and other new business forms under our attribution
rules; (7) whether to eliminate the remaining aspects of our cross-
interest policy; and (8) how to treat financial relationships and
multiple business interrelationships which, although not individually
attributable, should perhaps be treated as attributable interests when
held in combination.
4. Congress subsequently enacted the Telecommunications Act of 1996
(``1996 Act''), Public Law 104-104, 110 Stat. 56 (1996), which
substantially relaxed several of our ownership rules. We issued the
Attribution Further Notice, 61 FR 67275, December 20, 1996, to seek
comment as to how these ownership rule revisions should affect our
review of the attribution rules. We also sought comment on new
proposals, including a proposal to attribute the otherwise
nonattributable interests of holders of equity and/or debt in a
licensee where the interest holder is a program supplier to a licensee
or a same-market media entity and where the equity and/or debt holding
exceeds a specified threshold. Additionally, we sought comment on: (1)
Proposals to attribute television Local Marketing Agreements (``LMAs'')
and to modify the scope of the radio LMA attribution rules; (2) whether
we should revise our approach to joint sales agreements (``JSAs'') in
specified circumstances; (3) a study conducted by Commission staff,
appended to the Further Notice, on attributable interests in television
broadcast licensees and on the implications of this study for our
attribution rules, particularly on the voting stock benchmarks; (4)
whether we should amend the cable/MDS cross-ownership attribution rule;
and (5) transition issues.
5. We believe the rule revisions we adopt today promote these
goals. In this R&O, we: (1) Adopt an equity/debt plus attribution rule
that would narrow, but not eliminate, the current exemptions from
attribution for nonvoting stock and debt, as well as the single
majority shareholder exemption; (2) attribute certain television LMAs
and modify the radio LMA rules; (3) retain the 5 percent voting stock
attribution benchmark, but raise the passive investor voting stock
benchmark to 20 percent; (4) retain the current definition of passive
investor; (5) eliminate the cross-interest policy;

[[Page 50623]]

(6) decline to adopt attribution rules for JSAs; (7) adopt as an
attribution rule our interim processing policy under which we apply
limited partnership insulation criteria to LLCs; (8) retain the current
insulation criteria for attribution of limited partnerships; (9) revise
the cable/MDS cross-ownership attribution rule to conform it to the
broadcast attribution rules, as revised in this R&O; and (10) establish
transition measures with respect to interests made attributable as a
result of rules adopted in this R&O that would result in violations of
the multiple ownership rules. So that our broadcast attribution rules
remain consistent, we also modify the attribution rules that apply to
the broadcast/cable cross-ownership rule, Sec. 76.501(a) to incorporate
the attribution rule changes adopted today.

Issue Analysis

A. Stockholding Benchmarks

6. Background. The Attribution Notice sought comment on whether we
should increase the voting stock benchmarks from five to ten percent
for non-passive investors and from ten to twenty percent for passive
investors. This issue was originally raised in the Notice of Proposed
Rule Making and Notice of Inquiry, 57 FR 14684, April 22, 1992) in MM
Docket No. 92-51, (``Capital Formation Notice''), which cited concerns
about the availability of capital to broadcasters. Insufficient
evidence was submitted in comments to the Capital Formation Notice to
warrant raising the benchmarks, and, therefore, the Attribution Notice
again raised the issue of whether to increase the voting stock
benchmarks. In the Attribution Further Notice, the Commission noted
that commenters responding to the Attribution Notice had again not
submitted specific empirical data sufficient to conclude that the
benchmarks should be raised. The Attribution Further Notice thus asked
for additional information to justify raising the benchmarks, including
information on changes in the economic climate and competitive
marketplace, and the link between additional capital investment and
raising the voting stock benchmarks.
7. Comments. Few commenters responded to our requests in the
Attribution Further Notice for additional comments supporting the
increase in the active investor benchmark to 10 percent.
8. Decision. We have decided to retain the current active voting
stock benchmark at 5 percent. First and most importantly, in reviewing
the evidence related to the issue of non-passive voting equity
benchmarks, we remain convinced that shareholders with ownership
interests of 5 percent or greater may well be able to exert significant
influence on the management and operations of the firms in which they
invest. In this regard, we have not been presented with empirical
evidence to rebut our conclusion in the Attribution Order that a ``5%
benchmark is likely to identify nearly all shareholders possessed of a
realistic potential for influencing or controlling the licensee, with a
minimum of surplus attribution.''
9. In this regard, a growing body of academic evidence indicates
that an interest holder with 5 percent or greater ownership of voting
equity can exert considerable influence on a company's management and
operational decisions. This is particularly true with widely-held
corporations where a 5 percent stockholder is likely to be among the
largest shareholders in the firm. One recent study demonstrated that
block trades involving 5 to 10 percent of the firm's voting stock
resulted in a 27 percent turnover rate of the CEO of the traded firm,
that a 20 to 35 percent block trade resulted in a 40 percent turnover
rate of the CEO of the traded firm, and that block trades over 35
percent of the voting equity resulted in a 56 percent turnover rate,
L.E. Ribstein, Business Associations 987 (1990). The turnover of the
CEO was tracked over a one year period following the date of the trade.
These results, spanning an increasing level of ownership starting at 5
percent, demonstrate a consistent relationship between ownership trades
and the rate of replacement of top management. The results imply that
investors who acquire and hold such large blocks of voting stock can
influence the choice of management of the firms in which they invest.
10. Another study presents evidence that 5 percent or greater
stockholders vote more actively than less-than-five percent
shareholders, and they tend to vote more often against the
recommendations of management in votes over corporate anti-takeover
amendments (J.A. Brickley, R.C. Lease and C.W. Smith, Ownership
Structure and Voting on Antitakeover Amendments, 20 Journal of
Financial Economics 267-291 (1988)). This study suggests that larger
owners, starting at a 5 percent level of ownership, tend to be more
active in influencing management than smaller owners. The two studies
considered together provide evidence that ownership percentages
starting at 5 percent can influence management policies and have an
impact on firm value.
11. In addition, notwithstanding our requests for empirical
evidence, in the Attribution Notice and again in the Attribution
Further Notice, commenters have not provided the kind of specific data
to justify raising the non-passive investor benchmark even though they
generally supported raising the benchmark. And, while commenters have
not provided sufficient empirical evidence to justify raising the
active voting stock benchmark, the Attribution Further Notice did
incorporate and invite comment on a Commission staff study that
categorized and quantified attributable interests in commercial
broadcast television licensees, as reported in the Ownership Reports
that licensees are required to file. Several facts emerge from that
study that are relevant to our decision concerning the voting stock
benchmarks. First, the study found and reported that increasing the
attribution benchmark for non-passive investors from 5 percent to 10
percent would decrease by approximately one third the number of
currently-attributable owners. This increase in the non-passive
investor benchmark would also increase from 81 to 134 the number of
stations (out of 389 commercial for-profit television stations studied
that are incorporated and are not single majority shareholder
stations), for which no stockholders and only officers and directors
would be held attributable. These large potential changes in the number
of attributable owners heighten our concern about the impact of raising
the 5 percent benchmark. In light of the lack of sufficient evidence
that such an increase is necessary or appropriate, we are reluctant to
institute a change that would have such a major impact.
12. Further, we note that our concerns over capital availability
that originally prompted the proposal to increase the active voting
stock benchmark have eased somewhat, particularly in light of the
increasing strength shown by the communications sector and financial
markets in general over the past several years. For example,
communications transactions increased by 38 percent during 1996, with
the total value of mergers, acquisitions, share offerings and other
deals totalling $113 billion. Within the communications sector, TV
transfers of ownership in 1996 increased by 121.26 percent in dollar
terms over 1995 figures, and FM and AM transfers increased by 283.27
percent and 99.34 percent, respectively. In total, dollars spent on
radio and television transactions increased from $8.32 billion in 1995
to $25.362 billion in 1996, with the number of transactions

[[Page 50624]]

increasing from 849 to 1115 over the same period. Station trading
remained strong in 1997, with a total of 1067 radio and television
transactions worth $23.44 billion. In 1998, the total number of radio
and television transactions fell slightly, as a result of the slower
pace of radio consolidation, to 950 transactions, with the value of
these transactions remaining fairly stable at $22.8 billion. This
overall increase in capital spending from 1995 to 1998 occurred while
our current attribution rules were in effect, and therefore provides us
with strong evidence that those rules do not impede the availability of
capital in the communications industry. And, to the extent that there
are still concerns about not impeding capital flow to broadcasting, we
believe that they will be adequately addressed by our increase in the
passive investor benchmark. In sum, in reviewing the overall body of
evidence on this issue, we believe that our original decision to set a
5 percent benchmark to capture influential interests remains valid and
will not unduly restrict capital availability.
13. Finally, retention of the 5 percent benchmark remains
consistent with the SEC's analogous 5 percent benchmark. Pursuant to
Sec. 13(d)(1) of the Exchange Act, 15 U.S.C. 78m(d)(1), any person who
becomes a direct or indirect owner of more than 5 percent of any class
of stock of a company through a stock acquisition must file a statement
with the Securities and Exchange Commission (SEC). The purpose of this
reporting requirement is generally to ensure that investors are alerted
to potential changes in control. The broadcast attribution rules have a
similar objective as they are intended to identify ownership interests
that confer on their holders the potential to influence or control a
licensee's day-to-day operations.
Passive Investor Benchmarks
14. Comments. Most commenters that responded to this issue favored
raising the passive investor benchmark.
15. Decision. We will increase the voting stock benchmark from 10
percent to 20 percent for passive investors. We believe that increasing
the passive investor benchmark to 20 percent will give broadcasters
increased access to investment capital, while preserving the
Commission's ability to enforce its ownership rules effectively. This
decision takes into account the special nature of the passive investor
category, in terms of the legal and fiduciary requirements that
constrain passive investors' involvement in the management and
operational affairs of the firms in which they invest.
16. We believe that we can increase the passive investor benchmark
without incurring substantial risk that investors who should be counted
for purposes of applying the multiple ownership rules will avoid
attribution. Clearly, passive investors continue to face multiple
constraints on their ability to become directly involved with the
management and operations of the firms in which they invest, including
statutory and regulatory restrictions as well as fiduciary obligations.
17. In setting the limit at 10 percent, we noted that an increase
above 10 percent was not advisable at that time based on our concern
about the impact on corporate management that could result, even
unintentionally, from the trading and voting of large blocks of stock
by purportedly passive investors. We have not been presented with any
evidence to indicate that our ten percent benchmark has resulted in any
such block trading problems. Moreover, any inadvertent effect of a
passive investor's decision to sell its stock, for example, because it
is dissatisfied with the return on its investment, simply reflects the
marketplace at work, and a responsive action by management to make the
entity more profitable in response to a sale is simply an appropriate
reaction to market demands.
18. While we note that our concerns about capital availability have
eased somewhat, to the extent that these concerns remain, particularly
based on funding needs related to the conversion to digital television,
we believe that increasing the passive investor benchmark is a
relatively safe way to facilitate such further investment in
broadcasting, without compromising the ability of our attribution rules
to capture influential interests. Raising that benchmark will reduce
barriers to investment in broadcasting and result in greater
efficiencies in the use of capital.
Definition of Passive Investors
19. Background. In response to the Capital Formation Notice,
several commenters raised the issue as to whether the Commission should
expand its definition of ``passive investors'' to include such
institutional investors as pension funds, commercial and investment
banks, and certain investment advisors. These commenters argued that
these largely institutional investors invest primarily for reasons of
financial returns, rather than to exert significant influence or
control, and therefore their interests should be treated as passive
investments. In the Attribution Notice, the Commission stated that it
did not intend to revisit its 1984 decision, which defined the passive-
investor category to include only bank trust departments, insurance
companies and mutual funds, and we tentatively concluded that we would
not expand the passive investor category to include Small Business
Investment Companies (``SBICs'') and Special Small Business Investment
Companies (``SSBICs''), as we had not been able to conclude that these
entities met our definition of ``passive.'' Nonetheless, we invited
further comment on these tentative conclusions.
20. Comments. Several commenters urged the Commission to expand its
passive investor category.
21. Decision. We reaffirm our earlier decision to retain the
current definition of ``passive investors,'' which is limited to bank
trust departments, insurance companies and mutual funds. We noted that
we earlier stated that we ``do not intend to revisit our decision of
1984 in order to broaden the category of passive investors. . . .'' We
are not convinced that other types of investors lack the interest and/
or the ability to actively participate in the affairs of the firms in
which they invest. This is particularly true of public pension funds,
many of which have apparently become increasingly active in proxy
fights and other devices to put pressure on management perceived to be
underperforming. Furthermore, commercial and investment bank activities
do not fall under the same fiduciary restrictions, discussed above,
that apply to bank trust departments. And, we have not been presented
with sufficient evidence thus far to revise our earlier tentative
conclusion not to include SBICs and SSBICs in the definition of passive
investors.

B. Equity/Debt Plus and Attribution Exemptions

Background
22. In the Attribution Notice, we invited comment as to whether
multiple cross-interests or currently nonattributable interests, when
held in combination, raise diversity and competition concerns
warranting regulatory oversight. We anticipated that any regulation of
such inter-relationships would require case-by-case review of
applications, but we did not otherwise delineate specific proposals to
address these concerns. We also invited comment as to whether to
restrict or eliminate the current nonvoting stock and single-majority
shareholder attribution exemptions, expressing concerns that some
interest holders that are eligible for these

[[Page 50625]]

exemptions might nonetheless exert significant influence such that the
interest should be attributed.
23. In the Attribution Further Notice, we proposed to adopt a
targeted equity/debt plus (``EDP'') attribution approach to deal with
the foregoing concerns. We noted that our proposed new EDP rule would
operate in addition to other attribution standards and would attempt to
increase the precision of the attribution rules, address our concerns
about multiple nonattributable relationships, and respond to concerns
about whether the single majority shareholder and nonvoting stock
attribution exemptions were too broad. 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 proposed to attribute the
otherwise nonattributable debt or equity interests in a licensee where:
(1) the interest holder was also a program supplier to the licensee or
a same-market broadcaster or other media outlet subject to the
broadcast cross-ownership rules, including newspapers and cable
operators; and (2) the equity and/or debt holding exceeds 33 percent.
Under our EDP proposal, a finding that an interest is attributable
would result in that interest being counted for all applicable multiple
ownership rules, local and national.
Comments
24. Single Majority Shareholder and Nonvoting Stock Attribution
Exemptions. As discussed in the Attribution Further Notice, most
commenters in response to the Attribution Notice urged us to retain the
single majority shareholder and nonvoting stock attribution exemptions,
but 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.
Decision
25. Overview. As we noted in the Attribution Further Notice, the
relaxation of the multiple ownership rules resulting from the 1996 Act
requires neither relaxation nor tightening of our attribution rules but
does underscore the importance of maximizing the precision of the
attribution rules. We should take care in enforcing the multiple
ownership limits, which have been deliberately set at certain levels,
to ensure that the attribution rules neither unduly loosen nor restrict
those limits, but rather apply them with the greatest precision to
entities that have the power to influence a licensee's operations. We
have been mindful of this goal in the decisions that follow.
26. We will not eliminate the single majority shareholder or
nonvoting stock exemptions, but, rather, to address the concerns that
we raised in the Attribution Notice and Attribution Further Notice, we
will adopt our equity/debt plus attribution proposal, modified as
discussed herein, as a new rule that would function in addition to the
other attribution rules. Under this new EDP rule, where the investor is
either (1) a ``major program supplier,'' as defined herein to include
all programming entities (including networks and inter-market time
brokers) that supply over 15 percent of a station's total weekly
broadcast programming hours, or (2) a same-market media entity subject
to the broadcast multiple ownership rules (including broadcasters,
cable operators, and newspapers), its interest in a licensee or other
media entity in that market will be attributed if that interest,
aggregating both debt and equity holdings, exceeds 33 percent of the
total asset value (equity plus debt) of the licensee or media entity.
As a shorthand, we will use the term, ``total assets,'' herein to refer
to the total asset value of the licensee. In the case of a major
program supplier, the EDP rule will apply and the interest will be
attributable only if the investment is in a licensee to which the
requisite triggering amount of programming is provided. A finding that
an interest is attributable under EDP would result in attribution for
purposes of applying all relevant multiple ownership rules, local and
national, except that, as discussed in the TV National Ownership Order,
we will not double-count same-market TV stations towards application of
the national TV ownership rules.
27. We will define equity to include all stock, whether common or
preferred and whether voting or nonvoting. We will also include equity
held by insulated limited partners in limited partnerships. Debt
includes all liabilities, whether short-term or long-term. Total
assets, by definition, is equal to the sum of all debt plus all equity.
Finally, an interest that is attributable pursuant to the EDP rule will
count in determining compliance with all applicable ownership rules,
national as well as local.
28. The equity/debt plus approach is intended to resolve our
concerns, expressed in the Attribution Notice, that multiple
nonattributable business interests could be combined to exert influence
over licensees. As we stated in the Attribution Notice, we are
concerned that our nonvoting stock, single majority shareholder, and
debt attribution exemptions can permit nonattributable investments that
could carry the potential for influence such that they implicate
diversity and competition concerns and should be attributed.
29. The EDP rule addresses the most serious concerns we raised in
the Attribution Notice and Attribution Further Notice concerning the
underinclusiveness of the attribution rules, particularly those that
were supported in the record. Based on the record, we have targeted our
remedy and focused those concerns in shaping the EDP rule. For example,
except in cases involving a same-market media entity or major program
supplier, as defined herein, the single majority shareholder exemption
and exemptions for nonvoting stock, preferred stock, corporate debt and
other corporate liabilities will continue to apply as they do now.
Moreover, the EDP rule will not apply to a program supplier's
investment in a licensee or station unless the program supplier
provides over 15 percent of that station's total weekly broadcast
hours. Thus, a program supplier may invest without limit in the
nonvoting stock, preferred stock or debt of a licensee to which it does
not provide the requisite level of programming without having its
interest attributed.
30. Furthermore, same-market or other relationships not within the
defined EDP triggering relationships described herein will continue to
be non-attributable. For example, an investor that is not a major
program supplier and that is not a same-market media entity (i.e., it
does not have an attributable interest in a station, newspaper, or
cable system in a given market) can continue to hold more than 33
percent of the total nonvoting assets of two stations or more in that
same market without either interest being attributable.
31. The targeted approach embodied in the EDP rule 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. In this regard, some
commenters have urged us to retain our

[[Page 50626]]

current approach or implement a new case-by-case approach, considering
the combined impact of multiple business and financial relationships in
a particular transaction.
32. However, we believe that the bright-line EDP test is superior
to a case-by-case approach. The EDP rule will provide more regulatory
certainty than a case-by-case approach that requires review of contract
language. Thus, the EDP rule will permit planning of financial
transactions, would also ease application processing, and would
minimize regulatory costs. While an ad hoc approach might be more
tailored than the EDP rule, it also might lead to complicated
interpretation and processing difficulties and would likely add
uncertainty to resolution of attribution cases. Of course, we retain
discretion to review individual cases that present unusual issues on a
case-by-case basis where it would serve the public interest to conduct
such a review. Such cases might occur, for example, when there is
substantial evidence that the combined interests held are so extensive
that they raise an issue of significant influence such that the
Commission's multiple ownership rules should be implicated,
notwithstanding the fact that these combined interests do not come
within the parameters of the EDP rule. We do not intend by this
reservation of discretion to resurrect the cross-interest policy,
elsewhere eliminated in this R&O. Rather, we merely emphasize our
obligation under the Communications Act to apply the public interest
standard and, as necessary, to scrutinize extraordinary or
unanticipated circumstances that may arise.
33. In the Attribution Further Notice, we invited comment on the
impact of a 33 percent EDP threshold on small business entities,
particularly on whether there would be a disproportionate impact on
small or minority entities. While some parties have argued that
adoption of an equity/debt plus proposal would deter capital flow to
broadcasting generally and might curb investment in smaller, minority,
or UHF stations, in particular, or in digital television, others have
argued strongly that this is not the case. We have no reason to believe
that the EDP rule would unduly deter investment. The equity/debt plus
proposal does not preclude investment by any entity; rather, it limits
nonattributable investment levels for entities that have the potential
to influence licensees. Moreover, the limit does not apply to all
entities that might invest or help fund the transition to digital
television or otherwise invest in licensees. In addition, we will
consider individual rule waivers in particular cases where substantial
evidence is presented that the conversion to digital television would
otherwise be unduly impeded or that a waiver would significantly
expedite DTV implementation in that particular case.
34. While we have invited comment on those issues, it is
nonetheless our view that promoting our goal of ensuring adequate
funding for the transition to digital television is better accomplished
through our ownership rather than our attribution rules. The
attribution rules are designed to attribute entities that wield
significant influence on core operations of the licensee. It is the
ownership rules that limit investment based on our core policies of
diversity and competition. Arguments with respect to whether additional
investment should be permitted have been made in the context of our
companion multiple ownership proceedings. We believe that the
attribution rules should function as precisely as possible to identify
influential interests and that relaxation of ownership limits, if
warranted, should be accomplished directly through revision of the
multiple ownership rules, not indirectly through manipulation of what
is considered ``ownership.''
35. Triggering Relationships. As we proposed in the Attribution
Further Notice, the EDP approach will 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 over the core operations of the licensee. 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, 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. The two relationships that will
trigger the rule, major program supplier and same-market media entity,
are relationships that afford the interest holder the incentive and
means to exert influence over the licensee.
36. In adopting the EDP rule, we affirm our tentative conclusion in
the Attribution Further Notice that there is the potential for certain
substantial investors or creditors to exert significant influence over
key licensee decisions, even though they do not hold 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, if not more, influence or control over some corporate
decisions as voting equity holders whose interests are attributable.
37. Same-Market Media Entities. As we noted in the Attribution
Further Notice, 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 may have an incentive and means to use financing or
contractual arrangements 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 reflected 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. Accordingly, we will include same-market
media entities as one of the relationships that will trigger
application of the EDP rule.
38. To trigger application of the EDP rule to same-market media
entities, the interest held in the non-EDP media entity in the same
market must be attributable without reference to the EDP rule; the
holding of a non-attributable interest in one station or entity in a
market does not trigger application of the EDP rule where an EDP level,
but otherwise non-attributable, interest is acquired. Thus, under this
prong of the EDP rule, a nonvoting interest in 34 percent of the total
assets of two stations in the same market will not result in
attribution of either station. This is because the EDP rule is only
triggered when the entity acquiring the second interest also holds an
interest in a same-market media entity that is attributable under the
current attribution rules other than the EDP rule. We follow case law
in the cross-interest policy context in this regard. As discussed
below, that policy is implicated in situations where a party holds an
attributable interest in one media outlet and has a ``meaningful
relationship'' with another media outlet serving ``substantially the
same area. As we proposed, we will include same-

[[Page 50627]]

market radio and television broadcasters as well as cable operators and
newspapers in the category of same-market media entities subject to the
equity/debt plus attribution standard. Cable operators and newspapers
are subject to cross-ownership rules and have also been subject to the
cross-interest policy. There is, accordingly, good reason to include
them in the EDP rule.
39. For purposes of applying this prong of the EDP rule to radio
stations, newspapers, and cable operators, as proposed in the
Attribution Further Notice, we will define the ``same market'' by
reference to the definition of the market used in the underlying
multiple ownership rule that is implicated. As noted by Knight-Ridder,
such an approach will help avoid confusion among the regulated entities
in applying the EDP rule. With respect to television stations, as we
also noted in the Attribution Further Notice, the definition of what is
the same market for purposes of applying the EDP attribution standard
is resolved in the companion television local ownership proceeding.
40. Program suppliers. In the Attribution Further Notice, we
invited comment on whether we should include program suppliers under
the ``equity/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. We cited
recent transactions involving program suppliers where it appeared that
nonattributable investors could be granted rights over licensee
decisions that might afford them significant influence over the
licensee. We invited comment as to whether we should encompass radio
and television time brokerage agreements or LMAs under the proposed
``equity/debt plus'' attribution approach, if we specify program
suppliers as a triggering category.
41. We will include major program suppliers in the EDP rule. We
will define the ``major program suppliers'' that are subject to this
new attribution standard to include entities that provide more than 15
percent of a station's total weekly broadcast programming hours. We
believe that the 15 percent standard should apply to all providers of
programming to stations, including those that provide programming
pursuant to inter-market LMAs. As noted above, the EDP rule would apply
only to the major program supplier's investments in a station to which
it supplies the requisite amount of programming. In addition, where a
person or entity has an attributable interest in a major program
supplier, that person or entity will be deemed to be a major program
supplier for purposes of applying the EDP rule.
42. We have decided to define a major program supplier subject to
the EDP rule as all programming entities that supply over 15 percent of
a station's weekly programming for the following reasons. We agree with
those commenters that argue that not every program provider can exert
sufficient influence such that its otherwise non-attributable financial
interests in a licensee should potentially be subject to attribution.
We note the views of commenters that the major networks should be
subject to the EDP rule and those that argue for including providers of
substantial amounts of programming to a station. Those entities that
provide substantial quantities of programming to a licensee are, we
believe, in a strong position to exert significant influence over that
licensee, particularly when the programming connection is coupled with
the requisite financial investment, such that the EDP rule should be
triggered. We believe that the 15 percent standard accomplishes these
goals, as it would encompass those entities providing substantial
quantities of programming that also have the requisite investment in
the station and would exclude those entities that provide only small
amounts of programming and that therefore do not have potential to
exert significant influence over licensees. Moreover, it is a standard
that we have experience in applying, as it is the standard currently
used in determining whether an intra-market radio LMA is per se
attributable, and it is the standard that will be used in determining
whether an intra-market TV LMA is per se attributable. Under our new
rule, an intra-market LMA is per se attributable if it involves more
than 15 percent of a station's programming. In contrast, an inter-
market LMA is attributable, under the EDP rule, only if it involves
more than 15 percent of a station's programming and if the LMA is
accompanied by a financial investment that is above the 33 percent
investment threshold. It would sweep too broadly to attribute inter-
market LMAs that are unaccompanied by the requisite financial
investment. The substantial investment provides additional incentive
and ability for influence or control. Finally, it is a clear and
administratively simple standard to apply, promoting our goal of making
the EDP rule a bright-line test.
43. A clear rationale exists for not attributing network
affiliation agreements not accompanied by the requisite investment or
debt agreements not involving program suppliers or same-market
broadcasters. We do not attribute all network affiliation agreements
because, absent a substantial equity or other investment that may
create accompanying obligations, the affiliate is free to negotiate
with the network for particular terms. With respect to lenders, such as
banks, our experience indicates that their motivation is return on
their investment, and that they do not have the same incentive as the
networks to influence the programming or other core operational choices
of the licensee.
44. While some commenters strongly argued that applying the EDP
rule to program suppliers would curb investment in broadcast stations
and possibly hurt weaker UHF stations and might deter investment that
would facilitate the conversion to DTV, they do not provide empirical
evidence to support this argument. We also note that the rule does not
preclude investment, but merely provides that investments over a
certain level will be deemed presumptively attributable. Networks are
therefore free to invest in their affiliates, subject of course to the
applicable multiple ownership rules. Moreover, the EDP rule does not
attribute investments, even those by networks in their affiliates,
which fall below the 33 percent threshold. Thus, a major program
supplier may have an investment that is equivalent to 32 percent of the
total assets of a station to which it supplies programming in excess of
the 15 percent standard. This would comply with all EDP limits and the
interests would not be attributable. In addition, the EDP rule does not
affect investments by entities other than major program suppliers or
same-market media entities. Accordingly, we believe that the EDP rule
will not curb investment, deter new entry, or curb the conversion to
DTV.
45. We have decided not to sweep so broadly as to include all
entities from which a licensee obtains programming but only to include
those entities that provide more than 15 percent of a station's weekly
total programming. We have not been presented evidence that smaller
program suppliers and syndicators that do not provide substantial
quantities of programming to stations have the potential to wield
significant influence such that their investment should be attributed.
Under these circumstances, there appears to be no real need to impose
constraints on investments by these syndicators and by new networks
that do not provide the triggering amount of programming. If it

[[Page 50628]]

appears that problems arise in these areas, we can later broaden the
EDP rule.
46. Investment Thresholds. Under the EDP rule, where the creditor
or equity interest holder is a same-market broadcaster or major program
supplier, as defined herein, in addition to applying the existing
attribution criteria, we would attribute any financial interest or
investment in a station or other media outlet where it exceeds 33
percent of the total assets (debt plus voting, non-voting and preferred
stock) of the licensee. We intend to aggregate the equity and debt
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 investment threshold. Thus, 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), that investment would be attributable. In
aggregating the different classes of investment, equity and debt, we
intend to use total assets (debt plus voting, non-voting, and preferred
stock) as a base. We will not apply the percentage threshold separately
to debt and to equity interests because this could lead to distortions
in applying the EDP rule, depending on the percentage of total assets
that each class of interests comprises. For example, were we to apply
the percentage thresholds separately, a company with only 10 percent of
its capital from debt would be attributable to a creditor providing
only 3.4 percent of the company's total assets, while any equity holder
providing 32 percent of the total capital would be nonattributable.
47. The FCC has recognized that holding voting stock in sufficient
quantities confers the ability to exert influence or control over the
licensee. Our decision to expand our focus beyond voting stock to
nonvoting stock and debt is buttressed by academic literature.
Nonvoting stock and debt may now be used to control or influence a
licensee in a significant manner, especially when coupled with another
meaningful relationship or when held by someone that has the incentive
to influence the station or media entity. There is an incentive for
licensees and other entities that face regulatory constraints on their
acquisition of voting stock and other currently attributable interests
(e.g., networks that face the 35 percent national reach cap) to seek to
combine currently non-attributable investments with contractual rights
in such a manner so as to gain significant influence, and we believe
that the current attribution exemptions have afforded such entities the
ability to do so. Accordingly, the EDP rule examines not only the
investment in voting stock but also nonvoting equity and debt in order
to limit the ability of such entities to circumvent the attribution
rules.
48. We have decided to set the threshold at 33%, as proposed in the
Attribution Further Notice. We believe that a 50 percent threshold
would be inappropriately high. Our goal is not merely to attribute
interests with the potential to control but also those with a realistic
potential to exert significant influence. On the other hand, the
suggested thresholds of 25 percent or 10 percent seem too low. In
setting the threshold for attribution of these newly attributable
interests, we want to be cautious not to set the limit so low as to
unduly disrupt capital flow to broadcasting. In addition, we believe
that the threshold for attribution of nonvoting interests should be
substantially higher than the attribution level for voting interests,
which give the holder a ready means to influence the company. The
proposed 33% threshold seems to be an appropriate and reasonable
attribution threshold. We note that we have discretion to exercise our
judgment in setting a percentage threshold in this regard and to draw
an appropriate line, a challenging yet inevitable task for government
agencies. We have employed a 33 percent benchmark applied in the
context of the cross-interest policy, and that particular benchmark
does not appear to have had a disruptive effect. In Cleveland
Television, 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. More recently, we have applied Cleveland Television's 33
percent threshold in Roy M. Speer, where we limited the non-
attributable equity holdings of a same-market television licensee in
another local television station to 33 percent. We will use this
threshold in applying the EDP rule but note that we could adjust the
threshold later, if warranted.
49. We recognize that the attributable status of a certain
investment could change, based, for example, on a change in the firm's
assets, resulting in the investor's interests dropping below the 33
percent threshold, or vice versa. We will require parties to maintain
compliance with the attribution criteria as any such changes occur.
Where sudden, unforeseeable changes take place, however, we will afford
parties a reasonable time, generally one year, to come into compliance
with any ownership restrictions made applicable as a result of the
change in attributable status. Finally, we note that we have
conditioned a number of recent cases that have raised similar concerns
on the outcome of this proceeding. We intend to issue separate orders,
as necessary, to apply the EDP rule to any cases that have been
conditioned on the outcome of this proceeding.

C. Time Brokerage Agreements or LMAs

Background
50. 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.
Currently, we do not attribute television LMAs, and, accordingly, these
relationships are not subject to our multiple ownership rules. In the
radio context, however, 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.
51. In the Attribution Further Notice, we incorporated the
tentative proposal, initially set forth in the Local Ownership Further
Notice, 60 FR 6490, December 19, 1996, to attribute television LMAs
based on the same principles that currently apply to radio LMAs. Thus,
time brokerage of another television station in the same market for
more than fifteen percent of the brokered station's weekly broadcast
hours would be attributable and would count toward the brokering
licensee's national and local ownership limits. We specifically
proposed to count attributed television LMAs in applying our other
ownership rules, including, for example, the broadcast-newspaper cross-
ownership rule, the broadcast-cable cross-ownership rule, and the one-
to-a-market rule (or radio-television cross-ownership rule).
Comments
52. Most commenters addressing this issue supported our proposal to
attribute television LMAs based on the

[[Page 50629]]

same principles that currently apply to radio LMAs.
53. Many parties agreed with our tentative conclusion that
television LMAs should be attributable because they confer significant
influence over the programming of the brokered party's station.
54. Commenters opposed to attributing LMAs generally did not
disagree that LMAs confer significant influence over the programming of
the brokering party's station, but either denied that LMAs can have
negative competitive or diversity effects or argued that their public
interest benefits outweigh these other considerations.
55. We issued a Public Notice requesting all parties to all
existing television LMAs, or time brokerage agreements, to provide
certain factual information regarding the terms and characteristics of
these agreements. The responses received to the questionnaire also
provide information supporting our view that LMAs accord the broker
significant influence that warrants attribution. First, the LMA, or
time brokerage agreement, typically brokered most, if not all, of the
brokered station's broadcast time. The percent of time brokered with
both same-market and out-of-market LMA stations averaged 90 percent or
greater. Second, LMA contracts tended to have extended maturities,
which are renewable in the majority of cases. Same-market LMA contracts
averaged seven years in duration, and ranged from one to 21 years,
while out-of-market LMA contracts averaged somewhat less at five years,
with a range from two to ten years. In addition, a significant number
of LMA agreements contained options to purchase the station.
56. Decision. We will adopt a new rule to per se attribute
television LMAs, or time brokerage of another television station in the
same market, for more than fifteen percent of the brokered station's
broadcast hours per week and to count such LMAs toward the brokering
licensee's local ownership limits. We have determined in the TV
National Ownership Order that we will not count same-market LMAs
towards the brokering licensee's national ownership limits, as that
would constitute double-counting these LMAs. We will count inter-market
time brokerage agreements where they come under the EDP rule for
purposes of the national ownership limits. We believe that the
rationale for attributing LMAs set forth in the Radio Ownership Order,
57 FR 18089, April 29,1992--i.e., to prevent the use of time brokerage
agreements to circumvent our ownership limits--applies equally to same-
market television LMAs. We will determine whether an LMA involves a
``same market'' station based upon the revised duopoly rule's
standards. Thus, if the brokered station is in the same DMA as the
brokering station, the LMA is ``same market'' for purposes of
determining compliance with the ownership rules. If the LMA is found to
be a same-market LMA, we will then apply the other multiple ownership
rules to see if they are implicated.
57. We note that in the Radio Ownership Order, the Commission
voiced its concern that substantial time brokerage arrangements among
stations serving the same market, combined with the increased common
ownership permitted by the revised local rules, could undermine
broadcast competition and diversity. The Commission therefore decided
to preclude that possibility by attributing local time brokerage
arrangements, at least until it had some experience with the effect of
that new regulatory approach in broadcast markets. We are convinced
that the radio LMA attribution rule adopted in that Order has operated
successfully to ensure that the goals set forth in the radio ownership
rules are not undermined by the existence of unattributed influence
over radio stations in the same market. We believe that a similar
approach is warranted concerning television LMAs.
58. In the Attribution Further Notice, we reiterated 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. Now, based on our experience with attribution of
radio LMAs and the record in this proceeding, we conclude that a stand-
alone, or per se, rule that attributes a same-market television LMA, or
time brokerage of a television station in the same market, for more
than 15 percent of the brokered station's weekly broadcast hours is
necessary to accomplish this goal.
59. We will count attributed television LMAs toward all applicable
broadcast ownership rules, which include the duopoly rule and the one-
to-a-market, or radio-television cross-ownership rule. We have
determined in the TV National Ownership Order that we will not count
same-market LMAs towards the brokering licensee's national ownership
limits, as that would constitute double-counting these LMAs. We will
count inter-market time brokerage agreements attributable under EDP
because they are accompanied by the requisite financial investment for
purposes of the national ownership limits. Attribution is based on
influence or control that should be considered cognizable and defines
what we mean by ownership. Indeed, with the exception of radio LMAs, an
exception which we eliminate today, our other current attribution rules
apply across the board to all the relevant ownership limits. There is
no reasonable basis for treating television LMAs any differently.
60. The record in this proceeding supports our decisions to
attribute television LMAs and to count attributed radio LMAs toward all
applicable radio ownership limits. Our analysis, above, of the
information submitted by parties to television LMAs in response to our
Public Notice indicates that television LMAs, or time brokerage
agreements, may give the brokering station influence over the
programming of the brokered station such as should be recognized as an
attributable relationship. Moreover, we agree with most commenters,
representing a variety of interests ranging from ABC to the public
interest group MAP, that television LMAs, like radio LMAs, permit a
degree of influence and control that warrants ownership attribution. We
find it particularly noteworthy that commenters that opposed
attributing television LMAs did not disagree that such LMAs confer
substantial influence over brokered stations. Instead, these commenters
argued that LMAs are beneficial and provide diversity benefits, an
issue relevant to the question of how much common ownership should be
permitted, consistent with our competition and diversity goals, rather
than the cognizability of the interest. This issue is being considered
in the TV Local Ownership and TV National Ownership proceedings.
61. We also note that, under the EDP rule, above, we will attribute
an inter-market time brokerage agreement or LMA (or any other program
supply arrangement) that brokers more than 15 percent of a station's
programming (i.e., a program supplier, as defined above) when held in
combination with more than 33 percent of the total assets (debt plus
voting, non-voting and preferred stock) of a station. Prior to the EDP
rule, an inter-market LMA would not have been attributed regardless of
the level of non-voting equity and debt interests held by the brokering
station. With the exception of the EDP rule, we will not attribute
television time brokerage agreements between stations in different
markets. We disagree with Pappas, which asserted that our proposal to
treat television LMAs as cognizable interests must also apply to
television network

[[Page 50630]]

affiliation agreements and argued that, for attribution purposes, there
is little substantive difference between an LMA and a network
affiliation agreement, in that both involve the provision of television
programming and the sale of television advertising time.
62. In the Radio Rules Order, the Commission stated that time
brokerage agreements involving radio stations licensed to different
markets ``raise little public interest concern; indeed they can be
difficult to distinguish from network affiliation agreements, of which
the Commission has long approved.'' Both LMAs and network affiliation
agreements clearly confer some level of influence over the programming
and commercial time of a licensee. Neither, however, taken alone,
constitutes an attributable interest. It is the combination of
ownership of a local competing media interest and programming and
direct operational influence via a substantial same-market LMA that
raises our concern and drives our decision to attribute such LMAs under
our multiple ownership rules. This concern does not arise where there
is no such combination of interests, as for example, network
affiliation contracts or out-of-market LMAs unaccompanied by
substantial investment in the programmed station. It is only when an
out-of-market LMA provides more than 15 percent of a station's
programming, in addition to holding an investment of more than 33
percent of total assets of the station, that we deem the level of
influence sufficient to warrant attribution. Under those circumstances,
where substantial investment in the licensee is combined with provision
of substantial quantities of programming, we believe that the level of
influence is sufficient to warrant attribution regardless of the fact
that the programming provider is not a media entity in the same market.
And, as we have noted, where the program supply agreement takes the
form of a network affiliation agreement, the network, like the out-of-
market LMA broker, will have its interest in its affiliate attributed
if it invests in the affiliate above the EDP threshold.
63. Modify radio rules. In our Attribution Further Notice, we
stated that if we adopt our proposal for attributing television LMAs,
we would also consider similarly modifying the radio LMA rules (47 CFR
73.3555(a)(3)), because radio LMAs are currently considered only for
purposes of applying the radio duopoly rule (47 CFR 73.3555(a)(1)), and
invited comment on how the radio LMA attribution rules should be
modified in this regard. Paxson, the only commenter to address this
issue, generally argued against attributing radio or television LMAs
for purposes of ownership restrictions other than the duopoly rules. We
have decided to adopt our proposal to attribute same-market radio LMAs
for purposes of applying our other multiple ownership rules that are
applicable to radio stations, including, for example, the daily
newspaper cross-ownership rule, and the one-to-a-market (or radio-
television cross-ownership) rule. The other attribution rules apply
across the board, and there is no reason not to apply attribution of
radio LMAs consistently to all applicable radio ownership rules.
Accordingly, we will modify our radio LMA attribution rules to reflect
this change.
64. Requirement to File TV LMAs. In our Attribution Further Notice,
we incorporated from the TV Local Ownership Further Notice the
tentative proposal that attributable television LMAs be filed with the
Commission in addition to being kept at the stations involved in an
LMA. In the Radio Ownership Order, the Commission required that all
radio time brokerage contracts be placed in the public inspection files
of the stations involved, and that local time brokerage agreements be
filed with the Commission within 30 days of execution. The Commission
noted that these requirements would impose only a minimal burden on
licensees but would permit it and others to monitor time brokerage
agreements to ensure that licensees retain control of their stations
and adhere to the Communications Act, Commission Rules and policies and
the antitrust laws. We believe that these same reasons are valid today
with respect to television time brokerage agreements.
65. We will require stations involved in television time brokerage
agreements (inter-market as well as intra-market agreements) to keep
copies of those agreements in their local public inspection files, with
confidential or proprietary information redacted where appropriate, and
require the licensee that is the brokering station to file with the
Commission, within 30 days of execution of such agreement, a redacted
copy of any time brokerage agreements that would result in the
arrangement being attributed in determining the brokering licensee's
compliance with the multiple ownership rules. We will amend our rules
accordingly. We note that these provisions impose an affirmative
obligation on licensees to determine, in the first instance, whether a
particular LMA is attributable (either under the per se rule or the EDP
rule), and to file the agreement with the Commission if it is.
66. Programming responsibility safeguards. In our Attribution
Further Notice, we emphasized, 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,'' and
invited 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. We believe that attribution
of same-market television LMAs, along with our new filing requirements,
will subject LMAs arrangements to sufficient scrutiny by competitors,
the public and the Commission, that brokering stations will have strong
incentives to avoid unauthorized acquisition of control of the brokered
station. We remind all parties to LMAs that, as we noted in the Radio
Ownership Order, ``our rules require the licensee to maintain control
over station management and ultimate programming decisions, regardless
of any time brokerage agreements that may exist.''
67. Simulcasting. In our Attribution Further Notice, we stated that
we would resolve the issue, raised in the Local Ownership Further
Notice, as to whether the program duplication or simulcasting limits
that apply to commonly owned or time brokered radio stations should
apply to television LMAs. No commenters addressed this particular
question, although some argue generally that LMAs result in duplicative
programming. Other commenters disagree, pointing out that, from the
perspective of a time broker, time brokerage agreements pay off through
the ability to attract additional, new audiences to the brokered
station. A duplication of programming would not attract additional
audiences, but would merely divide the audience currently enjoyed by
the time broker's owned station with the audience of the brokered
station.
68. With respect to radio broadcasting, ``simulcasting,'' or
program duplication, refers to the simultaneous broadcasting of a
particular program over co-owned stations serving the same market, or
the broadcasting of a particular program by one station within 24 hours
before or after the identical program is broadcast over the other
station. In the Radio Ownership Order, the Commission limited
simulcasting on commonly owned stations in the same service serving
substantially the same area to 25 percent of the broadcast schedule,
stating that it saw no benefit to the

[[Page 50631]]

public from permitting commonly owned same-service stations in the same
market to substantially duplicate programming. The Commission reasoned
that the limited amount of available radio spectrum could be used more
efficiently by other parties to serve competition and diversity goals,
and that substantial same-service simulcasting would not aid
economically disadvantaged stations because the audience for the
programming in question would be shared by two or more stations.
69. At this time, we will not apply simulcasting limits to
television LMAs. We are not aware that broadcasters involved in
television LMAs are simulcasting their programming to any significant
extent. Moreover, we believe such simulcasting is unlikely to occur
because it would most likely work to the disadvantage of the stations
engaged in the LMA. We note that television coverage differs from
radio, in that there are fewer television stations per market, and
those stations cover a larger market area than do radio stations. We
assume that if television stations commonly operated under an LMA in
the same market simulcast programming, they would split the audience
for that programming between themselves, losing the audience for
alternative programming to other television stations in that market.
Because stations' advertising revenues are generally based on audience
share, revenue and basic profits would be negatively affected by such
practices. There consequently appears to be a significant market
disincentive against simulcasting in the context of same-market
television LMAs. To the extent that simulcasting occurs, it may reflect
the owner's (or broker') attempt to maximize the audience reach within
the DMA. As indicated above, we received no comments specifically
addressing this question, nor have we seen any evidence that the
concerns with respect to simulcasting by commonly owned or time
brokered radio stations apply to television stations operating under
LMAs. Should we find evidence to the contrary at a future date, we may,
of course, revisit this decision.
70. Grandfather Existing LMAs. In our Attribution Further Notice,
we stated that if we decided to attribute television LMAs as we
proposed in this proceeding, we intended to resolve the issues of
grandfathering, renewability and transferability of existing TV LMAs in
the separate TV Local Ownership proceeding so that we could evaluate
the extent to which grandfathering might be needed based on the nature
of the local ownership rules we adopt. These issues are outside the
scope of this proceeding, and, as we noted in the Attribution Further
Notice, will be resolved in the TV Local Ownership Order.

D. Cross-Interest Policy

Background
71. Overview. The cross-interest policy has been applied to
preclude individuals or entities from holding an attributable interest
in one media property (broadcast station, newspaper, cable system) and
having a ``meaningful'' albeit nonattributable interest in another
media entity serving ``substantially the same area.'' This policy
originally developed as a supplement to the multiple ownership
``duopoly'' rule which prohibited the common ownership, operation, or
control of two stations in the same broadcast service serving
substantially the same area. Ownership, operation or control as
contemplated by this rule was originally defined as actual control or
ownership of 50 percent or more of the stock of a licensee. Since this
definition did not encompass minority stock ownership, positional
interests (such as officers and directors), and limited partnership
interests, the cross-interest policy was developed to address the
competitiveness and diversity concerns created when a single entity
held these types of otherwise permissible interests in two (or more)
competing outlets in the same market. In essence, the cross-interest
policy filled gaps in our attribution criteria that had become apparent
through our case-by-case application of the ownership rules.
72. Through case-by-case adjudication, the following relationships
came to be viewed as constituting ``meaningful'' interests subject to
the cross-interest policy: key employees, joint ventures,
nonattributable equity interests, consulting positions, time brokerage
arrangements, and advertising agency representative relationships. The
cross-interest policy did not prohibit these interests outright, but
required an ad hoc determination regarding whether the nonattributable
interests at issue in each case would be permitted.
73. In 1989, after a comprehensive review to assess the continuing
need for the cross-interest policy, the Commission issued a Policy
Statement limiting the scope of the cross-interest policy so that it
would no longer apply to consulting positions, time brokerage
arrangements and advertising agency representative relationships. The
Commission decided that it no longer needed to apply the cross interest
policy to those relationships because: (1) the need for the policy had
decreased based on new attribution provisions that had superseded it;
(2) the costs to the public and the Commission of administering the
policy were difficult to justify given the reduced need for continued
oversight of these relationships; (3) growth of media outlets had
undercut the notion that any single individual or entity could skew
competition through the cross-interests at issue; and (4) alternative
safeguards, such as antitrust laws, fiduciary duties and private
contract rights were available to curb anti-competitive conduct.
Comments
74. Current Aspects of the Cross-Interest Policy. After the Policy
Statement, three aspects of the cross-interest policy remain in effect:
(1) Key employee relationships. The cross-interest policy has
generally prohibited an individual who serves as a key employee, such
as general manager, program director, or sales manager, of one station
from having an attributable ownership interest in or serving as a key
employee of another station in the same community or market. The
application of the cross-interest policy in these situations is
premised on the potential impairment to competition and diversity and
the apparent conflict of interest arising from the ability of key
employees to implement policies to protect their substantial equity
interest in the other station.
(2) Nonattributable equity interests. The cross-interest policy has
also typically proscribed an individual who has an attributable
interest in one media outlet from holding a substantial nonattributable
equity interest in another media outlet in the same market. The
Commission's concern with these relationships has been that the
individual could use the attributable interest in one media outlet to
protect the financial stake in the other media outlet, thus impairing
arm's length competition. (Two or more separate non-attributable
interests in a market are not proscribed by this policy, as neither
gives rise to the potential to influence station operations that would
concern us.)
(3) Joint venture arrangements. The cross-interest policy has
prevented two local broadcast licensees from entering into joint
associations to buy or build a new broadcast station, cable television
system, or daily newspaper, in the same market. These joint ventures
have triggered cross-interest scrutiny because the successful operation
of the joint venture was thought to require a

[[Page 50632]]

cooperative relationship between otherwise competing stations, and this
would impair competition in the local market.
75. Prior Notices. In the Cross-Interest Notice, we asked for
comments as to whether we should retain our cross-interest policy in
these three areas--key employees, non-attributable equity interests,
and joint ventures. We also invited comment as to whether we should
amend the attribution rules to incorporate the key employee portion of
the cross-interest policy. We sought further comment on whether
retention of the remaining named components of the cross-interest
policy was necessary to prevent anticompetitive practices, whether
alternative deterrent mechanisms exist to assure competition and
diversity, and whether continued regulation of relationships not
specifically addressed by the Commission's attribution rules is
necessary. We also questioned whether regulatory oversight of one or
more of these interests should be limited to geographic markets with
relatively few media outlets. Five comments and reply comments were
filed in response to the Cross-Interest Notice. The majority of
commenters urged the Commission to eliminate the cross-interest policy
as it applies to all of these relationships. One commenter, CFA/TRAC,
urged the Commission to retain the policy. In the Attribution Notice,
we sought to update the record with respect to retention of the cross-
interest policy in light of changes in the multiple ownership rules and
additional changes we were proposing to the attribution rules. In the
Attribution Further Notice, we sought additional comment as to the
effect on our cross-interest policy of our proposed equity/debt plus
approach, which would apply to cases raising concerns of competition
and diversity normally reflected in the cross-interest policy. We also
sought comment on whether the equity/debt plus approach would be
preferable to a case-by-case approach, which is used to administer the
cross-interest policy. We specifically noted that the bright line
approach could provide certainty and minimize regulatory costs.
76. Most commenting parties expressly discussing this issue favored
eliminating at least portions, if not all of the cross-interest policy.
77. A few commenters either opposed elimination of the cross-
interest policy, or urged the Commission not to change the rules.
Decision
78. We will eliminate the above noted remaining components of the
cross interest policy. Our goals in initiating this proceeding include
maximizing the clarity of the attribution rules, providing reasonable
certainty and predictability to parties to allow transactions to be
planned, and easing application processing. As discussed above,
commenters have argued that the vagueness and uncertainty imposed by
the ad hoc application of the cross-interest policy have chilled
investment. As CalPERS argues, this uncertainty impedes the ability of
broadcasters to enter into transactions because the policy can be
invoked to prohibit a seemingly permissible transaction.
79. Today, we have revised the attribution rules to adopt the EDP
rule, a bright line test, which we believe will increase regulatory
certainty and reduce regulatory costs. In adopting that rule, we will
reach those situations involving formerly nonattributable interests
that raised the most concern with respect to issues of competition and
diversity, some of which were previously addressed in administering the
cross-interest policy. We agree with commenters who argue that adoption
of the EDP rule, as well as the existence of the other attribution
rules, provides additional grounds for elimination of the cross-
interest policy.
80. We note that the EDP rule directly covers concerns treated
under the non-attributable interests prong of the cross-interest
policy, as it would attribute a substantial nonattributable interest by
a media entity in a second media outlet in the same market. We
recognize, however, that the EDP rule does not cover all the areas
encompassed by the cross-interest policy. It would not cover key
employees, for example. We nonetheless believe, as commenters have
pointed out, that internal conflict of interest policies, common law
fiduciary duty, and contract remedies provide adequate substitutes for
our administration of the policy with respect to key employees. In
addition, many key employees are also officers and directors and are
thus already covered by the attribution rules. In any event, we believe
that the very small risk of harm to competition by a key employee in an
instance not covered by any of these other regulations and remedies is
greatly outweighed by the benefits of minimizing our case-by-case
approach to transactions and applying bright line tests, such as the
EDP test and our other attribution rules.
81. With respect to joint ventures, we believe that application of
a cross-interest policy is unwarranted. The ownership and attribution
rules define the level of combined ownership that is permissible in the
local market. Many joint ventures are already covered by the
attribution/ownership rules, and they may also be covered to some
extent by the EDP rule. Accordingly, a joint venture between two
licensees in a market to acquire additional broadcast entities in the
same market may be subject to the radio-television cross-ownership rule
or the relevant duopoly rule. As CBS contended, to continue to regulate
these interests under a separate policy when many are covered by the
attribution rules is redundant. In addition, according to CBS, the ad
hoc application of the cross-interest policy has ``clouded the future
of potential joint ventures with uncertainty'' regarding their eventual
approval by the Commission. We agree that the cross-interest policy as
applied to joint ventures is largely subsumed by the application of the
current multiple ownership rules. To the extent that the cross-interest
policy is not so subsumed, we believe that it should be eliminated. We
have made a judgment to limit combined local ownership to certain
degrees, as delineated in our local ownership rules. Accordingly, it
makes no sense to have a routine additional layer of case-by-case
review for those joint ventures that fully comply with those rules. In
these cases, the burdens of case-by-case review are not justified for
transactions that already comply with the multiple ownership rules.
Furthermore, as other commenters noted, the application of the
antitrust laws should prevent or remedy any abuses of joint venture
relationships not already subject to the multiple ownership rules.
82. In sum, we believe that the regulatory costs and the chilling
effects of the cross-interest policy and the benefits of applying a
clear and discernable standard outweigh any risks of potential abuses
in eliminating the policy. Moreover, many remaining aspects of the
cross-interest policy are subsumed under our attribution rules, as
revised herein.

E. Joint Sales Agreements (JSAs)

83. Background. In the Attribution Notice, 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 reopen our earlier decisions permitting joint
sales practices in radio and television. These decisions had allowed
joint sales agreements (``JSAs'') (i.e., agreements for the joint sales
of broadcast commercial time), subject to compliance with the antitrust
laws.

[[Page 50633]]

84. After issuing the Attribution Notice, the staff was presented
with cases involving joint sales agreements that raised diversity and
competition concerns. These cases raised questions as to whether non-
ownership mechanisms such as JSAs that might convey influence or
control over advertising shares should be considered attributable under
certain circumstances. Accordingly, in the Attribution Further Notice
we invited additional comments on the potential effects of JSAs among
same-market broadcasters on diversity and competition. We also sought
comment on 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. In
addition, we sought general information concerning the typical
contractual terms of JSAs.
85. Decision. We will not attribute JSAs. Based on the record in
this proceeding, we do not believe that agreements which meet our
definition of JSAs convey a degree of influence or control over station
programming or core operations such that they should be attributed. We
define JSAs as contracts that affect primarily the sales of advertising
time, as distinguished from LMAs, which may affect programming,
personnel, advertising, physical facilities, and other core operations
of stations. We note that in our DTV 5R&O, we stated that we would look
with favor upon joint business arrangements among broadcasters that
would help them make the most productive and efficient uses of their
channels to help facilitate the transition to digital technology. JSAs
may be one such joint business arrangement. We recognize the
significant competitive concerns about same-market radio JSAs raised by
DOJ, but we also note that the factors considered by DOJ and the
Commission in analyzing business arrangements may differ in some
respects. Although both DOJ and the Commission are concerned about the
competitive consequences of business agreements such as JSAs, our
concerns are not identical. DOJ's comments explicitly recognize that in
addition to competition issues, the Commission is also concerned with
issues of diversity and reducing unnecessary administrative burdens.
Some JSAs may actually help promote diversity by enabling smaller
stations to stay on the air. Furthermore, to reduce administrative
burdens, we will not require the routine filing of JSAs with the
Commission.
86. Accordingly, after weighing competition, diversity, and
administrative concerns, we decline to impose new rules attributing
JSAs as long as they deal primarily with the sale of advertising time
and do not contain terms that affect programming or other core
operations of the stations such that they are, in fact, substantively
equivalent to LMAs. We will retain our current policies concerning
JSAs. Furthermore, in the absence of specific evidence of widespread
abuse of JSAs by broadcasters, we also decline to adopt the general
disclosure and reporting requirement for radio JSAs recommended by DOJ
in its comments. We will, however, require broadcasters who have
entered into JSAs to place such agreements in their public inspection
files, with confidential or proprietary information redacted where
appropriate. This requirement will facilitate monitoring of JSAs by the
public, competitors and regulatory agencies. We do, however, retain
discretion, in any event, to review cases involving radio or television
JSAs on a case by case basis in the public interest, where it appears
that such JSAs do pose competition or other concerns. Finally, we
emphasize that all JSAs are of course still subject to antitrust laws
and independent antitrust review by the Department of Justice.

F. Partnership Interests

87. Background. Under the Commission's current attribution rules
governing partnership interests, general partners and non-insulated
limited partnership interests are attributable, regardless of the
amount or percentage of equity held. An exception from attribution
applies only to those limited partners who meet the Commission's
insulation criteria and certify that they are not materially involved
in the management or operations of the partnership's media interests.
88. The Attribution Notice asked for comment on whether the
insulation criteria remain effective and specifically whether the
insulation criteria needed to be tightened or relaxed to meet the needs
of certain new types of business entities. For example, widely-held
limited partnerships, and in particular business development companies,
may be required by federal and state statutes to grant voting rights to
limited partners in such matters as the selection and removal of
general partners. However, the insulation criteria require that such
voting rights be restricted, except under certain circumstances, in
order to support a presumption of partner non-involvement in the
management of the partnership. The Attribution Notice inquired whether
the insulation criterion should be relaxed to remove this potential
conflict with state law, or whether equity benchmarks combined with a
more limited relaxation of the insulation criteria should be applied to
these widely-held limited partnerships. We noted that commenters in
response to the Capital Formation Notice had argued that allowing
specific voting rights would not compromise our attribution rules
since: (1) the remaining insulation criteria are sufficient to prevent
material involvement of a partnership member in media operations; and
(2) the dispersed interests in a widely-held limited partnership would
preclude member involvement in management and operations.
89. In addition, the Attribution Notice asked whether an equity
benchmark, such as 5 percent, should be used to establish attribution
with respect to all ``widely-held'' limited partnerships, and if so,
how should the Commission define widely-held limited partnerships, and
what factors could be used to guarantee that these entities remain
widely-held. More generally, the Attribution Notice asked whether an
equity benchmark, under which investments below the threshold would be
exempted from the insulation criteria and would be held non-
attributable, should be applied to all partnership forms, widely-held
or not. In this latter case, the Attribution Notice asked whether we
should set the equity benchmarks for partnership interests along lines
similar to those used for voting corporate equity interests. We stated,
however, that, based on the record thus far, we were not inclined to
apply an equity benchmark to limited partnerships but would instead
retain the insulation criteria, and that parties that disagreed must
provide us with more data and analysis to demonstrate that our earlier
decision to apply the insulation criteria is no longer justified. We
also asked for information on the financial and legal structures of
limited partnerships to enable us to determine whether there is a
uniform equity level below which we need not be concerned with the
application of the insulation criteria.
90. Comments. No commenters favored adding to the current list of
insulation criteria.
91. Decision. We see no reason to revise our previous decision to
treat limited partnership interests as distinct from corporate voting
equity interests, and therefore elect not to adopt equity benchmarks
for limited partnership interests. As we stated in the Attribution
Further Reconsideration, ``[t]he partners in a limited partnership,
through contractual arrangements, largely have

[[Page 50634]]

the power themselves to determine the rights of the limited partners.''
Therefore, the insulation criteria adopted by the Commission serve to
identify those situations within which it is safe to assume that a
limited partner cannot be ``materially involved'' in the media
management and operations of the partnership. As we also stated
therein, the powers of a limited liability holder to exert influence or
control are not necessarily proportional to their equity investment in
the limited partnership, since the extent of these powers can be
modified by the contractual arrangements of the limited partnership. In
the Attribution Notice, we stated our disinclination to change our
approach of applying insulation criteria in favor of an equity
benchmark, and we have not been provided sufficient evidence to revise
that view and to indicate that these original reasons for declining to
adopt an equity benchmark for limited partnerships are no longer valid.
92. We also see no need at this time to add to, relax, or otherwise
revise our limited partnership insulation criteria. Some commenters
suggested that the insulation criteria should be modified to eliminate
conflicts with state law, or that RULPA or other relevant standards
should be used in their place. However, in our Attribution
Reconsideration, the Commission decided for several reasons to abandon
the use of RULPA, combined with a no material involvement standard, as
a standard for judging whether limited partners were exempt from
attribution. First, we judged the joint use of these two disparate
standards for determining limited partner exemptions from attribution
to be unnecessarily complicated. Second, we noted that there was a lack
of uniform interpretation of the RULPA provisions, and that the scope
of permissible limited partner activities was not statutorily set by
RULPA, but rather was determined by the limited partnership agreement
itself. Third, we determined that reliance on the RULPA provisions did
not provide sufficient assurance that limited partners would not
significantly influence or control partnership affairs. We are
convinced that these conclusions remain valid today, and therefore we
see no reason to revise our insulation criterion in favor of a RULPA
standard. We also feel that similar considerations apply to state laws
that regulate limited partnership activities, since these statutes may
vary significantly from state to state, and may fail to provide
sufficient assurance that the limited partner will lack the ability to
significantly influence or control the partnership's media activities.
93. We will not create exceptions for widely-held limited
partnerships, such as Business Development Companies, from the current
insulation criteria applicable to limited partnerships or otherwise
revise those insulation criteria. The essential character of these new
business forms for determining attributable interests is the
contractual flexibility they allow in setting up and managing the
association. Therefore, we believe that the insulation criteria are
needed for these business forms to insure ``lack of material
involvement'' on the part of investors. This would imply that in some
limited number of cases, interests may not be insulated because of
state laws that require investor rights that conflict with the
insulation criterion. However, commenters have not provided sufficient
evidence concerning the number or importance of such instances that
would compel the Commission to create special exemptions for these
specialized business forms. Since these entities are allowed greater
contractual flexibility under state law than are limited partnerships,
we believe that greater caution is warranted in dealing with these
novel forms. Further, we have not been presented with evidence to
demonstrate that the current insulation criteria are no longer valid or
effective in achieving their goals.
94. A number of commenters have asked us to clarify certain issues
with respect to the scope or other aspects of the insulation criteria.
We do not believe that this is the proper forum for declaratory rulings
as to the scope of the insulation criteria. Indeed, the questions
raised by commenters as to the application of the criteria to specific
activities are best resolved by the Commission on a case-by-case basis
based on the facts of the case. In addition, some of the proposed
clarifications would, in effect, amount to a relaxation of the
criteria. For example, Capital Cities/ABC asked the Commission to
confirm that an insulated limited partner's interest in a licensee does
not preclude the interest holder from also holding an affiliation
agreement with the licensee. However, a contractual arrangement to
provide programming would be inconsistent with the insulation criterion
that ``the limited partner may not perform any services for the
partnership materially relating to its media activities,'' and
therefore would not allow insulation of the limited partner's interest.
As discussed, we decline to relax the insulation criteria. Moreover, we
believe that the insulation criteria have worked effectively in the
past, and that there is no need for further clarification on a general
basis in this Report and Order. Any issues that may arise as to the
application of the criteria to particular transactions will be resolved
on a case-by-case basis.

G. LLCs and Other Hybrid Business Forms

95. Background. In the Attribution Notice, we sought comment as to
how we should treat, for attribution purposes, the equity interest of a
member in a limited liability company or LLC, a then relatively new
form of business association regulated by state law, or in other new
business forms, such as Registered Limited Liability Partnerships
(``RLLPs''). LLCs are, in general, unincorporated associations that
possess attributes of both corporations and partnerships. The specific
attributes of LLCs may vary, since their form is regulated by state
statutes. LLCs are, however, generally intended to afford limited
liability to members, similar to that afforded by the corporate
structure, while also affording the management flexibility and flow-
through tax advantages of a partnership, without many of the
organizational restrictions placed on corporations or limited
partnerships. Depending on the requirements of the applicable state
statute, LLCs afford their members broad flexibility in organizing the
management structure and permit members to actively participate in the
management of the entity without losing limited liability. Thus, with
some variation depending on the applicable statute, LLCs may be
organized with centralized management authority residing in one or a
few managers (who may or may not be members) or decentralized
management by members.
96. In the Attribution Notice, we tentatively proposed to treat
LLCs and RLLPs like limited partnerships and adopted that proposal as
an interim processing policy. Thus, membership in an LLC or RLLP would
be attributed unless the applicant certifies that the member is not
materially involved, directly or indirectly, in the management or
operation of the media-related activities of the LLC or RLLP. We
proposed that such certification should be based on our limited
partnership insulation criteria and invited comment on whether those
insulation criteria developed with respect to limited partnerships are
sufficient to insulate members of LLCs and RLLPs or whether other
criteria would be more effective. We also tentatively concluded that we
were not prepared to adopt an equity benchmark

[[Page 50635]]

for non-insulated LLC interests, but we invited comment on that
conclusion. In addition, we invited comment on whether, if we adopt the
certification approach, we should, either routinely or on a case-by-
case basis, require parties to file copies of the organizational
filings and/or operating agreements with the Commission when an
application is filed. Finally, we asked whether we should differentiate
our treatment of LLCs based on whether their management form is
centralized or decentralized.
97. Decision. We adopt our tentative conclusion in the Attribution
Notice to treat LLCs and other new business forms including RLLPs under
the same attribution rules that currently apply to limited
partnerships. The insulation criteria that currently apply to limited
partnerships would apply without modification to these new business
forms. Therefore, LLC or RLLP owners would be treated as attributable
unless the owner can certify their lack of direct or indirect
involvement in the management and operations of the media-related
activities of the LLC or RLLP based on existing insulation criteria. We
will not distinguish among LLCs based on whether they adopt a more
centralized or decentralized form.
98. We believe that this decision is justified for the reasons
discussed in the Attribution Notice, which are supported by the record.
State laws grant more liberal organizational powers to LLCs and RLLPs
than to limited partnership forms. Thus, equity holders can retain
their limited liability even though they participate in the management
of the entity. Under these circumstances, we believe that it is
important to apply the insulation criteria to assure that those equity
holders that purport to be insulated from management are in fact so
insulated. In addition, even when an LLC adopts a ``corporate form'' of
organization, there is still sufficient discretion afforded by state
law so that the owners of the enterprise may retain some level of
operational control on their own part. The organizational restrictions
applicable to corporations do not necessarily apply. The Commission
could also apply a control test to determine attribution, or require
these companies to incorporate insulation criteria directly into their
governing documents. However, these case-by-case solutions would reduce
regulatory certainty and delay processing of applications. We also
believe that using equity benchmarks would be inappropriate for reasons
similar to those discussed above in terms of limited partnerships. In
addition, we have been applying the interim processing policy, it has
worked well and effectively, and we see no reason to change it.
99. We agree with those commenters who argued that business
associations, such as LLCs, are similar to partnership forms in terms
of organizational flexibility, and we will treat them comparably for
attribution purposes. Indeed, the greater flexibility in governance
granted such entities under state law, to elect either a ``corporate
form'' or a ``partnership form'' of governance, underscores the need
for caution in our approach to the attribution of new business forms.
The current insulation criteria serve to directly address our concerns
over the influence of an interest holder. Creating specialized
attribution standards for new business forms as they arise will serve
only to complicate the attribution rules, without better addressing our
core concerns over the potential influence exerted by the owners of a
particular entity, however organized.
100. To reduce paperwork burdens, we will not routinely require the
filing of organizational documents for LLCs. However, to remain
consistent with our treatment of limited partnerships and insulation
criteria, we will require the same ``non-involvement'' statement for
LLC members who are attempting to insulate themselves from attribution
that we require for limited partners who are attempting to insulate
themselves. We will also require LLC members who submit the foregoing
statement to submit a statement that the relevant state statute
authorizing LLCs permits an LLC member to insulate itself/himself in
the manner required by our criteria, since our experience shows that
state laws vary considerably with respect to the obligations and
responsibilities of LLC members. This policy will help us to avoid any
potential confidentiality concerns, referred to in the Attribution
Notice, that may arise if we require filing of organizational
documents.

H. Cable/MDS Cross-Ownership Attribution

101. Background. The Attribution Further Notice considered changes
to the cable/Multipoint Distribution Service (``MDS'') cross-ownership
attribution rule, For purposes of this item (MDS also includes single
channel Multipoint Distribution Service (``MDS'') and Multichannel
Multipoint Distribution Service (``MMDS'')). Section 21.912 of the
rules, which implements Sec. 613(a) of the Communications Act,
generally prohibits a cable operator from obtaining an MDS
authorization if any portion of the MDS protected service area overlaps
with the franchise area actually served by the cable operator's cable
system. In addition, Sec. 21.912(b) prevents 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, the
attribution standard used to determine what entities constitute a
``cable operator'' or an MDS licensee, is generally defined by the
Notes to Sec. 76.501. In sum, we presently consider a cable operator to
have an attributable interest in an MDS licensee if the cable operator
holds five percent or more of the stock in that licensee, regardless of
whether such stock is voting or non-voting. We also attribute all
officer and director positions and general partnership interests.
However, unlike the broadcast attribution standard, our current cable/
MDS standard contains no single majority shareholder exception, and
attributes limited partnership interests of five percent or greater,
notwithstanding insulation.
102. As we recognized in the Attribution Further Notice, the
strictness of the existing attribution standard severely limits
investment opportunities that would advance our goals of strengthening
wireless cable and providing meaningful competition to cable operators.
We also saw no reason to have different attribution criteria for
broadcasting and MDS, and reiterated our previous observation that the
broadcast attribution criteria could be used for the purpose of
determining attribution in the context of cable/MDS cross-ownership.
Thus, in the Attribution Further Notice, we invited comment on whether
we should apply broadcast attribution criteria, as modified by this
proceeding, in determining cognizable interests in MDS licensees and
cable systems. In addition, we sought comment as to whether we should
add an equity/debt plus attribution rule where the competing entity's
holding exceeds 33 percent or some other benchmark. We further stated
our belief that these proposed modifications of our attribution rules
would increase the potential for investment and further diversity,
while preventing cable from warehousing its potential competition.
103. Decision. After reviewing all of the comments submitted on our
proposals to relax the cable/MDS attribution rules, we are persuaded
that the broadcast attribution criteria, as modified by this
proceeding, should be applied in determining what interests in MDS
licensees and cable systems are cognizable. We continue to see no
reason, and none has been suggested by

[[Page 50636]]

any of the commenters, that would warrant different attribution
criteria for broadcasting and MDS. As we have discussed here and in the
Attribution Further Notice, 60 FR 6483, February 2, 1995, investment
opportunities critical to the development of MDS as a competitive
service to cable have been severely limited by the current attribution
standard.1 Therefore, continued application of the current
cable/MDS attribution standard would frustrate our goals of
strengthening wireless cable, providing meaningful competition to cable
operators and benefitting the public interest by offering consumers
more choice in their selection of video programming providers. In view
of these considerations and the record before us, we conclude that the
public interest would be better served if the modified broadcast
attribution criteria were employed for the purpose of determining
attribution in the context of cable/MDS cross-ownership. Such
modification of our existing attribution standard will increase
investment possibilities without adversely affecting competition. Thus,
we believe this attribution standard will identify ownership interests
with the potential to exert significant influence on a licensee's
management and operations, and the cross-ownership provision by its
very nature will address the concern that common ownership of different
multichannel video programming distributors may reduce competition and
limit diversity. We are persuaded, moreover, that relaxing our current
attribution standard will have genuine meaning for institutional
investors who, though not involved in the day-to-day activities of
either cable or MDS companies, have been precluded from making
investments in MDS due to pre-existing or anticipated investments in
cable.
---------------------------------------------------------------------------

\1\ We have recently taken additional steps to expand investment
opportunities to further strengthen MDS. Amendment of Parts 21 and
74 to Enable Multipoint Distribution Service and Instructional
Television Fixed Service Licensees to Engage in Fixed Two-Way
Transmissions, 13 FCC Rcd 19112 (1998), recon., FCC 99-178, released
July 29, 1999.
---------------------------------------------------------------------------

104. The Wireless Association also fails to persuade us that it
would be unfair to impose a debt limitation on cable/MDS cross-
ownership when no such limitation has been placed on cable/LMDS cross-
ownership. We consider it significant that, unlike our recently adopted
cable/LMDS cross-ownership rules, the cable/MDS cross-ownership rule
implements a statutory prohibition, Section 613(a) of the Act.
Therefore, in revisiting our cable/MDS attribution standard, we must
consider both the rule and the statutory implications. As we
tentatively concluded in the Attribution Further Notice, the potential
exists:

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.

That tentative conclusion has been affirmed here, and we believe
applies with equal force to our competitive concerns underlying cable/
MDS cross-ownership. We have also determined that our broadcast
attribution rules will be triggered when the aggregated debt and equity
interests in a licensee exceed a 33 percent benchmark. Our EDP
broadcast attribution provision is intended to address our concerns
that multiple nonattributable interests could be combined to exert
influence over licensees such that they should be attributable. Based
on the same reasons, we likewise regard the 33 percent EDP provision as
an appropriate addition to the modified cable/MDS attribution standard.
Furthermore, by adopting the 33 percent EDP provision for cable/MDS
attribution, we believe that we are acting in a manner consistent with
the statutory directive by furthering congressional intent to promote
competition among video providers.
105. Accordingly, we will adopt the broadcast attribution criteria,
as modified in this proceeding, for determining cognizable interests in
MDS licensees and cable systems. The modified attribution criteria will
also apply to the cable/MDS and cable/ITFS cross-leasing rules. A
supplemental note will follow those cross-leasing rules and state that
the attribution standard applicable to cable/MDS cross-ownership also
applies to them. In addition, given the considerations discussed above,
and for the same reasons we are adopting the 33 percent EDP provision
for the broadcast attribution standard, we will adopt the 33 percent
EDP provision as part of the cable/MDS attribution standard. A
description of the resulting changes to our existing cable/MDS
attribution standard follows.
106. In assessing cable/MDS attribution, we will distinguish
passive investors from non-passive investors, applying the voting stock
attribution benchmark applicable to each. As a preliminary matter, the
definition of ``passive investors'' will be identical to that used in
the context of broadcast attribution, and thus limited to bank trust
departments, insurance companies and mutual funds. Passive investors
will be subject to the same 20 percent voting stock benchmark as we
adopt today for broadcast passive investors. With regard to a non-
passive voting equity benchmark, we have already determined that
shareholders with a five percent or greater ownership interest still
have the ability to wield significant influence on the management and
operations of the firms in which they invest. Therefore, we will
continue to apply our five percent benchmark to determine the
attributable interests of non-passive investors. We believe that
employing a more liberal voting stock benchmark for passive investors
than that used for non-passive investors will provide the MDS industry
with increased access to much needed investment capital, while
maintaining the Commission's ability to apply its ownership rules to
influential interests.
107. Though positions such as officers and directors will remain
attributable interests, we will further relax the current cable/MDS
standard by exempting from attribution minority stockholdings in
corporations with a single majority shareholder and non-voting stock,
to the extent permitted by the other rule changes made in this
proceeding. However, here as in broadcasting, we will carefully
scrutinize cases to ensure that nonattributable minority or non-voting
shareholders are not able to exert greater influence than what their
attribution status should allow.
108. We further note that adoption of the EDP attribution rule for
cable/MDS will limit, under certain circumstances, the availability of
the single majority shareholder and non-voting stock exemptions from
attribution. Under the EDP rule as adopted for cable/MDS attribution,
where a cable franchise area and an MDS protected service area overlap,
we will consider an investor (including a cable operator or MDS
licensee) that has already invested in either the cable operator or MDS
licensee, to have an attributable interest in the other entity if that
interest exceeds 33 percent of the total assets of that entity. Thus,
when the investor's total investment in the other entity, aggregating
all debt and equity interests, exceeds 33 percent of all investment in
that entity (the sum of all equity plus debt), attribution will be
triggered. We

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will use total assets as a base in aggregating the different classes of
investment, equity and debt, and will presume that nonvoting stock
should be treated as equity. We will set the threshold at 33 percent
for the cable/MDS EDP rule because we see no reason to have a different
benchmark than that which will be used for the broadcast EDP rule.
109. We will also modify the existing cable/MDS attribution
standard with respect to partnership interests and new business forms,
such as LLCs and RLLPs, consistent with our treatment of such entities
in the broadcast context. First, we will continue to hold all
partnership interests attributable, regardless of the extent of their
equity interests, unless they satisfy the insulation requirements.
However, we will not attribute sufficiently insulated limited
partnership interests when the limited partner certifies that it is not
materially involved, directly or indirectly, in the management or
operation of the partnership's cable or wireless cable activities. Nor
will we adopt voting equity benchmarks for limited partnership
interests. A limited partnership interest will not be attributable if
the limited partner meets the Commission's insulation criteria and
makes the requisite certification. Second, consistent with our earlier
findings, we will subject widely-held limited partnerships, such as
Business Development Companies, to the same set of attribution rules as
limited partnerships. We will also treat LLCs and other new business
forms, including RLLPs, under the same attribution rules that currently
apply to limited partnerships. We believe that these changes, which
generally relax our existing cable/MDS attribution standard and make
them consistent with the broadcast attribution rules, will afford
increased opportunities for investment in the wireless cable and cable
industries.

I. Broadcast-Cable Cross-Ownership Attribution Rules

110. In the Attribution Further Notice, we stated that we would
address, in this proceeding, the attribution criteria applicable to the
broadcast-cable cross-ownership rule, Sec. 76.501(a) of the
Commission's rules. While we recognized that the attribution standards
used in a number of other cable rules were implicitly or explicitly
based on Sec. 76.501 of the Commission's rules, we stated that we were
considering establishing a separate proceeding to modify the
attribution criteria for the other cable multiple ownership rules.
111. Accordingly, we will modify the attribution criteria
applicable to the cable/broadcast cross-ownership rule to conform to
the new broadcast attribution criteria adopted in this R&O. In this
manner, all the broadcast attribution criteria will remain consistent.
When we revised the cross-ownership attribution rules in 1984, we
stated that there did not seem to be a justification for separate
benchmarks as applicable to cable systems. We did not receive comments
in this proceeding to justify treating the cable/broadcast cross-
ownership attribution rules differently from the other broadcast
attribution rules at issue in this proceeding. We reiterate that the
attribution revisions made herein apply only to the cable/broadcast and
the cable/MDS cross-ownership rules (and cable/ITFS cross-leasing
rules) and that revisions to the other cable attribution rules will be
addressed CS Docket No. 98-82. We also note that because these cross-
ownership rules apply where the entities at issue are in the same
market, these entities will always be subject to the EDP rule assuming
that the requisite financial interest is held.

J. Transition Issues

112. Background. In the Attribution Notice, 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 adopted more restrictive attribution rules. As we stated in the
Attribution Further Notice, commenters who addressed this issue in
response to the Attribution Notice overwhelmingly urged the Commission
to grandfather existing interests indefinitely if it adopted more
restrictive attribution rules because of the disruptive effect and the
unfairness to the parties of mandatory divestiture.
113. Decision. We conclude that any interests acquired on or after
November 5, 1996, the date of adoption of the Attribution Further
Notice in this proceeding, should be subject to the rules adopted in
this R&O. We believe this cutoff date is reasonable and appropriate. We
proposed the new EDP rule in the Attribution Further Notice, and it was
therefore then that parties were on notice of the proposed new rule and
that any interests acquired on or after that date could be subject to
any rule changes. Thus, we believe that the November 5, 1996
grandfathering date is more reasonable than the earlier grandfathering
date we proposed. While we tentatively concluded in the Attribution
Notice that any interests acquired on or after December 15, 1994 should
be subject to the final rules adopted in the R&O in this proceeding, we
have decided to use the date of adoption of the Attribution Further
Notice as the grandfathering date. Accordingly, any interests (other
than radio LMAs) newly attributable pursuant to this R&O that would
result in violations of the ownership rules, will be grandfathered if
the triggering interest was acquired before November 5, 1996. Except in
the case of TV and radio LMAs, such grandfathering will be permanent
until such time as the grandfathered interest is assigned or
transferred.
114. In this R&O, we have decided to count attributable radio LMAs
for purposes of applying all applicable multiple ownership rules,
including the one-to-a-market rule and the radio-newspaper cross-
ownership rule, not just the radio duopoly rules. As discussed, we will
treat grandfathering of radio LMAs on case-by-case basis. The issue of
grandfathering television LMAs is resolved in the television local
ownership proceeding.
115. We will apply the November 5, 1996 grandfathering date to
interests, newly attributable under our EDP rule, that would result in
new violations of the multiple ownership rules. Such grandfathering
will be permanent so long as the interest is not transferred or
renewed. Thus, if an inter-market LMA triggers the EDP rule,
grandfathering will be for the term of the LMA, since the LMA cannot be
renewed. Grandfathering will apply only to the current holder of the
attributable interest. If the grandfathered interest is later assigned
or transferred, the grandfathering will not transfer to the assignee or
transferee. New owners cannot demonstrate the same equitable
considerations that prompt us to grandfather existing owners whose
current interests are now unavoidably placed in violation of the
multiple ownership rules based on adoption of the EDP rule. Such new
owners will be given a year to come into compliance with the multiple
ownership rules.
116. For non-grandfathered interests that are now attributable,
i.e., those acquired on or after November 5, 1996, and which must be
divested to comply with our multiple ownership rules, we bel

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A99-23694. Public record. Not legal advice.