Radio World
Critics
fear “breathtaking” deregulatory move, the possible “death of AM”
AUG 1, 2018
WASHINGTON — A majority on the NAB
Radio Board thinks the time is right for the FCC to revise radio ownership
rules when it conducts its next quadrennial media ownership review. That
process is expected to start later this year.
The NAB would like the commission to change the number of
terrestrial radio stations that one company may own in a radio market. Current
market caps were established 22 years ago as part of the historic 1996
Telecommunications Act, which placed ownership limits on a sliding scale. In
the largest of radio markets an entity can own as many as eight radio stations,
with a “subcap” of five in a given service (FM or AM). In the smallest markets,
the cap is two stations, limited to one in each service.
The association wants the commission to change these market
subcaps to allow a company to own up to eight FM stations in a given top 75
market and permit an operator to own or control an unlimited number of AMs,
among other changes. In smaller markets, there would be no cap at all.
The NAB’s plan is controversial and finds at least two of the
largest broadcast groups in the country, iHeartMedia and Townsquare Media, on
opposite sides.
NAB made the proposal in a letter in June to Michelle Carey,
chief of the FCC’s Media Bureau. The proposal, approved by the Radio Board, was
sent by the association’s Legal and Regulatory Affairs department and signed by
General Counsel/EVP Rick Kaplan.
The NAB noted that current ownership rules were set before the
launch of streaming services like Pandora and Spotify, before satellite radio,
podcasts or Facebook. All of these services compete with terrestrial radio for
advertising dollars.
Critics of the plan, including the Multicultural Media, Telecom
and Internet Council, say the proposal would devalue AM radio as big owners
stop investing in those properties and buying AM broadcast equipment, and that
it would ultimately hurt ownership diversity. However, NAB argues in its
request that “increased common ownership should enhance radio programming
diversity.”
In fact, NAB proposes that owners who “incubate” the ownership
of stations by new entrants into broadcasting be allowed to own up to two
additional FM stations in a market program, bringing the limit to 10 FMs under
single ownership in top 75 markets.
The proposal didn’t spell out how an existing owner would
qualify for such a limit waiver. But FCC Chairman Ajit Pai is circulating an
incubator proposal among the commissioners that would establish requirements to
govern an incubator program. Such a program was detailed in a 2017 NPRM aimed
at supporting the entry of new and diverse voices into the broadcast industry.
His item will be on the agenda for the commission’s August meeting.
“THE RIGHT CLIMATE”
The industry seems divided on the radio ownership issue,
according to several insiders. They said the vote of the NAB Radio Board to
float the proposal was not unanimous. It’s been widely reported that
iHeartMedia voted against the proposal while Townsquare Media gave a yes vote.
(Reports indicating that Cumulus Media voted against the plan were not
accurate, a company spokesperson told Radio World in an email, declining
further comment.)
Under Chairman Pai, the commission has set an aggressive agenda
of relaxing limits on media ownership. Last fall it ended the
newspaper/broadcast cross-ownership ban. In addition, it has eliminated a rule
requiring that broadcast stations have a main studio in their local coverage
area.
Most observers interviewed seemed to think the commission is
likely to remain on its generally deregulatory track and said they’d be
surprised if this NAB idea doesn’t win approval at least in some form.
“I was surprised by the proposal, but it’s the right climate for
this type of proposal,” said Melodie Virtue, a communications attorney at Garvey
Schubert Barer, who specializes in FCC filings and applications.
Virtue said that despite some opposition, she expects numerous
radio groups would be eager to take advantage, initiating sales and swaps.
“I would expect such a change would increase the value of FMs
unless the market gets overheated,” she said. “AM properties would go down in
value.”
Another observer congratulated the NAB on “crystallizing the
radio ownership debate in a constructive way” that allows the FCC to move
forward.
“At least the FCC can now delve into radio ownership
deregulation in specific terms rather than nearly an abstract goal,” said Scott
Flick, communications attorney with Pillsbury Winthrop Shaw Pittman LLP in
Washington. “I certainly think that we will see changes to the subcaps, but
it’s far more difficult to say what sorts of changes will be implemented in
terms of local ownership caps. There will be many more proposals made before
the FCC reaches any conclusions, but the NAB’s proposal is what those proposals
will now be compared against.”
“FINANCIAL VIABILITY”
The NAB’s push comes as the growth in non-broadcast sources of
digital content continues to put competitive and revenue pressures on local
stations.
David Oxenford, a communications attorney with Wilkinson Barker
Knauer LLP, wrote on his Broadcast Law Blog that the changes in competition for
local advertising have been dramatic, “with some sources showing that over 50
percent of local advertising revenue (the bread and butter of local radio) is
now going to digital competitors — with Facebook, Google and even the digital
music services selling advertising to local advertisers throughout the country,
even in the smaller markets.”
NAB’s letter put the question in existential terms: “For radio
to remain a free, over-the-air option able to provide quality entertainment and
informational programming to all consumers, broadcasters must be able to create
ownership structures that better ensure their financial viability today and
into the future.”
Oxenford doesn’t expect a NPRM in the quadrennial review until
late this year and no final decisions from the commission until late 2019. He
described the NAB’s proposal as controversial, as evidenced by the reported
Radio Board vote.
“Proponents of more diversity in broadcast ownership will
suggest that consolidation will hinder opportunities. Additionally, opponents
will likely contend that consolidation since 1996 has not benefitted the
economics of radio companies, but instead led to some being financially
overextended,” Oxenford posted on his blog.
Paul Rotella, president and CEO of the New Jersey Broadcasters
Association, thinks NAB’s request is aptly timed.
“I think they see an opportunity to look at things from a clean
slate with Chairman Pai. Given the benefits to broadcasters that some of these
rules changes will provide to the industry, success is probable.”
“BREATHTAKING” DEREGULATION
Optimism about ownership rule changes is not shared by the
country’s largest radio group. In a company memo in June released on several websites,
iHeartMedia Chairman/CEO Bob Pittman and COO Rich Bressler said the NAB request
is bad for the industry.
“A faction within the board of directors of the National
Association of Broadcasters wants the Federal Communications Commission to
change these limits in favor of breathtaking deregulation, while other board
members do not. When it was put to a board vote, the faction in favor of
deregulatory overreach did win the vote — but the vote was not even close to
unanimous, emphasizing that among the membership of the NAB, this was — and
remains — a divided issue,” the iHeartMedia executives said.
The pair specifically cited the potential impact on the value of
AM properties, of which it owns many in big markets like Tampa and Denver.
“By permitting increased or unlimited ownership of FM stations,
NAB’s proposal would potentially decimate the value of AM radio. With no limits
on FM ownership, companies would logically buy FM stations instead of AMs, and
would probably divest themselves of AMs — and, at the very least, would not be
interested in acquiring more AMs. With that kind of sell-off or lack of demand,
the value of AMs would most certainly decline,” they wrote in the memo.
But Dhruv Prasad, co-CEO of Townsquare Media and newly elected
this spring to the NAB Radio Board, told Radio World in an e-mail that the
emergence of digital and social media has fundamentally disrupted how
information is disseminated.
“Given the expansive competitive landscape, radio can no longer
be considered on a protected island, and it follows logically that the rules
that were intended to limit advantage and undue influence must themselves adapt
or be eliminated altogether,” Prasad said. “After all, on the internet, none of
our competitors are subject to any of these limitations.”
Prasad said Townsquare has an abiding interest in AM. Of its 317
total stations, 85 are on the senior dial, making it the third largest owner of
AM stations in the United States.
“The best way to ensure the value of AM stations, and to deliver
for the listeners of this service, is to provide essential and important
programming, and unique and valuable benefits to advertisers,” Prasad said.
He believes the FCC’s AM revitalization efforts gives those
stations and owners opportunities to ensure their success and longevity.
A WARNING CALL
Mark Lipp, a communications attorney with Fletcher, Heald &
Hildreth, agrees with the NAB that radio is facing increased competition from
digital sources, but that “doesn’t mean owning more stations” will solve the
problem, he said.
“In the larger markets, some number of additional stations would
be acceptable, but I would also factor in the HD channels (of large broadcast
groups) that offer separate programming. There should be some recognition that
these stations compete for advertising as well. The FCC should also consider FM
translators that rebroadcast the HD channel in analog to its listeners,” Lipp
said.
“I am not saying they should be counted as much as a
full-service station, but they should factor into the mix to some degree. Many
FM translators provide as much coverage as Class A FM stations and have ratings
that are significant.”
The idea that an incubator program would help small
minority-owned stations is invalid, Lipp said, if there is no viable
competition in a radio market. “In order for the incubator program to succeed,
there should not be a dominant force in the market.”
The Multicultural Media, Telecom and Internet Council, an
advocate for minority broadcast interests, had yet to comment specifically on
the NAB Radio Board’s idea as of early July. But in ex-parte comments filed
with the FCC earlier this year, MMTC said it believes if the radio market
subcaps were eliminated, most broadcast companies would promptly find a way to
expand to the eight FM limit.
“When the largest companies stop investing in AM radio, AM
equipment manufacturers will stop designing improved AM equipment and the top
engineering firms will stop doing AM work. This will lead to a rapid
deterioration in the AM service and undermine the commission’s AM
revitalization effort. Elimination of subcaps would be the death knell for AM
broadcasting,” according to the MMTC.
The quadrennial review process remains in the planning process,
according to observers. Chairman Pai had not offered public comment on it at
press time, although he has been firmly on record as exasperated by the FCC’s
repeated failure to carry out that quadrennial duty in a timely way.
The NAB said it would file additional comments to justify radio
ownership rule changes as the review progresses.
ON THE TABLE?
Here are the NAB Radio Board’s specific recommendations to the
FCC:
● In the top 75 Nielsen markets, allow a single entity to own or
control up to eight commercial FM stations, with no limit on AM ownership;
● To promote new entry into broadcasting, an owner in these top
75 markets should be permitted to own up to two additional FM stations (for a
total of 10 FMs) by participating in the FCC’s incubator program; and
● In Nielsen markets outside of the top 75 and in unrated
markets, there should be no restrictions on the number of FM or AM stations a
single entity may own or control.
