FCC 2018 Quadrennial Order Largely Maintains Status Quo, But Local Television Ownership Rule Modifications Create New Uncertainty

Bookending the Christmas weekend, the FCC’s long-awaited 2018 Quadrennial Review Report and Order was adopted on Friday, December 22 and released Tuesday, December 26.  The Commission is required by Congress to conduct a regulatory review of its broadcast ownership rules every four years and was directed by the U.S. Court of Appeals for the D.C. Circuit to conclude this particular review no later than December 27 (or to show cause why that couldn’t be done).

A gift for some and lump of coal for others, the FCC declined to read a deregulatory presumption into its statutory mandate and largely concluded that the existing rules remained necessary in the public interest.  The Dual Network Rule and Local Radio Ownership Rule remain unchanged, with the FCC modifying the latter only to make permanent the “interim” contour-overlap methodology that has been used for decades to determine ownership limits in areas outside of defined Nielsen Audio Metro markets and in Puerto Rico.

The real changes were contained in the FCC’s modification of the Local Television Ownership Rule’s “Top-Four Prohibition,” which restricts a broadcaster from acquiring a second station in a market if it would result in the broadcaster owning two of the market’s top-four-rated stations.  First, the FCC adjusted the methodology used to determine whether a station is ranked among the top-four stations in a market by (a) adopting a “Sunday to Saturday, 7 am to 1 am” daypart, (b) requiring data from the 12-month period preceding the date of the application, and (c) requiring aggregation of the audience share of all free-to-consumer non-simulcast multicast programming airing on streams owned by the station(s) at issue.

Second, resisting calls from the broadcast industry to loosen or eliminate the Top-Four Prohibition due to increased competition in the media marketplace, the FCC instead expanded the rule to reach multicast streams and LPTV stations that had, until now, been outside the purview of the ownership limits.

Specifically, the FCC modified Note 11 to Section 73.3555 of the Rules to prohibit a television broadcaster that airs a top-four-rated network on the primary stream of its station from acquiring a second top-four network affiliation through the execution of any agreement (or series of agreements), even when the second network’s programming is then aired on a multicast stream of that station or on a co-owned LPTV station.  In doing so, the FCC explained that “parties that prior to the release of this Order had acquired the affiliation of a top-four rated television station and placed it on a multicast stream and/or a low power television station in a manner that would violate Note 11 as revised herein will not be subject to divestiture” but that such “grandfathered arrangements will not be transferrable or assignable.”

The 2018 Quadrennial R&O suggests that the latest expansion of the Top-Four Prohibition is not intended to prevent a broadcaster from turning a multicast stream or LPTV station into a top-four rated stream or station through “organic growth.”  But significant questions remain, for example:

• While the footnotes state that “Note 11 would not apply in situations where a network offers an existing duopoly owner a top-four rated affiliation,” the R&O also cautions that a broadcaster cannot acquire such affiliation from the network through “undue direct or indirect influence.” It is therefore unclear whether (or under what circumstances) a broadcaster could agree to air a second top-four network.  For example, is a station allowed to approach the network first?  And even where the network approaches the station out of the blue, there will necessarily be a negotiation between the station and the network as to how much the station will pay for the programming (and many other terms).  If, during the negotiations, the station agrees to programming payments that the network finds acceptable, has the station improperly “influenced” the network to grant it the affiliation?
• If in doubt as to whether the placement of a top-four affiliation on a multicast stream or LPTV station would violate the new rules, broadcasters are invited to “seek case-by-case consideration.” But the R&O does not specify the procedures for seeking (or challenging) such determinations, nor does it indicate how long such consideration may take, posing potential problems in achieving the certainty broadcasters and networks need to get programming deals done.
• It is also unclear whether or under what circumstances the FCC might allow the intact transfer or assignment of a station that, through “organic growth,” has the programming from two top-four affiliations airing on its primary and a multicast stream. Alternatively, if the FCC refused to permit the station sale, how can the seller “divest” an affiliation?  What happens if there are no other stations that want or can accept the affiliation, either because all stations in the market are either already top-four or are religious, Spanish-language, or noncommercial stations that have no use for a top-four network affiliation?  If waivers will be necessary, will any major transactions be initiated in the face of such attendant uncertainty?

If “what’s past is prologue,” we can almost certainly expect one or more interested parties to challenge the 2018 Quadrennial R&O in court.  And perhaps some of these questions will be answered through that (years-long) process.  In the meantime, we strongly encourage broadcasters to seek experienced FCC counsel before making any moves that could implicate the FCC’s expansion of the Top-Four Prohibition.