Appeals Court Tells FCC to Finalize Multiple Ownership Review, Throws Out TV JSA Attribution, and Questions Newspaper-Broadcast Cross-Ownership Ban

The Third Circuit Court of Appeals yesterday issued an opinion faulting the FCC for not completing any required review of its broadcast ownership rules since the 2006 review was completed in 2007. These reviews of its ownership rules, now done as “Quadrennial Reviews” every four years, but previously required to be done biennially, have been the subject of much judicial review and delay in the past 9 years. Because of the delays in finalizing a review and addressing issues previously raised by the Court, yesterday’s decision ordered the FCC to meet with certain parties who brought the appeal to finalize a timetable for FCC review of the rules designed to promote minority ownership of broadcast stations. At the same time, the Court threw out the FCC’s 2014 decision determining that television Joint Sales Agreements were attributable interests (see our article here), which had essentially banned these agreements in most markets as the attribution of an interest in one station to the owner of another station in the same market would constitute a combination of stations not permitted under the local TV duopoly rules. The discussion in the decision also raised questions as to whether the FCC could justify the continued existence of the broadcast-newspaper cross-ownership rules given the radically changed state of the newspaper industry since these rules were adopted over 40 years ago.

While much has been made of the decision overturning the attribution of television Joint Sales Agreements, that part of the decision was actually a narrow one, and one which leaves the FCC in a position where it could reinstitute the attribution requirement when it completes its current review of the ownership rules. The Court looked at the 2014 decision determining that JSAs should be attributable, and concentrated on the dissenting opinion of Commissioner Pai. The Commissioner argued that the FCC’s decision making the interests attributable ignored record evidence that such combinations were in the public interest. The dissenting opinion said that some combinations were necessary, particularly in smaller television markets, to permit the profitable operations of weaker stations in these markets, and that the agreements otherwise contributed to the public interest by allowing stations that could not afford news and other beneficial programming to air such programming. The Commission dismissed those arguments, contending that they were really addressing questions as to whether more small market TV duopolies should be permitted. But, as the FCC did not address whether small market TV duopolies might be in the public interest, but instead deferred that decision until the next Quadrennial Review, the Court found (as Commissioner Pai had argued) that the FCC decision could not be justified. The FCC could not ban JSAs as not being in the public interest until they considered the arguments as to whether small market duopolies, which could permit many of the JSAs to continue even if attributable, were in the public interest.

But this decision means that the Commission, in its current Quadrennial Review of the ownership rules, could reinstate the JSA ban if it concludes that there is no public interest benefit in relaxing the small market TV duopoly rules. In its Notice of Proposed Rulemaking in this proceeding, the FCC proposed to do exactly that – leave the current TV duopoly rules in place (see our articles here and here). So the JSA victory for broadcasters could be a short-lived one, if the FCC quickly finishes the current review of its ownership rules in the manner that it initially proposed. Thus, the issue of a change in the small-market duopoly rules may well become a very hot issue in the consideration of the current Quadrennial Review.

The Court has put pressure on the FCC to finalize that review. One of the challenges to the FCC’s decision was by a group of minority and public interest advocates who argued that the FCC had not decided on a definition of an “eligible entity” for purposes of determining who should get to take advantage of rules designed to help minorities and other new entrants get into broadcast ownership. Despite having been ordered to do so after an earlier court review (see our article here), the FCC had never completed that review. The Court ordered the FCC and the petitioners to come up with a timetable to resolve the issue, building off of a promise to the Court made by the FCC that it would have completed a draft order on the Quadrennial Review by the end of June of this year. The Court also said that it expected the FCC to address other proposals on how to promote minority ownership in the order that the FCC is supposed to now be drafting (see our article on some of those proposals, here).

While declining a request by broadcast groups to throw out all of the ownership rules because the FCC had not completed its 2010 Quadrennial Review (as the FCC is supposed to justify, in these reviews, the continuation of any ownership rule), the Court here too issued a warning to the FCC to get on with its resolution of its current review. As the FCC had in 2014 punted on most of the substantive issues by pushing them into the current review, the Court said that it was also relying on the Commission’s promise to rapidly complete the current review, suggesting that it was ready to take additional action if the FCC did not complete that review promptly.

In one instance, in particular, the Court gave a hint that it expected some relaxation of the rules. In looking at the harms that were raised by delays in its review of the ownership rules, the Court noted that the FCC had, a decade ago, concluded that the 1975 newspaper-broadcast cross-ownership rules were outdated. By not finally deciding to do away with these prohibitions, the Court said that companies were precluded from forming combinations that could have allowed for profitable operations, or from challenging a decision to not change the cross-ownership prohibition (which, up to this point, could not be challenged as the FCC had not finally decided what to do with the prohibition). Obviously, the Court seemed skeptical that the newspaper-broadcast cross-ownership rule remained in the public interest (we have speculated before as to whether the ban will outlive the daily newspaper – see our articles here and here).

So the question now becomes what the FCC will do. With the Court now adding to the pressure to get something done, when will the Commission be able to do so? The FCC Chairman has only promised to circulate a draft decision to the other Commissioners by the end of June. Then there will no doubt be lobbying by interested parties, and the Commissioners and their staffs will need to consider the draft. There may well be questions or policy disputes that arise from the recommendations. So the saga is not over – and it is one that will no doubt play out over the course of the summer – with the Court and the parties to the case watching the FCC’s progress to a final decision.