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TV ownership: Stakeholders debate cap, question FCC authority

The FCC is seeking input on whether to modify or eliminate the 39% national audience reach cap, which prohibits a single broadcast station group from owning TV stations that together reach more than 39% of U.S. TV households. In comments on the proceeding, which were due this week, interested parties were torn over whether the agency could and should change the cap.

As the cap was last modified by Congress in 2004, some questioned whether the FCC has the authority to amend that cap. For instance, state attorneys general from Illinois, California, Iowa, Maine, Massachusetts, Pennsylvania, Rhode Island and Virginia all told the commission they believed raising the national audience reach limit is beyond the authority of the commission. Calling Congress "the sole decider regarding cap-setting," the attorneys general pointed to the Consolidated Appropriations Act of 2004, which set the national cap at the current 39%.

As both FCC commissioners Michael O'Rielly, a Republican, and Jessica Rosenworcel, a Democrat, have noted, the language in that legislation was heavily negotiated on Capitol Hill and came after the FCC had tried to raise the cap from 35% to 45%. Also as part of that act, Congress said the FCC should not consider any rules relating to the 39% cap as part of the agency's quadrennial media ownership review.

"In doing so, Congress established that it — and not the Commission — was responsible for setting the cap," the attorneys general said.

Others, including a consumer advocacy group and a broadcast industry association, argued the FCC does have the necessary legal authority to modify the cap.

Consumers Union, the advocacy division of Consumer Reports, said in a filing posted March 19 that the Consolidated Appropriations Act of 2004 does not restrict the FCC from adjusting the cap so long as the agency does so in a rulemaking outside of its mandatory quadrennial review.

The National Association of Broadcasters agreed, saying in a filing posted March 20 that Congress never enshrined the national TV ownership cap into statute. And when Congress rejected the FCC's proposed 45% cap in 2004 and instead set the cap at 39%, the NAB said Congress "in no way suggested that the FCC lacked the authority to raise the cap … rather, Congress only indicated that it disagreed with the number the FCC selected."

Consumers Union and NAB, however, disagree on a related matter — namely the UHF discount, which allows stations broadcasting in the UHF spectrum, or on channels 14 to 51, to attribute only 50% of their TV households in their designated market areas toward the overall 39% cap.

Consumers Union urged the FCC to retain the cap at the current 39% level but said the FCC should eliminate the UHF discount given that UHF stations in the digital television era are now equal, if not superior, to VHF stations. The group further argued that by preserving the cap and eliminating the discount, the FCC will protect against further consolidation in the broadcast space and the higher retransmission consent fees that are likely to result from that consolidation. Retrans fees are generally paid by cable, satellite and telco TV companies who want to carry local broadcast stations as part of their pay-TV services. The larger a broadcast station group, Consumers Union argued, the higher retrans fees it can demand.

NAB, meanwhile, said the FCC should retain the 39% cap but expand the UHF discount so that it applies to VHF stations as well. In other words, each station's reach would be calculated at 50%. This change, according to NAB, would reflect the increasingly fragmented video market in which TV viewers have more options — from cable networks to on-demand offerings to over-the-top streaming services — than ever before. To illustrate this point, the NAB noted the overall ratings for the top-rated TV programs have fallen precipitously in the last 30 years.

Looking ahead, the FCC will continue soliciting feedback on this issue, with reply comments due by April 18. However, the Republican majority at the FCC already seems to have enough votes to modify the 39% ownership cap, as O'Rielly said in December 2017 that while he personally believes the commission lacks the authority, he will support his fellow commissioners in voting to modify the cap if they believe otherwise. Ultimately, O'Rielly expects this matter to end up in court before being taken up by Congress.

The move to review the cap comes as the FCC is considering Sinclair Broadcast Group Inc.'s proposed combination with Tribune Media Co. Including the UHF discount and without any divestitures, a combined Sinclair and Tribune would exceed the 39% national audience reach cap by about 6.5%, though more recently, Sinclair has detailed plans to sell stations in key markets to comply with the 39% limit. Without the UHF discount, a combined Sinclair/Tribune would have a reach covering 72% of U.S. homes across 108 markets.

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