Pandora Petition Could Set Precedent for Foreign Ownership Rules, Attorneys Say

A Pandora request that the FCC issue a declaratory ruling that it complies with foreign ownership rules could have implications for future tests of the FCC’s newly relaxed policy toward foreign ownership (CD Nov 15 p3), and could end up decided by a commission vote rather than a bureau-level decision, said broadcast attorneys in interviews this week. Commissioners Ajit Pai and Mike O'Rielly condemned the wording of the commission’s declaratory ruling at the time for being too vague, and it’s not clear what sort of precedent approval of Pandora’s petition would set, the attorneys said. The rule was partially intended to provide access to capital for minority station owners -- a situation that doesn’t apply to Pandora, attorneys said. “We were hoping the first few filings would be minority broadcasters seeking new financing,” said Minority Media and Telecommunications Council President David Honig, who had been a strong supporter of relaxing the foreign ownership restriction.

Pandora’s filing is a response to an American Society of Composers, Authors and Publishers objection to its attempted buy of KXMZ(FM) Box Elder, South Dakota (CD July 1 p11). ASCAP has said Pandora has not sufficiently shown that it’s not foreign owned, leading to an FCC request that the firm demonstrate it’s not majority foreign owned. Pandora agreed to buy KXMZ to qualify for the same publishing royalty rates as broadcasters to better compete with Clear Channel’s similar service iHeartRadio (CD June 17/13 p16). “Given the recent licensing deals between broadcasters and music content companies, we feel it is both timely and prudent from a business perspective to acquire the broadcast license for KXMZ,” a Pandora spokesman told us in an email.

Pandora needs a declaratory ruling that it’s not foreign owned because SEC regulations protecting shareholder privacy are preventing it from proving to the FCC that it’s American-owned, said the firm’s petition. Though other broadcast and telecom companies have been able to demonstrate that their shareholders are majority U.S. residents, the streaming radio service is in a unique position because it hasn’t previously been a terrestrial broadcaster, said radio industry attorneys.

"You don’t have a lot of companies coming in from totally outside the industry,” said Wilkinson Barker broadcast attorney David Oxenford, whose firm represents KXMZ seller Connoisseur Media in the deal. Established broadcast companies have had disclosure policies in place to track their shareholders’ nationalities since before the SEC privacy rules allowing shareholders to protect that information existed, Oxenford said. Pandora’s problem determining shareholder nationality is likely to be an issue for any younger technology company trying to enter the broadcast arena, Oxenford said.

Pandora’s request may be asking the commission to relax foreign ownership rules further than the FCC originally intended, said broadcast lawyers. Rather than seeking FCC permission for foreign investors, Pandora is seeking relief from having to ascertain the extent of it’s foreign ownership, a lawyer pointed out. That’s a permutation that wasn’t much contemplated before the commission’s declaratory ruling, the attorney told us, and approving Pandora’s petition could lead to similar copycat petitions. “We didn’t see this coming,” Honig said.

Pandora asks the commission to permit it to be to 100 percent foreign owned, which Honig said could also be a sticking point for FCC staff. “I don’t think the staff would be prepared to go that far,” he said. Since the relaxed foreign ownership policy is new, there’s a chance a decision on Pandora’s petition would go to the full commission rather than being decided at the bureau level, said broadcast attorneys. Either the bureau or the commission will consider the application from a public interest standpoint -- and the issue of whether Pandora should be able to pay broadcast rates for content is unlikely to be a factor, said Fletcher Heald broadcast attorney Frank Jazzo. The matter is likely to take a while to work its way through the commission because of its singular nature, said an industry lawyer.