Pandora Request Could Lead to More Relaxation of Broadcast Foreign Ownership Rules, Say Attorneys, Commenters

Pandora’s request for the FCC to waive foreign ownership rules so it can buy its first terrestrial radio station to get lower royalty rates could lead to further commission relaxation of such rules, said industry lawyers in interviews this and last week. The FCC should update its rules for foreign broadcast ownership to make it easier for “widely-traded, public entities” to comply, said NAB in response (http://bit.ly/1rLcegy) to Pandora’s petition for a declaratory ruling that it can buy KXMZ(FM) Box Elder, South Dakota, despite being unable to determine how many of its many shareholders are U.S. citizens. Comments were posted Thursday in docket 14-109 in response to Pandora’s petition to be allowed 100 percent foreign ownership (CD July 2 p6). The current rules are slanted to make it more likely that publicly traded companies will be treated as foreign owned, and changing them would be in line with the FCC’s relaxation of foreign ownership restrictions last year, said Minority Media and Telecommunications Council President David Honig, who supported relaxing the rules.

But granting Pandora’s petition would totally invalidate the commission’s foreign ownership rules, said the American Society of Composers, Authors and Publishers in an opposition filing (http://bit.ly/1oAQFHU). If it’s approved, “future petitioners will only need to establish that they, too, are publicly traded companies that are unable to demonstrate compliance,” said ASCAP. “The result could not be cabined to Pandora’s circumstances alone, effectively allowing for 100 percent indirect foreign ownership of all broadcast licensees."

The FCC should change its requirement for how companies determine the citizenship of shareholders, NAB said. The rule, known as the suggestions for meeting citizenship requirements of corporate applicants, requires the commission to count as foreigners those shareholders who don’t respond to a survey commissioned to determine a company’s level of foreign ownership. The rule effectively says “anyone who doesn’t answer their mail must not be a U.S. citizen,” said Honig. Though Pandora is U.S. based, was founded in the U.S and has U.S. management, it didn’t get enough shareholder responses to allow it to qualify as domestically owned, it has said.

There’s already support for the FCC to change the suggestions, said Honig, pointing to comments from Commissioner Mike O'Rielly that the foreign broadcast ownership rule should be relaxed further (CD Nov 15 p3). O'Rielly’s office declined to comment for this story. MMTC and the companies that supported the last rule change would also be in favor of changing the suggestions because it would ease broadcaster access to foreign investment, Honig and a broadcast attorney told us. The FCC already doesn’t require the same efforts to ferret out shareholder citizenship on the wireless side, noted NAB: “In the wireless context, the FCC has specifically recognized the difficulties of identifying the citizenship of shareholders.” If the FCC did consider further relaxing the rule, it should do so as part of a separate rulemaking proceeding, with its own notice and comment periods, NAB said. The association said it wasn’t taking a position on Pandora’s proposed acquisition of KXMZ.

Granting Pandora’s petition could lead to the “unraveling” of the music licensing system and push broadcasters to further consolidate, said ASCAP. Pandora seeks to buy KXMZ to qualify for the same publishing royalty rates as broadcasters to better compete with services like Clear Channel’s similar service iHeartRadio (CD June 17/13 p16). Pandora really doesn’t want to own KXMZ, “it only wants to use the station as a means to an end,” said ASCAP. Pandora’s reasons for the deal shouldn’t matter, said Honig. “The FCC doesn’t grant or deny applications based on motives.” MMTC has no position on whether Pandora’s purchase should be approved. Pandora declined to comment.

If Pandora’s petition is granted, the resulting drop in licensing fees could cause dissatisfied music publishers to withdraw from the collective licensing system, ASCAP said. That would make it much harder for broadcasters to obtain the rights to broadcast individual pieces of music, which would especially affect smaller broadcasters, ASCAP said. Broadcasters being forced to acquire broadcast rights to music individually would be a “logistical nightmare,” ASCAP said.

The petition could face extra difficulty getting approved because of its scope and its status as the first request for an exception to the foreign broadcast ownership rules since the FCC declaratory ruling relaxing them last year, communications attorneys told us. Future requests under the declaratory ruling are likely to be colored by the precedent set by Pandora, and the commission may be reluctant to authorize 100 percent foreign ownership in the first such request, the attorneys said.

Communications officials interested in U.S. investment are paying attention to the proceeding, Honig said. But the unique circumstances in Pandora’s petition are unlikely to apply to subsequent waiver requests, a broadcast attorney pointed out. That could mean that would-be foreign investors and the FCC won’t look at Pandora’s petition as an indicator of future requests for exceptions to the foreign ownership rules, the attorneys said.