FCC Releases 2018 Quadrennial Review Order

The FCC adopted the 2018 quadrennial review order 3 to 2 late Friday -- on the eve of a three-day holiday weekend -- with both Republican commissioners dissenting. Released Tuesday afternoon, the item extends the top-four prohibition to low-power TV stations and multicast TV channels and makes methodology changes for determining a top-four station. Yet it declines to reconsider the markets in which broadcasters compete or to loosen radio ownership caps. “We take this action to preserve the efficacy of the Top-Four Prohibition because we find it necessary to prevent further exploitation of unintended ambiguities or gaps in the rule,” the order said. “Such exploitation harms competition and denies consumers the benefits of competition.

The item is widely expected to face a court challenge, as has happened to every previous QR order. “While the ways we consume news and content in the digital age have changed, this approach is consistent with our longstanding values,” said Chairwoman Jessica Rosenworcel in a statement attached to the order. In his statement, Commissioner Nathan Simington said, “This decision is anti-localism and hastens the death of local news in small markets, and it does so on the thinnest of gruels supplied in the factual record."

Other than the changes to the top-four prohibition, the QR order makes almost no substantive changes to FCC rules. "The FCC has every reason to update this outdated set of broadcast radio and television rules,” Commissioner Brendan Carr said in a statement. “Yet the rules will remain in place -- impervious to those compelling forces.”

The order expands existing language in the FCC’s rules barring network affiliation swaps (known as Note 11) among full-power stations to prevent stations from acquiring a network affiliation if the change would lead to the network being broadcast from a “television facility” or programming stream that doesn’t count toward the total number of stations the broadcaster can own. As expected, the order grandfathers in existing combinations, and applies the new rules only to transactions entered after the release date of the order.

Broadcasters buying network affiliations from their in-market competition and placing the programming on an LPTV station or multicast stream circumvents the intent of the local television rule without FCC review and typically leads to the removal of the competitor that sold the network affiliation. “Rather than representing genuine attempts by stations to compete better through organic growth, such transactions often appear to be intentionally manufactured to skirt the prohibitions on excessive market concentration,” the order said. The FCC said such transactions, while formerly rare, appear to be on the rise. NAB has vigorously lobbied against the rule change but declined to comment Tuesday.

Broadcasters have said that the LPTV and multicast combinations are needed to bring consumers programming in markets where the number of full-power stations is insufficient to provide a home for each network, but the FCC said the order’s existing language permitting such combinations case by case addresses that concern. "The rule change we adopt today does not inhibit organic growth, expansion, or changes in station programming, nor does it impact affiliation changes initiated by a network itself," the order said.

The order rejects broadcaster arguments that looser ownership restrictions are merited due to the current media market's increased competition. Streaming and other digital video offerings mostly compete with broadcasters for advertising revenue, “which is but one of the facets of competition among local broadcast television stations,” the order said. “Non-broadcast sources of video programming do not compete with broadcasters for retransmission consent fees, network affiliations, or the provision of local programming.” The order also notes that broadcasters could soon enjoy additional revenue opportunities from ATSC 3.0. The order concedes that local news is “undoubtedly cost intensive to produce” but rejects “the broadcasters’ assertions that in order to preserve localism we must allow greater consolidation.”

Addressing changes in the market by loosening radio subcaps would likely “decrease competition, viewpoint diversity, and localism,” the order said. “Ultimately, we find that allowing one entity to own more radio stations in a market than currently permitted would harm competition without achieving the benefit sought."

“The existing media ownership rules are the bare minimum,” said Cheryl Leanza, who represented the United Church of Christ Media Justice Ministry in litigation against the previous QR order. “The cries for the need of additional consolidation ring hollow given the current state of the FCC rules.” Said former FCC Commissioner Robert McDowell, now a partner at Cooley, "This almost definitely will be appealed.”

The order also pushes back on arguments from broadcasters and the FCC’s Republicans that Section 202(h) of the Communications Act -- which requires an FCC quadrennial review -- also restricts the agency to deregulation in QR orders. “We find that the Commission may ‘make [the rules] more or less stringent’ after reviewing and considering the state of competition in the media marketplace,” the order said. The FCC “has consistently ignored Congress’s deregulatory mandate under the statute,” said Carr. Section 202(h) “requires that the Commission, as the result of competition, repeal or modify any rule that is no longer in the public interest,” said Simington. “What this does not mean, and what this cannot mean, is that the Commission properly may wedge in new, burdensome rules on broadcasters who are, at present, being outcompeted in the video marketplace under the guise of 'loophole closing' in the so-called public interest.”

Tuesday’s order also appears to indicate what the 2022 QR order may include. FCC officials have told us the 2022 QR is expected soon after the 2018 version. “We remain committed to examining barriers to minority and female ownership of broadcast stations and expect that the upcoming 2022 Quadrennial Review proceeding will provide an opportunity to examine more specifically what can or should be done within the context of our structural ownership rules,” the order said. “The FCC did its job carefully and well, and will hopefully quickly turn to the next quadrennial,” said Leanza.