DA 05-1485

Released: May 24, 2005

CFM Communications, LLC

c/o Kathleen Victory, Esq.

Fletcher, Heald & Hildreth, PLC

11^th^ Floor

1300 North 17^th^ St.

Arlington, VA 22209-3801

Lincoln Broadcasting, LLC

c/o Marissa G. Repp, Esq.

Hogan & Hartson, LLP

555 13^th^ Street, NW

Washington, DC 20004

Gray Television Licensee, Inc.

c/o Peter Gutmann

Womble, Carlyle, Sandridge & Rice, PLLC

Seventh Floor

1401 I St., N.W.

Washington, DC 20554

> Re: KOWH(TV), Lincoln, Nebraska; ID No. 84453; File No.
> BTCCT-20040330BDM; [Application for Transfer of Control]{.underline}

Dear Counsel:

This letter is in regard to the application of Lincoln Broadcasting, LLC
(Lincoln), permittee of station KOWH(TV) (Station), Lincoln, Nebraska,
to transfer control of Lincoln from World Investments, Inc. (World) to
CFM Communications, LLC (CFM). An informal objection was filed by Gray
Television Licensee, Inc. (Gray), licensee of station KOLN(TV), Lincoln,
Nebraska. CFM filed an opposition to the informal objection to which
Gray replied.[^1] Gray's objections are based on alleged improprieties
in the relationship between CFM and Pappas Telecasting Companies,
licensee of station KHGI-TV, Kearney, Nebraska and its satellite
KWNB-TV, Hayes Center, Nebraska. For the reasons stated below we deny
the informal objection and grant the application.

Attached to the application are an Interest Purchase Agreement between
Lincoln, CFM and World; an Assignment Agreement between CFM and Pappas,
which assigns Pappas's option to purchase Lincoln to CFM; and an Option
Agreement between CFM and Pappas.

Under the Interest Purchase Agreement, CFM shall purchase the Station
for \$300,000, plus any reasonable expenses incurred by World in
connection with the Station.

The Assignment Agreement states that Pappas will guarantee CFM's loans
to finance the purchase of the Station. In addition, the Assignment
Agreement states that, upon closing, CFM and Pappas will enter into a
Time Brokerage Agreement (TBA), a Joint Sales Agreement (SSA) and a
Station Construction Agreement (SCA). Those agreements are not included
with the application; however, the key terms of those agreements are
included in the Assignment Agreement.

Under the terms of the TBA, Pappas will provide sales, promotion,
engineering, production, traffic and general administrative services to
CFM. Pappas will also program up to 15% of KOWH(TV)'s weekly broadcast
schedule. CFM agrees to fill the remaining 85% of the station's weekly
hours of operation with "paid" or "bartered" programming in which the
programmer either pays the station to broadcast the programming or makes
the programming available to the station without charge. If there is any
commercial advertising time available within or adjacent to this
programming, that time will be subject to the terms of the JSA. CFM is
to consult with Pappas on the selection of the block programming for the
time that CFM will program the station, but ultimate control is to
remain with CFM. CFM shall reimburse Pappas for its expenses incurred in
providing engineering and other support services related to the time
period that CFM is programming the station, provided that the payments
do not exceed the revenue associated with that period of time.

At the time the parties enter into the TBA, Pappas will make an initial,
non-refundable payment to CFM of between \$25,000 and \$40,000 depending
on the date of the closing on the sale of the station. Pappas shall then
pay \$100,000 per year in consideration for CFM making 15% of the
broadcast time per week available to Pappas. Pappas also will reimburse
CFM for all reasonable station expenses. In addition, Pappas shall pay
CFM 80% of all revenues, net expenses, from the sale of advertising time
during the time the station is programmed by CFM. These amounts do not
offset the other payments that Pappas is to make to CFM under the TBA.

The TBA will have an eight year term, renewable for an additional eight
years and will be assignable, subject to the consent of CFM. CFM may
assign its obligations under the TBA subject to the consent of Pappas.

Under the terms of the SCA, Pappas shall construct the station at its
sole cost, but under the supervision and control of CFM. CFM shall then
lease the facilities from Pappas at fair market value.

In the Option Agreement between CFM and Pappas, the parties agree that
CFM will assume Pappas' existing option to purchase KOWH(TV) and will in
turn grant a new option to Pappas. Under the terms of the Option
Agreement, Pappas or its assignee may purchase the Station within two
years after closing by CFM for the price paid by CFM, plus any amounts
reasonably expended by CFM in connection with the acquisition and a lump
sum of \$55,000. If Pappas exercises its option more than two years
after the closing by CFM, those amounts shall be adjusted using the
Consumer Price Index, provided that the percentage is not a negative
number. The Option Agreement may be extended for one eight year term at
the election of Pappas. In consideration, Pappas has paid to CFM a lump
sum of \$50,000. Pappas further commits to pay CFM \$20,000 per quarter
until the earlier of March 1, 2005, the date of closing by CFM on the
assignment from World, or the date that CFM's option has been terminated
by World. In addition, the Option Agreement obligates Pappas to pay CFM
\$5,000 per month, commencing October 1, 2004 and ending either March 1,
2005 or upon closing by CFM. The Option Agreement provides that, in no
event will the price paid for the option exceed 33% of the price paid by
CFM for the Station. The option price is not to be counted against the
price to be paid upon exercise of the option. If CFM's rights under its
option agreement to buy the station have been terminated by World,
Pappas is obligated to pay CFM a lump sum of \$40,000.

In its Informal Objection, Gray asserts that the application is
"illusory" to the extent that it purports to insulate Papas from control
over KOWH(TV). First, Gray objects that Pappas assigned its option to
CFM and then CFM granted a new option to Pappas, which Gray claims
defeats the purpose of the application, which is to place CFM in control
of the Station. Next, Gray seems to imply that the Option Agreement
gives Pappas an attributable interest in the station under the
Commission's Equity-Debt-Plus (EDP) policy.[^2]

Gray claims that even though Pappas might not hold an attributable
interest in the station, it would have *de facto* control over it and
its operation. In support of its position, Gray asserts that the TBA
would give Pappas complete control over Station operations. Gray argues
that, although the TBA only grants Pappas the right to provide up to 15%
of the Station's programming, the remaining 85% of the programming must
consist of paid or bartered programming which Pappas must approve,
effectively prohibiting the licensee from providing any programming on
its own. Next, Gray argues that Pappas is to provide financial
guarantees to enable CFM to purchase the Station, but that the money
will be repaid rapidly through payments made under the TBA. Furthermore,
Pappas is to pay directly for all engineering, production and other
Station expenses incurred under the TBA. Also, under the JSA Pappas
picks up the cost of all sales during the time CFM is programming the
Station. The agreements also obligate Pappas to build the Station and
lease it to CFM. Gray also objects because Pappas is entitled to
specific performance of the terms of the Assignment Agreement and
because all of the agreements can be extended for an additional 8 years
at the option of Pappas.[^3]

In its Further Supplement to Informal Objection,[^4] Gray represents
that Pappas is in control of two other stations in the
Lincoln-Hastings-Kearney DMA, KTVG(TV), Grand Island Nebraska, licensed
to Hill Broadcasting Company, Inc., and KSNB-TV, Channel 4, Superior
Nebraska, licensed to Colins Broadcasting Company. KSNB-TV rebroadcasts
the programming of KTVG(TV) and Pappas has time brokerage agreements
with both stations. Neither of these stations or licensees are at issue
in this proceeding and none of them have are alleged to have a
relationship with Ms. Miller, CFM or the Station. Therefore, Gray's
allegations regarding these other licensees are irrelevant to this
proceeding and will not be considered here.[^5] Gray also notes that
Pappas is the licensee of KPTM(TV), Omaha. KPTM(TV) is in the Omaha DMA,
which is separate from the Lincoln-Hastings-Kearney DMA and its
ownership is, therefore, not relevant to this proceeding.

In its Opposition, CFM states that the option held by Pappas is not
attributable until exercised.[^6] CFM then states that the Assignment
Agreement and the CFM Option were specifically tailored to comply with
the EDP policy. As noted above, both agreements contain provisions
stating that any amounts paid to CFM would not exceed the EDP limits. In
regard to Gray's assertions regarding Pappas' alleged control of
programming at the Station, CFM points out that the Assignment Agreement
states that CFM shall select programming in consultation with Pappas,
but that programming decisions shall be under the ultimate control of
CFM. CFM also argues that the TBA limits Pappas to programming less than
15% of the broadcast time of the Station and is not, therefore,
attributable.[^7]

In its Reply, Gray argues that, although none of the individual
relationships between CFM and Pappas might create an attributable
relationship, the totality of the relationships does create attribution.
Gray also argues that CFM is under the financial control of Pappas,
claiming that CFM will have to pay nearly all the funds which it might
receive to Pappas to repay Pappas for advancing CFM for the cost of
acquiring its interest in Lincoln. Gray's arguments on this point are
based on two apparent misconceptions. First, Pappas is guaranteeing the
loans taken out by CFM to purchase the Station. Nothing in the record
indicates that Pappas is advancing any money to CFM for the purchase of
the station. Merely guaranteeing a loan does not create an attributable
interest.[^8] Second, the \$100,000 annual payment on which Gray seems
to base its allegation regarding repayment of funds is being made by
Pappas to CFM for making time available to Pappas on the Station, not
the other way around.

In its Supplement to its Opposition, CFM argues that our recent decision
in *Malara Broadcast Group* (*Malara)*[^9] is controlling in this case,
while Gray states in its Opposition to the Supplement that the case is
not controlling and repeats its earlier arguments. Both parties'
arguments are discussed in detail below.

Gray has failed to establish any impermissible relationship between CFM
and Pappas. The fact that Pappas assigned its original option to CFM and
then CFM granted a new option to Pappas is irrelevant. Our Rules clearly
state that Options are not attributable until exercised.[^10] The
consideration paid for an option may be relevant under our EDP analysis,
but the agreements here specifically limit the amounts to be paid so
that they will comply with the EDP limits and Gray has not presented any
evidence that the payments will not comply. As discussed above, loan
guarantees are not attributable. As CFM correctly notes, TBAs for less
than 15% per week of a station's broadcast time are not attributable and
neither are JSAs nor shared services agreements.[^11] Arrangements very
similar to the ones at issue here were recently approved in *Malara*. We
will, however, require three changes to the agreements in this
proceeding.

We will require the parties to modify the requirement in Paragraph 5(e),
of the Assignment Agreement that requires CFM to fill the 85% of its
broadcast time that it programs with paid or bartered programming.
Although CFM may fill its broadcast day with such programming at its own
discretion, requiring it to do so is an impermissible intrusion on its
right to control the programming on its Station. In Paragraph 5(e)(i),
we will require the parties to delete the requirement that CFM consult
with Pappas on the selection of programming during the time that CFM is
programming the station. Both of those requirements represent an
impermissible level of interference in the licensee's control of the
programming of its station. We will also require that the SCA and any
other agreements dealing with the lease of facilities provide that
Pappas must give CFM a minimum of twelve months notice before
terminating or failing to renew any lease or other agreement for CFM's
use of broadcast or broadcast-related facilities, of any type, that are
provided by Pappas or any of its affiliates to CFM. Lack of such a
condition would leave CFM's ability to broadcast at the mercy of Pappas
and deprive CFM of its independence as a licensee.

In assessing the merits of a petition to deny or an informal objection,
we follow a two-step analysis. First, we determine whether the petition
makes specific allegations of fact which, if true, would demonstrate
that grant of the application would be *prima facie* inconsistent with
the public interest. If so, we then proceed to examine an weight all of
the material before us, including the applicant's submissions, to
determine whether there is a substantial and material question of fact
requiring resolution in a hearing.[^12] If the facts are not disputed,
but disposition turns on inferences and legal conclusions to be drawn
from facts already known, a hearing is unnecessary.[^13]

Gray has failed to raise a substantial and material question of fact
that grant of the subject application would be inconsistent with the
public interest. Therefore, Gray's Informal Objection is DENIED. Having
found the applicants fully qualified, we conclude that grant of the
subject application would serve the public interest.

ACCORDINGLY, the application to transfer control to transfer control of
Lincoln Broadcasting, LLC, permittee of station KOWH(TV), Lincoln,
Nebraska, from World Investments, Inc. to CFM Communications, LLC (File
No. BTCCT-20040330BDM) is GRANTED, subject to the modifications of the
agreements between the CFM and Pappas Telecasting Companies and its
affiliates as discussed above. These modifications must be made prior to
closing on the transfer of control and are to be reflected in all final
agreements between the parties. Copies of the agreements as modified
shall be served on Barbara A. Kreisman, Chief, Video Division, Media
Bureau, with a copy to David N. Roberts, Attorney Advisor, Video
Division, Media Bureau within 20 days of the date of this letter.

Sincerely,

Barbara A. Kreisman

Chief, Video Division

Media Bureau

cc: Colins Broadcasting Company

c/o Michael D. Basile, Esq.

Dow, Lohnes & Albertson, PLLC

Suite 800

1200 New Hampshire Ave., N.W.

Washington, DC 20036-6802

[^1]: CFM later filed a supplement to its opposition, which Gray
    opposed. CFM filed a reply to Gray's opposition.

[^2]: *See* 47 C.F.R. § 73.3555, Note 2(i)(2004).

[^3]: Gray argues that CFM has failed to disclose the percentage of its
    total assets owned by Carol Miller. The application lists Ms. Miller
    as the sole member of CFM, which is an LLC. As CFM points out in its
    pleadings, if Ms. Miller is the sole member of an LLC, she owns all
    the assets.

[^4]: In its first Supplement to Informal Objection, Gray stated that
    the informal objector had originally been misidentified as KOLN/KGIN
    Licensee, Inc., when it should have been Gray.

[^5]: In its pleadings, Gray also alleges that Pappas financially
    controls one of the applicants for digital Channel 53, Lincoln,
    Nebraska (File No. BPCT 19951106KP), but does not give any evidence
    to support its allegations. The applicant at issue is Larry Miller,
    Carol Miller's husband. Gray argues that Carol Miller failed to
    properly disclose her relationship with Larry Miller. Larry Miller's
    application was dismissed May 3, 2002 and has not been reinstated.
    Therefore, there is no basis to consider Gray's arguments regarding
    Channel 53 in this proceeding.

[^6]: *Citing* 47 C.F.R. § 73.3555, Note 2(e).

[^7]: *Citing* 47 C.F.R. § 73.3555, Note 2(j)(2). CFM also points out
    that television JSAs are not attributable under the Commission's
    current rules.

[^8]: *Malara Broadcast Group*, 19 FCC Rcd 24070 (VSD 2004).

[^9]: *Id.*

[^10]: 47 C.F.R. §73.3555, Note 2(e).

[^11]: 47 C.F.R. §73.3555, Note 2(j) and (k).

[^12]: *See* 47 U.S.C. §§ 309(d)(1) and (2), as explained in *Astroline
    Communications Co. v. FCC*, 857 F.2d 1556 (D.C. Cir. 1998).

[^13]: *Stone v. FCC*, 466 F.2d 316, 323 (D.C. Cir. 1972).