kpmg

Final Report

History of the Broadcast License

 Application Process

Prepared for the FCC as a deliverable for the study of “Estimation of Utilization Rates/Probabilities of

Obtaining Broadcast Licenses from the FCC”

prepared by

KPMG LLP

Economic Consulting Services

For

Federal Communications Commission

November, 2000
kpmg

Table of Contents

I. Introduction............................................................................................................................. 3

II. Communications Act of 1934 and Early Comparative Hearings....................................... 4

III. 1965 Policy Statement on Comparative Broadcast Hearings............................................. 5

Financial Requirements............................................................................................................ 7

IV. Minority and Female Employment and Ownership Policies.............................................. 8

A. Nondiscrimination Employee Practices of Broadcast Licensees.............................................. 8

B. Pre-1978 Ownership Policies................................................................................................... 9

1. Mid-Florida Television Corp........................................................................................ 9

2. Rosemore..................................................................................................................... 11

3. Atlas Communications................................................................................................ 11

C. 1978 Statement of Policy on Minority Ownership.................................................................. 12

D. Gender Ownership Policies.................................................................................................... 13

1. Gainesville Media, Inc................................................................................................ 13

2. Steele........................................................................................................................... 14

3. Lamprecht ................................................................................................................... 14

V. Elimination of Comparative Hearing Process.................................................................... 14

A. Bechtel..................................................................................................................................... 14

VI. Broadcast Services................................................................................................................ 15

A. AM Radio .................................................................................................................... 15

B. FM Radio .................................................................................................................... 17

C. Television Stations...................................................................................................... 17

D. Differences between AM, FM and TV......................................................................... 17

VII. Evolution of Ownership Rules............................................................................................. 18

VIII. Recent Developments............................................................................................................ 22

IX. Conclusion ............................................................................................................................. 23
3

I. Introduction

This paper presents a history of the process by which applicants for broadcast licenses have

been awarded licenses directly by the Federal Communications Commission (“FCC”). The paper has

been prepared as a deliverable for the Study of Estimation of Utilization Rates/Probabilities of

Obtaining Broadcast Licenses from the FCC (the “Comparative Hearing Study”). The Study will

assist the FCC in implementing Section 257 of the Telecommunications Act of 1996 (“1996 Act”)1

and Section 309(j) of the Communications Act of 1934 (“1934 Act”).2 Section 257 of the 1996 Act

mandates that the FCC identify and eliminate market entry barriers for small telecommunications

businesses. Further, Section 309(j) of the 1934 Act requires the FCC to further opportunities in the

allocation of spectrum based services for small businesses and businesses owned by women and

minorities. The Comparative Hearing Study will help the FCC in examining whether there is

evidence of past discrimination in the process by which broadcast licenses have been awarded by the

FCC.

One area of analysis for the study will focus on the FCC policies stated in this paper and

determine how these policies may have impacted the outcomes of the licensing process. This paper

is important in that it provides a backdrop for understanding how FCC policies may have affected

small and women- and minority-owned businesses.

The paper is organized as follows. Section II describes the 1934 Act and early comparative

hearings. Section III discusses the Policy Statement on Broadcast Comparative Hearings, 1

F.C.C.2d 393 (1965) (hereinafter 1965 Policy Statement). The 1965 Policy Statement was the first

major official FCC statement that outlined many of the criteria that would be applied by the FCC

during the consideration of multiple applications for a single broadcast license. Section IV addresses

the factors that brought the elimination of comparative hearings. Section V discusses broadcast

services. Section VI describes the evolution of the FCC’s ownership rules. These rules have

changed substantially since the early 1940s in order to reflect the views of Congress and the

Judiciary about how much concentration should be tolerated in local and national broadcast markets.

Section VII describes the chronology of FCC minority and gender based ownership and employment

policies. These policies were developed by the FCC in order to carry out that part of its mission as

determined by Section 2573of the Telecommunications Act of 1996 and section 309(j)4of the 1934

Act. This Section also provides a brief summary of recent developments as they relate to gender and

race-based policies. Section VIII provides a summary to this paper.

 

1 47 U.S.C. §257 (1996).

2 47 U.S.C. §309(j) (1934).

3 47 USCS § 257 states that the "Commission shall complete a proceeding for the purpose of identifying and eliminating . . . market

entry barriers for entrepreneurs and other small businesses in the provision and ownership of telecommunications services and

information services, or in the provision of parts or services to providers of telecommunications services and information services.”

4 47 USCS § 309(j)(3)(B) states that the FCC has the responsibility of "promoting economic opportunity and competition and

ensuring that new and innovative technologies are readily accessible to the American people by avoiding excessive concentration of

licenses and by disseminating licenses among a wide variety of applicants, including small businesses, rural telephone companies, and

businesses owned by members of minority groups and women.”
4

II. Communications Act of 1934 and Early Comparative Hearings

The FCC was created by the Communications Act of 1934 (the “Act”).5 The Act granted the

FCC the authority to regulate “communications by wire and radio so as to make available to all the

people of the United States a rapid, efficient, nation-wide, and worldwide wire and radio

communication service.” This Act also empowers the FCC to issue broadcasting licenses “as public

convenience, interest, and necessity requires.”6

One landmark court case that was resolved in 1945 reinforced the importance of the

comparative hearing process in awarding a broadcast license when there are multiple applicants. In

Ashbacker Radio Corp. v. FCC, 326 U.S. 327 (1945), the Supreme Court of the United States held

that:

Where the Federal Communications Commission has before it two applications

for broadcasting permits which are mutually exclusive, it may not, in view of the

provisions of the Act for a hearing where an application is not granted upon

examination, exercise its statutory authority to grant an application upon

examination without a hearing.

This decision set the legal precedent that a publicly distributed license must be assigned through a

process that does not exclude competition for the license. The process of comparative hearings,

therefore, was upheld.

A comparative hearing was necessary when more than one applicant applied for the same

broadcast license. In the event of multiple applicants, the FCC would hold a comparative hearing, a

proceeding that was presided over by an Administrative Law Judge (ALJ). The purpose of the

comparative hearing was to determine which applicant for a broadcast license is best qualified to

hold the license.

The rest of this section briefly describes the process to acquire a new station license as it is

related to the comparative hearing process and the concept of “best qualified” applicant.

The FCC took several miscellaneous factors into consideration in the pre-1965 comparative

hearings. The factors that the Commission has favored are "(1) local residency of the owners, who

are expected to be thoroughly conversant with local needs, (2) integration of ownership and

management, whereby the owners will take an active part in the day-to-day operation of the station,

 

5 Communications Act of 1934, ch. 652, 48 Stat. 1064, 73rd Cong., 2d Sess. (1934) codified as amended at 47 U.S.C. §151 et seq.

(1937).

6 Lawmakers anticipated the possibility that disputes might arise in the process of awarding broadcast licenses. Section 309 (a) of the

Act grants authority to the FCC to assign any dispute over a license to a judicial hearing:

If upon examination of any application for a station license or for the renewal or modification of a station license the

Commission shall determine that public interest, convenience, or necessity would be served by the granting thereof, it shall authorize

the issuance, renewal, or modification thereof in accordance with said finding. In the event the Commission upon examination of any

such application does not reach such a decision with respect thereto, it shall notify the applicant thereof, shall fix and give notice of a

time and place for the hearing thereon, and shall afford such applicant an opportunity to be heard under such rules and regulations as it

may prescribe.
5

(3) active participation by applicants in civic affairs, (4) broad diversification of background and

interests, and (5) past broadcast experience."7

While diversification of control was never an officially stated objective prior to 1965, the

FCC mentioned it in the Federal Register in 19448. Early on, the FCC was sensitive to the danger

and abuse that could result from one organization owning a concentration of media interests and so

the FCC disfavored applicants who would gain a "monopoly" in a particular region. Media interests

were not limited to broadcast media, rather, they could include newspaper or other media outlets.

Although not common, there were cases that were decided on the basis of diversification.9 As will

be discussed later in this paper, in 196510 the FCC made diversification a "factor of primary

significance" in the comparative hearing process.

In sum, in the early years of the comparative hearing process, the FCC began to interpret the

standard of "public interest, convenience or necessity" in the distribution of broadcast licenses.

These early interpretations developed as trends in the licensing process and were eventually upheld

by decisions, and, as will be discussed later, were finally codified in 1965.

III. 1965 Policy Statement on Comparative Broadcast Hearings

Until 1965, comparative hearings proceeded on the premise that the winning applicant should

prove to best serve the public interest, convenience, or necessity out of all of the applicants. These

criteria were too broad however and left many issues undecided. Realizing this, the Commission

issued the 1965 Policy Statement. This statement defined the "two primary objectives toward which

the process of comparison should be directed. They are, first, the best practicable service to the

public, and, second, a maximum diffusion of control of the media of mass communications." While

trying to avoid attaching absolute values to each criterion, the Commission provided guidance on

seven areas on which a comparative hearing could be decided.

1. Diversification of control of the media of mass communications.

2. Full-time participation in station operation by owners.

3. Proposed program service.

4. Past broadcast record.

5. Efficient use of frequency.

6. Character.

7. Other factors.

Each of these seven factors will be discussed below.

 

7 64 Harv. L. Rev. 947

8 9 FED. REG. 702

9 4 F.C.C.2d 227. 8 RR 2d 330 (1966) (3 R.R. 1961 (1948)

9 1 F.C.C.2d 393 (1965).
6

1. The FCC treated diversification of control of the media of mass communication as a factor of

primary importance in the comparative hearing process. If an applicant had controlling interests

in other media of mass communications then there was the potential for this factor to reduce the

probability that this applicant would be awarded a license.

How much the probability of success was reduced by this factor depended upon:

a) the size of the applicant’s other media holdings;

b) the proximity of these holdings to the community associated with the contested license;

c) the degree to which these other holdings were regional or national; and

d) the quantity and quality of competing media outlets in the localities associated with the

applicant’s current holdings.

This factor was of such significance that the details of the rules and how they have changed over

the years are worth describing (see section IV).

2. The FCC treated the degree of full time participation in station operation as of substantial

importance in the comparative hearing process. An applicant would receive no credit for this

factor unless he/she could demonstrate some form of daily participation in the operation of the

station. Credit would be given if the applicant could demonstrate that he/she would be in a

position of influence in the daily operation of the station (e.g. general manager, station manager,

program director). Credit would also be received if the applicant could show local residency

and/or civic participation. Finally, the applicant could receive limited credit if he/she proposed

to move to the locality associated with the station or if the applicant could demonstrate some

experience with the community even if they were not to be involved in the day-to-day operations

of the station.

3. Proposed program service was an additional factor considered by the FCC in the comparative

hearing process after 1965. Applicants had to demonstrate that their program proposals were

designed to meet a public need. Superior devotion to public service and local matters was

looked upon favorably. This factor was only relevant when there were significant differences

between the program services of competing applicants.

4. The FCC considered previous broadcast experience as substantially important. This factor had

the potential to add to or subtract from an applications probability of success. Unusual

attentiveness to public needs and interests would improve the chance of a successful application

while obvious inattention to public needs and interests would reduce the chances of success.

This factor was usually only relevant for applicants with unusually good or unusually poor past

performance records.

5. Efficient use of frequency was a factor established to capture variation in the technical

characteristics of each application. Namely, the Commission was interested in the number of

people who lived within the proposed station’s service area. This factor was typically evaluated
7

on a case by case basis. It was especially relevant for services in which technical processes are

less regimented (e.g. AM radio).

The 1965 Policy Statement introduced applicant character as a relevant consideration in the

comparative hearing process. Character deficiencies associated with an applicant may be cited as

grounds for disqualification.

The FCC has scrutinized existing and potential licensees on the basis of "character." Up until

1985, the term "character" was often interpreted as moral character and character inquiries often

followed the same interpretation. In 1981, the Commission issued a notice of inquiry which

discussed the standardization of policies regarding character issues which was later described as an

effort to "eliminat[e] . . . the morally-tinged decision-making of the past." On January 14, 1986, the

FCC issued a policy statement on character11 that outlined which character issues should be

considered and how those issues should be investigated. Those actions to be considered include the

following:

a) Fraudulent misconduct before a government agency;

b) Criminal convictions; Antitrust and anticompetitive commercial practices;

c) Violations of the Communications Act, Commission FCC rules and policies;

d) Misrepresentation or lack of candor to the commission & abuse of process;

e) Deceptive or fraudulent programming;

f) Misconduct by corporate applicants;

g) Employee misconduct; and

h) Misconduct in parent-subsidiary relationships and related subsidiary.

While the range and scope of the character policy remained relatively large, in practice, character

issues generally amounted to one opponent showing another opponent's lack of candor to the

Commission regarding finances, business dealings, or proposed station arrangements. Eventually,

character issues were eliminated as a comparative criterion but were kept as a basic requirement.

6. The FCC also allowed for an "other" category. This category allowed applicants, via a petition

or motion to enlarge issues, and to submit other evidence they felt should be significant in the

decision making process. The applicant submitting this additional information was required to

demonstrate the relevance of the information. The practice of enlarging issues became

widespread enough where, at one time, the Commission designated a separate board to hear and

rule on these petitions. Ultimately, though, this responsibility was returned to the Administrative

Law Judges.

Financial Requirements

 

11 Policy Regarding Character Qualifications in Broadcast Licensing, 102 FCC 2d 1179 (1986) ("Character Qualifications"),

modified, 5 FCC Rcd 3252 (1990) ("Character Qualifications Modification"), recon. granted in part, 6 FCC Rcd 3448 (1991),

modified in part, 7 FCC Rcd 6564, 6566 (1992) ( "Further Character Qualification Modification").
8

While the 1965 Policy Statement did not explicitly address the financial requirements of

applicants, this was a central issue in a 1965 Memorandum of Opinion and Order issued by the FCC.

The Commission assigned a panel of three commissioners to review the financial issues involved in

three cases related to applications for UHF television stations in Buffalo, Cleveland, and Boston. In

each community, three commercial VHF stations were in operation, and the question arose as to

whether a higher standard should be applied in determining the financial qualifications. The panel

concluded that each applicant should be required to project estimated annual revenues over a threeyear period and to establish, by evidentiary proof, the basis for such estimates. A majority of the

panel further concluded that a realistic estimate of construction costs and operating expenses were

also essential and required that each applicant disclose all factors which were considered in

computing such costs and expenses. On June 30, 1965, the Commission adopted the following rules

governing financial requirement for applicants for proposed stations:

(a) The Commission had to determine the basis of each applicant's (1) estimated

construction costs, and (2) estimated operating expenses for the first year of

operation.

(b) In the event that the applicant depended upon operating revenues during the

first year of operation to meet fixed costs and operating expenses, the

Commission had to determine the basis of each such applicant's estimated

revenues for the first year of operation.

(c) The Commission had to determine, in light of the evidence, which of the

applicants, if any, demonstrated a reasonable likelihood of constructing and

continuing the operation of its proposed station in the public interest.

IV. Minority and Female Employment and Ownership Policies

Starting in the 1960s, the FCC has paid close attention to race and gender issues as they relate

to broadcasting and the award of broadcast licenses. In this section, we describe the chronology of

the FCC’s minority and female ownership policies, from their rise in the 1960s and 1970s to their

reevaluation in the 1990s. The logic for these programs is best expressed in various court cases and

FCC policy statements. Therefore we cite below the most important cases and policy statements

affecting the award of credit for minority and female participation in the determination of license

awards in the comparative hearing process.

A. Nondiscrimination Employee Practices of Broadcast Licensees

The first time the FCC directly addressed the issue of race in a formal policy ruling was in its

1969 policy forbidding discrimination on the basis of race, color, religion, or national origin in

employment practice by licensees of commercial or noncommercial broadcast stations (18 F.C.C.2d

240; 1969 FCC LEXIS 547; 16 Rad. Reg. 2d (P & F) 1561). The Commission asserted its authority

in this area by noting that the FCC is charged with ensuring that broadcast stations operate within the

public interest and broadcast stations that have discriminatory employment practices do not operate
9

within the public interest. To ensure equal opportunity in every aspect of employment opportunity,

each broadcast station was directed to establish a proactive equal employment opportunity program.

The FCC reserved the right to act against any broadcast station that violated this policy. This

established the Commission's right to, among other actions, revoke licensees and distribute them by

distress sales and to hear allegations of EEO violations in comparative hearings. While these actions

presented themselves on very rare occasions, and such occasions were restricted to actual findings of

discrimination by a court or the EEOC, this policy was seen as a significant gender and race based

policy.

However, the U.S. Court of Appeals for the District of Columbia Circuit, in a decision issued

in April 1998 (Lutheran Church - Missouri Synod v. FCC), held that certain provisions of the FCC's

broadcast equal employment opportunity rules were unconstitutional. That fall, the U.S. Court of

Appeals denied the FCC’s request for a rehearing of its decision. Thereafter, on November 19,

1998, the Commission adopted a notice of proposed rulemaking (NPRM) outlining new rules to

further equal employment opportunity in Broadcasting in a manner that is consistent with the court’s

decision.

B. Pre-1978 Ownership Policies

1. Mid-Florida Television Corp.

While the FCC monitored for discrimination on the basis of race in the employment practices

of broadcast stations, initially the FCC refused to include the racial composition of an applicant

group as a relevant factor in a comparative hearing. This position was initially challenged in 1965

by the Comint Corp applicant group in the comparative hearing for a TV broadcast license in

Orlando, Florida.

In 1965, the D.C. Court of Appeals vacated the decision that awarded the TV license to Mid

Florida Corp. and opened the license to competition. Eight applicants filed for ownership and the

matter went to comparative hearing. In the comparative hearing, one of the applicants, Comint

Corp., filed an application which included two black owners with a 14% shared interest. The

proposed community for the license awarded had a 25% minority population. Comint argued that

minority ownership should be given comparative credit on the basis of the 1965 statement on

comparative hearings (1 F.C.C.2d 393 (1965)) which stated that the "two primary objectives toward

which the process of comparison . . . are . . . the best practicable service to the public, and . . . a

maximum diffusion of control of the media of mass communications." The FCC noted that while it:

"is sympathetic with Comint's argument and recognizes the validity of the goal

of increased minority ownership of the media of mass communications ....

however, the Communications Act, like the Constitution, is color blind and

therefore, in a comparative broadcast proceeding, which is governed by the

Commission's Policy Statement . . . Black ownership cannot and should not be

an independent comparative factor . . . rather, such ownership must be shown on

the record to result in some public interest.”
10

Comint challenged the FCC’s refusal to explicitly consider race in the comparative hearing process

and appealed the FCC ruling to the DC Court of Appeals.

In the 1974 decision 495 F.2d 929 (D.C. Cir. 1974), the DC Court of Appeals reversed the

result of the Mid-Florida comparative hearing. The Court held that comparative merit should be

awarded to an applicant, two of whose stockholders, each owning approximately seven percent of

the applicant's stock, were Black and would participate in the operation of the station. The Court

pointed out that both of the Black principals were local residents of the community being applied

for who had been active in advancing the interests of Black members of the community, and that

25 percent of the population of the area applied for were Black. It also noted that since the

highest interest owned by any of the applicant's principals was ten percent, the two stockholders'

individual and combined ownership was substantial. In addition, no Blacks were then

participating in the ownership or management of any of the media of mass communications in

that community. In these circumstances, the Court concluded that minority stock ownership is "a

consideration relevant to a choice among applicants of broader community representation and

practicable service to the public." (161 U.S. App. D.C. at 357, 495 F.2d at 937.) The court went

on to comment:

It is consistent with the primary objective of maximum diversification of

ownership of mass communications media for the Commission in a

comparative license proceeding to afford favorable consideration to an

applicant who, not as a mere token but in good faith, as broadening

community representation, gives a local minority group media

entrepreneurship.... We hold only that when minority ownership is likely

to increase diversity of content, especially on opinion and viewpoint, merit

should be awarded. (TV 9 Inc. v. FCC, 495 F.2d 929 (D.C. Cir. 1973),

cert. denied, 418 U.S. 986 (1974)).

Accordingly, without recommending or requiring any quota system, the Court held that merit

should be awarded for minority ownership where it is likely to increase the diversity of program

content, especially of opinion and viewpoint. In a Supplemental Opinion, the Court emphasized that

it was not holding that merit should be based on Black ownership alone, but rather in that case upon

a meaningful combination of ownership and participation in station affairs which indicated that

Black persons having a substantial identification with minority rights would be able to translate their

positions and their ownership stake into meaningful effect on this aspect of station programming.

The Court also explained that "merit" meant only "favorable consideration," or a plus-factor, not a

"preference," and that it was to be weighed along with other relevant factors in determining which

applicant is to be awarded a preference. (161 U.S. App. D.C. at 361, 495 F.2d at 941.)

This decision set a new precedent for the incorporation of minority participation as a factor in

the comparative hearing process.
11

2. Rosemore

Not long after the Court of Appeals decided that minority credit for integrated minority

owners was appropriate, Administrative Law Judges began deciding cases on this basis.

Additionally, administrative law judges at the FCC expanded on the Mid-Florida decision. In

particular, the considerations applied to race in the Mid-Florida decision were applied to gender in

the Rosemore decision.

In Rosemore Broadcasting, Co., Inc., (54 F.C.C. 2d 394, 418 (1975)), the FCC reasoned that

integrated female ownership should be awarded credit in comparative hearings because women, like

minorities, are "likely to increase diversity of content." The FCC went on to state that female

participation in an application can be given credit when it “reflects broader community

representation.” Because two of the three individuals associated with Rosemore Broadcasting Co.’s

application were female and these women planned on playing a significant role in the day-to-day

operation of the broadcast station, the Rosemore application was enhanced in the FCC eyes. The

Rosemore Broadcasting Company went on to win the license in the comparative hearing.

3. Atlas Communications

As in other cases12, in 1976 the FCC relied on reasoning set forth in Mid-Florida when it

granted a nighttime broadcast license to a minority owned organization. In this decision, known as

the Atlas Communications decision (61 F.C.C.2d 995; 1976 FCC LEXIS 1997; 39 Rad. Reg. 2d (P

& F) 228), the FCC reasoned:

...Black ownership and participation are likely to bring about

programming responsive to the needs of the Black citizenry. Therefore, it

held that Garrett's identification with Black listeners was a factor to be

 

12 Flint Family Radio Inc.

In the 1977 Flint Family Radio (61 F.C.C.2d 995; 1976 FCC LEXIS 1997; 39 Rad. Reg. 2d (P &F) 228) decision the

FCC appears to heighten the importance of minority ownership and proposed participation in the comparative hearing

setting. The Commission applied the rationale of the TV 9 case to this proceeding, and decided that “it is apparent . . .

substantial merit for . . . Black ownership and proposed participation must be awarded to an applicant with minority

ownership interests.” Ultimately, the FCC awarded "moderate preference for integration of ownership and management

and a substantial preference for Black ownership and participation" and made "these preferences. . . decisive" in

awarding the license to Flint Metro Mass Media, Inc. The commission stated that:

While we agree that civic participation is a factor to be considered in determining the significance

of the merit, the Supplemental Opinion of the Court makes it quite clear that the two essential

elements necessary to receive merit are Black ownership and participation by these owners in

station affairs. Moreover, as detailed in the Initial Decision (see paragraphs 59-78 of the Initial

Decision), Metro's principals sufficiently participated in civic affairs to sustain the award here.

This statement clarified the primacy of importance of both minority ownership and the participation of these owners in

station affairs.
12

taken into account by the Commission in passing on requests for waiver of

its technical requirements.

C. 1978 Statement of Policy on Minority Ownership

Since the DC Court of Appeals in 1974 had set in place minority ownership and employment

policies within comparative hearings the FCC and Administrative Law Judges had started awarding

minority credit to applicants for broadcast licenses. However, in 1978 the FCC observed a

"continuation of an extreme disparity between the representation of minorities in our population and

in the broadcasting industry" and subsequently issued "further Commission action" or Statement of

Policy on Minority Ownership of Broadcasting Facilities (See 68 F.C.C.2d 979, 982). This

statement formalized the use of minority merits in the comparative hearing process. In this

statement, the Commission also officially set in place two programs that favored minority ownership

of broadcast stations. First, the tax certificate policy encouraged and promoted minority ownership

by giving a two-year like-kind-exchange transfer tax break (USC 1071) for the sale of licenses to

minorities if the proceeds were reinvested in a similar communication industry.

The basis of the tax certificate resulted from decisions made more than 30 years earlier. In

1941, the Commission and Congress developed tax certificates as a means to mitigate some of the

financial pain inflicted upon RCA due to the involuntary sale of its broadcast property. Tax

certificates were used again during the 1970s to ease the pain associated with “voluntary” divestiture

of properties associated with the new cross-ownership constraints. The use of tax credits for media

outlets, however, was repealed by Congress in 1995 on the basis of perceived abuses but new tax

incentive legislation which addresses any previous abuse is currently being proposed by Congress.

The second program put into place was the distress sale policy, which allowed for license owners

that were under scrutiny by the FCC (and under threat of license revocation) to sell their station to a

minority for 75% of the appraised value. In return, the FCC would cease its inquiry into the license

owner. Between 1978 and 1991, the FCC approved 15 distress sales. Note that both of these

programs apply to the secondary market, not the initial award of a license.

Metro Broadcasting, Inc.

Reviewing the FCC’s policies under intermediate scrutiny, the Supreme Court held that the

FCC's policy of minority ownership and employment in comparative hearings which gave

enhancement credit for minority ownership and participation and the policy of allowing "distress

sales" to FCC-approved minority-owned firms did not violate equal protection under the Fifth

Amendment.

The Court reasoned:

Minority preference policies adopted by the Federal Communications

Commission (FCC)-- do not violate the equal protection component of the Federal

Constitution's Fifth Amendment, where Congress has enacted appropriations

legislation (101 Stat 1329-31, 102 Stat 2216, and 103 Stat 1020) prohibiting the
13

FCC from spending any appropriated funds to examine or change its minority

ownership polices, because (1) the policies in question have been mandated by

Congress; (2) the interest in enhancing broadcast diversity is, at the very least, an

important governmental objective; and (3) the policies in question are

substantially related to the achievement of the government's interest, since (a)

both the FCC and Congress--whose joint determination must be given great

weight--have concluded that there is a relationship between expanded minority

ownership and greater broadcast diversity, (b) this judgment is based on extensive

empirical evidence rather than on impermissible stereotyping, and (c) the policies

are in other relevant respects substantially related to the goal of promoting

broadcast diversity...

D. Gender Ownership Policies

1. Gainesville Media, Inc.

Approximately one month after the Commission issued Statement of Policy on Minority

Ownership of Broadcasting Facilities, a Review Board hearing the Gainesville Media, Inc. case

reanalyzed its decision regarding female ownership credit in comparative hearings. Initially, the

board held that . . .

since there was no evidence in the record of the extent of female ownership in

the mass media in Gainesville, we had no basis on which to conclude that

such participation would achieve a public interest benefit. Upon further

reflection, we now believe the better course is to consider female ownership

and participation, despite the absence of record evidence regarding the

ownership situations at other stations (see Gainesville Media, Inc., 70

F.C.C.2d 143, 149 (Rev. Bd. 1978)).

Soon after the Gainesville decision, a review board clarified the justification and reasoning

for female ownership policies. The Board concluded:

. .. merit for female ownership and participation is warranted upon essentially

the same basis as the merit given for black ownership and participation, but

that it is a merit of lesser significance. The basic policy considerations are the

same. Women are a general population group which has suffered from a

discriminatory attitude in various fields of activity, and one which, partly as a

consequence, has certain separate needs and interests with respect to which

the inclusion of women in broadcast ownership and operation can be of value.

On the other hand, it is equally obvious that the need for diversity and

sensitivity reflected in the structure of a broadcast station is not so pressing

with respect to women as it is with respect to blacks--women have not been

excluded from the mainstream of society as have black people (see MidFlorida Television Corp., 70 F.C.C.2d 281, 326 (Rev. Bd. 1978), set aside on

other grounds, 87 F.C.C.2d 203 (1981)).
14

This decision demonstrated that credit is applied for female participation in a broadcast

license application, but that credit is not as significant as the credit applied for minority participation

in a broadcast license application.

2. Steele

The Steele Court, in contrast to Mid-Florida, ruled against the use of gender policies in the

comparative hearing process. [See Steele v. FCC 770 F.2d 1192].(D.C. Cir. 1985). Mr. Steele

appealed a comparative hearing decision ruling that the gender credits provided by the FCC in the

comparative hearing violated the Constitution. While not ruling on the constitutionality of the

gender distinction, the court did rule that the FCC exceeded its authority in establishing the

gender credits.

After rendering its decision, a majority of the judges on the D.C. circuit court agreed to

rehear the case and the initial decision was vacated. Prior to the new hearing, the FCC initiated a

notice of inquiry on the topic of race and gender ownership and employment policies in the awarding

of broadcast licenses (Reexamination of the Commission's Comparative Licensing, Distress Sales,

and Tax Certificate Policies Premised on Racial, Ethnic, or Gender Classifications, Notice of

Inquiry, 1 FCC Rcd 1315 (1986), modified 2 FCC Rcd 2377 (1987)). The goal of this inquiry was to

collect information in support of the Commission’s standing policies. This inquiry was frozen in

1988 by an act of Congress (Continuing Appropriation Act for Fiscal Year 1988) and remained

frozen through 1994.

3. Lamprecht

The early 1990’s saw a movement away from the use of gender and racial ownership and

employment policies in the comparative hearing process. In Lamprecht v. FCC, 958 F.2d 382 (D.C.

1992) the D.C. Circuit Court held that the FCC’s use of gender integration as a “plus factor” in the

comparative hearing setting was unconstitutional under Metro Broadcasting’s intermediate level of

strict scrutiny. The court asserted that the employment of generalizations concerning a particular

group’s behavior as contrasted with another group’s behavior must be supported by evidence. The

Court found that the FCC had not met this standard by demonstrating a measurable link between

female participation in the day to day operation of a broadcast station and the programming choices

of said station.

V. Elimination of Comparative Hearing Process

A. Bechtel

In 1993’s Bechtel decision 10 F.3d 875 (D.C. Cir. 1993), the D.C. Circuit Court found

that the “continued application of the integration credit is arbitrary and capricious, and therefore

unlawful.” The court stated that the policy of extending additional credit to applicants who

intended to personally manage and operate the broadcast stations was “without foundation.” By
15

invalidating the integration credit the court effectively eliminated gender and race ownership and

employment policies associated with the integration credit. In 1994 the FCC suspended all active

comparative hearings until an adequate resolution to the issues raised in Bechtel could be

formulated.

The Telecommunications Act of 1996 eliminated the role of comparative hearings in the

renewal of broadcast licenses. The 1994 suspension of the comparative hearing process effectively

became permanent in 1997 when Congress mandated that the FCC utilize a competitive bidding

process for the distribution of all future commercial broadcast license awards.13 The first auction

associated with this mandate occurred in October of 1999 and generated (unofficially) about $58

million from the distribution of 116 broadcast licenses and included several frozen license

applications from the Bechtel ruling.

While minority ownership policies were not included in this auction process, first-time

broadcasters and “small” broadcasters were accorded with auction bidding credits to assist in

their bidding.

VI. Broadcast Services

Before 1965, AM radio was the primary broadcast service. Both television and FM radio

were generally in the experimental stage prior to World War II and therefore, the early years of the

license application process and comparative hearing process consisted almost entirely of AM radio.

A. AM Radio

In these early years (and still today), the AM radio license application process largely

consisted of meeting technical requirements. The applicant was required to find a frequency that did

not interfere with existing stations and had to meet a variety of other technical requirements. Some

of the technical tests necessary to complete the application process can be complex and therefore

quite expensive. In particular with AM radio, applicants must deal with the use of directional

patterns and the use of different transmitter power during the day and night to minimize potential

interference with other stations. Applicants were also required to demonstrate that an award in their

favor would result in an “efficient and equitable” distribution of radio spectrum. For example, each

applicant was required to describe the local community's broadcasting needs and how their station

would meet those needs.

Once the applicant had met the technical requirements, the application for an AM radio

broadcast license was listed in the Federal Register for 30 days. During this time, interested parties

could file a complaint against the applicant or apply for the same license. Because the initial

applicant received no preference for filing first, these rules presented a significant amount of risk for

the initial applicant that they might not receive the benefits from their investment in time, effort and

money spent to pass the technical requirements.

 

13 See Omnibus Budget Reconciliation Act of 1993. Pursuant to this Act, the FCC received the authority to conduct auctions. Also

note that competitive bidding was not required for broadcast license awards in which only one applicant expressed interest.
16

In cases where there was a legitimate objection to a license application from a third party or

even when there was an objection from a superficially qualified competing applicant, then the

license application would be redirected to a comparative hearing. If there were no competing

applicants and no third party objection, then the license would be granted if the applicant had no

other significant defects.

As is the case with almost all formal legal proceedings, it was possible for the interested

parties to settle the dispute outside the formal proceeding. In particular, comparative hearings could

be settled by the competing parties before the ALJ reached a decision. Often one of the applicants

competing for a license “bought-out” the other applicants by offering money, payment of costs,

cooperation or outright merger.

In the 1940s, the Federal Communications Commission (the successor to the Federal Radio

Commission) created a group of 25 powerful stations operating at 50kw. Each station shared its

daytime channel frequency with other stations around the country, but at sundown as the other

stations left, the air the channel was clear except for the powerful stations that at night could reach

distant and remote areas of the country.

In 1980, the FCC decided to end the “clear channel” protections but to protect those stations

from interference for a radius of 750 miles. It allowed the clear channel stations to reach larger areas

than ordinary stations, but permitted an additional 125 stations at night. The new stations were

limited in power to 1 kw except in special cases, and the FCC expressly refused to allow the clear

channel stations to raise their power above 50kw.14

International developments led the FCC to decide to reduce the congestion in the existing

AM band. By allowing existing AM licensees to operate new stations in the expanded band and then

after a transition period shut down their old stations, the FCC hoped to reduce interference and

improve signal quality. The FCC limited the entire expanded band to the migrating AM stations.

In 1990, there was a freeze on all AM broadcast applications during the inquiry into improving

AM radio. Final assignment of the new channels was delayed by petitions for reconsideration filed

by the NAACP, the League of United Latin American Citizens, and the National Black Media

Coalition. They asserted that "awarding 100% of the expanded band to incumbent broadcasters 'will

have little or no impact on AM band interference," whereas awarding some of the expanded band to

minorities would substantially alleviate the 'gross underrepresentation' of minorities in the ownership

of broadcast stations." These groups proposed that incumbent broadcasters migrating to the

expanded band would issue tax certificates for selling their existing band stations to minorities. The

seller would retain its license for a station in the expanded band. The FCC rejected this proposal and

held that its earlier decision in reducing AM congestion had to be the top priority in awarding

expanded band licenses.

 

14 The FCC also expanded the AM band in 1979 as part of the World Administrative Radio Conference. At this time the AM band

was increased in the Western Hemisphere from 525 to 1705 kHz. Agreements reached at subsequent Regional Administrative Radio

Conferences limited the stations in the new section of the band to 10kw.
17

B. FM Radio

FM is located in the VHF band. It occupies frequencies between 88 and 108 MHZ and is

allowed a broadcast range of 30 to 75 miles. That spectrum space is divided into 100 assignable

channels each 200 kHz wide. The lowest 20 channels are reserved for noncommercial educational

stations; the remaining 80 are for commercial use.

In 1983, in an effort to meet the increased demand for FM stations, the FCC initiated a drop-in

rulemaking15 allowing new FM stations to be started without interfering with present broadcasters.

In the FM drop-in rulemaking, the FCC voted to give a preference to both AM daytime broadcasters

and to minority applicants.

C. Television Stations

By the end of 1956, 395 VHF stations and 96 UHF stations were on the air. By 1960 only 75

(15%) of the 575 commercial stations on the air were UHF, even though 70 percent of the total

channel assignments were UHF. The underutilization of UHF spots led the FCC to reallocate

frequencies to other uses, e.g., land mobile use. In 1980, 63 percent of the television assignments

were UHF.16 The vacancy rates were as follows: 61 of the 578 VHFs; 266 of the 648 commercial

UHFs. In the top 100 markets, vacancies existed on 86 UHF channels but on no commercial VHF. In

the top 200 markets, the figures were 176 UHF vacancies and six VHF vacancies.

Starting in 1979, UHF stations became more attractive due to the growth and development of

cable television. When received through cable, UHF and VHF stations are of comparable quality.

Moreover, FCC rule changes regarding cable allowed a single television station to become a

"superstation" by supplying its programs by satellite to cable systems throughout the country.

D. Differences between AM, FM and TV

The television and FM radio license application process had a few important differences

from the AM radio license. Technically, television and FM licenses were less complicated and

therefore less expensive to apply for. In particular, the guidelines associated with the assignment of

frequency and distance separation of stations is relatively straight-forward given that both of these

services broadcast on a “line-of-sight” principle and are not subject to the same impact that the

ionosphere inflicts upon AM transmission. Rules for the separation of television and FM stations are

even listed clearly in the Code of Federal Regulations (47 CFR Part 73). Further, the Commission

had allocated television and FM “channels” to cities, which as a result frequently eased the search

for an open frequency. As with AM radio license applications, the initial application for a particular

FM radio license was listed in the Federal Register for 30 days. Again, during this listing period

additional license applicants could enter the process or a third party, not associated with an

applicant, could object to any of the applications. In particular, an incumbent radio station could

have objected to an application on the basis that the market in question could not economically

 

15 See 94 F.C.C.2d 152; June 14, 1983 Released; Adopted May 26, 1983

16 UHF stations are more expensive to operate because it takes 10 times as much power for a UHF transmitter to reach the same area

as a VHF transmitter.
18

support another station or if they felt that the new station would improperly interfere with their

signal. Mutually exclusive licenses would eventually be resolved through the comparative hearing

process. Also, similarly to AM stations, these mutually exclusive applicants could settle their case

prior to an ALJ decision.

VII. Evolution of Ownership Rules

As discussed previously, diversification of control of mass media was of primary importance

as a factor in the comparative hearing process. Therefore the ownership rules had a very significant

effect on determining who could apply for a broadcast license. This section describes the chronology

of the ownership rules as they have evolved since the early 1940s.

The only information that we have seen regarding rules prior to the 1950s pertains to the

breakup of RCA in the early 1940’s. Resulting from the Chain Broadcasting Report, the FCC, with

the blessing of the Supreme Court, ordered RCA, which owned two separate NBC radio networks

(the Red and Blue networks), to divest the Blue network to Edward Noble (the Blue network would

eventually become ABC). In response to the dramatic growth in broadcast outlets and their growing

influence in the transmission of information to society in addition to the possibility of a firm

controlling too much of an area’s media, the FCC introduced its first set of ownership rules in the

1950s.

In its role of ensuring that a diversity of viewpoint exists, the FCC has the authority to

determine how many stations a single person or group may control and at times has determined what

percentage of the audience a single person or group may achieve. The limits on ownership have

changed over the years as prevailing views have changed on just what constitutes too little diversity

or too much control of the media. Also impacting these prevailing views has been the increase in

media outlets in most markets, from new radio and television stations to cable/satellite television to

now the Internet. Until recently, though, the limits on the local ownership of media outlets did not

vary according to the size of the market that the station is trying to reach. In effect, the local

ownership constraints were “one size fits all.”

The logic for the ownership limitation were reaffirmed in a number of judicial decisions. For

example, in Citizens Communications Center v. FCC, 447 F.2d 1201 (D.C. Cir. 1971), the

United States Court of Appeals for the District of Columbia observed that "public interest,

convenience, and necessity" would be best served if licenses were owned by a diverse set of

people. The court stated:

Since one very significant aspect of the ‘public interest, convenience, and

necessity’ is the need for diverse and antagonistic sources of information, the

Commission simply cannot make a valid public interest determination without

considering the extent to which the ownership of the media will be concentrated

or diversified by the grant of one of the applications before it.

While this decision reflected the belief that ownership should not be concentrated in the

hands of a few, it also reflected the belief that even a diffuse ownership did not necessarily fulfill the
19

public need for a diversity of viewpoint. In this decision, the court also recognized the disparity

between the number of licenses held by minorities versus the number of licenses held by nonminorities.

‘As new interest groups and hitherto silent minorities emerge in our society, they

should be given some stake in and chance to broadcast on our radio and television

frequencies. According to the uncontested testimony of petitioners, no more than

a dozen of 7,500 broadcast licenses issued are owned by racial minorities. ....

While no quota system is being recommended or required, and while the fairness

doctrine no doubt does serve to guarantee some minimum diversity of views, we

simply note our own approval of the Commission's long-standing and firmly held

policy in favor of decentralization of media control. Diversification is a factor

properly to be weighed and balanced with other important factors, including the

renewal applicant's prior record, at a renewal hearing. For two strong statements

by the Commission itself on the importance of diversification, see Bamberger

Broadcasting Service, Inc., 3 Pike & Fischer R.R. 914, 925 (1946), and Policy

Statement on Comparative Broadcast Hearings, 1 F.C.C.2d 393, 394 & n. 4

(1965).’

Table 1 shows the ownership limits and how they have changed from 1950 to today. From 1950

until 1970, any single person or group could own 1 AM and 1 FM station and 1 television station in

a local market. For the national market, the limits were 7 AM and 7 FM and 7 television stations, of

which only 5 could be VHF. There was no limitation on cross ownership during this period. During

this period, owners of an AM station frequently applied for and/or purchased FM and television

stations to complement the AM station that they already owned in the market.

The 1970s introduced cross-ownership rules to stimulate the growth in diversity in the media.

First in 1970, the Commission prohibited the cross ownership of radio and TV facilities in a city.

Later in 1975, the Commission extended the cross-ownership prohibition to newspapers and

broadcast facilities. In both cases, the new rules prohibited new combinations, but grandfathered

prior combinations. To encourage breaking up pre-existing cross ownership situations, the FCC

offered the use of tax certificates which provided some monetary incentives for owners holding a

variety of media interests to voluntarily divest. In some occasions, interested parties challenged the

broadcast licenses of firms that had not voluntarily divested of some properties.

In contrast to the more stringent regulations with respect to cross ownership of local media,

the local and national ownership regulations regarding television and radio stations have, in general,

become less stringent over time. Since 1985, there has been a gradual relaxation of the restrictions

on the number of radio and TV stations that can be held in both local and national markets, with

dramatic rule shifts in 1992 and 1996. Today, the number of stations per market now depends on the

number of stations in the overall local market (although both the Department of Justice and the FCC

frequently review the share of advertising revenue held by the merged firm before approving of any

transaction.). For the national market, there has been a gradual increase in the number of stations

until finally in 1996 there is now no limit on the number of stations that can be held nationally

(although, firms cannot own television stations that serve more than 35% of the nation’s population).
20

With respect to cross ownership rules, there has also been some gradual increase in flexibility. By

1985, the FCC began granting occasional waivers (such as in the case of Capital Cities purchase of

ABC in which Capital Cities was allowed to maintain cross ownership of radio and television

stations in several markets), allowing some degree of cross ownership of TV and radio stations and

between broadcast stations and newspapers. As recent as this year, the FCC has begun to liberalize

the rules prohibiting cross ownership and has formally relaxed the prohibition so that cross

ownership between radio and television stations can occur in markets where there are at least a

minimum threshold number of media outlets. The relaxation of cross ownership restrictions has so

far not been extended to joint ownership of TV and newspapers, or radio and newspapers.
21

Table 1. Local, National, and Cross Ownership Rules

(1950 – 1999)

Year Local Market National Market Cross Ownership

Rules

1950 Radio 1 AM and 1 FM 7 AM and 7 FM None

 TV 1 TV 7 TV of which only 5 can be VHF

1970 Prohibit ownership of radio and

TV stations in the same market.

Grandfathered existing cross

ownership.

Same as 1950 Prohibit ownership of radio and

TV stations in the same market.

Grandfathered existing cross

ownership.

1975 Same as 1970 Same as 1970 Additional prohibition of

ownership of TV and

newspapers in same market.

Grandfathered existing cross

ownership.

1985 Radio

 TV

1 AM and 1 FM

1 TV except could add a 2nd if it was a

satellite of the first.

12 AM and 12 FM; plus 2 additional AM

and FM if they are controlled by Minorities

or small business.

12 TV plus 2 TV if they are controlled by

minorities or small business. TV Stations

may reach no more than 25% of population.

UHF receive 50% credit in population

determination.

Same as 1975,

However, waivers

occasionally granted.

1989 Radio

 &

 TV

Same as 1985. Same as 1985. The Commission adopted

ruling that relaxed previous

rulings prohibiting cross

ownership of TV and Radio.

The FCC adopted a waiver

policy permitting many Radio/

TV combinations. (for

summary See MM Docket No.

91-221, Released Aug. 5, 1999)

1992 Radio

 TV

In markets with 15 or more stations, 2

AM and 2 FM as long as the combined

Share of audience is less than 25%. In

Markets with less than 15 stations, 3

Stations with no more than 2 as AM

or FM as long as it has no more than

50% of market’s stations.

Same as 1985.

18 AM and 18 FM; plus a non controlling

attributable interest in 3 AM and 3 FM if

they are controlled by minorities or small

business.

Same as 1985.

Same as 1989

1994 Radio

 TV

Same as 1992

Same as 1985

20 AM and 20 FM plus a non controlling

attributable interest in 3 AM and 3 FM if

they are controlled by minorities or small

business.

Same as 1985

Same as 1989

1996 Radio In markets with 45 or more stations, 8

Stations with no more than 5 in either

AM or FM. In markets with 30

– 44 stations: 7 radio with no more

than 4 in either service. In markets

with 15-29 stations: 6 radio stations

with no more than 4 in either service.

In markets with fewer than 15 stations:

5 radio stations with no more than 3 in

No limit

No limit, as long the stations do not serve

Same as 1989
22

 TV

either service.

Same as1985

more than 35% of the nation’s population

UHF receive 50% credit in population

determination

Table 1. Local, National, and Cross Ownership Rules continued

Year Local Market National Market Cross Ownership

Rules

1999 Radio

 TV

Same as 1996

Two TV stations in market if the

second outlet is: Financially troubled17,

not yet built, or is not among the

market’s 4 top-rated stations at time of

purchase and 8 independently owned

TV stations remain. An owner may

also control overlapping stations if

they are based in different designated

market areas.

Same as 1996.

Same as 1996 but in markets where firms

own 2 TV: doesn’t double count towards

35% of nationwide population limit.

If the market has at least 20

separately owned broadcast,

newspaper, cable “voices:” 2

TVs and 6 radio stations or 1 TV

and 7 radio stations.

If the market has at least 10

separately owned broadcast,

newspaper, cable “voices:” 2 TV

and 4 radio.

1 TV and 1 radio allowed

everywhere. TV/Newspaper

cross-ownership remain

prohibited (for now).

Source: FCC Records and case law: After 1950, only policy changes are presented in the table. Where “same” is indicated, the same limits

exist as have existed in previous periods.

VIII. Recent Developments

Adarand and U.S. v. Virginia

After the suspension of the comparative hearing process due to the Bechtel decision, but

before the implementation of the broadcast license auctions, two important court cases were

decided which will impact the ability of the FCC to implement minority and female ownership

and employment policies in the future.

In the 1995 Adarand decision [515 U.S. 200 (1995)], the Supreme Court held that any

federal program that uses racial or ethnic criteria as a basis for decision making must serve a

compelling governmental interest such as remedying past discrimination and must be narrowly

tailored to serve that interest. Furthermore, the court ruled that any racial distinctions employed

by a local, state, or the federal government “must be analyzed by the reviewing court under strict

scrutiny,” specifically overruling the standard of review used in Metro Broadcasting.

 

17 At least one of the following conditions must apply:1) Station has been off the air for at least four months (because of financial

difficulty) and the buyer is the only “reasonably available” entity willing to operate the station; 2) the station has an audience share

below 4%; 3) station is in poor financial condition (negative cash flow for the previous 3 years); 4) there is proof of no out of town

buyer; 5) there is a demonstration of “tangible and verifiable” public-interest benefits beyond mere cost savings and efficiencies.
23

In United States v. Virginia, 518 U.S. 515 (1996), the Supreme Court considered the

distinctions made by local, state, and the federal government with respect to gender. In this case

the court reaffirmed that these gender distinctions need only satisfy “intermediate scrutiny”.

While the definition of intermediate scrutiny is somewhat vague, it is clear that intermediate

scrutiny is a lower standard than strict scrutiny.

IX. Conclusion

As described above, the history of the license application process has been subject to

many changes over the years. Continuous changes in ownership regulations, and minority and

female ownership and employment policies have occurred throughout the period. The 1960s and

the 1970s saw an increase in minority and gender policies. The basis for many of these policies

were court rulings that reversed comparative hearing results. Yet, it was not until 1978 when the

comparative hearing process specifically outlined the use of minority ownership policies and the

introduction of other programs aimed to spark minority interest in the secondary license market.

Since this date, however, the constitutionality of minority and gender ownership policies have

become more uncertain and can be implemented only under more rigorous circumstances.