NEWSReport No. MM 95-72 MASS MEDIA ACTION July 28, 1995 FCC ALLOWS FOX TELEVISION TO RETAIN OWNERSHIP STRUCTURE; RENEWAL OF WNYW-TV, NEW YORK CITY, GRANTED The FCC has allowed Fox Television Stations, Inc. ("FTS") to retain its current ownership structure, finding that it would not serve the public interest to require FTS to restructure in order to comply with the 25 percent foreign ownership benchmark established in Section 310(b) of the Communications Act. The Commission therefore removed a previously imposed condition on the renewal of FTS's license to operate station WNYW- TV, New York, NY, and said that FTS, as presently structured, may acquire additional broadcast stations, up to the allowable maximum set forth in the ownership rules. The WNYW-TV renewal had been opposed by the Metropolitan Council of NAACP Branches. On May 4, 1995, the Commission found that News Corp., an Australian company, owns more than 99 percent of FTS's parent company, Twentieth Holdings Corp. ("THC"), far in excess of the 25 percent statutory benchmark. At that time the Commission conditionally granted FTS a renewal of the WNYW-TV license and gave FTS two options: (1) to bring its ownership structure into compliance with the benchmark; or (2) to demonstrate why its ownership structure served the public interest. In response, FTS revised its capital structure by exchanging News Corp.'s share of THC's paid-in capital for debt. FTS also provided an estimate of the tax consequences of a more extensive restructuring of its corporate structure and proffered a showing as to why its ownership structure is in the public interest. The Commission determined that FTS's recapitalization did not bring FTS into compliance with the statutory benchmark, but amounted instead to a relabelling of equity as debt. Nevertheless, the Commission held that the public interest would not be served by requiring a more extensive restructuring. Instead, the Commission found that it would be inequitable to require the restructuring of FTS which had created its corporate structure and had invested substantial resources in its operation in good faith reliance on the FCC's published rulings. Those rulings had not clearly indicated that the FCC would count equity capital contributions in evaluating compliance with the 25 percent ownership benchmark. In addition, the Commission ruled, the public interest weighed against imposing on FTS the tax consequences of restructuring -- which FTS estimated to be between $540 million and $720 million. Although the precise costs of restructuring were disputed in the proceeding, the Commission noted that the costs would be substantial. The combination of good faith reliance and expense outweighed the statutory interest in limiting foreign participation in broadcasting, especially in the absence of any indication of foreign influence over Fox. (over) - 2 - The Commission found the reasoning of this decision to apply equally to certain FTS investments in other broadcast properties as well. The Commission accordingly removed its condition on the WNYW-TV renewal and also removed similar conditions on other FTS licenses. Those licenses are for stations KDVR(TV), Denver, CO; WFXT(TV), Boston, MA; WGHP-TV, High Point, NC; WBRC-TV, Birmingham, AL; WHBQ-TV, Memphis, TN; and a construction permit for satellite station KFCT(TV), Fort Collins, CO. Action by the Commission July 28, 1995, by Second Memorandum Opinion and Order (FCC 95-313). Chairman Hundt, Commissioners Quello, Barrett, Ness and Chong, with Commissioners Quello and Barrett issuing separate statements. - FCC - News Media contact: Rosemary Kimball at (202) 418-0500. Office of General Counsel contact: Joel Marcus at (202) 418-1740 Separate Statement of Commissioner James H. Quello Re: Second Memorandum Opinion and Order on the Application of Fox Television Stations, Inc. for Renewal of License of Station WNYW-TV, New York, New York When Rupert Murdoch and News Corp. first requested that we approve the assignment of the Metromedia licenses, the Commission understood that this action would finally create the much desired fourth broadcast network. In the ten years that have passed, Fox's efforts and willingness to assume financial risks have cultivated this vision. American viewers enjoying more diverse programming, independent station operators realizing revived economic fortunes, and programming producers serving new markets have reaped the benefits. In fact, Fox arguably planted the seeds for the continuing emergence of still more broadcast television networks. In short, Fox's efforts provide a working definition of the public interest. Our decision today focuses on the significant equitable factors which demand that we waive Section 310(b)'s foreign ownership limitation, and with which I wholeheartedly agree. From the outset, I have believed that Fox's ownership structure was based on its good faith reliance on our rather fluid Commission precedent. I also feel strongly that fairness to Fox's investors and the presence of Rupert Murdoch, an American citizen who maintains de jure and de facto control over Fox and News Corp., should weigh heavily in our determination. Still, while these equitable factors provide firm justification for our decision, they fail to properly credit the significant public interest factors that support a waiver; namely, Fox's contributions to the formation of a fourth network and to the financial health of both independent and affiliated television stations across the country. The fourth network has provided a source of competition to the three established national broadcast networks and their affiliates. At the same time, Fox has provided economic, programming, and marketing support to enable many independent UHF stations to achieve stability and profitability. Fox affiliates have become a significant source for children's, minority-oriented, and news programming. As an important side benefit, Fox has provided a national platform for minority producers, writers, actors and other members of the creative community. As the recent plethora of station affiliation realignments illustrates, Fox's presence also has enhanced the value and bargaining power of other networks' local affiliates in many markets. While other equitable factors independently justify our decision, we must not forget Fox's public interest contributions in bringing about these positive market effects. These are the same effects which lay at the core of the Commission's long-term vision of creating a fourth national broadcast network. Keeping this in mind, I found it easy to reach my decision in this much contested matter. For these reasons, I am pleased that today we conclude this proceeding. Fox may now move ahead with business in a new age -- one of increasing competition, new technologies, and unlimited new services for consumers. Most of all, I am confident that we have served the public interest, and that Fox will continue to make a similar contribution to the American people. SEPARATE STATEMENT OF COMMISSIONER ANDREW C. BARRETT RE: Application of Fox Television Stations, Inc. for Renewal of License of Station WNYW-TV, New York, New York; Second Memorandum Opinion and Order [File No. BRCT-940201KZ] Today, the Commission has determined to grant Fox Television Stations, Inc. (FTS) a waiver of the statutory prohibition against foreign ownership in a broadcast license which exceeds twenty-five percent (25%) as a result of News Corp.'s ownership interest in FTS. The Commission's decision to grant the waiver is based on equities that are peculiar to this particular case: (i) the substantial cost that FTS would have to incur in order to restructure News Corp.'s interest in FTS and (ii) the fact that FTS relied, to its detriment, on the Commission's rules setting forth the capital contribution limitations which were deemed unclear in 1985. I write separately to emphasize that my decision to support the grant of the waiver is based, in large part, on the introduction of competition and diversity of station ownership by FTS at a time when only three (3) networks dominated the marketplace. Indeed, it is this fact which I believe to be pivotal. While other broadcast licensees may contend that they too erroneously relied on or misinterpreted the Commission's rule and that the cost of restructuring an entity would be exorbitant, I was ultimately convinced that the competition introduced by FTS has bestowed a tangible benefit on the public and thus warranted the grant of a waiver. We have seen the impact that FTS has had on the broadcast marketplace. Initially, FTS gave UHF stations the opportunity to compete against VHF stations that were owned and operated by or affiliated with the major networks. Recently, because of its continued growth, FTS entered into an affiliation agreement with a major television station group owner that not only allowed FTS to establish VHF affiliates in major markets, but which also changed the landscape for competition for other VHF network affiliates. This accomplishment cannot, and should not, be overlooked. It was precisely the introduction of competition by FTS that led to this shift in the marketplace and which provided greater programming choices to consumers. I am further persuaded that a waiver is justified based on the inequities that could result from compelling FTS to restructure. By establishing such a requirement, I believe that the Commission could cripple this now significant market player as it seeks to compete against the other historically dominant network players and stations. Moreover, prior to supporting the May 4, 1995 Order, I reviewed the record to ascertain whether the Commission's rules were, in my estimation, unclear. I too believe that the rules were ambiguous with respect to the calculation of capital contributions for a broadcast licensee and that it would be unfair to hold FTS responsible for the Commission's uncertainty. Finally, I urge the Commission not to lose sight of the NAACP's ultimate message concerning the dearth of minority ownership of broadcast and communications facilities should not be lost. I agree as a policy maker that the NAACP's contention that foreign ownership will thwart minority ownership in communications properties was unsubstantiated in this case. However, I wholeheartedly agree that minority ownership of broadcast and other communications facilities is woefully inadequate. Therefore, I will be carefully reviewing the comments in the Commission's rulemaking proceedings on television multiple ownership and minority ownership of broadcast facilities in order to ascertain whether, within the confines of the law, the Commission can develop methods to increase minority and female ownership of communications facilities.