Last week, the FCC released a draft Report and Order which, if adopted at its August regular monthly open meeting, will repeal the 39% cap that currently limits the nationwide reach of local television station owners. That cap prohibits one owner from having interests in TV stations reaching more than 39% of the nation’s TV households. Computation of the 39% reach assumes that any TV station in a Nielsen TV market reaches all of the TV households in that market. However, it also includes a 50% discount for UHF stations, a relic of a previous era when VHF stations (those on channels 2 through 13) dominated and UHF stations were considered disadvantaged and thus worthy of being counted as only half the audience reach (a dynamic that is considered to have been reversed in the digital broadcasting world). Yet, as we wrote here, that UHF discount is still in place.
The Commission’s proposal is to eliminate the cap, but to conduct a case-by-case review of any proposed acquisition that would take an owner above 39% (while still using the 50% UHF discount). In reading the draft Order, it appears that the FCC would be starting from a presumption that the nationwide reach of a particular broadcaster is not a public interest problem – unless someone shows that it is. The draft Order states that there are many other video entertainment delivery competitors with nationwide reach – including the TV networks, cable networks and, more importantly in today’s world, all of the streaming companies. According to the FCC, just being able to deliver programming on a nationwide basis does not raise issues for consumers, as a consumer has the choice of many different national programming providers. Issues may be more likely to arise on the local level if access to local news and information is limited. However, those questions of local ownership are not being considered in this proceeding, which is looking only at the limits on the ability of one owner to own stations that have a greater nationwide reach than currently allowed. Local ownership limits are being considered in the Quadrennial Review proceeding, likely to be resolved later this year.
If nationwide reach is not an issue, why bother having any public interest review when an owner exceeds the 39% threshold? It appears that the Commission is simply restating the truism that, in reviewing any deal, the FCC has an obligation to determine whether that deal is in the public interest. The draft Order says that it will weigh the benefits of any proposed deal (like having greater resources to devote to more and better local programming) against any downsides such as a risk of the loss of jobs, increased retransmission consent fees, or other harms that might occur from the transaction. It also appears that one of the concerns of this FCC is the influence of existing nationwide operators – particularly noted are the TV networks – and how increased national ownership may give station owners greater bargaining leverage with those networks (leverage that the FCC has focused on before – see our article here). In the 2025 Public Notice that began this Commission’s review of the national cap and led to this proposed Order, the FCC asked if the networks should be able to take advantage of any elimination of the cap (see our article here). While the draft Order does not suggest that there is a blanket restriction on their ability to do so, one can imagine that any nationwide programmer (whether that be a TV network or Amazon or Netflix) might be scruntized by this Commission in this public interest review should they propose a deal that would put them over the 39% current limit.
Already, this draft Order has stirred up significant controversy. People worry about the power that nationwide coverage may give a broadcast company. This argument seems strange, as Netflix and the other streaming companies all have nationwide coverage, and can provide multiple programming options, when TV station owners are limited by their bandwidth in terms of what they can offer. Cable and broadcast networks have that same nationwide reach, and no one seems to be claiming that their reach is any sort of public interest threat. In fact, as noted in the order, given the UHF discount, broadcast owners can already hold stations reaching well over 70% of the US TV households. Is there really that significant a difference between 78% coverage using the UHF discount and 100%? And is it even likely that you will see a TV group owner try to get to true nationwide coverage? We have in recent years seen TV station owners spin off stations in smaller markets, as the return on running a station in some markets may not be worth the effort. The time and expense of running a small market station is very similar, regardless of market size, yet the return on a station in a large market is potentially orders of magnitude greater. In radio, when the national cap was lifted in 1996, some companies went on a buying spree only to later retrench, as have some television operators in order to concentrate efforts on markets where returns are greatest – spinning off smaller market stations to operators who are small-market specialists or to local owners who are better positioned to operate those stations and are content with the returns that they can generate with increased local attention. The market has generally corrected itself.
There are also arguments as to whether the FCC has the statutory power to lift the national cap. While Congress explicitly instructed the FCC to review the local ownership rules every 4 years to determine if they are still needed as a result of changes in competition, there is no such regular review of the 39% cap. Some have argued that, as the cap was set by Congress, only Congress can change it. This is not an argument that the justification for abolishing the cap does not exist – just that, procedurally, the cap can only be changed by Congress. In this draft Order, the FCC concludes that it does have the power to change the cap. It finds that the FCC always had the power to set ownership caps, and when the cap was set at 39%, Congress did not specifically abridge the preexisting power of the FCC to set its own caps on ownership. Instead, Congress just said that, at the time it acted, the cap should be 39%. If the FCC adopts the draft Order at its August meeting, expect that this issue will continue to be debated in any challenge to the rule change.
In many ways, it seems that the real motivation behind criticism of the change in the ownership cap is inertia – the FCC has long regulated how many broadcast stations one company can own, and many seem to have the mentality that it should continue doing so even though the broadcast business today is radically different. When these rules were adopted, cable networks were the big competitor to broadcast TV – and streaming video services did not exist. Now, viewership of streaming services equals or exceeds that of broadcast and cable television combined – and is growing. While still important in their communities, local television stations face a competitive environment that was barely a dream when the 39% cap was put in place. The change in approach reflected in the draft change in the national cap seems to be just one of many changes in the regulatory environment for broadcasters that need to be made to help them survive the growing competition from unregulated digital giants.