FCC 96-15 FederalCommunications Commission Record 11 FCC Red No. 7 BACKGROUND/PLEADINGS Before the 2. Spokane Television, Inc. ("STI"), the parent company Federal Communications Commission of QueenB, is currently the licensee of ABC-affiliated VHF Washington, D.C. 20554 station KXLY-TV, licensed to· Spokane, Washington. STI, through another subsidiary, is also the licensee of KXLY(AM) and KXLY-FM, both licensed to Spokane, In re Application of Washington. By the instant application, QueenB seeks to acquire another AM and FM station in the Spokane mar­ Louis C. DeArias, Receiver ket. The transaction would comply with the Commission's 3 (Assignor) revised local radio ownership rules. However, grant of the subject assignment applications would create a new radio­ television combination that requires waiver of the one­ and BAL-950518EA to-a-market rule because the 2 mV/m service contour of BALH-950518EB KTRW and the 1 mV/m service contour of KZZU-FM encompass Spokane, KXLY-TV's city of license. See 47 QueenB Radio, Inc. C.F.R. § 73.3555(c). Accordingly, QueenB requests waiver (Assignee) of the one-to-a-market rule. QueenB requests waiver of the rule pursuant to the "failed station" standard and submits For Assignment of License of that the stations are presently being operated by DeArias pursuant to a court-ordered receivership and that the li­ KTRW(AM) and KZZU-FM, censee's parent corporation has been involved in bank­ Spokane, Washington ruptcy or receivership proceedings since 1990. Alternatively, OueenB submits a specific factual showing pursuant to the "case-by-case" standard.4 MEMORANDUM OPINION AND ORDER 3. Petition to Deny. RBI, in its petition, contends that KTRW and KZZU-FM are not "failed stations" as argued Adopted: January 22, 1996; Released: February 2, 1996 by QueenB. According to RBI, there is no evidence that the stations were placed in bankruptcy because they were By the Commission: Commissioner Barrett concurring unable to compete successfully in the Spokane market. In and issuing a statement. fact, RBI suggests that the stations are "solidly profitable" and ''capable of sustaining themselves" and were placed 1. The Commission has before it the above-captioned into bankruptcy and receivership proceedings solely as a applications for assignment of license of KTRW(AM) and result of the inability of the parent company of the prior KZZU-FM, Spokane, Washington, from Louis C. DeArias, licensee to pay the debts it incurred in financing its ac­ Receiver ("DeArias") to QueenB Radio, Inc. ("OueenB"), quisition of other stations. RBI presents the only financial and a related request for waiver of 47 C.F.R. § 73.3555(c), data available to it, data that was made available to prospec­ the Commission's one-to-a-market rule. 1 Rook Broadcasting tive purchasers at a time the stations were marketed for of Idaho, Inc. ("RBI"), licensee of KCDA(FM), Coeur d sale. It states that the information shows that the stations Alene, Idaho, filed a petition to deny the assignment ap­ generated an operating cash flow of $125,349 and a net plication on July 3, 1995.2 In light of the following, we will income of $23,972 in calendar year 1992, and that the deny the petition to deny and grant the waiver request and stations generated $47,090 in cash flow and experienced a the assignment applications. net operating loss of only $3,904 through the first seven months of 1993, indicating that the stations were on track to earn a solid net profit in 1993. RBI also submits that KTRW and KZZU-FM are market leaders in audience share ratings and, in fact, based upon the most recent Arbitron survey for the Spokane market, KZZU-FM is rated the number one station in the market. RBI further argues that DeArias failed to adequately market the stations 1 Section 73.3555(c) of the Commission's rules prohibits the that market and the proposed combination does not lead to common ownership of radio and television stations in the same "excessive concentration in the local market." Excessive con­ market if the 2 mV/m contour of an AM station or the 1 mV/m centration will be presumed where the stations to be jointly contour of an FM station encompasses the entire community of owned have a combined audience share exceeding 25 percent. 47 license of a television station or. conversely, if the Grade A C.F.R. § 73.3555(a)( !)(ii); In re Revision of Radio Rules and contour of a television station encompasses the entire commu­ Policies, 7, FCC Red 2755 ( 1992), recon. granted in part and nity of license of an AM or FM station. See 47 C.F.R. § denied in part, 7 FCC Red 6387, 6393 ("Radio Rules 73.3555( c). Recon.")(1992). OueenB has demonstrated that there are more 2 On July 21, 1995, QueenB filed an opposition to RBl's than 15 commercial radio stations within the relevant market petition, and on August 2, 1995, RBI filed a reply. Further, on and the combined audience share of KXLY(AM), KXLY-FM, September 1, 1995, QueenB filed a supplement to its opposition, KTRW(AM), and KZZU-FM is 21.0 percent. Accordingly, the and on September 7, 1995, RBI filed a motion to strike proposed combination of radio stations satisfies the local radio QueenB's supplement. ownership provisions of our rules. 3 The Commission's revised local radio ownership rules, codi­ 4 See para. 6, infra. fied in 47 C.F.R. § 73.3555(a), permit a single entity to own up to two AM and two FM commercial radio stations in a single market if there are 15 or more commercial radio stations in 3662 11 FCC Red No. 7 Federal Communications Commission Record FCC 96-15 to prospective buyers who would not need a waiver of the asserts that the receiver is selling the stations to the first one-to-a-market rule to own the stations and/or who would potential buyer to provide substantial money up front and pay more than was offered by QueenB. Specifically, RBI adequate financial backing to guarantee payment of the full contends that DeArias failed to provide potential buyers purchase price. QueenB argues that the offers cited by RBI with adequate financial information on the stations and to were rejected out of hand by the Receiver based upon the actively encourage serious offers.5 RBI also asserts that prospective purchasers' credit worthiness and the terms of entities that own both radio and television stations in a the offers. QueenB also points out that, prior to the filing single market enjoy certain competitive advantages and of the assignment application, the Court set up a hearing argues that STI and QueenB, based on past practices, will whereby any interested party could acquire the stations by engage in anti-competitive activities to further protect their "overbidding" QueenB's $1.75 million purchase price. interests.6 According to RBI, the Spokane radio market is However, no other interested parties attended the hearing already highly concentrated and allowing QueenB to ac­ or entered competing bids. QueenB further contends that quire KTRW and KZZU-FM may ultimately force the re­ the Receiver, at all times, engaged in reasonable efforts to maining independent stations out of business and further sell the stations at a reasonable price and on terms that reduce competition andP diversity in the market.7 Finally, were in the best interest of the stations' creditors. Finally, in light of these factors, RBI also questions the adequacy of QueenB argues that RBI has failed to present evidence that QueenB's showing in support of its alternative case-by-case it systematically excluded competitors from advertising on waiver request. KXLY-TV and maintains that it has, in fact, accepted ad­ 4. Opposition to Petition to Deny. QueenB maintains that vertisements from various competitors in the market in the the cause of the financial difficulties of the licensee's par­ past and will continue to do so in the future. QueenB ent company or the financial stability of the specific sta­ submits that KXLY-TV's refusal to accept advertising for tions involved in a transaction is not controlling in a KISC(FM) was based on the unusually high demand for "failed station" waiver. According to QueenB, the only advertising during the rating period in question and did precondition to grant of a "failed station" waiver is that the not involve anti-competitive activities. stations are off the air for a substantial period of time or 6. Waiver Standards/Request. The Commission enunciated are involved in bankruptcy proceedings. QueenB further its standards for reviewing requests for waiver of its one­ argues that the Commission has expanded the definition of to-a-market rule in the Second Report and Order in MM bankruptcy proceedings to include stations which are in Docket 87-7, 4 FCC Red 1741 (1989) ("Second Report and receivership. Thus, QueenB asserts that since the stations Order"), recon. denied in part and granted in part ("Second are in receivership, QueenB is presumptively entitled to a Report and Order Recon."), 4 FCC Red 6489 (1989). Under "failed station" waiver without regard to the current finan­ these standards, the Commission will "look favorably cial status of the stations. QueenB characterizes RB l's asser­ upon" waiver applications involving (1) stations serving the tions that the stations are market leaders and solidly top 25 markets where at least 30 separately owned, op­ profitable as misleading. QueenB contends that high au­ erated, and controlled stations will remain following the dience shares and a positive cash flow during receivership proposed combination; or (2) "failed" stations (stations that does not necessarily reflect financial stability.