On November 14, 2013, the Federal Communications Commission (“FCC”) adopted a Declaratory Ruling¹(“Ruling”) clarifying its policies and procedures for reviewing applications or proposed transactions in the broadcasting industry that would result in foreign ownership stakes in broadcast entities exceeding the 25% benchmark set by statute.² Section 310(b)(4) of the Communications Act of 1934 (“Act”) limits foreign ownership of U.S.-organized entities that control broadcast licensees to 25% when the FCC finds the imposition of such a limitation is in the public interest.

Under this statutory restriction, the FCC has discretion to approve foreign ownership in common carrier and broadcast licensees in excess of the 25% benchmark. For years, the FCC has routinely been presented with foreign ownership proposals from common carrier licensees and has permitted such foreign ownership in excess of the 25% benchmark when it was in the public interest. This has resulted in the development of a body of precedent, rules, and procedures for transactions involving common carriers. However, the FCC has not been presented with a similar number of applications or requests for declaratory rulings in the broadcast sector. This led to an incorrect assumption that the FCC would not approve foreign ownership in broadcast licensees in excess of the 25% benchmark, even though the statutory authority to do so has always existed.

The Ruling was prompted by broadcasters, public interest groups, and investors expressing concern that the foreign ownership benchmark was restricting the flow of foreign capital to domestic broadcast licensees or to entities interested in entering the broadcast industry. In light of this, the FCC clarified its foreign ownership policies related to broadcast licensees and assured the broadcast industry and potential foreign investors that the Commission would consider all foreign ownership proposals to exceed the 25% benchmark on a case-by-case basis.

Case-by-Case Review

The Ruling clarifies the FCC’s intent to review broadcast applications and petitions for declaratory rulings proposing ownership in excess of the benchmark on a case-by-case basis. The FCC explained that it views the 25% benchmark as a trigger for it to exercise its discretion, and therefore applications for ownership in excess of the benchmark may be granted unless the FCC finds that a denial will serve the public interest.

The FCC asserted that by their nature, these case-by-case reviews will lead to distinct, factually driven results. Each application or petition will be assessed on its own merits, and the FCC will determine, given the particular circumstances presented in a particular case, whether the public interest would be served by permitting the requested foreign ownership. If applications requesting such review increase, the FCC might consider adopting a standardized review process similar to the one adopted in situations involving foreign ownership of common carrier licensees that exceed the 25% benchmark.

Filing Procedures and Express Prior Consent

The Ruling sets forth the filing procedures for applicants and petitioners seeking approval for foreign ownership above the 25% benchmark. It emphasizes that the controlling parent companies of broadcast licensees may not exceed the statutory benchmark without express prior consent of the FCC, i.e., absent an affirmative finding by the FCC that such ownership is in the public interest. Specifically, the Ruling affirms that both applicants seeking approval of broadcast license assignments or transfers and petitioners requesting declaratory rulings permitting ownership in excess of the benchmark must provide detailed information sufficient for the Commission to make the public interest finding required by Section 310(b)(4) of the Act. With respect to applications seeking approval of broadcast license assignments or transfers where the assignee or transferee would have foreign ownership in excess of the 25% benchmark, the applicant must provide an explanatory exhibit demonstrating why the public interest would support foreign ownership above the benchmark. If a proposed foreign investment in a broadcast licensee’s controlling U.S. parent would exceed the benchmark without triggering an application for transfer of control, a petition for declaratory ruling must be filed with the Commission in advance of the investment, detailing the public interest considerations that justify the foreign investment.

These submissions will be subject to public notice to elicit comment from interested parties. Additionally, the FCC may send the applicants or petitioners letters of inquiry or document requests, request additional materials, or take any other needed measures in order to conduct a comprehensive public interest review. After a comprehensive inquiry, the FCC will release a written opinion or other notice authorizing, denying, or conditioning the requested foreign ownership.

Public Interest Obligation

The FCC did not provide a list of factors for determining whether foreign ownership of a broadcast licensee in excess of the benchmark is in the public interest. Presumably the FCC will look at factors including national security, media diversity, and localism. In making foreign ownership determinations, the FCC will continue to coordinate as necessary with Executive Branch agencies (e.g., the Department of Homeland Security, the Department of Justice, and the Department of State) on issues relating to national security, law enforcement, foreign policy, and trade policy.