Just over a year ago, Internet streaming music provider Pandora filed an application seeking FCC consent to acquire a South Dakota radio station, KXMZ(FM). As we explained at the time, Pandora was motivated in part by a desire to qualify for lower royalties for public performances of musical works in the repertories of the American Society of Composers, Authors, and Publishers (ASCAP) and Broadcast Music, Inc. (BMI) that are made via Pandora’s webcasting service. Those lower rates are available to the owners of terrestrial radio stations, but not to pure-play webcasters like Pandora. ASCAP and BMI promptly opposed Pandora’s attempt to qualify for the lower rates, with ASCAP launching an attack on Pandora’s assignment application. Among other things, ASCAP raised questions regarding Pandora’s ability to demonstrate compliance with the FCC’s foreign ownership limits.
At the time of ASCAP’s initial objection, the FCC had applied a de facto rule prohibiting investment in broadcast licensee parent companies in excess of 25%. This rule derived from Section 310(b)(4) of the Communications Act, which authorizes the FCC to disallow such foreign investment if it finds that the public interest will be served by doing so. Late last year, however, the FCC issued a Declaratory Ruling explaining that it will consider, on a case-by-case basis, requests to exceed the 25% limit in the broadcast context.
In response to ASCAP’s objection and resulting FCC inquiries as to its demonstration of compliance with the 25% foreign ownership limit, Pandora last week filed a Petition for Declaratory Ruling requesting authority to exceed the limit.
In its Petition, Pandora asserts that it has every reason to believe that it has foreign ownership of less than 20%. Nevertheless, Pandora notes that, as a publicly traded company, privacy regulations of the Securities and Exchange Commission (SEC) make it virtually impossible for the company to determine the identities, much less the nationalities, of many shareholders. The FCC’s insistence—under decades-old guidance adopted prior to present-day SEC regulations—that a broadcast applicant treat all “unknown” shareholders as foreign compounded Pandora’s difficulty. Accordingly, faced with the inability to demonstrate actual compliance with the 25% limit to the FCC’s satisfaction, Pandora concluded that it needed to seek a Declaratory Ruling allowing it to exceed that limit.
When the FCC announced that it would consider requests to exceed the 25% limit in the broadcast context, the agency declined to set forth specific factors that it would consider. As we wrote before, the FCC has a wide range of precedent in the telecommunications context, and Pandora’s petition addresses a number of factors that the FCC has considered in that context. The extent to which the FCC will consider these factors, or adopt others, in the course of considering Pandora’s petition or subsequent petitions by broadcasters to exceed the 25% benchmark in the future remains to be seen.
So what happens from here? As it routinely does in the telecommunications context, the FCC likely will place Pandora’s petition on public notice, seeking comment from interested parties. And in the end, the FCC’s decision may well provide broadcasters with some guidance regarding how the agency will conduct its case-by-case analysis of requests to exceed the 25% foreign ownership limit.