world globalizationThe Federal Communications Commission (FCC) is poised to decide whether Internet streaming music provider Pandora can exceed the Commission’s foreign ownership limit in its acquisition of a South Dakota radio station.  As we previously wrote, in June 2014, Pandora filed a Petition for Declaratory Ruling requesting authority to exceed the 25% benchmark for foreign investment in broadcast licensee parent companies imposed by Section 310(b)(4) of the Communications Act.  On April 21, 2015, FCC Chairman Tom Wheeler circulated a declaratory ruling responding to the petition to his fellow commissioners for consideration.

Pandora’s petition stems from its ongoing effort to acquire South Dakota radio station KXMZ(FM), which it believes will allow it 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.  In response to Pandora’s original assignment application, ASCAP raised questions regarding Pandora’s ability to demonstrate compliance with the FCC’s foreign ownership limits.  After the Commission 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, Pandora filed its petition.

In the Petition, Pandora asserted that it has every reason to believe that it has foreign ownership of less than 20%.  Nevertheless, Pandora noted 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.  Pandora is requesting that the FCC issue a declaratory ruling authorizing foreign entities to hold up to 49.99% of Pandora’s voting control and up to 100% of its equity.

In a recent post on the FCC’s blog, Commissioner Michael O’Rielly called on the FCC to relax its restrictions on foreign investment.  At the National Association of Broadcasters Show last month, Chairman Wheeler committed to work with Commissioner O’Rielly on foreign investment, stating:

While we are on the topic of challenges and opportunities, I should mention an initiative that my friend Commissioner O’Rielly and I are exploring.  Last month Commissioner O’Rielly published a blog indicating that we should set “rules and policies that affirmatively permit foreign ownership (of broadcast properties) above the 25 percent cap once and for all.”  I agree that it is a goal worth pursuing for the reasons that Commissioner O’Rielly noted:  benefits including additional inbound investment possibilities and potential reciprocal treatment in our foreign trade and investment activities. There are important details that will need to be considered, including how to make appropriate allowance for any national security issues that  might arise.  But, overall, I am optimistic that this is an opportunity that we will grasp successfully.

It is unclear if the FCC will use this declaratory ruling as a vehicle for broader changes to how it applies the foreign ownership rules to broadcast licensees or if, instead, it will issue a narrow, fact-specific ruling on Pandora’s petition.  The Commission’s decision should, at very least, provide some guidance to broadcasters regarding how the agency will conduct its case-by-case analysis of requests to exceed the 25% foreign ownership limit.

We will continue to monitor this case and provide a further update when the FCC issues its declaratory ruling.

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