Diversity Committee Has Big Issue With FCC Incubator Program

Key leadership of the FCC's Advisory Committee on Diversity and Digital Empowerment (ACDDE) have a big problem with the way the FCC has structured the new diversity incubator program they otherwise support, a problem they say could "destroy" the program.

That warning came in a call last week between committee members James Winston and David Honig, and Matthew Berry, chief of staff to FCC chairman Ajit Pai. They said they were also speaking on behalf of Broadcast Development Working Group Chair Henry Rivera, committee chair Diane Sutter, and committee member DuJuan McCoy.

Related: Pai Says Previous FCC's Ignored Key Diversity Initiatives

The FCC Aug. 2 adopted a report and order (a final decision) establishing a framework for an incubator program that will grant existing radio stations media regulatory relief if they successfully help minority or female owners to buy a full-power station, or put struggling owners on firmer footing—it only applies to radio at the outset but could be transitioned to TV.

The program was proposed as part of the FCC's November 2014 media ownership regulation rollback remand, which gives diverse and minority new market entrants or struggling stations operational and financial help, while the established broadcaster gets a waiver of local ownership restrictions in that, or a comparable, market. That waiver can then be transferred to a new owner with that waiver acting like an energy credit that could become its own coin of the consolidation realm.

The big problem they said is with the FCC's definition of "comparable" radio market. For example, they point out, a "small" market with 45-plus full power radio stations qualifies for incubation, while a "comparable" market could be New York because it also has 45-plus stations.

"This definition permits a broadcaster to incubate a station in any small market with 45+ full power stations (e.g., Traverse City-Petoskey-Cadillac) and, in return, receive an assignable waiver of the 8-station rule usable in any other 45+ market (like New York City)," they told Berry, according to a summary of the conversation filed with the FCC. They pointed out the problem when the FCC circulated a draft three weeks before the vote, but it was not changed, they said.

"The notion that a market with fewer than 350,000 people and 63 stations is in any sense 'comparable' to a market of over 19,000,000 people with 153 stations is new to communications law and broadcast industry practice, and was not a logical outgrowth of any earlier proceeding," they told Berry.

They said that no broadcaster had complained of a lack of incentive to incubate, so that providing that kind of incentive was a solution in search of a problem, and itself caused major problems.

"The new comparable markets definition would profoundly distort the incubator program by creating unprecedented and gigantic incentives to incubate in relatively small (and often non-diverse) markets in order to obtain a 'coin' entitling the holder to sell another broadcaster a consolidation waiver in a very large market," they said. "With an opportunity to generate financial returns of 100-fold or more (representing the economic value of such a waiver divided by the cost of a small market incubation), no rational broadcaster would incubate in any other manner. Thus, the incubation proposal would suddenly have been converted into little more than an engine of large market consolidation. There would be no incubation of new entrants in most of the markets where people of color reside and are building their careers. This is not what NABOB [Winston] and MMTC [Honig] had in mind when they worked for 28 years to secure the establishment of an incubation program," they said.

But since the FCC has already voted to set the program up this way, what are the chances it will correct the "error."

Honig said that rather than file a formal petition with the FCC to reconsider that definition of comparable market, a definition he said came out of the blue in the white paper, they were instead seeking to point out the consequences of that "error" while the FCC could still simply release a supplemental report and order correcting it. He said they could do it ASAP, given that the program has not started yet and no staff have been delegated to it.

Honig said that he does not agree with those who think that the program, even with the fix, is not the way to go. He said the FCC can't stop there and signal "mission accomplished," but that with a fix to a more comparable "comparable markets" definition, it can be a good program.

Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.