******************************************************** NOTICE ******************************************************** This document was converted from WordPerfect to ASCII Text format. Content from the original version of the document such as headers, footers, footnotes, endnotes, graphics, and page numbers will not show up in this text version. All text attributes such as bold, italic, underlining, etc. from the original document will not show up in this text version. Features of the original document layout such as columns, tables, line and letter spacing, pagination, and margins will not be preserved in the text version. If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In re Applications of ) ) Houston H. Harte, et al., shareholders) of Harte-Hanks Communications, Inc.) (Transferors) ) ) and ) File Nos. BTCCT-970530IB ) BTC-970530IC The E.W. Scripps Company ) (Transferee) ) ) For Consent to the Transfer of Control of ) Stations KENS-TV and KENS(AM), ) San Antonio, Texas ) MEMORANDUM OPINION AND ORDER Adopted: September 5, 1997 Released: September 5, 1997 By the Chief, Mass Media Bureau: 1. The Commission, by the Chief, Mass Media Bureau, acting pursuant to delegated authority, has before it the above-captioned applications to transfer control of stations KENS-TV, Channel 5 (CBS) and KENS(AM), San Antonio, Texas, from the shareholders of Harte-Hanks Communications, Inc. ("Harte-Hanks") to The E.W. Scripps Company ("Scripps"). 2. Stations KENS-TV and KENS(AM) have been jointly owned and operated since 1993. See Hispanic Radio Broadcasters, 8 FCC Rcd 6406 (1993). So that it may continue the common ownership and operation of the television and radio stations, Scripps requests a permanent waiver of 47 C.F.R.  73.3555(c), the Commission's one-to-a-market rule, which generally proscribes the common ownership of television and radio stations in the same market. Although no new one-to-a- market combination will be created here, the contemplated transfer of control requires a renewed one-to-a-market showing based on current market conditions. For the reasons discussed below, we will grant the waiver request and the transfer of control applications. REQUEST FOR WAIVER OF THE ONE-TO-A-MARKET RULE 3. Scripps bases its waiver request on the one-to-a-market waiver standards adopted in the Second Report and Order in MM Docket 87-7, 4 FCC Rcd 1741 (1989) ("Second Report and Order"), recon. granted in part and denied in part, 4 FCC Rcd 6489 (1989) ("Second Report and Order Recon."). In accordance with these standards, the Commission presumptively favors waiver requests involving: (a) stations serving the top 25 markets where at least 30 separately owned, operated and controlled stations will remain following the proposed combination ("top 25 market/30 voice standard"); or (b) "failed" stations, i.e., stations which have not been operating for a substantial period of time (four months or more) or are involved in bankruptcy proceedings. Otherwise, waiver requests must be evaluated under the more rigorous case-by-case standard. See 47 C.F.R.  73.3555(c), Note 7. Scripps submits its waiver request pursuant to the case-by-case standard because San Antonio is the 38th largest DMA in the country and because KENS-TV and KENS(AM) are not failed stations. 4. Under the case-by-case standard, the Commission makes a public interest determination by weighing five factors: (1) the potential public benefits of joint operation of the facilities, such as economies of scale, cost savings, and programming and service benefits; (2) the types of facilities involved; (3) the number of media outlets owned by the applicant in the relevant market; (4) the financial difficulties of the stations involved; and (5) the nature of the relevant market in light of the level of competition and diversity after the joint operation is implemented. See Second Report and Order, 4 FCC Rcd at 1753. 5. Benefits of Joint Operation. In the waiver request submitted by Harte-Hanks in connection with the previous sale of KENS(AM) (the "1993 waiver request"), Harte-Hanks maintained that the proposed combination of KENS-TV and KENS(AM) would achieve annual cost savings of $187,000 through the sharing of studios, offices, staff, equipment, and administrative and professional services. In the instant application, Scripps contends that these efficiencies have not only been achieved, but exceeded. Susan Lynch, Chief Financial Officer of Harte-Hanks Television, Inc., licensee of KENS-TV and KENS(AM), avers that the savings from the combined operation of the stations is approximately $225,000 per year, and identifies the following combined services which produce these savings: (1) KENS(AM) uses studio and office space in the KENS-TV building (estimated annual cost savings: $20,000); (2) KENS(AM) utilizes KENS-TV's administrative, accounting, billing and collections staff ($75,000); (3) KENS-TV absorbs the cost for attorneys ($5,000), taxes ($35,000), insurance and fringe benefits ($50,000), building services, electricity and telephone services ($20,000) related to KENS(AM); and (4) KENS-TV absorbs the cost for the development and maintenance of KENS(AM)'s home page on the Internet ($20,000). Scripps states that, under its ownership, the stations will continue to be operated in this manner so as to maintain such cost savings. 6. Additionally, in the 1993 waiver request, Harte-Hanks claimed that the one-to-a-market waiver would produce significant programming benefits for KENS(AM). Again, Scripps maintains that such benefits have been realized. For example, Scripps states that KENS(AM) has greatly improved its news gathering capability due to the addition of staff, access to new equipment, and availability of additional news sources, including the Associated Press, Conus and Bloomberg News. Locally-produced news and public affairs programming has increased from 10 hours to 71 hours per week. The radio station covers special events, such as local college and high school sports, and airs several call-in shows. In addition, the radio station simulcasts the audio portion of KENS-TV local news, weather, sports and local features, and broadcasts news stories produced, but never aired, by KENS-TV. Unless KENS(AM) can continue to rely upon cost efficiencies from its common ownership and operation with KENS-TV, Scripps maintains that the level of local and informational programming could not be maintained. 7. Types of Facilities. KENS-TV is a VHF television station operating on Channel 5 with 100 kW ERP visual and 10 kW ERP aural at an antenna height above average terrain of 1,401 feet. KENS-TV is affiliated with the CBS television network. KENS(AM) is a full-time Class B facility licensed to operate with 10 kW daytime and one kW nighttime, both with a directional pattern. Scripps contends that, as a directional AM station with limited nighttime power, KENS(AM) is an inherently weaker radio competitor than the other types of radio facilities which could compose a television/radio combination under the one-to-a-market waiver policy. 8. Other Media Outlets. Scripps asserts that it does not own any broadcast stations in the San Antonio area, nor does it hold any ownership interest in any cable system, newspaper, or other mass media outlet in the San Antonio area. 9. Financial Difficulties. Scripps does not contend that KENS-TV is experiencing financial hardship. Additionally, while Scripps claims that KENS(AM) incurred a net loss of $108,000 in 1994, $58,000 in 1995 and $36,000 in 1996, it states that the station is currently operating in the black, posting a net gain of $67,000 through May 1997. Indeed, Scripps asserts that KENS(AM)'s financial condition has been "steadily improving" since mid-1996, when the station's current format was finalized, and that "continued improvements in profitability can be projected." However, Harte- Hanks Television, Inc. CFO Susan Lynch states that the station's profits will not be sufficient to replicate the economic benefits produced as a result of the common ownership of the television and radio stations. Lynch opines that KENS(AM) could not operate as a viable stand-alone station and continue to provide the current level of local news and informational programming. 10. Effect on Diversity and Competition. According to Scripps' calculations, there are 33 commercial radio stations (18 AM, including KENS(AM), and 15 FM) and five non-commercial radio stations that are licensed to communities in the San Antonio Nielsen Metro Rating Area and are operated by 22 independent owners. Scripps further asserts that there are 11 television stations (including KENS-TV), each operated by a different owner. Thus, taking into account the joint ownership of KENS-TV and KENS(AM), Scripps claims that the market is currently served by 31 independent "voices," as well as a wide variety of non-broadcast media outlets. Scripps represents that the San Antonio DMA is served by 20 newspapers and 53 cable systems operated by 13 independent operators. Additionally, because grant of this application will continue an existing combination, Scripps argues that there will be no decrease in this level of diversity. With respect to competition, Scripps states that KENS-TV is competitive economically in the market, but KENS(AM) is not among the top-20 rated radio stations. 11. Discussion. The Commission's goal in evaluating a case-by-case request for waiver of the one-to-a-market rule is "to permit the public to benefit from such efficiencies of operation as may be achieved through the use of common facilities and staff, consistent with the maintenance of diversity and vigorous competition within the market areas involved." Second Report and Order Recon., 4 FCC Rcd at 6491. We conclude that, on balance, Scripps' showing in support of its request for waiver of the one-to-a-market rule meets our case-by-case criteria, that a waiver in this instance is in the public interest, and that the waiver would not adversely affect competition and diversity in the San Antonio market. 12. As to the first criterion, the potential public benefits of joint operation, the Commission considers whether the proposed radio-television combination will create, inter alia, economies of scale, cost savings, and programming and service benefits. Second Report and Order, 4 FCC Rcd at 1753. Scripps has documented the economic efficiencies derived from the ongoing joint operation of the San Antonio stations. Specifically, Scripps has demonstrated that joint operations produce cost savings of $225,000 -- $38,000 more than projected in the 1993 waiver request. Scripps has further shown that these savings have translated into significant public service benefits in the form of substantially increased local programming on the AM radio station. Indeed, since the consolidation of the television and radio stations in 1993, KENS(AM) has increased its locally- produced news and public affairs programming from 10 hours to 71 hours per week, far more than the 33 hours per week promised in the 1993 waiver request. In addition to simulcasting the audio portion of KENS-TV local news, the radio station airs locally-originated programs addressing health issues, sports, parenting, travel, gardening, physical disabilities, and aging. "This is precisely the type of public interest benefit from common station ownership which we envision as warranting a waiver of the one-to-a-market rule . . . . " Great American Television and Radio Co., 4 FCC Rcd 6347, 6349 (1989). Moreover, we are persuaded that the benefits of joint operations will continue under Scripps' common ownership of the stations. James M. Hart, Senior Vice President/Television Group for Scripps, avers that it is "Scripps' present intent to retain Station KENS(AM)'s intensive informational format," and that "Scripps is committed to using the cost efficiencies that flow from joint operations of the stations for the benefit of the programming services of KENS(AM)." Finally, we are persuaded that at least some portion of the programming benefits achieved through the common ownership of KENS(AM) and KENS-TV would be lost should we require KENS(AM) to be operated apart from KENS-TV. 13. Regarding the types of facilities at issue, the Commission endeavors to "predict and avoid any significant adverse effect on diversity or competition from too powerful a combination." Id. at 6349. Although the facilities of KENS(AM) and KENS-TV are not insubstantial, "[a]s the level of diversity and competition in a market increases, our concern with this aspect of a proposed combination diminishes." Id. at 6350. As described below, we believe that the levels of diversity and competition in San Antonio allay any concern we might have over the continued joint ownership of the stations. 14. As for ownership of other media outlets in the market, waiver requests by applicants who already own a number of these outlets face a higher hurdle than those by applicants with few outlets. Second Report and Order, 4 FCC Rcd at 1753. Accordingly, the fact that Scripps owns no other media outlets in the San Antonio market weighs in favor of a waiver. 15. While KENS-TV and KENS(AM) are not currently financially distressed stations, in evaluating waiver requests under the case-by-case criteria, "[n]ot all of the factors mentioned will be relevant in every case." Second Report and Order Recon., 4 FCC Rcd at 6491. We do recognize, however, that KENS(AM) has a long history of losing money. As we reported in Hispanic Radio Broadcasters, 8 FCC Rcd 6406 (1993), the station incurred a net loss of $265,265 in 1991; $143,650 in 1992; and at least $100,000 in 1993; and continued to lose money in 1994, 1995 and 1996 despite the efficiencies of consolidated operation. The station's finances are improving and a net gain is projected for 1997; however, the station would incur a significant net loss if the $225,000 in cost savings were allocated directly to KENS(AM). Even if KENS(AM) could survive as a stand-alone station, we believe that the additional costs it would incur if the joint operation and ownership with KENS-TV were not continued would prevent it from maintaining its current level of local programming. 16. Finally, Scripps has shown that the continued joint ownership and operation of KENS-TV and KENS(AM) will not diminish competition or diversity in San Antonio, the 38th largest market. Indicia of the level of diversity include the number of broadcast outlets, the number of separately- owned and operated "voices" in the market, and the presence of cable and non-broadcast media. According to our independent analysis, there are 48 broadcast stations licensed in the San Antonio market, consisting of 19 AM and 18 FM stations (including 5 noncommercial stations), and 11 television stations (including 3 noncommercial stations). Of the 11 television stations, five (including KENS-TV) operate on VHF channels and six operate on UHF channels. Accounting for Scripps' proposed acquisition of the existing KENS-TV/KENS(AM) combination, of the 48 broadcast stations, San Antonio will be served by 32 separately-owned and operated broadcast "voices." Although this is fewer than the 39 independent broadcast voices which existed in the market when we approved the combination in 1993, there remain more than enough independent broadcast voices to assuage concern over the continued joint ownership and operation of the stations. In addition, the market is served by numerous other media "voices." Our independent analysis also reveals that San Antonio is well-served by daily and weekly newspapers, cable (65% penetration), and wireless cable. Furthermore, we believe that since grant of this application will preserve an existing combination, continued joint ownership of the stations will not decrease the level of diversity and competition in the market. See The Glyn Wyler and Karl O. Wyler, Sr. Foundation, DA 97-1566 (released July 24, 1997). 17. With respect to economic concentration and competition, our independent analysis indicates that Scripps will have a significant share of the radio and television advertising revenue in the market after consummation of the proposed sale. Although KENS(AM) currently garners only a .32% share of the radio advertising revenue in the San Antonio market, KENS-TV garners a 21.14% share of the television advertising revenue, the third highest share in the San Antonio market. Together, KENS-TV and KENS(AM) receive a combined television and radio advertising share of 14.32%. Since Scripps does not own any other broadcast media in the market, after consummation of the proposed transaction, Scripps will have a 14.32% combined advertising share for radio and television. This level of concentration, while not insubstantial, does not pose a risk to competition that would warrant denial of Scripps' requested waiver. See Samuel M. Altdoeffer, III, et al., FCC 97-175 (released July 3, 1997) (13.5% combined advertising share). For the foregoing reasons, we are persuaded that the public interest benefits of continuing common ownership and operation of KENS-TV and KENS(AM) warrants granting Scripps' request for waiver of the one-to-a-market rule. CONCLUSION 18. Having determined that the applicants are qualified in all respects, we find that grant of the transfer of control applications will serve the public interest, convenience and necessity. 19. Accordingly, IT IS ORDERED, That the request for a permanent waiver of the Commission's one-to-a-market rule, 47 C.F.R.  73.3555(c), to allow Scripps' common ownership and operation of KENS-TV and KENS(AM) IS GRANTED. 20. IT IS FURTHER ORDERED, That the above-captioned applications for the transfer of control of stations KENS-TV and KENS(AM), San Antonio, Texas, from the shareholders of Harte- Hanks Communications, Inc. to The E.W. Scripps Company (File Nos. BTCCT-970530IB and BTC- 970530IC) ARE GRANTED. FEDERAL COMMUNICATIONS COMMISSION Roy J. Stewart Chief, Mass Media Bureau