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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 Application of ) ) RICK DAVID DAVIES )File No. BALH-960909GJ Assignor ) ) ) and ) ) ) WILD HORSE COMMUNICATIONS, ) INC. ) Assignee ) ) For the Assignment of the License of ) KRYK(FM), Chinook, Montana ) MEMORANDUM OPINION AND ORDER Adopted: June 20, 1997 Released: June 20, 1997 By the Commission: 1. Before the Commission for consideration is the above-captioned application for the assignment of the license of KRYK(FM), Chinook, Montana, from Rick David Davies (Davies) to Wild Horse Communications, Inc. (Wild Horse). The application is uncontested. BACKGROUND 2. Wild Horse, the proposed assignee, is controlled by North Montana Broadcasters, Inc. (NMB), the licensee of KOJM(AM) and KPQX(FM), both licensed to Havre, Montana, a community with a population of 10,201. Havre is located approximately 20 miles from Chinook, KRYK(FM)'s community of license, which has a population of 1,512. The principal community contours of KRYK(FM), KPQX(FM), and KOJM(AM) all mutually overlap. Under the local radio ownership rules, 47 C.F.R.  73.3555, a radio market is defined as the area encompassed by the principal community contours of the mutually overlapping stations proposed to be commonly owned. See Implementation of Sections 202(a) and 202(b)(1) of the Telecommunications Act of 1996, 11 FCC Rcd 12,368, 12,370 (1996). KOJM(AM), KPQX(FM) and KRYK(FM) constitute the entire radio market in this case because there are no other operating commercial radio stations which have principal community contours that overlap the principal community contours of any of the three stations, all of which will be under common control. 3. As mandated by the Telecommunications Act of 1996, the local radio ownership rules impose numerical restrictions on the number of radio stations in the same service and on the number of radio stations overall which may be commonly owned in any given local radio market. Under the local radio ownership rules, as amended by the Telecommuncations Act of 1996, in markets with fewer than 14 commercial stations, as here, one owner may hold up to five stations, no more than three of which are in the same service, except that no one entity may control more than 50 percent of the stations in a market. Implementation of Sections 202(a) and 202(b)(1) of the Telecommunications Act of 1996, 11 FCC Rcd 12,368 (1996). See also, Telecommunications Act of 1996, Section 202(b). NMB is permitted to own an AM/FM combination in Havre, even though ownership of two of three market stations would exceed the the radio local ownership rule's limitations that prohibit control of more than 50 percent of the stations in a market of fewer than 14 stations. However, NMB's acquisition of a controlling interest in KRYK(FM), through Wild Horse, would violate the rules' numerical restrictions because NMB would control all three of the only commercial radio stations, including two same service stations, in the local radio market. 4. Consequently, Wild Horse requests grant of its application to acquire KRYK(FM) pursuant to Section 202(b)(2) of the Telecommunications Act of 1996, which provides an exception to the numerical ownership limits of the radio local ownership rules. Under the Section 202(b)(2) exception, the Commission may permit a person or entity to own, operate or control, or have a cognizable interest in stations in excess of the numerical ownership limitations in the local radio ownership rules if so doing would "result in an increase in the number of stations in operation." 5. When we amended the local radio ownership rules to conform those rules to the revisions prescribed in the Telecommunications Act of 1996, we specifically recognized the exception provided in Section 202(b)(2) and we indicated that the implementation of this exception would be the subject of a rulemaking proceeding. See Implementation of Sections 202(a) and 202(b)(1) of the Telecommunications Act of 1996, 11 FCC Rcd at 12,370 n.2. Nevertheless, we specifically stated that "entities are not precluded from asking the Commission to apply this statutory exception in a particular case before any rule change." Id. 6. Wild Horse states that KRKY(FM), the only radio station licensed to Chinook, ceased broadcast operations on April 27, 1997 as a result of on-going financial difficulties. Wild Horse argues that unless its application to acquire the station is approved, Davies will surrender KRYK(FM)'s license, and Chinook will lose its only local broadcast outlet. Wild Horse asserts that the Commission has the discretion to make an exception to the local radio ownership rules under Section 202(b)(2) in order to avoid such loss of service. We find, on the basis of the particular facts and circumstances presented, that the public interest would be served by the approval of Wild Horse's acquisition of KRYK(FM) pursuant to the Section 202(b)(2) exception. WILD HORSE'S SHOWING UNDER SECTION 202(b)(2) 7. Wild Horse has submitted a showing in support of its argument urging the Commission to invoke the Section 202(b)(2) exception and approve the assignment application. Wild Horse claims that KRYK(FM)'s financial problems are long-standing and demonstrate that service on Chinook's only local radio station cannot be sustained unless the station's operations are combined with its existing stations. In this regard, Wild Horse states severe financial difficulties previously forced the station to cease operating for a ten month period during 1986 and 1987. Additionally, Wild Horse has submitted documentation to demonstrate that the station has sustained operating losses in five of the six years during the period between 1990 and 1996. The station's profit and loss statements, submitted with the assignment application, indicate that the station's expenses exceeded revenues for each year except 1994. Specifically, those statements indicate that the station incurred losses of $24,865.08 in 1990, $23,690.40 in 1991, $17,277.60 in 1992, $4,839.43 in 1993, $11,908.13 in 1995 and $3,549.45 in 1996. Wild Horse's showing includes a statement from Davies that indicates that he and his wife provided services to KRYK(FM), and received compensation for those services. Davies worked a full shift on-air during the week and did news stories and sports broadcasts on the weekends. Davies also sold advertising, and wrote the copy for this advertising as well as performed equipment maintenance for the station. Davies' wife served as office manager, and maintained the station's financial records. Mrs. Davies also provided advertising sales, copywriting and production. Specifically, Wild Horse's showing indicates that the Davies' combined yearly compensation for these services ranged from $13,570 to $30,250 during the period between 1990 and 1996. Moreover, Wild Horse's showing indicates that the Davies' were paid less than would have been paid if additional employees had been hired to perform these services. Thus, Wild Horse argues that total losses for the station actually are understated. 8. Wild Horse also claims that there are no other potential licensees for the station because Davies' past efforts to sell the station have been unsuccessful. Specifically, Wild Horse submits documentation indicating that Davies signed a contract in December 1990 to sell the station to KRYK, Inc., a local group that ultimately was unable to obtain financing. Wild Horse's showing also includes Davies' statement and other documentation indicating that the station was listed with a media broker in 1992, but that Davies received no offers to buy the station through this representation. Davies also states that he marketed the station himself in 1993 and in 1994. According to Davies, the station was advertised and he pursued other contacts in the industry in search of a buyer for the station. In 1993, Davies actively pursued a sale of KRYK(FM) with representatives of an Indian tribe that was interested in establishing a radio station in the area. However, Davies states that negotiations were discontinued because the terms of a grant financing the tribe's station required the construction of new facilities. Davies' other efforts to market the station in 1993 and 1994 were also unsuccessful. Davies retained another media broker in 1995, and also continued to market the station on his own during 1995 and 1996. The broker produced an offer for the station in 1995, and the showing indicates that Davies' efforts produced another offer for the station in 1996. However, neither of these offers resulted in the sale of the station. According to the showing, negotiations were ultimately unsuccessful either because the parties could not agree on the terms under which the station would be sold or because the offer to purchase the station was withdrawn when the buyer decided not to pursue the sale. 9. In addition, Wild Horse argues that competition and diversity will not be adversely affected if it is permitted to acquire KRYK(FM). With regard to diversity, Wild Horse states that in addition to three commerical stations, the market is served by three non-commercial stations that have principal community contour overlap with the three commercial stations in the market. Wild Horse also lists 15 out-of-market commercial radio stations that it claims provide service to Chinook and Havre. In this regard, Wild Horse argues that the radio market at issue is in a rural area, where it is possible to receive service from radio stations even though those stations do not provide principal community contour coverage to the market. Specifically, Wild Horse states that there are five FM stations in Great Falls, Montana that place signal contours of 60 dBu in the market and two AM stations in Great Falls, Montana that place signal contours of 2 mV/m in the market. Wild Horse lists two additional commercial AM stations, one licensed to Shelby, Montana and one licensed to Lewiston, Montana that provide 2 mV/m signals to the market. Wild Horse also claims that residents of Chinook and Havre receive service from an FM station licensed to Missoula, Montana, and five Canadian stations. Wild Horse acknowledges that the three non-commercial stations and the fifteen listed out-of-market AM and FM stations are not counted for purposes of determining the number of stations in the relevant radio market, and thus the level of ownership permitted under the local radio ownership rules. Nevertheless, Wild Horse argues that these stations contribute to diversity in the local radio market at issue. Wild Horse also states that Chinook and Havre are served by six television stations, including three network affiliates, whose signals are transmitted through television translator stations. According to Wild Horse, cable and DBS service is also available, as well as two daily newspapers in Chinook and three daily newspapers in Havre. 10. Wild Horse states that, currently, its controlling principal is the only commercial licensee operating in the market since Davies, the market's only other commercial radio licensee, ceased broadcast operations on KRYK(FM). Thus, Wild Horse argues that even if it is not permitted to acquire and reactivate service on KRYK(FM), the market will nevertheless have only one commercial "voice" competing for advertising revenue. Under these circumstances, Wild Horse argues that its acquisition of KRYK(FM) will not adversely affect economic competition. 11. Wild Horse also contends that approval of its acquisition of KRYK(FM) under the Section 202(b)(2) exception will benefit the public interest, because the addition of KRYK(FM) to an AM/FM station combination under common control will result in economies of scale and operating efficiencies as well as cost savings and enhanced programming on KRYK(FM). Specifically, Wild Horse states that the existing staff and facilities of the AM/FM combination will be used to operate KRYK(FM). Wild Horse projects annual savings of $42,037 in salaries, contract wages and payroll taxes from consolidation of the stations' employees. Wild Horse also estimates that consolidation of KRYK(FM) with the existing station operations will result in additional annual savings of $30,217 on utilities and telephone service, office supplies, office expenses, lease payments and repairs. In addition, Wild Horse will save $6,618 annually on wire services, and other similar expenses. Annual savings of $79,272 in these categories is offset by additional expenses of $17,648 that Wild Horse expects as a result of combining KRYK(FM) with the existing AM/FM station combination, including additional expenses for an engineer, talent, and royalties. Thus, Wild Horse claims net total annual savings of $61,624 in operational expenses based on consolidation of KRYK(FM) with the AM/FM combination licensed to its controlling principal. 12. In addition, Wild Horse states that the proposed joint station operation will permit KRYK(FM) to take advantage of upgraded equipment, which will be available for news gathering and public service programming. Wild Horse also intends to maintain a separate entertainment programming format on KRYK(FM). Wild Horse is committed not only to continuing existing public service programming on KRYK(FM) but also to improving KRYK(FM)'s programming by airing on a regular basis additional programming oriented to needs and interests of Chinook, KRYK(FM)'s community of license. Specifically, Wild Horse intends to add a new public affairs program, during the morning drive time, specifically dedicated to issues of importance in the local community. Wild Horse adds that unless it is permitted to acquire KRYK(FM), Chinook will lose this significant source of local programming. DISCUSSION 13. Although we previously indicated that the Section 202(b)(2) exception would be the subject of a rulemaking proceeding, we now believe that for the immediate future, the Section 202(b)(2) exception should be applied on a case-by-case basis. This approach will permit us to gain some experience with the types of circumstances presented as justifying an exception under this provision and to use this experience in fashioning a generally applicable statement of the proper scope of the exception. This case-by-case approach is also appropriate in light of the Telecommunications Act of 1996, which recently and substantially increased the permissible level of common ownership in local radio markets. Significant consolidation in the radio industry continues to occur in the wake of that legislative change. Under these conditions, it is particularly important, in our view, to proceed in a careful, case-by-case manner with any additional relaxation of the ownership limits afforded by Section 202(b)(2). 14. In the particular case before us here, we conclude that compelling circumstances warranting grant of an exception pursuant to Section 202(b)(2) exist. Grant of Wild Horse's acquisition of KRYK(FM) pursuant to the Section 202(b)(2) exception appears to be the only alternative to loss of the only local radio broadcast station licensed to Chinook. The market involved in this case is located in a rural portion of northern Montana. KRYK(FM) is one of only three commercial stations licensed not just to the communities of Havre and Chinook, but to the entire area comprised of Blaine and Hill counties in which Havre and Chinook are situated. That area, approximately 7122 square miles, is roughly the size of Massachusetts, a state with a population of some 6 million, yet it contains only 24,000 people. This is, in short, an extremely small, sparsely settled market area which would, by its nature, present exceptional challenges to parties attempting to sustain the operation of multiple, competing radio facilities. KRYK(FM)'s history of financial difficulties, and the parties' contention that KRYK(FM) will be unable to return to the air absent common ownership of KRYK(FM) and KOJM(AM) and KPQX(FM), are consistent with the competitive obstacles that appear to be present in the extremely small, rural market in this case. 15. In this regard, documentation submitted with the application indicates that KRYK(FM) has incurred losses in five years during the six year period between 1990 and 1996. Financial problems previously caused the station to discontinue operation for an extended period of time in 1986 and 1987. Moreover, the station's licensee, Davies, has stated that based on these on-going financial difficulties, he will permanently cease operating the station if the assignment to Wild Horse is not approved. In addition, the record includes substantial evidence documenting Davies' repeated and unsuccessful efforts, since 1990, to sell the station to alternative buyers. Thus, although KRYK(FM) has only recently ceased broadcasting, the record in this case supports a finding that but for the application of the exception and approval of the assignment of the station's license, service on the station will not be reactivated. 16. Based on the foregoing, we believe that Wild Horse has met the burden of justifying its acquisition of KRYK(FM) pursuant to the exception in Section 202(b)(2) of the Telecommunications Act of 1996. We emphasize that our decision to permit the use of the Section 202(b)(2) exception in this case primarily is to ensure the reactivation of service on KRYK(FM), the only radio station licensed to Chinook. Under the circumstances presented, we find that grant of the assignment of the license of KRYK(FM), which permits Wild Horse's controlling principal to exceed the numerical limitations of the local radio ownership rules, would result in an increase in the number of stations in operation, as required under the Section 202(b)(2) exception. We are also persuaded that, on balance, our decision to permit joint ownership of KRYK(FM), KOJM(AM) and KPQX(FM) poses no greater risk to economic competition and diversity in this small market than would our refusal to do so. Indeed, given our conclusion that KRYK(FM) will cease operating permanently absent its assignment to Wild Horse, our decision will preserve some portion of the diversity which previously existed in this market, including retention of the only local transmission service in Chinook. We additionally find that the parties to the asssignment application are fully qualified. Therefore, we conclude that the grant of the assignment of the license of KRYK(FM) to Wild Horse is in the public interest. 17. Accordingly, IT IS ORDERED, That the application for assignment of the license of KRYK(FM), Chinook, Montana, from Rick David Davies to Wild Horse Communications, Inc., File No. BALH-960909GJ, and the common ownership of KRYK(FM), KOJM(AM) and KPQX(FM) pursuant to the exception set forth in Section 202(b)(2) of the Telecommunications Act of 1996, Pub. L. No. 104-104,  202(b), 110 Stat. 56 (1996), IS HEREBY GRANTED. However, our grant of the assignment application will be conditioned on resumption of broadcast service on KRYK(FM) within 120 days after consummation. FEDERAL COMMUNICATIONS COMMISSION William F. Caton Acting Secretary