******************************************************** 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 Application of ) ) J.S. KELLY, L.L.C. ) (Transferor) ) ) and ) File No. BTCCT-980828IA ) KELLY ACQUISITION CORP. ) (Transferee) ) ) For Consent to the Transfer of Control of) Kelly Broadcasting Company, Licensee of) Station KCRA-TV, Sacramento, CA ) MEMORANDUM OPINION AND ORDER Adopted: December 10, 1998 Released: December 11, 1998 By the Chief, Mass Media Bureau: 1. The Commission, by the Chief, Mass Media Bureau, acting pursuant to delegated authority, has before it for consideration the above-captioned, unopposed application seeking consent to transfer control of Kelly Broadcasting Company, the licensee of station KCRA-TV (Channel 3, NBC), Sacramento, California, from J.S. Kelly, L.L.C., to Kelly Acquisition Corp., a wholly-owned subsidiary of Hearst-Argyle Television, Inc. (collectively, Hearst-Argyle). 2. Hearst-Argyle wholly owns the licensee of station KSBW(TV) (Channel 8, NBC), Salinas, California, whose predicted Grade A and Grade B contours overlap with those of station KCRA-TV. However, Hearst-Argyle holds an outstanding construction permit to relocate station KSBW(TV)'s transmission facilities (File No. BPCT-980828KE) and thereby enable the station to improve its market coverage. Upon completion of the proposed modification, no Grade A overlap will exist between the stations, but their Grade B contours will continue to overlap. Therefore, to permit its common ownership and control of stations KCRA-TV and KSBW(TV), Hearst Argyle requests the following waivers of Section 73.3555(b), the Commission's duopoly rule, 47 C.F.R. Section 73.3555(b): (1) a nine-month, temporary waiver for the period necessary to complete the relocation of station KSBW(TV)'s facilities, during which time the stations will continue to operate with Grade A overlap; and (2) for the period beginning upon completion of station KSBW(TV)'s facilities, at which time only Grade B contour overlap will exist between stations KCRA-TV and KSBW(TV), a waiver conditioned upon the outcome of the Commission's pending broadcast television ownership rulemaking concerning the duopoly and other multiple ownership rules. See Review of the Commission's Regulations Governing Television Broadcasting, Second Further Notice of Proposed Rule Making, 11 FCC Rcd 21655 (1996) (Television Ownership Second Further Notice). According to Hearst-Argyle, grant of the requested duopoly waivers would be consistent with Commission precedent and would serve the public interest. For the reasons discussed below, we will grant Hearst- Argyle's requests for temporary and conditional duopoly waivers, as well as the proposed transfer of control application. Duopoly Standard 3. In adopting the duopoly rule's fixed standard of a prohibited overlap of Grade B service contours, the Commission also acknowledged the need for "flexibility" in that rule's application, noting that waivers should be granted where rigid conformance to the rule would be "inappropriate." Multiple Ownership of Standard, FM and Television Broadcast Stations, 45 FCC 2d 1476, 1479 n.12, recon. granted in part, 3 RR 2d 1554 (1964). To that end, the Commission has developed a set of factors to be considered when evaluating an applicant's request for waiver of the duopoly rule, including the extent of the overlap, the number of media voices available in the overlap area, the distinctiveness of the respective markets, the independence of the stations' operations, and the concentration of economic power resulting from the combination. See Iowa State University Broadcasting Corporation, 9 FCC Rcd 481, 487-88 (1993), aff'd sub nom. Iowans for WOI-TV, Inc. v. FCC, 50 F.3d 1096 (D.C. Cir. 1995); H&C Communications, Inc., 9 FCC Rcd 144, 146 (1993). After weighing the factors, the Commission considers any public interest benefits proposed by the applicant to determine whether, in light of the overlap, the benefits outweigh any detriment which may occur from grant of the waiver. See, e.g., Iowa State University, 9 FCC Rcd at 487-88. As with any waiver, it will only be granted if the Commission concludes that the waiver is in the public interest. 4. Currently, the Commission is reexamining its broadcast television ownership policies, including the duopoly rule. In the Telecommunications Act of 1996, Congress directed the Commission to conduct a rulemaking proceeding to determine whether to retain, modify or eliminate existing limitations on the number of television stations that an entity may control within the same television market. See Section 202(c) of the Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (Feb. 8, 1996). Pursuant to that Congressional directive and to update the record, the Commission released a second notice, the Television Ownership Second Further Notice, to its pending television ownership proceeding. See Review of the Commission's Regulations Governing Television Broadcasting, Further Notice of Proposed Rule Making, 10 FCC Rcd 3524 (1995). 5. In the Television Ownership Second Further Notice, the Commission stated that it will be inclined, during the pendency of the television ownership proceeding, to grant duopoly waivers involving stations in different DMAs with no overlapping Grade A contours, conditioned on coming into compliance with the outcome of the proceeding within six months of its conclusion. It also noted there its tentative conclusion that the record in that proceeding "supports relaxation of the geographic scope of the duopoly rule from its current Grade B overlap standard to a standard based on DMAs supplemented with a Grade A overlap criterion." Television Ownership Second Further Notice, 11 FCC Rcd at 21681. The Commission further stated that "we do not believe granting waivers satisfying the proposed standard, and conditioning them on the outcome of this proceeding, will adversely affect our competition and diversity goals in the interim." Id. Additionally, the Commission gave the staff delegated authority to act on applications seeking waivers consistent with this interim policy. With regard to waiver requests not falling in this category, i.e., those involving stations in the same DMA or with overlapping Grade A contours, the Commission stated it would be disinclined to grant them during the pendency of the television ownership proceeding absent extraordinary circumstances. Id. Temporary Waiver Showing 6. Stations KCRA-TV and KSBW(TV) do not presently meet the Commission's interim duopoly policy because, although they are located in separate Designated Market Areas (DMA), with station KCRA-TV in the Sacramento-Stockton-Modesto, California DMA, ranked 20th in size, and station KSBW(TV) in the Monterey-Salinas, California DMA, ranked 121st in size, their Grade A contours overlap. As mentioned supra 2, however, Hearst-Argyle holds an outstanding construction permit to relocate station KSBW(TV)'s facilities to Fremont Peak which, inter alia, will eliminate the Grade A overlap between the stations. During the time that Hearst-Argyle constructs the new KSBW(TV) facilities on Fremont Peak, however, the stations will continue to operate with overlapping Grade A and Grade B contours. Therefore, to permit its common ownership of the stations for the period necessary to complete construction of the new KSBW(TV) facilities on Fremont Peak, Hearst-Argyle requests a temporary waiver of the duopoly rule, beginning nine months from the consummation date of its acquisition of station KCRA-TV. 7. In support, Hearst-Argyle addresses the traditional factors the Commission considers when evaluating a request for waiver of the duopoly rule, see supra 3. According to Hearst-Argyle, the Grade B overlap encompasses 14,890 square kilometers and 5,713,989 people, representing 29.4 percent of the area and 66.3 percent of the population within the Grade B contour of station KCRA- TV, and 48.3 percent of the area and 87.7 percent of the population within the Grade B contour of station KSBW(TV). This degree of Grade B overlap, Hearst-Argyle contends, falls within the range of those approved by the Commission in granting previous temporary duopoly waivers. As for the Grade A overlap, that area encompasses 878 square kilometers and 143,626 people, representing 5.3 percent of the area and 4.9 percent of the population within the Grade A contour of station KCRA- TV, and 5.2 percent of the area and 4.5 percent of the population within the Grade A contour of station KSBW(TV). Hearst-Argyle maintains that this degree of Grade A overlap is significantly less than that recently approved by the Commission. Citing Granite Broadcasting Corporation, 13 FCC Rcd 13035 (1998). 8. Next, Hearst-Argyle argues that a large number of media voices exist both within the overlap area and in the affected markets. Specifically, Hearst-Argyle claims that, excluding stations KCRA-TV and KSBW(TV), a maximum of 26, and a minimum of 15, Grade B television services, and numerous FM 60 dBu radio services are available within the Grade A overlap area. As for the affected markets, Hearst-Argyle refers to the ten other television stations, including eight commercial stations, licensed to cities within the Sacramento DMA, which has a cable penetration rate of 64 percent, and to the three other television stations, all commercial stations, licensed to cities within the Monterey-Salinas DMA, which has a cable penetration rate of 78 percent. In addition, Hearst-Argyle reports that the majority of the entire overlap area lies in a third market, the San Francisco-Oakland- San Jose DMA, ranked the 5th largest market in the country. Nineteen commercial and five noncommercial television stations are licensed to that market, which has a cable penetration rate of 71 percent. Based on these facts, Hearst-Argyle concludes that, even with the temporary common ownership of stations KCRA-TV and KSBW(TV), a diversity of other media outlets provides numerous viewpoints within the overlap area, as well as the stations' respective DMAs. 9. With respect to the Commission's concerns regarding the distinctiveness of the markets and the effect of the combination on competition, Hearst-Argyle states that the stations are located in cities approximately 180 miles apart and in separate DMAs. According to Hearst-Argyle, moreover, "[t]he fact that [KCRA-TV and KSBW(TV)] are in different DMAs evidences that they are not direct competitors." As additional evidence that the proposed combination will not have an adverse effect on competition, Hearst-Argyle submits the following: (1) a statement from the general manager of station KCRA-TV, in which he claims that he is aware of no instance in which an advertiser seeking to reach television households in the Monterey-Salinas DMA has purchased advertising time on station KCRA-TV; and (2) a statement from the general manager of station KSBW(TV), in which he claims that he is aware of no instance in which an advertiser seeking to reach television households in the Sacramento-Stockton-Modesto DMA has purchased advertising time on station KSBW(TV). Further, Hearst-Argyle pledges to operate stations KCRA-TV and KSBW(TV) separately during the nine-month, temporary waiver period, with each station having its own local sales, programming and news staffs. 10. Given these considerations, Hearst-Argyle concludes that grant of a nine-month, temporary waiver would be consistent with Commission precedent and would not frustrate the policies underlying the multiple ownership rules. To buttress its argument, moreover, Hearst-Argyle states its intention to use this same nine-month, temporary waiver period to coordinate the collocation of KSBW(TV)'s analog and digital facilities, as well as the digital facilities of other television stations, at the new Fremont Peak site. Discussion 11. Although the Commission stated in the Television Ownership Second Further Notice that, during the pendency of the television ownership proceeding, it would be disinclined to grant waivers inconsistent with its interim policy, the Commission has also previously stated that it is not constrained from granting a temporary waiver where circumstances "will not significantly frustrate the policies underlying the multiple ownership rules." Telemundo Group, Inc., Debtor in Possession, 10 FCC Rcd 1104, 1106 (1994) (quoting Family Television Corp., 59 RR2d 1344, 1348 (1986)). We believe that the circumstances presented, here, warrant the grant of a nine-month, temporary waiver of the duopoly rule to permit Hearst-Argyle's common ownership of stations KCRA-TV and KSBW(TV). In accordance with its outstanding construction permit, Hearst-Argyle intends to complete the relocation and construction of station KSBW(TV)'s facilities, thereby eliminating the Grade A overlap between that station and station KCRA-TV, within the nine-month, temporary waiver period. Further, Hearst-Argyle has already taken steps to relocate and construct station KSBW(TV)'s new facilities, and has promised to provide the Commission with status reports every 90 days regarding the progress of such relocation and construction. We note, too, that this relocation of station KSBW(TV) will result in the collocation of its analog and digital facilities and the digital facilities of other television stations. Collocation of these facilities will serve the public interest by reducing the need for modifying existing broadcast towers or constructing new towers to house digital television facilities, and by ameliorating adjacent channel interference concerns. 12. Furthermore, allowing Hearst-Argyle's common ownership of the stations for this brief, nine-month period will not undermine our goals of promoting diversity in programming and viewpoints and fostering economic competition, given the large number of media voices serving the overlap area, which lies mostly in the San Francisco DMA, the fifth largest market, the location of the stations in separate markets and Hearst Argyle's pledge to operate stations KCRA-TV and KSBW(TV) separately during the waiver period. We also note that, to facilitate certain transactions, the Commission has previously approved temporary waivers in cases involving a greater degree of Grade A and Grade B contour overlap and, in some instances, smaller and less competitive markets. In fact, the Commission recently approved a nine-month, temporary waiver in a case involving a greater degree of Grade A and Grade B contour overlap between two stations, one located in the San Francisco DMA and the other located in the Monterey-Salinas DMA. Based on these factors, we conclude that diversity and competition in the Sacramento and Monterey-Salinas DMAs will not be adversely affected by a fixed, temporary period of common ownership and control of stations KCRA- TV and KSBW(TV). 13. For these reasons, we conclude that grant of the requested waiver will serve the public interest, convenience and necessity. Accordingly, we will grant Hearst-Argyle a nine-month waiver of the television duopoly rule to permit its temporary common ownership and control of stations KCRA-TV and KSBW(TV). Any request to extend this temporary waiver should be filed at least 45 days prior to the end of the nine-month period and will be closely scrutinized. Conditional Waiver Showing 14. Turning to its second waiver request, Hearst-Argyle asserts that station KCRA-TV and station KSBW(TV), as modified, see supra 6, meet the Commission's interim duopoly policy. In support, Hearst-Argyle submits an engineering exhibit which shows that no Grade A overlap will exist between station KCRA-TV, which is in the Sacramento DMA, and station KSBW(TV), as modified, which is in the Monterey-Salinas DMA. In addition, Hearst-Argyle describes the predicted Grade B contour overlap between stations KCRA-TV and KSBW(TV), as modified, as encompassing 11,059 square kilometers and 3,180,016 people, representing 21.8 percent of the area and 36.9 percent of the population within station KCRA-TV's predicted Grade B contour, and 36.2 percent of the area and 78.7 percent of the population within station KSBW(TV)'s predicted Grade B contour. Hearst-Argyle asserts that this degree of overlap falls well within the range of previous duopoly waiver cases approved by the Commission. 15. Further, Hearst-Argyle maintains that, excluding stations KCRA-TV and KSBW(TV), 26 commercial television stations and six non-commercial television stations provide service to part or all of the Grade B overlap area. Of those 32 television stations, Hearst-Argyle states, the maximum number of Grade B television services available in any portion of the overlap area is 27, and the minimum number of such services available in any portion of the overlap is 2. Along with video service offerings, the overlap area also receives radio service from 54 commercial and 17 noncommercial FM radio stations. Based on its analysis of the overlap area, as well as the Sacramento, Salinas and San Francisco DMAs, see supra 8, Hearst-Argyle concludes that, even with the common ownership of stations KCRA-TV and KSBW(TV), a diversity of other media outlets provides numerous viewpoints within the overlap area and the stations' respective DMAs. 16. Finally, Hearst-Argyle reiterates its statements made in the nine-month, temporary waiver request with respect to the distinctiveness of the affected markets and the effect of the combination on competition, see supra 9, and likewise pledges to operate stations KCRA-TV and KSBW(TV) separately during the conditional waiver period, with each station having its own local sales, programming and news staffs. Discussion 17. Based on the Commission's interim ownership policy outlined in the Television Ownership Second Further Notice, we believe that grant of a conditional waiver of the duopoly rule, subject to the outcome of the pending ownership proceeding, is justified. Because the two stations are in separate DMAs and the Grade A contours of station KCRA-TV and KSBW(TV), as modified, will not overlap, the temporary common ownership of stations KCRA-TV and KSBW(TV) would be consistent with the interim policy set forth in the Television Ownership Second Further Notice. Moreover, our examination of the record presented here reveals nothing suggesting that we should not follow the established interim policy in this case. Accordingly, we conclude that grant of a temporary waiver, conditioned on the applicant coming into compliance with the outcome of the pending television ownership rulemaking proceeding within six months of its conclusion, will serve the public interest, convenience and necessity. Any request to extend the conditional waiver should be filed at least 45 days prior to the end of the six-month period and will be closely scrutinized. CONCLUSION 18. Having determined that the applicants are qualified in all respects, and based upon the information and representations made before us, we find that grant of the application to transfer control of Kelly Broadcasting Company, the licensee of station KCRA-TV, Sacramento, from J.S. Kelly, L.L.C. to Kelly Acquisition Corp. will serve the public interest, convenience and necessity. 19. Accordingly, IT IS ORDERED, That the request for a temporary waiver of the duopoly rule, Section 73.3555(b), to permit common ownership and control of television stations KCRA-TV, Sacramento, California, and KSBW(TV), Salinas, California IS GRANTED, provided that, within nine months of the consummation of this transfer of control, Hearst-Argyle Stations, Inc. commences operation pursuant to the modification granted in File No. BPCT-980828KE. 20. IT IS FURTHER ORDERED, That the request for a conditional waiver of the television duopoly rule, Section 73.3555(b) of the Commission's rules, to permit the common ownership of television stations KCRA-TV, Sacramento, California, and KSBW(TV), Salinas, California IS GRANTED, subject to the outcome of the Commission's pending broadcast ownership rulemaking in MM Docket Nos. 91-221 and 87-8. Should divestiture be required as a result of that proceeding, the licensee is directed to file, within six months from the release of the final order in MM Docket Nos. 91-221 and 87-8, an application for Commission consent to dispose of such station as would be necessary to come into compliance with the rules as provided in the final order. 21. IT IS FURTHER ORDERED, That the application for consent to transfer control of Kelly Broadcasting Company, the licensee of station KCRA-TV, Sacramento, California, from J.S. Kelly, L.L.C. to Kelly Acquisition Corp., File No. BTCCT-980828IA, IS GRANTED. FEDERAL COMMUNICATIONS COMMISSION Roy J. Stewart Chief, Mass Media Bureau