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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 ) ) Granite Broadcasting Corporation) File No. BTCCT-971112JA ) For Transfer of Control of ) Pacific FM, Incorporated, Licensee of) KOFY-TV, San Francisco, California ) MEMORANDUM OPINION AND ORDER Adopted: June 23, 1998 Released: June 24, 1998 By the Commission: 1. The Commission has before it for consideration the application to transfer control of Pacific FM, Incorporated, licensee of KOFY-TV, Channel 20 (WB), San Francisco, California, to Granite Broadcasting Corporation ("Granite"), controlling parent of the licensee of KNTV, Channel 11 (ABC), San Jose, California. On December 22, 1997, Chronicle Publishing Company ("Chronicle"), licensee of station KRON-TV, San Francisco, California, filed a petition to deny or defer the transfer application, to which Granite responded. Because the Grade B contour of KOFY-TV overlaps the Grade B contour of KNTV, Granite requests a permanent waiver of the Commission's duopoly rule, Section 73.3555(b), which prohibits common ownership of two stations with such contour overlap. In the alternative, Granite requests such other relief that the Commission deems appropriate, including either a waiver conditioned on the outcome of a pending Commission rulemaking proceeding concerning the local television ownership rules or a fixed-term, temporary waiver. For the reasons stated below, we deny Granite's requests for a permanent or a conditional waiver of the duopoly rule, but find that Granite's alternative request for a temporary duopoly rule waiver will serve the public interest. Accordingly, we grant the application to transfer control of the licensee of KOFY-TV to Granite, and deny Chronicle's petition to deny or defer in part and dismiss it in part. 2. The Duopoly Waiver Request. In support of its permanent waiver request, Granite has submitted an engineering showing which demonstrates that there is not only Grade B contour overlap between the two stations, but substantial Grade A overlap as well. The intersecting Grade A service contours of KOFY- TV and KNTV currently create an overlap area that encompasses 1,314 square miles and 2,189,714 people. This area represents 25.9% of the land area and 67.1% of the population within KNTV's Grade A contour and 42.3% of the land area and 42.9% of the population within KOFY-TV's Grade A contour. The Grade B contour overlap between the two stations comprises an area of 9,089 square miles with a population of 5,062,932 people. This area represents 35.9% of the land area and 78% of the population within KNTV's Grade B contour and 64.8% of the land and 87.6% of the population within KOFY-TV's Grade B contour. Granite contends that the overlap areas and populations are not so large as to require a finding that the stations "serve substantially the same area." Citing Capital Cities/ABC, Inc., 11 FCC Rcd 5841, 5865 (1996). Granite claims that the stations are not significant competitors, due to unusual factors in the San Francisco market and that a permanent waiver would be appropriate in spite of the Grade A overlap. 3. The unusual factors on which Granite bases its argument result from the market classification of KNTV. Granite states that, although KNTV is licensed to the city of San Jose, which is part of the San Francisco-Oakland-San Jose market, the station has historically been treated as part of the Monterey-Salinas market. According to Granite, KNTV serves as the ABC affiliate for the Monterey-Salinas market rather than for the San Francisco-Oakland-San Jose market, for which KGO-TV is the ABC affiliate. Granite goes on to state that Nielsen considers KNTV part of the Monterey-Salinas designated market area ("DMA"), and generally does not list the station in its reports for the San Francisco market because its market share is below the reportable level. 4. KNTV's historic market classification appears to have been the result of the placement of the station's transmitter. According to Granite, KNTV's transmitter, located at Loma Prieta, south of San Jose, is 55.6 miles away from the transmitter location of several of the other San Francisco stations at Mount Sutro. As a result of the distance and of terrain blockage, Granite states that the majority of off-air viewers who live south of Mount Sutro and watch San Francisco stations, cannot receive KNTV without radically re-aiming their antennae, leaving off-air viewers far more likely to tune to KGO-TV for ABC programming. Granite further states that KNTV receives only de minimis cable carriage in the San Francisco DMA outside of its home county of Santa Clara. Even in its home county, Granite claims that KNTV has a smaller audience share than the four San Francisco major network affiliates. In addition, according to Granite, KOFY-TV only provides Grade B service to San Jose and receives minimal audience viewing there. It should be noted, however, that both KNTV and KOFY-TV have must-carry rights on all cable systems within Santa Clara county. In fact, the Commission created a special caveat to the must-carry rules to insure KNTV's must-carry rights in Santa Clara county. Implementation of the Cable Television and Consumer Protection Act of 1992, 8 FCC Rcd 2965, 2975 n.108 (1993) (recognizing KNTV's classification as part of the Salinas-Monterey Area of Dominant Influence (ADI), even though its home county was considered part of the San Francisco ADI). 5. Citing Nielsen ratings and investment reports, Granite contends that grant of a permanent waiver would not result in undue concentration of economic power in the overlap area. Granite cites estimates that, once combined, the two stations would represent less than 6.6% of the audience and revenues of the San Francisco DMA. Citing Investing in Television 1997, First edition, Broadcasting Investment Analyst Publications. Granite does not, however, provide a comparable figure for the effect of the proposed waiver on the Monterey-Salinas DMA. Granite also reports that Nielsen rated KOFY-TV 7 out of 9 stations in the San Francisco market and did not include KNTV in its San Francisco ratings at all because of its small market share. Citing NIS, "San Francisco-Oakland-San Jose," February 1997. During the same period, KOFY-TV only achieved a 1 rating and a 2 share in KNTV's home county of Santa Clara. Citing NIS, "Special report for KNTV," p. 26, February 1997. Although Granite does not provide comparable rating figures for the Monterey-Salinas DMA, Granite argues that the low San Francisco-Oakland-San Jose DMA ratings demonstrate that the proposed VHF-UHF combination will not result in an anti-competitive concentration of economic power. 6. Granite next argues that, if a permanent waiver is granted, the people living in the overlap area will remain well-served by a diverse group of media outlets. In addition to KOFY-TV and KNTV, the overlap area receives Grade B service from 33 television stations, of which 23 serve at least 98.5% of the overlap area population. Granite states that over 99% of the overlap population receives at least 22 Grade B signals. Cable penetration is 71 % in the San Francisco DMA and is 79% in the Monterey-Salinas DMA. Wireless cable also is available in parts of the San Francisco DMA. In addition to video service offerings, there are 151 radio stations serving the two markets, with 108 stations in the San Francisco DMA and 43 in the Monterey-Salinas DMA. Finally, the area is served by 22 daily newspapers and 15 weekly newspapers. Given the number of television stations serving the overlap area, Granite contends that granting its waiver will not result in inordinate or dominant influence on public opinion on the part of Granite. Citing, inter alia, Capital Cities/ABC, Inc., 11 FCC Rcd at 5865. 7. In regard to station operations, Granite states that the two stations will retain their current network affiliations, with KNTV an ABC affiliate and KOFY-TV a WB affiliate. Granite states that the two stations will operate independently of one another for significant portions of the day. However, Granite does state that it will combine the resources of KNTV and KOFY-TV to produce a new local news program for KOFY-TV. Granite also plans to simulcast KNTV's 11:00 p.m. news broadcast on KOFY-TV on a temporary basis. 8. Finally, Granite contends that a permanent waiver would be in the public interest because it will increase minority ownership in the top-ten markets and thereby promote "the Commission's enduring goal of advancing diversity via increased minority ownership." Citing Telemundo Group, Inc., Debtor-in- Possession, 10 FCC Rcd 1104, 1106 (1994). Granite, a minority-owned broadcaster, is already the parent of the licensee of WDWB(TV), Detroit, Michigan, which is located in a top-ten market. 9. Should the Commission conclude that a permanent duopoly waiver is not justified, Granite seeks either a waiver conditioned on the outcome of the pending television ownership rulemaking proceeding, or a 12-month temporary waiver to permit it to divest KNTV. With respect to the conditional waiver, Granite contends that such a waiver would be "little different than permitting a single company to own one station and time broker another station in the same market pending the outcome of these proceedings." As to a fixed-term waiver, Granite urges the Commission to grant a waiver of "sufficient duration (i.e., one year) to permit divestiture of KNTV while minimizing the harm both to Granite and the public. . . ." In this regard, Granite explains that KNTV could be deprived of its network affiliation upon the sale of the station and that this might deprive San Jose audiences of their only locally focused news programming. And, given the unusual market conditions in San Jose noted earlier, Granite argues that a six-month waiver would not afford it sufficient time to sell KNTV at a "fair price in view of the competitive disadvantages under which KNTV operates." 10. Discussion. At the time the Commission adopted the prohibition on Grade B service contour overlaps, we 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 1476, 1479 n.12, recon. granted in part, 3 RR 2d 1554 (1964). Accordingly, the Commission has developed a set of factors to be considered in evaluating requests for both permanent and temporary waiver of the duopoly rule. These factors include the extent of the overlap, the distinctiveness of the respective markets, the independence of the stations' operations, the number of media voices available in the overlap area, and the concentration of economic power resulting from the combination. See, e.g., Capital Cities/ABC, Inc., 11 FCC Rcd at 5862-63. After weighing these various factors, the Commission then considers any public interest benefits proposed by the applicant to determine whether the public interest benefits that will be gained from waiving the duopoly rule will outweigh any detrimental effects that may result from the overlap. See, e.g. 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). As with any waiver, a duopoly waiver will be granted only if the Commission concludes that the waiver is in the public interest. 11. Under these existing standards for permanent waiver of the duopoly rule, Granite's request clearly falls short of the required showing. We have granted permanent waivers where relatively small Grade B contour overlap existed between stations serving distinct markets and where adequate alternative service was available in the overlap area. See, e.g., 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). We have also granted permanent waivers where there was substantial Grade B overlap, but where unusual market conditions suggested that the stations to be commonly owned served clearly differentiated markets, the risk of harm to diversity and competition in the overlap area was low because of abundant additional service, and there were unique public interest benefits to be obtained. See, e.g., Capital Cities/ABC, Inc., 11 FCC Rcd 5841, 5863 (1996) (Grade B overlap represented approximately 27% of population in one station's contour). There is not precedent, however, for permanent waiver where, as here, very substantial Grade A contour overlap exists. As noted earlier, more than 67% of the population within KNTV's Grade A contour would also be within KOFY-TV's Grade A service area and there is some principal community contour overlap between the stations as well. 12. Moreover, we do not believe that the fact that KNTV may be considered by rating services to be a part of the Monterey-Salinas market as a result of unusual market conditions in the San Francisco- Oakland-San Jose market alters the very significant nature of the over-the-air service area shared by these two stations. We do not find determinative Granite's argument that KNTV and KOFY-TV do not compete for off- air audience in this area because viewers watching San Francisco stations would have to radically re-orient their antennas to receive KNTV. Such argument is directed more to the logic and desirability of a Grade A overlap prohibition in any new duopoly rule than to rendering its particular situation unique or unusual; thus, we do not reach that question here. A similar flaw undermines Granite's contention that the low audience and revenue shares of the two stations justify a waiver. We believe that these are matters more properly debated in the pending rulemaking proceeding and that if they serve as a basis for waiver, they would prejudge that proceeding. 13. Finally, we do not find Granite's proposal to bring the first regular news service to KOFY-TV sufficient to justify the substantial deviation from our waiver practice which Granite's request entails. We note, in this regard, that the San Francisco market -- the fifth largest in the country -- is well served by other stations which provide significant news programming as part of their service. Nor do we believe that Granite has shown any other "extraordinary circumstances" that might warrant waiver where such a large Grade A overlap is involved. See Review of the Commission's Regulations Governing Television Broadcasting, Second Further Notice of Proposed Rulemaking, 11 FCC Rcd 21655, 21681 (1996) ("Television Ownership Second Further Notice"). There is no evidence, for example, that either station at issue is in any sort of financial difficulty or that either station will fail or "go dark" absent a permanent waiver. Nor will grant of the requested permanent waiver result in the expansion or restoration of broadcast service to viewers. Other factors cited by Granite also do not constitute "extraordinary circumstances" that would warrant grant of a permanent waiver is this situation. Specifically, while Granite notes that encouraging increased minority ownership in the broadcast industry is an "enduring goal" of the Commission, we cannot find that Granite's furtherance of that goal through its acquisition of KOFY-TV and retention of KNTV would, under current assumptions governing permissible duopoly combinations, be sufficient justification for the waiver sought. We turn now to Granite's requests for conditional or fixed-term waivers of the duopoly rule. 14. The Commission is reexamining its broadcast television ownership policies, including the duopoly rule. See Review of the Commission's Regulations Governing Television Broadcasting, Further Notice of Proposed Rule Making, 10 FCC Rcd 3524 (1995) ("Television Ownership Further Notice"). Subsequent to the release of that Television Ownership Further Notice, 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) (Telecomm Act). In response to this Congressional directive in the Telecomm Act and to update the record, the Commission released the Television Ownership Second Further Notice, 11 FCC Rcd 21655 (1996). In that decision, the Commission tentatively concluded to authorize common ownership of television stations that are in separate DMAs and whose Grade A contours do not overlap. Television Ownership Second Further Notice, 11 FCC Rcd at 21681. 15. Based upon this tentative conclusion, the Commission stated in the Television Ownership Second Further Notice that it will be inclined, during the pendency of the television ownership proceeding, to grant interim duopoly waivers involving stations in different DMAs with no overlapping Grade A contours, conditioned on coming into compliance with the outcome of that proceeding within six months of its conclusion. In this connection, the Commission noted 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." Id. 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. (emphasis added). However, the Commission also concluded that it would be disinclined to grant waivers that did not meet the proposed standard (i.e., those involving stations in the same DMA or with overlapping Grade A signal contours), absent extraordinary circumstances. Id. As discussed above, there is a significant overlap of the Grade A contours of KNTV and KOFY-TV, encompassing an area of over 1300 square miles with a population of well over two million people. And, as we have also already noted, we do not believe that Granite has demonstrated "extraordinary circumstances" sufficient to warrant waiver despite its failure to comply with existing interim waiver standards. 16. We do believe, however, that circumstances warrant the grant of a brief, fixed-term waiver of the duopoly rule in order to permit the transfer of control of the licensee of KOFY-TV to Granite and the orderly sale of KNTV. As we have previously stated, the Commission 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 RR 2d 1344, 1348 (1986)). Allowing Granite to commonly own KOFY-TV and KNTV for a brief, nine-month period will not undermine our goals of promoting diversity in programming and viewpoints and fostering economic competition, given, as described in  6 above, the large number of broadcast and other media voices serving the San Francisco DMA, the fifth largest DMA in the country. In particular, we note that the Commission has, to facilitate certain transactions, previously approved temporary duopoly waivers in cases involving a comparable or greater degree of Grade A and Grade B contour overlap and smaller and less competitive markets. We also note KNTV's minimal viewership in the San Francisco DMA and the separate network affiliations of KNTV and KOFY-TV. Based on these factors, we conclude that diversity and competition in the San Francisco DMA will not be adversely affected by a short period of common ownership of KOFY-TV and KNTV. Finally, we note that the unusual market circumstances of KNTV -- its physical location in the San Francisco DMA but its assignment to the Monterey-Salinas DMA -- and the presence of a San Francisco ABC affiliate owned by its network may make the sale of KNTV without substantial penalty to Granite quite difficult. A short fixed-term waiver of the duopoly rule will, in these circumstances, accommodate the transactional needs of the parties and avoid imposing any undue financial burden on Granite. We have long held that temporary waiver is an appropriate remedy in such circumstances. 17. In view of the foregoing, we conclude that grant of Granite's alternative request for a temporary waiver of the television duopoly rule to permit a brief period of common ownership of KOFY-TV and KNTV will serve the public interest, convenience and necessity. Given the substantial nature of the overlap concerned, however, we will only grant a waiver for a nine-month term, rather than for a longer period. Any request to extend this nine-month waiver should be filed at least 45 days prior to the end of the nine-month period and will be closely scrutinized. 18. The Petition to Deny or Defer. In its petition to deny, Chronicle asks that we defer action on the Granite application and waiver request until we have issued an order in our on-going ownership rulemaking. Chronicle argues that to do otherwise would involve pre-judging issues in that proceeding. Given our decision here to grant only a fixed-term, temporary waiver, rather than either a permanent or conditional waiver, we do not believe Chronicle's concerns about prejudgment are implicated. 19. Conclusion. In view of the foregoing, and having determined that the applicants are qualified in all respects, we find that a grant of the application to transfer control of Pacific FM, Incorporated, licensee of KOFY-TV, to Granite Broadcasting Corporation will serve the public interest, convenience and necessity. 20. ACCORDINGLY, IT IS ORDERED, That the petition to deny filed by Chronicle Publishing Company IS DENIED to the extent stated here and otherwise DISMISSED. 21. IT IS FURTHER ORDERED, That the request of Granite Broadcasting Corporation for a permanent waiver of the duopoly rule, Section 73.3555(b) of the Commission's rules, to permit common ownership of KOFY-TV and KNTV, IS DENIED. 22. IT IS FURTHER ORDERED, That the request for a temporary waiver of the duopoly rule, Section 73.3555(b), to permit common ownership of KOFY-TV and KNTV, IS GRANTED, subject to the condition that within nine months of the consummation of this transaction, Granite Broadcasting Corporation file applications with the Commission to bring it into compliance with the Commission's broadcast multiple ownership rules. 23. IT IS FURTHER ORDERED, That the application to transfer control of Pacific FM, Incorporated, licensee of KOFY-TV, San Francisco, California to Granite Broadcasting Corporation, File No. BTCCT-971112JA, IS GRANTED. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary APPENDIX A Parties Submitting Letters in Support of the Application of Granite Broadcasting The Hon. Trixie Johnson, Councilmember, City of San Jose The Hon. John Diquisto, Councilmember, City of San Jose The Hon. Charlotte Powers, Councilmember, City of San Jose The Hon. Frank Fiscalini, Councilmember, City of San Jose The Hon. Pete McHugh, Supervisor, County of Santa Clara The Hon. J. Joseph Simitian, Supervisor, County of Santa Clara The Hon. Donald F. Gage, Supervisor, County of Santa Clara The Hon. Blanco Alvarado, Supervisor, County of Santa Clara The Hon. Willie L. Brown, Mayor of San Francisco