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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 Applications of ) ) Engles Enterprises, Inc. ) File No. BAL-980812GF (Assignor) ) ) and ) ) Smith Broadcasting Group, Inc. ) (Assignee) ) ) For Assignment of License of ) KEYT(AM), Santa Barbara, California ) MEMORANDUM OPINION AND ORDER Adopted: March 25, 1999 Released: March 26, 1999 By the Commission: Commissioner Tristani dissenting and issuing a statement. 1. The Commission has before it the above-captioned application for the assignment of the license of KEYT(AM), Santa Barbara, California, from Engles Enterprises, Inc. ("Engles") to Smith Broadcasting Group, Inc. ("SBGI"). We also have on file SBGI's related request for a permanent waiver of 47 C.F.R.  73.3555(c), the Commission's one-to-a-market rule, which restricts common radio and television ownership in the same market. The application and waiver request are unopposed. For the reasons set forth below, we grant the assignment application and the request for permanent waiver of our one-to-a-market rule. 2. Robert N. Smith has a controlling interest in the general partner of Smith Broadcasting of Santa Barbara Limited Partnership ("SBSBLP"), the licensee of VHF television station KEYT-TV, an ABC affiliate. Mr. Smith also owns 51.8% of the voting stock of SBGI, the proposed assignee in the instant matter. Although KEYT(AM) and KEYT-TV will not be owned by the same corporate entity following consummation of the proposed assignment, because Mr. Smith controls both entities and the Grade A contour of KEYT-TV encompasses Santa Barbara, the acquisition of KEYT(AM) would violate the Commission's one-to-a-market rule. Accordingly, the assignee has requested a permanent waiver of that rule to permit common control by Robert N. Smith of KEYT(AM) and KEYT-TV in the Santa Barbara-Santa Maria-San Luis Obispo DMA, ranked 115th in the country. One-to-a-Market Waiver Showing 3. SBGI bases its request on the one-to-a-market waiver standards adopted in the Second Report and Order in MM Docket No. 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"). Under these criteria, the Commission presumptively favors waiver requests involving station combinations serving the top 25 markets where there are at least 30 separately owned, operated, and controlled broadcast licensees or "voices" after the proposed combination ("top 25 market/30 voice standard"). The Commission also favors waiver requests involving "failed" broadcast stations, i.e., stations that have not been operating for a substantial period of time or that are in bankruptcy proceedings. Otherwise, the requests must be evaluated under a case-by-case approach. See 47 C.F.R.  73.3555, n.7. 4. We shall review SBGI's waiver request under the case-by-case standard because Santa Barbara- Santa Maria-San Luis Obispo is the 115th largest DMA in the country and there is no explicit claim that KEYT(AM) is a "failed station," as defined by the Commission. Under the case-by-case standard, the Commission makes a public interest determination based upon the following five criteria: (1) the potential public service benefits of joint operation of the facilities such as the 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. Second Report and Order, 4 FCC Rcd at 1753-54. In enunciating the five factors to be considered under the case-by-case standard, the Commission noted that not all five factors must be satisfied in each case, but rather the overall consideration of these factors must weigh in favor of granting the waiver request. Second Report and Order Recon, 4 FCC Rcd at 6491. In support of its waiver request, SBGI submits a showing which addresses each of the five factors. 5. Public Service Benefits of Joint Operation. SBGI contends that the acquisition of KEYT(AM) will create efficiencies that would result in annual savings in excess of $140,000. Specifically, SBGI states that it will realize a $16,200 savings by advertising KEYT(AM) on KEYT-TV; $46,900 in annual programming costs by associating the AM station with KEYT-TV and transitioning to an all-news format that will reduce programming staff and eliminate non-local programming copyright fees; $35,800 by relying on KEYT-TV's existing news, weather and engineering staffs; $17,400 by consolidating the KEYT(AM) and KEYT-TV sales departments; and $27,200 by consolidating the stations' management and office personal and obtaining a variety of services at reduced costs. SBGI claims that approval of the proposed transaction will enable it to reverse the radio station's decline in local news coverage by utilizing KEYT-TV's 30-person newsroom to support KEYT(AM)'s programming, including simulcasting the television station's morning, noon, and evening weekday newscasts. SBGI also indicates that it intends to simulcast a new half-hour evening (10:00-10:30) newscast and other KEYT-TV weekend news programs at 6:00-6:30 p.m. and 11:00-11:30 p.m. Given the television station's 24-hour staffing, SBGI contends that the AM station can always rely on KEYT-TV's personnel for urgent or late-breaking news. Further, SBGI notes its intent to co-sponsor several charitable events, including the annual Christmas Unity telethon, which raises funds for a local charity; the annual Children's Miracle Network telethon, which raises funds for a local hospital's neo-natal intensive care unit; and a local volunteering telethon, in which persons agree to serve as mentors as part of a local anti-drug campaign. Finally, both SBGI and SBSBLP pledge to broadcast locally produced political debates and to expand the television's station's highly successful internship programs. 6. Types of Facilities. KEYT(AM) is a Class B AM station that operates on 1250 kHz with a maximum daytime power of 2.5 kW and a maximum nighttime power of 1.0 kW. KEYT-TV operates on VHF Channel 3 with 50 kW peak visual power and an antenna height above average terrain of 3,009 feet. SBGI asserts that KEYT-TV's facilities are comparable to the two other full-power commercial VHF television stations and that KEYT(AM)'s facilities are comparable to eight other Class B AM stations in the market, as defined for purposes of the one-to-a-market rule. 7. Other Media Outlets. Following consummation of the proposed assignment, Robert N. Smith would have a controlling interest in one TV and one AM station in the Santa Barbara-Santa Maria-San Luis Obispo TV market. Mr. Smith does not own other broadcast or media interests in this market. 8. Economic Status. While SBGI does not contend that KEYT(AM) is in financial distress, it claims that the AM station's 1997 unaudited financial statement shows a net loss of $138,879 and that "the recent financial condition of KEYT(AM) offers further justification to grant the requested permanent waiver." However, SBGI notes that the Commission has granted waiver requests in many instances where there was no showing of financial distress. See, e.g., NewCity Communications, Inc., 12 FCC Rcd 3929, 3950 (1997); DeArias, supra; Henry Broadcasting Co., 11 FCC Rcd 1175 (1995). 9. Competition and Diversity in the Market. The final factor in SBGI's showing is the nature of the relevant market in light of the Commission's concerns about diversity and competition. SBGI states that there are five licensed commercial television stations in the Santa Barbara-Santa Maria-San Luis Obispo television metro market, and that each of these stations are licensed to separate owners. Further, SBGI indicates that there are a total of 17 AM and 33 FM stations licensed in the Santa Barbara-Santa Maria-San Luis Obispo television metro market. SBGI claims that these 55 radio and television stations will be licensed to 33 separate owners following approval of the proposed combination. Additionally, SBGI emphasizes that there is abundant non-broadcast media in the Santa Barbara-Santa Maria-San Luis Obispo market, including five daily newspapers and nine weekly newspapers, as well as a cable penetration of 84% in the DMA. Discussion 10. At the outset, we note that the pending television ownership proceeding, in which the Commission is considering eliminating or modifying the one-to-a-market rule, does not preclude consideration of SBGI's request for a permanent one-to-a-market waiver. In the Second Further NPRM in the television ownership proceeding, we stated that waiver requests submitted pending resolution of the proceeding will be considered under the current criteria for evaluating such requests. Second Further NPRM, 11 FCC Rcd at 21689 n.130. Thus, the Second Further NPRM contemplates the grant of permanent, unconditional waivers to allow radio- television combinations that do not propose common ownership of stations exceeding a combination of one television station, two AM stations, and two FM stations, as long as the requested waivers are clearly consistent with Commission precedent. See id. SBGI's proposed combination of one VHF television station and one AM radio station is consistent with that approach. See, e.g., Alabama Universal Corporation, 12 FCC Rcd 7556 (1997). 11. As to the first criterion, the potential public service benefits of joint ownership, the Commission considers the public service benefits that could result from the proposed radio-television combination, such as projected economies of scale, cost savings, program and service benefits. Second Report and Order, 4 FCC Rcd at 1753. SBGI has demonstrated that combining KEYT(AM) with its existing television station will result in substantial annual cost savings in excess of $140,000. These cost savings will translate in programming improvements such as the proposed new evening newscast and the simulcasting of KEYT-TV's weekday and weekend news programs. Further, SBGI states that consolidation of the stations will enable the AM Station to co-sponsor with KEYT-TV many of the latter's public service benefits to local charities and to expand the television station's successful intern program. 12. The second criterion in our analysis concerns the types of facilities that the merged entity will own in each of these markets. In this regard, we must "consider such factors as whether the proposed radio- television combination involves a UHF or VHF television station or an AM or FM radio station as well as the size or class of the stations involved." Second Report and Order, 4 FCC Rcd at 1753. The Commission's interest in the strength of the technical facilities of the stations at issue reflects a continuing concern with the potential impact that the proposed station combination may have on diversity and competition in the affected market. See, e.g., Great American Television and Radio Co., Inc., 4 FCC Rcd 6347, 6349-50 (1989). SBGI proposes to add KEYT(AM), a Class B AM station operating on 1250 kHz with a maximum daytime power of 2.5 kW and a maximum nighttime power of 1.0 kW to a market served by 11 Class B AM and 23 Class B/B1 FM stations. Our independent analysis of SBGI's showing confirms that there are at least six other Class B AM stations in the Santa Barbara-Santa Maria-San Luis Obispo DMA operating with equal or greater facilities than KEYT(AM). Further, our analysis confirms that there are two other VHF-TV stations in this market, NBC-affiliate KSBY(TV) and CBS-affiliate KCOY-TV, and two UHF-TV stations, Univision-affiliate KTAS(TV) and UPN-affiliate KADY-TV. Aside from KEYT(AM) and KEYT-TV, Robert Smith will not own or control any other media outlet in the Santa Barbara-Santa Maria-San Luis Obispo DMA. Thus, although SBGI's commonly owned facilities will not be insignificant in technical terms, our analysis verifies that there are competing stations with comparable facilities, including stations operated by at least five other multiple station group owners. Moreover, as discussed below, the Santa Barbara-Santa Maria-San Luis Obispo market is served by a substantial number of competing stations that represent a significant number of independent voices. The Commission has recognized that, as the level of diversity and competition in the market increases, [the Commission's] concerns grounded in the technical strength of the combining facilities decreases." DeArias, 11 FCC Rcd at 3666. 13. Under the third criterion, neither SBGI nor Robert Smith will not own or control media outlets other than those at issue in its waiver request. With respect to financial conditions, under the fourth criterion, as stated earlier, SBGI has not provided the Commission with sufficient information (e.g., notes of explanation and/or extended history of documented financial difficulties). Cf. Glendive Broadcasting Corporation, 10 FCC Rcd 2708, 2710 (1995). We are therefore unable to conclude that KEYT(AM) is entitled to consideration as a station experiencing financial difficulties in the Santa Barbara-Santa Maria-San Luis Obispo market. However, we previously indicated that not all five factors need be present to justify grant of a one-to-market waiver. Second Report and Order Recon., 4 FCC Rcd at 6491. We have granted a number of one-to-a-market waivers where there was no finding that any of the stations was in financial distress. See, e.g., DeArias, 11 FCC Rcd at 3662; Alta Gulf FM, Inc., 10 FCC Rcd 7750, 7751 (1995); Henry Broadcasting Co., 11 FCC Rcd at 1177; Atlantic Morris Broadcasting, Inc., 10 FCC Rcd 9495 (1995); Secret Communications Ltd., 10 FCC Rcd 6874 (1995). 14. Regarding Robert Smith's media holdings under the final criterion, we find that the proposed combination would not create undue concentration of ownership and control in the Santa Barbara-Santa Maria- San Luis Obispo market, the 115th largest DMA. We have verified that there are 3 VHF-TV and 2 UHF-TV stations licensed in the Santa Barbara-Santa Maria-San Luis Obispo DMA. In addition, there are at least 17 AM stations and 33 FM stations licensed to communities in the relevant television metro market. These 50 radio stations and 5 television stations will be licensed to 34 separate owners following consummation of SBGI's acquisition of KEYT(AM). A wide variety of other media are available, including four cable systems, which reach 84 percent of total TV households, and, our independent analysis confirms, at least four daily newspapers and nine weekly newspapers. We conclude that this level of diversity is consistent with levels approved in previous permanent waiver requests. See, e.g., Paso Del Norte Broadcasting Corp., 12 FCC Rcd 6876 (1997) (20 "voices" in 99th ranked market); Triad Skywaves, Inc., 12 FCC Rcd 6102 (1997) (22 "voices" in 46th ranked market); DeArias, 11 FCC Rcd 3662 (1996) (31 voices in 78th ranked market); Moosey Communications, Inc., 8 FCC Rcd 5247 (1993) (24 "voices" in 141st ranked market). 15. With respect to economic concentration and competition, our independent analysis indicates that KEYT-TV garners 34.1% of television advertising revenue and that KEYT(AM) earns 2.8% of the radio advertising revenues in the Santa Barbara-Santa Maria-San Luis Obispo market. Together, SBGI's combined existing share of the radio and television advertising revenues in this DMA is 20.38%. The combined television and radio advertising revenue figure, while not insignificant, is consistent with permanent one-to-a-market waivers recently granted. WNNE Licensee, Inc., 13 FCC Rcd 12677 (MMB 1998) (21% of combined television and radio advertising where television in 53rd ranked market and radio stations in 14th ranked market). 16. Based on the record, we conclude that grant of the permanent waiver to permit Robert Smith to add KEYT(AM) to his existing television interest in the Santa Barbara-Santa Maria-San Luis Obispo DMA will result in economic efficiencies and enhanced public interest programming without having an undue adverse effect on competition or diversity in the market. In addition, we find that SBGI fully qualified and that our approval of the proposed assignment of license would serve the public interest. Ordering Clauses 17. Accordingly, IT IS ORDERED that the request for waiver of the Commission's one-to-a-market rule, 47 C.F.R.  73.3555(c), to permit common ownership and control of stations KEYT(AM) and KEYT- TV, both Santa Barbara, California, IS HEREBY GRANTED. 18. IT IS FURTHER ORDERED, that, having found the applicant fully qualified and that grant of the application would serve the public interest, the application (File No. BAL-980812GF) for assignment of license of KEYT(AM), Santa Barbara, California, from Engles Enterprises, Inc. to Smith Broadcasting Group, Inc. IS HEREBY GRANTED. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary