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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 ) ) Great Empire Broadcasting, Inc. ) (Transferor) ) File Nos. ) BTC-980831GH and ) BTCH -980831GI ) Journal Broadcast Corporation ) (Transferee) ) ) For the Transfer of Control of Omaha Great ) Empire Broadcasting, Inc., Licensee of ) WOW(AM) and WOW(FM), Omaha, Nebraska) ) ) ) MEMORANDUM OPINION AND ORDER Adopted: June 10, 1999 Released: June 11, 1999 By the Commission: Chairman Kennard issuing a separate statement; Commissioners Ness, Furchtgott-Roth and Tristani concurring and issuing separate statements. 1. The Commission has under consideration the above referenced applications to transfer control of the licenses of WOW(AM) and WOW(FM), Omaha, Nebraska from the shareholders of Great Empire Broadcasting, Inc. ("Great Empire") to Journal Broadcast Corporation ("Journal"). Mitchell Broadcasting of Iowa, Inc. ("Mitchell"), a competitor in the Omaha radio market, has filed a petition to deny opposing the transfer. Great Empire and Journal filed a joint opposition to which Mitchell submitted a reply. For the reasons set forth below, we deny the petition to deny and grant the applications. Background 2. The proposed transaction would result in Journal's common ownership of three AM stations and five FM stations in the Omaha market. In markets with 45 or more commercial stations, Section 73.3555(a)(1)(i) permits the common ownership of up to eight stations in a market, not more than five of which are in the same service. As required by the Commission's local radio ownership rules, Journal included an exhibit demonstrating that there are 53 stations in the relevant market. 47 C.F.R.  73.3555(a). In its petition to deny, Mitchell concedes that the transaction complies with the local radio ownership rules' numerical station limits but states the proposed transaction does not serve the public interest and should be denied. Mitchell premises its opposition on two grounds. First, Mitchell challenges the local radio ownership rules in general, stating that the rules are flawed and inconsistent with the stated goal of the Telecommunications Act of 1996 which is to promote competition and diversity. It also states that the rules as applied to the instant transaction produce an "absurd" result. Second, Mitchell claims that the proposed transaction is anticompetitive, in violation of Commission policy and Department of Justice merger guidelines. 3. In its challenge to the local radio ownership rules, Mitchell states that although the Telecommunications Act lifted the national limit on ownership restrictions and relaxed the per market limit, the Commission did not modify the method for determining the relevant radio market. As a result, although there are 53 stations in the market for purposes of the proposed transaction, only 23 stations are included in the BIA data for the Omaha market. Mitchell concludes that the rules, therefore, do not meet Congress' stated intent to limit the level of economic concentration in radio markets. In addition, the local radio ownership rules permit the licensee of the most powerful stations to own the greatest number of stations in the market. As applied to the instant transaction, the relevant market has 53 stations because WOW(AM) has a principal community contour that extends 20-30 miles beyond the other proposed commonly owned stations. Absent WOW(AM) the market would have only 43 stations, limiting Journal's ownership to seven stations in the market. Mitchell's support for the assertion that the local radio ownership rules do not further Congress' intent includes reference to the joint statement of Commissioners Tristani and Ness in KIXK, Inc., 13 FCC Rcd 15685 (1998), acknowledging that the rule may lead to unrealistic results. Mitchell suggests that the problem may be remedied by the Commission's use of BIA data to determine the number of stations that share revenue in a given market. Mitchell claims it is "incumbent upon the Commission to correct" Section 73.3555. 4. Mitchell also alleges several anti-competitive effects from the proposed merger as reasons for denying Journal's acquisition of Great Empire's Omaha stations. Referring to figures from Miller, Kaplan, Arase & Co. ("Miller Kaplan"), Mitchell asserts that the transfer would result in Journal controlling 42% of market advertising revenues, which is over the threshold established by the Department of Justice ("DOJ") for impermissible concentration in the market. Further, Mitchell argues that Journal and Triathlon, another competitor in the market, together would control more than 70 percent of the market's radio station revenues, and notes the Commission's policy of seeking additional information with regard to acquisitions that would vest over 70 percent of revenues in two entities in the same market. In addition, the acquisition of these two stations would give Journal control of more than 40 percent of the three leading subdemographic groups. The transaction would also result in a high level of market concentration as measured by the Herfindahl-Hirshman Index ("HHI"). According to Mitchell, the pre-merger HHI is 2357, and the post-merger HHI is 3158, an increase of 801 points. Mitchell claims that transactions with smaller increases in the HHI have been blocked by the Department of Justice. Finally, Mitchell asserts that the Commission should consider the types of facilities involved and states Journal would own the most powerful facilities after the acquisition of WOW(FM). Consequently, according to Mitchell, the Commission cannot meet its statutory responsibility to find that the proposed acquisition would serve the public interest because such a finding includes a determination that the transaction will not lead to impermissible consolidation in the market. 5. In their joint opposition to the petition to deny, Journal and Great Empire (collectively "Journal") maintain that the petition not only fails to raise a substantial and material question of fact, but in fact agrees that the application to transfer control complies with the relevant regulatory requirements. Journal also states that its application is the wrong forum for Mitchell to challenge the Commission's rules. As to the antitrust claims, Journal states that Mitchell's analysis fails to support its claims of "impermissible concentration." Although Journal questions the revenue numbers cited by Mitchell, it notes nonetheless that DOJ has approved transactions with figures well above those cited by Mitchell in this proceeding. Likewise, Journal argues that the Commission has approved numerous radio combinations resulting in a higher percentage of radio advertising revenues than would result from the proposed transaction. Furthermore, Journal states that DOJ has already determined that there is nothing worthy of investigating in this transaction and has granted an early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976. Therefore, the transfer application does not present any actionable antitrust issues. 6. Mitchell, in its reply, claims Journal mischaracterizes its petition as an "attempt" to rewrite the local radio ownership rules. Rather, Mitchell states it actually concluded the Commission was "legally prohibited" from applying the rules to the instant proceeding because such application would lead to absurd results. Mitchell comments further that DOJ's early termination of the Hart-Scott-Rodino Act waiting period does not constitute approval of the transaction, and the Commission's public interest review must include the effects of competition. Mitchell also questions Journal's failure to specifically address its claims of impermissible concentration of advertising revenue, market demographics, and facilities. Discussion 7. Local Radio Ownership Rules. The local radio ownership rules, 47 C.F.R.  73.3555(a)(1), limit the number of stations in which a party may hold attributable interests in any particular radio market. For purposes of the rules, the Commission defines the relevant radio market as "that area encompassed by the principal community contours ... of the mutually overlapping stations proposing to have common ownership." The number of stations in the market is determined based on the principal community contours of all commercial stations whose principal community contours overlap or intersect the principal community contours of any of the commonly owned and mutually overlapping stations. First Reconsideration Order, 7 FCC Rcd at 6395; Frank Elwood and Wanda Jean Elwood, 10 FCC Rcd 3269 (1995). In calculating the number of stations which may be owned in the market, the Commission attributes to the prospective buyer only those commonly owned stations which contribute to the mutual overlap in the relevant market. 8. The parties do not dispute that for purposes of the proposed transaction, there are 53 radio stations in the market as calculated by Commission rules. Rather, Mitchell questions the validity of the rules themselves. It is generally inappropriate, however, to address this argument in a restricted adjudicatory proceeding, "where third parties, including those with substantial stakes in the outcome, have had no opportunity to participate, and in which we, as a result, have not had the benefit of a full and well-counseled record." Capital Cities/ABC, Inc., 11 FCC Rcd 5841, 5888 (1996) (stating that an open proceeding is the proper forum to reexamine the daily newspaper cross-ownership rule); 47 C.F.R.  1.401. Further, the Administrative Procedure Act ("APA") contemplates that a substantive rule would be amended or repealed by a rulemaking under the APA. 5 U.S.C.  553(e). See Consumer Energy Council of Am. v. FERC, 673 F.2d 425, 446 and 447 n.79 (the question of whether a regulation is defective is one worthy of notice and an opportunity to comment); Community Television of Southern California v. Gottfried, 459 U.S. 498, 511 (1983) ("rulemaking is generally better, fairer, and more effective method of implementing a new industry wide policy than the uneven application of conditions in isolated [adjudicatory] proceedings"). In this regard, we note that the Commission recently sought comment on the current methodology for determining a "radio market." See Notice of Inquiry, In the Matter of 1998 Biennial Regulatory Review -- Review of the Commission's Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, MM Docket 98-35, 13 FCC Rcd 11276, 11283 (1998). However, the pendency of a rulemaking does not suspend the application of existing substantive rules. See Palm Beach Cable Television Co., 78 FCC 2d 1180, 1183 (1980). 9. Furthermore, we find no evidence that the application of Section 73.3555 to this particular transaction is contrary to Congress' intent. Although some Commissioners have recognized that the current market definition may create anomalous results, particularly in markets with few stations, there are a significant number of separately owned stations serving Omaha. In this regard, even if only the radio metro market designated by Arbitron is considered, there are eleven separately owned radio "voices" serving Omaha. Moreover, in considering issues of radio concentration pursuant to a public interest analysis, the Commission examines the "advertising revenue share of the proposed [station] combination" as well as other factors. KIXK, Inc., 13 FCC Rcd 15685, 15687 (1998). As discussed below, Mitchell has failed to raise a substantial and material question of fact regarding these factors. Thus, there is no indication that the instant transaction is likely to result in undue diversity or economic concentration effects in the Omaha market. 10. Competitive Analysis. We similarly find Mitchell's anti-competitive arguments unpersuasive. No single competitive factor taken alone can provide a definitive indicator of the level of competition or potential competitive problem. Thus, an estimate of market share, an HHI, an increase in the HHI, or the share of a specific demographic market cannot be evaluated in isolation. The likely competitive effects of a proposed merger requires that all pertinent factors be combined and considered in light of other relevant economic criteria which include conditions of entry and the likelihood of coordinated behavior between and among competitors. After analyzing the issues raised by Mitchell, and carefully evaluating other relevant economic criteria, we find that the competitive concerns raised by Mitchell are not sufficient to warrant denial of this application. 11. Mitchell argues that after the proposed transaction is consummated, Journal's share of advertising revenue will "jump to 42 [percent]." This figure is derived from Miller Kaplan's revenue data for January 1998 to September 1998. Mitchell contends that Miller Kaplan's data are more reliable than that provided by BIA. In response, Journal points out that Miller Kaplan's annual revenue data for 1997 shows Journal with "37 percent of the market's radio advertising revenue." However, Journal argues that the "more comprehensive data provided by BIA" reflects that Journal will have a 36.1 percent post-merger revenue share. While the parties differing estimates fall within a narrow range (i.e., 36.1 percent to approximately 42 percent), Mitchell and Journal draw widely different conclusions. Mitchell maintains that the proposed acquisition would "violate the Commission's policy of investigating those acquisitions which would result in the control of more than 50% of the advertising revenues for one entity, or more than 70% for two entities." In contrast, Journal contends that "regardless of which figures are used the Transfer Application clearly does not propose the creation of a post-merger level of concentration warranting further review." We note that the Commission generally screens radio mergers for additional review when the two largest radio groups in a market account for more than 70 percent revenue share. Contrary to Mitchell's apparent assumption, there is no per se bar to such transactions. Rather, the Commission asks for additional information in order to determine whether there may be a competitive problem. Moreover, although the Commission calculates revenue share data to help determine whether further competition analysis may be warranted, our decision to undertake further competition analysis in a particular case is not made on the basis of revenue share data alone, but as discussed below, includes other competitive factors. The two largest groups in the Omaha market, Journal and Central Star, account for 74.1 percent revenue share. However, the record does not suggest that these groups have been engaged, or are more likely to engage, in coordinated interaction that harms competition. We also note that there are 11 stations not owned by these two groups. These stations present a competitive challenge that reduces the likelihood of coordinated behavior in the Omaha market. 12. Our independent analysis, using 1998 BIA data, shows that Journal's existing station group has an advertising revenue share of 29.7 percent and that the proposed transfer of control of WOW(AM) and WOW(FM) would increase Journal's share to 40.9 percent of the advertising revenue in Omaha. This level of concentration, while not insubstantial, does not, of itself, raise a substantial and material question of fact that warrants further inquiry. 13. Similarly, Mitchell's reliance on the Horizontal Merger Guidelines is misplaced. Mitchell asserts that the post-merger HHI estimates indicate that the acquisition "would result in an impermissible concentration." The HHI is not a bar itself, however. The HHI is one of several screening devises used by DOJ to measure relative market concentration. Mitchell contends that an increase in the HHI has been an important factor in the DOJ's opposition to radio mergers. See Reply Comments to "Joint Opposition to Petition to Deny" at 13-14. However, as Journal points out, DOJ determined that it would not pursue an investigation of this transaction, and granted an early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvement Act of 1976. Using Miller Kaplan revenue data for January 1998 to September 1998, Mitchell calculates a pre-merger HHI of 2,357 and a post-merger HHI of 3,158, an increase of 801 points. See Petition to Deny at 19-20. However, this HHI estimate excludes Waitt Radio Inc. stations in the Omaha metro. In addition, Mitchell excludes the Webster Communication station in its pre-merger HHI estimate and includes the Webster Communication station in its post-merger HHI estimate. Thus, Mitchell's methodology overestimates the increase in the HHI. Mitchell also provides HHI calculations based on BIA revenue data for 1997. Specifically, Mitchell calculates a pre-merger HHI of 2,466 and a post-merger HHI of 3,121, an increase of 655 points. See Reply Comments to "Joint Opposition to Petition to Deny" at 11. Mitchell's HHI estimates based on BIA revenue data also exclude Waitt Radio Inc. stations. The Commission, using BIA revenue data for 1998, calculates a pre-merger HHI of 2,455 and a post-merger HHI of 3,119, an increase of 664 points. The difference between Mitchell's and the Commission's staff estimates are due to rounding and Mitchell's exclusion of some stations. 14. The HHI may provide useful information regarding the potential unilateral and coordinated effects of a proposed merger. However, we believe that the general standards in the Horizontal Merger Guidelines, which regard a post-merger HHI above 1,800 as a highly concentrated market, and which regard an increase of more than 50 points in a highly concentrated market to raise potential competitive concerns, do not require a finding in this case that the proposed transaction raises substantial and material questions of fact as to concentration. 15. Because the specific standards set forth in the Horizontal Merger Guidelines are applied to a broad range of possible factual circumstances, the Commission believes that mechanical application of the standards may provide misleading answers to competitive issues in the context of local radio mergers. As such, the Commission applies the standards reasonably and flexibly to the particular facts and circumstances of each proposed local radio merger. See Horizontal Merger Guidelines, Section 0. Moreover, actions by the DOJ indicate that revenue share is a principal determinant in DOJ's evaluation of radio mergers, while HHI is less critical. Thus, where revenue shares have been at or below about 40 percent, DOJ has permitted mergers even though the HHI may have substantially exceeded the Guidelines. The following radio mergers that included settlements with the DOJ attest to the Department's recognition that an HHI over 1,800 may not necessarily imply adverse competitive consequences in a local radio market. See, e.g., Final Judgment in United States v. CBS Corporation and American Radio Systems Corporation, Case No. 98CV00819 (D.D.C. June 30, 1998); Final Judgment in United States v. Hicks, Muse, Tate & Furst, Inc., Case No. CV 98-2422, (E.D.N.Y. Aug. 17, 1998); Final Judgment in United States v. EZ Communications, Inc. and Evergreen Media Corp., Case No. 97CV00406 (D.D.C. Jun. 17, 1997); Final Judgment in United States v. Westinghouse Electric Corporation, Case No. 96 CV02563 (D.D.C. Mar. 10, 1997); Final Judgment in United States v. Jacor Communications, Inc., Case No. C-1-96-757 (S.D. Ohio, Dec. 31, 1996). 16. Any measured HHI must be carefully interpreted with the context of the factual circumstances of any individual case. Factors considered in interpreting the significance of any measured HHI include, but are not necessarily limited to: the existence of other viable competitors post-merger; the dominance of strong signals; the possibility of additional entry in the specific market; efficiencies created by the merger; and possible adverse effects on listeners in the local radio market. The relative importance of individual factors depends on the individual factual circumstances of each merger transaction and no single factor is conclusive taken alone in evaluating the effects of the merger on competition in the local radio advertising market. Rather, an assessment of the competitive effects of the merger depends on the specific individual factors found most relevant in a specific transaction, but such factors are taken together as a whole in reaching a judgment about the likely competitive effects of the merger. As discussed herein, we have considered a number of these factors in reaching the conclusion that there is no substantial and material question of fact as to potential adverse competitive effects of Journal's proposed transaction. 17. Mitchell asserts that a review of the facilities involved in the merger is "vital in the consideration of whether an assignment or transfer application can be granted." Mitchell notes that the acquisition of WOW(AM) and WOW(FM) would permit Journal to own "three of Omaha's Class C facilities, the only C1 and C2 facilities, and a regional AM channel that has a larger principal community contour than the only grand-fathered super-powered Class C FM facility in the market." Our review of the Omaha metro markets shows there are 23 stations (9 Class C FM stations, one Class C AM station, one Class C1 FM station, one Class C2 FM station, one Class C3 FM station, seven Class B AM stations, two Class A FM stations, and one Class A AM station). Should the acquisition of WOW(AM) and WOW(FM) be granted, there would remain six Class C FM stations, one Class C3 FM station, five Class B AM stations, two Class A FM stations, and one Class A AM station not owned by Journal. Consequently, we find that the number and class of stations remaining outside Applicant's control are sufficient to provide a competitive challenge to Journal. 18. Finally, we reject Mitchell's argument that we should deny this application because the acquisition will lead to Journal's "dominating each of the most important demographic markets." Petitioner states that Applicant "will control 43% of the 12+ audience, 45% of the 25-54 audience, and 54% of the 18-34 audience." Initially, we note that we do not look at demographic shares or formats generally in our competitive analysis. In any event we conclude that the facts in this case do not support a finding that this transaction is contrary to the public interest. Following the merger, there will continue to be other radio stations that reach the 25-54 audience and the 18-34 audience. While Journal may have a 45 percent share of the 25-54 audience, radio stations not owned by Journal reach at least 55 percent of the 25-54 audience. Similarly, Journal's 54 percent share of the 18-34 audience means that radio stations not owned by Journal reach at least 46 percent of the 18-34 audience. Given the alternatives that currently exist in the Omaha market, we do not find that Mitchell's argument raises a substantial competition concern. 19. Any competitive concern these figures might raise is also diminished by the existence of 15 radio stations in the Omaha market independent from Journal. Radio stations can and do change format in response to profitable opportunities. Any attempt by Journal to dominate a specific demographic market would be constrained by the ability of the 15 competing stations to change or adjust their format. Furthermore, although the entry of new competitors through the construction of new facilities is difficult in the Omaha market given spectrum restraints, new licensees could enter the Omaha market by acquiring one or more of the 15 stations unaffiliated with Journal. The possibility of such entry by a strong radio group should effectively constrain anti-competitive behavior by Journal toward its customers or listeners. 20. Based upon the foregoing analysis, we find no substantial and material questions of fact as to the effect of the proposed transaction on diversity and economic competition that would warrant further inquiry. In addition, we have reviewed the transfer of control application and find that Great Empire and Journal both are fully qualified and that approval of the proposed transaction is consistent with the public interest. Conclusion 21. ACCORDINGLY, the Petition to Deny filed by Mitchell Broadcasting of Iowa, Inc. on October 29, 1998, IS DENIED. IT IS FURTHER ORDERED, that the applications to transfer control of Omaha Great Empire Broadcasting, Inc., the licensee of WOW(AM) (File No. BTC-980831GH) and WOW(FM) (File No. BTCH-980831GI) from the shareholders of Great Empire Broadcasting, Inc. to Journal Broadcast Corporation ARE GRANTED. IT IS FURTHER ORDERED, that Great Empire Broadcasting, Inc.'s Request for Expedited Treatment is DISMISSED as moot. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary