******************************************************** 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 Applications of ) ) Precht Communications, Inc. ) (Transferor) ) ) and ) File Nos. BTCCT-980113IB ) BTCCT-980113IC ) BTCCT-980113ID ) BTCTTV-980113IE ) BTCTTV-980113IF ) BTCTTV-980113IG ) BTCTTV-980113IH) ) BTCTTV-980113II ) BTCTTV-980113IJ ) BTCTT-980113IK ) BTCTT-980113IL ) BTCTT-980113IM ) BTCTT-980113IN ) The DGH Company ) (Transferee) ) ) For Consent to the Transfer of Control of) Eagle Communications, Inc., Licensee of) Television Stations: ) KCFW-TV, Kalispell, Montana ) KECI-TV, Missoula, Montana ) KTVM(TV), Butte, Montana ) MEMORANDUM OPINION AND ORDER Adopted: April 29, 1998 Released: April 29, 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 applications seeking consent to transfer control of Eagle Communications, Inc., licensee of KCFW-TV, Channel 9 (NBC), Kalispell, Montana; KECI-TV, Channel 13 (NBC), Missoula, Montana; and KTVM(TV), Channel 6 (NBC), Butte, Montana; from Precht Communications, Inc. (Precht), to the DGH Company (DGH). DGH also requests the Commission grant a permanent waiver of 47 C.F.R.  73.3555(b), the Commission's television duopoly rule, to allow continued common ownership of KECI-TV and KTVM(TV) which have overlapping Grade B contours. Should the Commission not allow a permanent waiver, then DGH requests a conditional waiver of 47 C.F.R.  73.3555(b) pursuant to the conditional waiver policy expressed by the Commission in connection with its pending review of the duopoly rule. See Review of the Commission's Regulations Governing Television Broadcasting, Second Further Notice of Proposed Rule Making, 11 FCC Rcd 21655 (1996) (Second Further Notice). Finally, to permit continued common ownership of KCFW-TV and KECI-TV, the Grade B contours of which also overlap, DGH proposes to continue operating KCFW-TV as a satellite of KECI-TV and requests grant of its transfer of control application pursuant to Note 5 of Section 73.3555 of the Commission's rules, which exempts satellite stations from the duopoly prohibition. The applications and waiver requests are unopposed. Duopoly Waiver 2. Waiver Showing. DGH maintains that there is "ample basis" for a permanent waiver of the Commission's television duopoly rule in this case. DGH notes that KECI-TV and KTVM(TV) have been under common ownership since KTVM(TV) went on the air in 1970. DGH argues that the transfer for which approval is sought here would not create a new ownership combination but would simply continue a common ownership situation that has existed under two successive owners. DGH also argues that the existing KECI-TV/KTVM(TV) ownership combination parallels other Missoula/Butte television ownership combinations that exist with respect to all other stations in both markets. 3. As demonstrated in DGH's Engineering Statement, the predicted Grade B overlap of stations KECI-TV and KTVM(TV) encompasses 9,562 square kilometers and 17,924 persons. This represents 22.4% of the area and 12.3% of the population within the Grade B contour of KECI-TV, and 19.5% of the area and 9.5% of the population within the KTVM(TV) Grade B contour. The stations' Grade A contours do not overlap. 4. DGH also notes that the stations serve separate markets. Station KECI-TV is licensed to Missoula, which is the 171th ranked Designated Market Area (DMA), while KTVM(TV) is licensed to Butte/Bozeman, the 192th ranked DMA. DGH asserts that there are abundant competing media in the overlap area. According to DGH's Engineering Statement, the Grade B contours of 7 other television stations serve all or a portion of the KECI-TV/KTVM(TV) Grade B overlap area. Six LPTV or translator stations also serve portions of the overlap area, as do 26 radio stations. According to DGH, all of the communities in the overlap area have existing multi-channel cable operations and cable penetration in the Missoula DMA as a whole is 52% and in the Butte/Bozeman DMA is 57%. In isolated areas not reached by cable, DGH notes that many homes subscribe to direct broadcast satellite services. Finally, DGH states that three daily newspapers are published in or near the area of overlap. 5. Discussion. In adopting the duopoly rule's fixed standard of prohibiting 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 (Multiple Ownership), 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 distinctness 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. 6. Currently, the Commission is reexamining its broadcast television ownership policies, including the duopoly rule. In January 1995, the Commission proposed a new analytical framework within which to evaluate its broadcast television ownership rules. See Review of the Commission's Regulations Governing Television Broadcasting, Further Notice of Proposed Rule Making, 10 FCC Rcd 3524 (1995) (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) (Telecom Act). In response to this Congressional directive in the Telecom Act and to update the record, the Commission released the Second Further Notice in its pending television ownership rulemaking proceeding. In that Second Further Notice, the Commission tentatively concluded to authorize common ownership of television stations that are in separate DMAs and whose Grade A contours do not overlap, conditioned on coming into compliance with the outcome of the proceeding within six months of its conclusion. Second Further Notice at 57. 7. The Commission also stated in the Second Further Notice that it will be inclined, during the pendency of the television ownership proceeding, to grant temporary duopoly waivers involving stations in different DMAs with no overlapping Grade A contours. 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." 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. Additionally, the Commission gave the staff delegated authority to act on applications seeking waivers consistent with this interim policy. 8. Given the clearly articulated policy in the Television Ownership Second Further Notice, we do not believe that an unconditional grant of DGH's duopoly waiver is appropriate. See WHOA- TV, Inc., 11 FCC Rcd 20041, 20046-47 & 20051 (1996). However, we believe that grant of a conditional waiver of the duopoly rule, subject to the outcome of the pending ownership proceeding, is justified. The temporary common ownership of KECI-TV and KTVM(TV) would be consistent with the interim policy set forth in the Television Ownership Second Further Notice, as the stations are in separate DMAs and there is no Grade A overlap between KECI-TV and KTVM(TV). 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 resolution of the pending broadcast television ownership rulemaking, will serve the public interest, convenience and necessity. Any requests to extend this conditional waiver should be filed at least 45 days prior to the end of the six-month period and would be closely scrutinized. Request for Satellite Status 9. DGH's Request. DGH also seeks authority to continue operating station KCFW-TV, Kalispell, Montana, as a satellite of KECI-TV, Missoula, Montana, after the proposed transfer of control. The Commission requires all applicants seeking to transfer existing satellite stations and to continue those stations' satellite operation to demonstrate that the stations meet our satellite policy at the time of transfer of control. See Television Satellite Stations, 6 FCC Rcd 4212, 4215 (1991), on reconsideration Second Further Notice of Proposed Rulemaking in MM Docket No. 87-8, 6 FCC Rcd 5010 (1991), on further reconsideration Review of the Commission's Regulations Governing Television Broadcasting, 10 FCC Rcd 3524 (1995). Pursuant to the Commission's satellite policy, an applicant is entitled to a presumption that its proposed satellite operation is in the public interest if it meets three criteria: (1) no City Grade contour overlap exists between the parent and the satellite; (2) the proposed satellite would provide service to an underserved area; and (3) no alternative operator is ready and able either to construct or to purchase and operate the satellite as a full-service station. Id. at 4212. If an applicant cannot qualify for the presumption, we will evaluate the proposal on an ad hoc basis to determine whether other compelling circumstances warrant grant of the application. Id. at 4214. The satellite operation here fails to meet one of the three presumptive criteria. Nevertheless, as detailed below, we find compelling circumstances exist that warrant continued satellite authority. 10. Discussion. The satellite proposal does not meet the first criteria of the presumption because the stations' City Grade contours overlap. The City Grade overlap encompasses 806 square kilometers and a population of 8,090. This represents 5.4% of the area and 7.3% of the population within the KECI-TV City Grade contour and 8.9% of the area and 11.4% of the population within the KCFW-TV City Grade contour. 11. With respect to the second criterion, DGH has demonstrated that the area where satellite station KCFW-TV is located is underserved by applying the Commission's "transmission" test. That test defines as "underserved" an area with two or fewer full-service stations already licensed to the community. DGH notes that Station KCFW-TV is the only television station licensed to Kalispell, Montana. Moreover, KCFW-TV continues to provide the only Grade B television service for Kalispell. DGH also applies the Commission's "reception" test to demonstrate that the area where KCFW-TV is located is underserved. A proposed satellite station is regarded as serving an "underserved" area if 25% or more of the area within the proposed satellite's proposed Grade B contour (but outside the parent's Grade B contour) receives four or fewer services, not including the proposed satellite service. See Television Satellite Stations, 6 FCC Rcd at 4215. DGH notes that, considering the area within the KCFW-TV Grade B contour but outside the KECI-TV Grade B contour, 87.6% of this area receives no television service other than KCFW-TV and 95.1% receives four or fewer TV, LPTV or translator television services. DGH argues that Kalispell is "clearly an 'underserved' area within the meaning of the satellite exemption policy." DGH concludes that continuation of satellite status for KCFW-TV is necessary to preserve the station's service to a very large underserved area and that permitting KCFW-TV to continue to its satellite status would "plainly serve the public interest and would be consistent with Commission precedent." 12. As to the third criterion, to qualify for the presumption, an applicant must demonstrate that no alternative operator is ready and able to construct or to purchase and operate the proposed satellite as a full-service stand-alone station. DGH has submitted the Declaration Robert Precht, the President of Eagle Communications, Inc. (Eagle), which has been the licensee of KECI-TV and KCFW-TV since November 1, 1978. Precht states that, during the time that Eagle has been the licensee of the stations, he has never received an offer for the purchase of KCFW-TV as a "stand alone" station. 13. DGH also submits a Declaration from Peter Bowman, Vice President of BIA Consulting, Inc., a financial consulting firm specializing in the appraisal of broadcast properties, which states that firm's opinion on the current viability of a sale of station KCFW-TV. Bowman states that he has performed a "stick value" analysis of KCFW-TV to determine its economic feasibility. This discounted cash-flow analysis assumes the highest and best use of KCFW-TV as a stand-alone station. Bowman states that the highest and best use of KCFW-TV as a stand-alone station would be as an affiliate of the Fox Network, the only network not currently in the market. However, Bowman notes that, were KCFW-TV to be operated as a network-affiliated stand-alone station, it is likely that it would incur high programming costs considering its signal only serves a small part of the Missoula market. Bowman finds that KCFW-TV's Grade B signal is disadvantaged and does not extend to the city of Missoula. Instead, the station serves smaller communities to the north of Missoula, including Kalispell and, thus, the station would only achieve fragmented viewership due to competition not only from the Missoula stations but also from the Spokane, Washington, stations available on the cable system serving Kalispell. Bowman also notes that the market has a small population and sparse revenues. Bowman states that a market the size of Missoula with estimated revenues in 1996 of $8.1 million can only support two to three viable stations. A fourth station would generate revenues well below $1 million which are considered marginal and it would be unlikely that a fourth station would generate sufficient cash flow to return an acceptable rate of return to lenders and equity investors. In Bowman's opinion, this would render KCFW-TV economically unfeasible as a stand-alone station. In conclusion, Bowman states that the level of competition, the sparse market revenues, the station's disadvantaged signal and the unusually high programming/operating expenses associated with KCFW-TV preclude a knowledgable broadcaster from attempting a stand-alone operation. 14. Although the KCFW-TV/KECI-TV satellite proposal fails to meet the first criteria of the presumptive standard, we believe "other compelling circumstances" warrant continued satellite status of station KCFW-TV. As we have stated in the past regarding satellite proposals that fall outside of our presumption, "the degree of departure from the presumptive criteria will also influence our decision." Television Satellite Stations, 6 FCC Rcd at 4214. We believe that the "departure" from the presumptive criteria in this case is not so substantial as to outbalance the competing considerations favoring grant. Significantly, Station KCFW-TV is the only station licensed to Kalispell, Montana, and is the only Grade B service to significant portions of Kalispell and the surrounding area. We also find persuasive Bowman's opinion that, the level of competition, the sparse market revenues, the station's disadvantaged signal and the unusually high programming/operating expenses associated with KCFW-TV preclude a knowledgable broadcaster from attempting a stand-alone operation. Accordingly, we find such compelling circumstances warrant continued satellite status for KCFW-TV and a grant of waiver of the duopoly rule pursuant to Note 5 to Section 73.3555 would serve the public interest. However, as noted supra, in its Second Further Notice, the Commission has undertaken a reexamination of its broadcast television ownership policies, including the continued exemption of satellite stations from broadcast ownership restrictions. See Second Further Notice, supra. Accordingly, we will condition the grant of this satellite waiver on whatever action is taken in that proceeding. 15. In view of the foregoing, and having determined that the applicants are qualified, we find that a grant of these applications will serve the public interest, convenience and necessity. 16. ACCORDINGLY, IT IS ORDERED, that the request for permanent waiver of the television duopoly rule, Section 73.3555(b) of the Commission's Rules, to permit the common ownership of television stations KECI-TV, Missoula, Montana, and KTVM(TV), Butte, Montana, IS DENIED. 17. IT IS FURTHER ORDERED, that the request for conditional waiver of Section 73.3555(b) of the Commission's rules, to permit the common ownership of television stations KECI- TV, Missoula, Montana, and KTVM(TV), Butte, Montana, 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 for the licensee to come into compliance with the rules as provided in the final order. 18. IT IS FURTHER ORDERED, that the request for operation of KCFW-TV, Kalispell, Montana, pursuant to the satellite exemption to the duopoly rule, Section 73.3555 of the Commission's rules, IS GRANTED, subject to the outcome of the Commission's pending broadcast ownership rulemaking in MM Docket Nos. 91-221 and 87-8. 19. IT IS FURTHER ORDERED, that the applications for transfer of control of Eagle Communications, Inc., licensee of KECI-TV, Missoula, Montana, KTVM(TV), Butte, Montana, and KCFW-TV, Kalispell, Montana, and associated television translator stations, from Precht Communications, Inc., to the DGH Company (File Nos. BTCCT-980113IB, BTCCT-980113IC, BTCCT-980113ID, BTCTTV-980113IE, BTCTTV-980113IF, BTCTTV-980113IG, BTCTTV-980113IH, BTCTTV- 980113II, BTCTTV-980113IJ, BTCTT-980113IK, BTCTT-980113IL, BTCTT-980113IM, BTCTT-980113IN) ARE GRANTED. FEDERAL COMMUNICATIONS COMMISSION Roy J. Stewart Chief, Mass Media Bureau