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FCC Moves to End the UHF ‘Discount’

Says digital broadcasting has rendered all stations equal 9/12/2016 8:00 AM Eastern
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The FCC voted to eliminate the “UHF discount” in counting TV-station ownership limits, saying digital broadcasting has put UHF signals on par with VHF.

WASHINGTON — The Federal Communications Commission has eliminated the “UHF discount” and will now count the entire potential audience of broadcast TV stations when tallying owners’ ability to reach the limit of 39% of U.S. television households.

 

The regulator had been giving UHF stations a 50% “discount” on their total audience reach for the past 30 years.

 

The 3-2 partisan vote included a grandfather clause, which means current owners would not have to divest stations, but future acquisitions could be affected. In his dissent, Republican commissioner Ajit Pai suggested that the looming threat of eliminating the UHF discount has already cast a pall over station transactions.

 

The Sept. 7 vote came relatively quickly after chairman Tom Wheeler, a Democrat, circulated a plan to eliminate the UHF discount barely two months ago.

 

STATION OWNERS OPPOSED

 

Coming on the heels of last month’s decision not to permit media cross-ownership, the UHF ruling continues to rile the broadcasting industry. Sinclair Broadcast Group and 21st Century Fox had opposed the FCC’s plans to eliminate the UHF discount, but they were not available for immediate comment on Wednesday’s ruling.

 

Cable-operator groups, including the American Cable Association, praised the FCC for “rejecting any number of red herrings introduced into the record by TV-station owners profiting from the perpetuation of a technological relic that, following the digital transition, has allowed them to effectively serve more households than the FCC intended to be permitted under the national cap.”

 

In its order, the FCC said the new procedure to tally viewers ensures that “broadcast rules remain relevant in the digital age by eliminating an outdated portion of those rules premised on the constraints of old technology.”

 

The 1985 UHF discount allowed commercial broadcast-TV station owners to count 50% of potential viewers in every market when calculating their compliance with the national audience- reach cap. The rule dates back to the days when UHF transmission had a limited range, putting those “technically inferior” stations at a “competitive disadvantage,” as the FCC described those historic conditions in its ruling.

 

“Experience since the DTV transition demonstrates that UHF channels are equal, if not superior, to VHF channels for the digital transmission of television signals,” the commission said. Hence, “the UHF discount can no longer be supported on technical grounds.”

 

“To avoid imposing undue harm on existing broadcast television station groups that exceed the national audience reach cap” the FCC will grandfather combinations that were in existence in September 2013, as well as other combinations that were created by transactions that have received FCC approval.

 

“We find that this approach is fair to affected licensees and consistent with commission precedent,” the ruling said. The FCC also declined to adopt a VHF discount because “circumstances do not convince us that digital television operations in the VHF band are technically inferior to UHF in a manner that would warrant the creation of a new discount.”

 

In his dissent, commissioner Pai claimed that the ruling “will substantially change the impact of the national cap.” He cited the example of Univision, which, with extensive UHF distribution, now reaches a national cap of 22.8%.

 

“This means that under our current regulations, Univision has room to purchase television stations in many new markets,” Pai said. “With the termination of the UHF discount, however, Univision’s national audience reach will rise to 44.8%, a figure above the national 39% cap. Accordingly, Univision will not have the ability to purchase television stations in any new market.”

 

Univision was not available for a response.

 

In his four-page dissent, Pai also criticized the commission’s three-year lollygagging over a decision on the UHF discount.

 

IT TOOK THREE YEARS

 

“If time is of the essence and delay can’t be tolerated, then why did it take almost three years to complete this rulemaking?” Pai asked. He called the process “an empty formality” and characterized the “sentence-first, verdictafterwards process” as “a mockery of the notice-andcomment rulemaking process” that “sets a disturbing precedent for future proceedings.”

 

In a shorter dissent, FCC Republican Michael O’Rielly opposed the decision, saying he rejects “the assertion that the commission has authority to modify the National Television Ownership Rule in any way, including eliminating the UHF discount.”

 

The National Association of Broadcasters “is disappointed the FCC eliminated the UHF discount without holistically addressing the need for reform of all broadcast media ownership rules,” executive vice president of communications Dennis Wharton said in a statement about the FCC ruling. “While other industries are allowed to innovate without stifling regulation, when it comes to broadcasters, the FCC acts as if we still live in an era of I Love Lucy. It’s time for the FCC to look at broadcast-ownership rules in a manner that reflects the current marketplace.”

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