Family Broadcasters, Pay Attention: Sons and Daughters; Strike Out On Your Own.

Family Attribution Under the FCC Ownership Attribution Rules

Two seemingly unrelated items appeared recently in the press last week.

BIA, the broadcasting econometric firm just outside of Washington DC, issued a new study that concludes smaller radio markets are fast rebounding from the recent revenue slump, and that markets 51+ and 11-50 getting back to 2007 revenue levels the fastest. The FCC decision on Titan Broadcasting held that John Pritchard, Senior's controlling interest in Pritchard Broadcasting, is not attributable in John Junior's interest in Titan Broadcasting, which permits father and son to own dual station clusters in the same market.

This may be good news for family-owned, community-based broadcasters. These broadcasters are most attracted to small and medium markets where local ownership means more localism, and that's where local lenders are available to local owners for station acquisition. (Query: Did I use the word "local" enough times?)

Those old enough may remember the refrain from the musical "Oklahoma:" "It ain't too early and it ain't too late; Soon'll be livin' in a brand new state" But not everyone wants to start over in a brand new state. Many of broadcasting's sons and daughters want to stay in their home markets AND stay in the business. So, if the radio business continues to be viable and even healthy, local banks will finance it and there are local stations to buy, why not stay at home?

The big question: If they buy stations in their own home market, won't the FCC's multiple ownership and attribution of ownership rules prevent it? The answer, as shown by the Pritchard family, is not if they are bought thoughtfully, with advance planning and run independently. Let's look at the facts.

Pritchard Broadcasting, wholly owned by John T. Pritchard, has four stations in Burlington, Iowa. His adult son, John C. Pritchard, formed Titan Broadcasting, LLC., to buy four other stations in the same market. A competitor, John Dunnegan ("Dunnegan") filed an opposition to the assignment, claiming that it "seems like a clever way to elude the FCC and bypass multiple ownership laws," asserting the familial relationship between father and son demonstrated that John Senior really controls the business of his son.

Titan responded that familial relationship, alone, does not create an attributable interest under the Local Radio Ownership Rule. Specifically submitted that: (1) that two companies will not be subject to common influence or control; (2) there are no commingled interests in other media businesses; (3) there will be no participation in the financial affairs or business of each other; (4) that John Junior has plenty of prior broadcast experience to run his own shop; (5) that they are financially independent, even though John Junior's grandfather guaranteed a Titan's bank loan; and (6) that, although they will share some technical facilities and the same lawyer, the technical facilities will be separated within a year.

Dunnegan had no evidence to support his claim that John Sr. was really in control and the FCC concluded that Dunnegan's opposition was speculative. In issuing its decision, it gave us good guidance on the issue of family attribution. Here it is:

Familial relationship, standing alone, does not create an attributable interest, even though the son and new owner, John C. gained his broadcast experience at dad's family-run stations, and his grandfather guaranteed the loan that made it possible to for John C. to buy the Titan stations. Clear separation of management and financial independence defeat any presumption of ownership attribution because of mere familial relationship. That's true for spouses, parents and children. The fact that the stations were using common studios and technical facilities did not change the result, although it's worth noting that this sharing arrangement pre-dated the John C's purchase and he promised to separate the studio and technical facilities within a year.

The lesson is that small-market radio is still a good business and worth staying at home for the right opportunity. But, where familial relationships are involved, all issues should be thought out beforehand and the deal structured to assure compliance with FCC policies. Properly planned and structured transactions will permit broadcasting's next generation to buy in -- even in the same communities they grew up in and where they learned the business from mom and dad.

This column is provided for general information purposes only and should not be relied upon as legal advice pertaining to any specific factual situation. Legal decisions should be made only after proper consultation with a legal professional of your choosing.