FCC Says Farewell To UHF Discount

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The FCC has taken “an important step to ensure that our broadcast rules remain relevant in the digital age by eliminating an outdated portion of those rules premised on the constraints of old technology.”


No, it’s not eliminated its 41-year-old rules regarding common ownership of a broadcast station and a newspaper.

Rather, it has abolished its 30-year-old UHF discount, in a 3-2 vote along party lines. GOP-aligned Commissioners Ajit Pai and Michael O’Rielly were the dissenters.

This means TV station owners will no longer be able to discount the coverage of UHF stations when calculating their compliance with the national audience reach cap.

The FCC notes that the shift to digital transmissions, along with proliferation of cable television and DBS services over the last three decades, would lead to this decision.

“The Commission has indicated repeatedly over the past two decades that the transition to DTV, completed for full-power broadcast television stations in June 2009, would undermine the basis for the UHF discount,” the Commission said in a report and order released Sept. 7.

“Adopted in 1985, the UHF discount was intended to mitigate the competitive disadvantage that UHF broadcast television stations suffered in comparison to VHF broadcast television stations,” the FCC explained. “At that time, UHF stations were technically inferior, producing weaker over-the-air signals, reaching smaller audiences, and costing more to build and operate than VHF stations. But while UHF channels may have been inferior for purposes of broadcasting in analog, experience since the DTV transition demonstrates that UHF channels are equal, if not superior, to VHF channels for the digital transmission of television signals. Thus, as a result of the DTV transition, the UHF discount can no longer be supported on technical grounds.”

With the move, the FCC will now tabulate the entire potential audience when gauging whether or not a single owner has hit the maximum allowable reach of 39% of all U.S. television households.

For companies such as Univision, which may appear to suddenly be in violation of the rule change, there’s no need to worry: they’re grandfathered, along with all other current owner groups, and will not need to sell stations.

What is of concern for all TV station owners is how the rule change will effect future transactions. Both 21st Century Fox and Sinclair expressed disappointment over the plan, which FCC Chairman Tom Wheeler brought to light in July.

PAI: RULING IS ‘UNLAWFUL’ 

In a lengthy dissenting statement, Republican Commissioner Ajit Pai agrees that the technical basis for the UHF discount no longer exists. But, he notes, “I would have supported eliminating the UHF discount in the context of a general review and adjustment of our 39% national cap.”

Pai adds that the FCC shouldn’t eliminate the UHF discount without also considering an adjustment to the national cap, to reflect today’s marketplace. “Indeed, I believe that the Commission is acting unlawfully by taking that step,” he says.

Pai also objects to the grandfathering approach the Commission has taken.

“While I appreciate the fact that companies no longer in compliance with the national cap due to elimination of the UHF discount will not be required to sell stations immediately, the Commission should also allow such station groups to be transferred to new ownership without requiring divestitures,” he argues. “Station groups such as ION and Univision have been good for competition in the video market by facilitating the creation of new broadcast networks to challenge established networks.  I do not see what harm would be alleviated or purpose would be served by requiring these station groups to be broken up in the event of a sale.”

The National Association of Broadcasters, meanwhile, assailed the FCC for eliminating the UHF discount rule.

“NAB is disappointed the FCC eliminated the UHF discount without holistically addressing the need for reform of all broadcast media ownership rules,” EVP of Communications Dennis Wharton said. “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.”