FCC Created New Rule Without Notice, Argues Gray in NAL Response

Gray Television said the FCC’s $518,000 notice of apparent liability against it last month (see 2107070066) creates a new rule against affiliation sales without notice and impermissibly regulates the broadcaster’s content choices. The comments came in Gray’s 55-page NAL response filed Monday. The FCC’s notice was 10 pages.

“The NAL purports to enforce a rule against Gray that quite literally did not exist before the NAL was released -- and cannot exist now absent a formal notice and comment rulemaking,” Gray stated, saying the NAL should be canceled. Gray’s “overly-defensive” response “reflects the broadcast industry’s concern that the FCC might finally put a stop to companies using non-license asset acquisitions and other schemes to evade local media ownership limits,” emailed Free Press Research Director Derek Turner. The FCC declined to comment.

The FCC said Gray violated a 2016 rule against using channel swaps instead of license transfers to make deals that result in one group owning more than one top-four station in a single market. Gray bought the CBS affiliation of Denali Media's KTVA Anchorage in 2020 in a sale of “non-license assets,” and then broadcast the programming on its KYES-TV Anchorage -- now KAUU -- while still owning NBC affiliate KTUU-TV Anchorage. Those rules specify swaps, not sales, and the then-KYES was already a top-four station when Gray bought the affiliation, Gray argued: “A transaction cannot ‘result in’ a condition that existed before the transaction, and KYES-TV could not ‘become’ what it already was.”

In a footnote, Gray said it subscribes to Comscore rather than Nielsen for the Anchorage market, and Nielsen ranked KYES as the fifth station in the market while Comscore ranked it fourth. Under FCC rules, Gray is entitled to use Comscore data to make a top-four showing, the response said.

The FCC “failed to provide clear and adequate notice” that the rule against swaps will “suddenly apply also to outright purchases of programming assets for cash.” The FCC also previously approved a similar arrangement in Gray’s buy of Hoak Media’s stations in 2014, Gray said. Gray’s interpretation of the rules was “wholly reasonable considering the rule’s text,” the response said. “Just because this particular case involved a unique way of evading the duopoly rule does not mean Gray’s actions were consistent with the rule,” Turner said.

Gray also said those rules aren’t “sustainable” because they’re inconsistent and involve FCC regulation of programming decisions. “Both the First Amendment and the Communications Act prohibit the Commission from regulating programming choices,” Gray said. The rules permit stations to swap affiliations if the network is involved, Gray pointed out -- they limit only swaps solely between broadcasters. CBS approached Gray before the transaction in question and could have taken the network programming without buying KTVA’s non-license assets and running up against FCC rules, Gray said.

It’s not clear how Gray’s arguments will fare at the FCC, broadcast attorneys told us. All four commissioners voted for the original NAL, making a full reversal by the agency unlikely, said BakerHostetler attorney Dan Kirkpatrick. Lerman Senter broadcast attorney David Burns said a U.S. Court of Appeals for the D.C. Circuit judge would likely find Gray’s arguments about the plain text of the rules persuasive. Gray’s substantial filing and the high proposed fine are indications Gray could appeal the matter if the FCC orders a forfeiture, Burns said.

Kirkpatrick and Burns said Gray’s situation is relatively unique and few broadcasters are likely to find themselves in the same boat, but they also said broadcasters would likely take additional care in future affiliate swaps. Between the Gray NAL and the agency’s recent $9 million forfeiture on violations of the agency’s good-faith retransmission consent negotiation rules (see 2107280067), this FCC seems prepared to levy large fines against broadcasters, Kirkpatrick said. None of the FCC commissioners commented on Gray’s NAL response.

​​​​​​​Gray also criticized the FCC over the amount of its proposed fine, which is based on the amount of time it aired the CBS programs on the then-KYES. “It does not appear that the Commission has ever before found it appropriate to fine a broadcaster for each day of an alleged unauthorized transfer of control,” Gray said. When Gray received notice from the commission, it began working to shift the content to a low-power station. “Given Gray’s cooperation,” the FCC’s proposed fine is “unsupportable,” Gray said. “The NAL seeks to elevate what was at worst a short-lived, technical violation of the Commission rules into a willful violation for Gray’s enrichment.”

​​​​​​​The FCC has allowed broadcasters’ “blatant evasions” of ownership rules “for far too long,” said Turner. “We continue to be hopeful that the Commission will act to close all these loopholes -- but if and when it will act remains an open question.”