FCC Grants Pandora Declaratory Ruling Allowing It To Exceed Foreign Ownership Caps For KXMZ Purchase

Gets Ruling

The FCC has issued a declaratory ruling that grants PANDORA RADIO a conditional right to exceed the Commission's foreign ownership restrictions to allow it to complete its two-year-old pending deal to buy Hot AC KXMZ (HITS 102.7)/BOX ELDER-RAPID CITY, SD from CONNOISSEUR MEDIA for $600,000. 

The conditions include that PANDORA must obtain prior FCC approval for aggregate foreign equity and/or foreign voting interests exceeding 49.99%, or any change in the PANDORA board that would give foreign members a majority, or any individual foreign investor or group acquiring a greater than 5% voting or equity interest (or 10% for certain institutional investors) in the company. The ruling is not an approval of the deal, which remains pending.

The streaming music service's bid to buy KXMZ was positioned by ASCAP as possibly in violation of the 25% foreign investment cap because its stock is widely held by companies which may or may not have foreign interests involved, but Chairman TOM WHEELER had recently indicated a preference for a declaratory ruling allowing PANDORA to theoretically exceed the limits because the widely held PANDORA stock made it impractical to identify every shareholder, and the action released today follows suit. 

The ruling, analyzing a K&L GATES study submitted by PANDORA, rejected ASCAP's concerns that the deal was intended to take advantage of a loophole in copyright law that would qualify PANDORA for lower royalty rates as a broadcaster, saying that the matter is "more appropriately resolved through Congress, the courts, and other government agencies."

"(I)n this particular situation and subject to the conditions noted below," the ruling said, "we find that PANDORA’s (declaratory ruling) proposal ... is not contrary to  the public interest. Neither the Commission nor the Executive Branch agencies have identified harm to  the public interest posed by PANDORA MEDIA’s current level of unidentified but widely dispersed foreign ownership, where no single foreign individual or entity holds an attributable five percent or greater voting interest in PANDORA’s outstanding stock ... PANDORA MEDIA’s organizational documents and its obligation to provide reliable information on its foreign ownership going forward, will effectively prevent foreign shareholders from acquiring significant influence over PANDORA MEDIA without prior Commission approval and without first giving PANDORA the opportunity to evaluate and take appropriate preventative or remedial measures. In the absence of any countervailing public interest concerns, in particular any facts indicating a likelihood of foreign influence or control, and based on the widespread distribution of PANDORA MEDIA’s foreign-owned shares as set forth in the record, we find that the conditions imposed herein will be sufficient to ensure that the goals of Section 310(b)(4) are met."

The Commission specifically noted that the ruling applies to the PANDORA deal and is not a revision of the rule for other cases.

Pai, O'Rielly Concur, But...

Commissioner AJIT PAI wrote a concurring statement calling the debate over allowing PANDORA to exceed the caps "absurd" and noting "foreign companies can own majority interests in cable operators, cable programmers, common carriers, Internet backbone providers, satellite video providers, newspapers, and the list goes on."  He wrote that the "best evidence" is that PANDORA is under the cap, but cannot rely on that evidence under FCC rules (unlike for other businesses), and that he would not have imposed the conditions in the Declaratory Ruling but would have used the common carrier precedent to allow up to 100% foreign ownership as long as no single entity owns more than 5% of the company without FCC approval.

And Commissioner MIKE O'RIELLY added, "I believe that the Commission can, and should, go beyond the current case-by-case approach to these requests by setting rules and policies affirmatively permitting more foreign ownership, subject to our authority to reject any application, pursuant to coordination with executive branch agencies, to address uncontroverted national security concerns. Further, any such affirmative expansion should not include the types of burdensome conditions set forth in this ruling, which have the potential to entrap any investment plan in a web of red tape for no value."

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