FCC Fines Gray Television for Violation of Ownership Rules

This week, the FCC issued a Forfeiture Order imposing a penalty of over $500,000 against Gray Television, Inc. for violating the FCC's rule prohibiting ownership of two top-four television stations in the same Nielsen Designated Market Area (DMA). Gray acquired the CBS network affiliation for KTVA(TV), Anchorage, Alaska, and the FCC found that this action placed it in violation of the Commission's Local Television Ownership Rule since KTVA(TV) is one of the top four stations in the Anchorage market and Gray already owned KTUU-TV, the top-ranked station in that market. The FCC issued a Notice of Apparent Liability for Forfeiture (NAL) in 2021 and affirmed its decision in its Forfeiture Order this week. Gray had argued against the NAL, claiming that the plain language of the Local Television Ownership Rule did not prohibit its action because it already owned two top-four stations before its acquisition.

The language of the Local Television Ownership Rule prohibits transactions that result in an owner's having two top-four stations, but Gray claimed that its acquisition of the affiliation for KTVA(TV) did not violate the rule. After acquiring KYES-TV in 2016, it raised the ranking of that station to the fourth position, meaning that, in combination with its ownership of KTUU-TV, it owned two top-four stations as a result of organic growth, which is permitted by the Local Television Ownership Rule. Thus, Gray claimed, its acquisition of the affiliation for KTVA(TV) did not result" in its owning two top-four stations. However, the FCC rejected this argument as inconsistent with the language and purpose of the Local Television Ownership Rule, which was designed to prevent transactions that diminish competition between licensees in the same DMA. While the rule does not penalize organic growth that results in ownership of two top-four stations, the FCC emphasized that this principle does not permit entities to continue acquiring top-four stations after already obtaining a second top-four station through organic growth. The Commission found that Gray would have violated the rule regardless of whether it previously owned two of the top four stations. FCC Commissioner Simington took issue with this conclusion in his dissent, arguing that the language prohibiting transactions that result" in ownership of two top-four station should be read literally and that since this transaction was not the cause of Gray's ownership of two top-four stations, it should not be penalized.

Gray also argued that since it only acquired KTVA (TV)'s affiliation and, in Gray's opinion, other minor assets, not including KTVA(TV)'s license, branding, or facilities, that the transaction was functionally very different and distinguishable from a license transfer and thus should not have been prohibited under the rule. The FCC found that Gray's interpretation was flawed and that the acquisition of the KTVA(TV) affiliation was indistinguishable from a license transfer and thus a violation of the rule. The FCC clarified that not only are transactions indistinguishable from license acquisitions prohibited by the rule, but so are those that result in an entity's owning two top-four stations in a single market. Furthermore, since Gray not only purchased the affiliation, but, as the FCC saw it, essentially all of the assets affiliated with KTVA(TV) other than the license and transmission facilities, the FCC concluded that this transaction was functionally equivalent to a license transfer.

In light of these findings and its consideration of other factors such as (i) the willful nature of Gray's conduct, (ii) its ability to pay, (iii) the continuing nature of the violation, and (iv) the economic gain Gray stood to achieve, the FCC imposed the statutory maximum penalty of $518,283. Gray stated that it will appeal the order and is planning to sue the FCC in order to prevent enforcement of the order it called wrongly decided."

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