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If you need the complete document, download the WordPerfect version or Adobe Acrobat version, if available. ***************************************************************** Before the Federal Communications Commission Washington, D.C. 20554 In re Applications of ) ) Fant Broadcasting ) Company of Minnesota, Inc. ) (Assignor) ) ) and ) File No. BALCT-980115IR ) KQDS Acquisition Corporation ) (Assignee) ) ) For Consent to Assign the License of ) Station KNLD(TV), Duluth, Minnesota ) ) and ) ) Great Duluth Broadcasting Company, Inc. ) (Assignor) ) ) File Nos. BAL-980115GE and ) BALH-980115GF ) KQDS Acquisition Corporation ) (Assignee) ) ) For Consent to Assign the Licenses of ) Stations KDDS(AM), and ) KQDS-FM, Duluth, Minnesota ) MEMORANDUM OPINION AND ORDER Adopted: September 28, 1998 Released: October 21, 1998 By the Commission: Commissioner Tristani dissenting. 1. The Commission has before it for consideration the above-captioned unopposed applications for assignment of the licenses of station KNLD(TV) (Channel 21, IND), Duluth, Minnesota, from Fant Broadcasting Company of Minnesota, Inc. ("Fant Broadcasting") to KQDS Acquisition Corporation ("KQDS"); and stations KDDS(AM) and KQDS-FM, Duluth, Minnesota, from Great Duluth Broadcasting Company, Inc. ("Great Duluth") to KQDS. Fant Broadcasting and Great Duluth are commonly owned. 2. Section 73.3555(c) of the Commission's Rules, the one-to-a-market rule, prohibits the common ownership of radio and television stations in the same market if the 2 mV/m contour of an AM station or the 1 mV/m contour of an FM station encompasses the entire community of license of a television station, or conversely, if the Grade A contour of a television station encompasses the entire community of license of an AM or FM station. Here, the relevant signal contours of both the radio stations and KNLD(TV) encompass Duluth. These radio and television stations have been commonly owned since October of 1996, when the Commission granted a waiver of the one-to-a- market rule. Greater Muskegon Broadcasters, Inc., 11 FCC Rcd 15464 (1996). Although no new one-to-a-market combination would be created here, the proposed assignments require a renewed one-to-a-market showing based on current market conditions. See Roy M. Speer, 11 FCC Rcd 14147, 14161 (1996); Stockholders of CBS, Inc., 11 FCC Rcd 3733, 3767 (1996). For the reasons stated below, we will grant KQDS's request for permanent waiver of the one-to-a-market rule and the applications for assignment of license. Waiver Request 3. KQDS bases its waiver request on the standards adopted in the Second Report and Order in MM Docket No. 87-7, 4 FCC Rcd 1741 (1989) ("Second Report and Order"), recon. granted in part and denied in part, 4 FCC Rcd 6489 (1989) ("Second Report and Order Recon."). In accordance with these standards, the Commission presumptively favors waiver requests involving: (a) stations serving the top 25 markets where at least 30 separately owned, operated, and controlled stations will remain following the proposed combination ("top 25 market/30 voice standard"); or (b) "failed" stations, i.e., stations which have not been operating for a substantial period of time (four months or more) or are involved in bankruptcy proceedings. Otherwise, waiver requests must be evaluated under the more rigorous case-by-case standard. See 47 C.F.R.  73.3555(c), Note 7. 4. Because Duluth, Minnesota/Superior, Wisconsin is the 134th largest Designated Market Area ("DMA") in the country and no claim of a "failed" station is made, KQDS's waiver request must be evaluated under the case-by-case standard. Under this standard, the Commission makes a public interest determination by weighing five factors: (1) the potential public benefits of joint operation of the facilities, such as the economies of scale, cost savings, and programming and service benefits; (2) the types of facilities involved; (3) the number of media outlets owned by the applicant in the relevant market; (4) the financial difficulties of the stations involved; and (5) the nature of the relevant market in light of the level of competition and diversity after the joint operation is implemented. Second Report and Order, 4 FCC Rcd at 1753. Not all five factors are necessarily relevant in each case. Second Report and Order Recon., 4 FCC Rcd at 6491. In support of its waiver request, KQDS submits a showing which addresses each of these five case-by-case factors. 5. Benefits to the Public of Joint Operation. KQDS represents that "[j]oint operation has enabled the current licensees to make several improvements to the stations, including the purchase and installation of an STL system, orders for additional equipment for the AM/FM station facilities, construction of a new road to the existing transmitter site, and an increase in hours of operation of the television station." KQDS submits that continued joint operation of the stations will result in additional efficiencies of operation and cost savings, enhanced programming, and other service benefits. KQDS pledges to pursue additional gains in efficiency by further streamlining operations and by drawing upon the expertise of its commonly-owned company, Red River Broadcast Corp. ("Red River"), which operates several Fox-affiliated television stations in South Dakota, North Dakota, and Minnesota. In addition, KQDS commits to accomplish the contruction plans initiated by the current licensees for a new tower to be used for both the television and the FM radio station. KQDS intends to design the tower to have the capacity to hold a digital television antenna for KNLD(TV) as well as an analog antenna. 6. KQDS estimates that its planned streamlining and efficiency measures, including common use of the new tower by KQDS-FM and KNLD(TV), will generate annual cost savings of $550,000. Specifically, KQDS anticipates annual savings of $300,000 in salaries and associated employee benefits; $125,000 in studio rent, utilities, operating expenses, taxes, and insurance from operating consolidated studios for all three stations; $30,000 in office furnishings and equipment; $35,000 in the cost of conducting tests and purchasing monitoring equipment for one transmission tower instead of two; and $60,000 in savings from cross promotion on each of the stations. 7. KQDS represents that these cost savings and efficiencies will enable the television station to provide more extensive public service and other programming to the Duluth/Superior market. KQDS pledges to expand further the hours of operation for KNLD(TV) and to provide approximately ten hours per week of children's television programming. KQDS also states that KNLD(TV)'s additional hours of operation will include "other programs that respond to issues and problems facing the Duluth market." KQDS explains that it intends to operate KNLD(TV) as a local Fox Television Network affiliate, thereby providing programming currently unavailable in the Duluth/Superior market. Finally, KQDS pledges to utilize the expertise of Red River "to ensure that the Duluth stations . . . provide quality programming to the Duluth market." 8. Technical Facilities. KDDS(AM) is a one kilowatt, unlimited hours, standard broadcast station operating on 1490 kHz. KQDS maintains that, "[c]ompared with other Duluth market AM stations, its facilities are substandard." KQDS-FM is a Class C FM station operating on 94.9 mHz with 100 kw ERP and, according to KQDS, it is comparable to other FM stations operating in the market. KNLD is a new UHF television station, on the air since November 1994, operating with only 44.7 kw at 180 meters HAAT. KQDS characterizes KNLD(TV)'s facility as "substandard," explaining that "[t]he station provides significantly less Grade B coverage than the other commercial television stations in the market, all of which are VHF stations, because it is licensed to operate at much lower power and antenna height than its competitors." KQDS represents that KNLD(TV)'s coverage still will be significantly less than that of its competitors even after construction of the new tower, because the station's operating power will still be much lower than the power of the other commercial stations. 9. Other Media Outlets. Neither KQDS nor any of its principals has any other media interests in the Duluth/Superior market. 10. Financial Difficulties. KQDS acknowledges that none of the stations at issue in its requests are "failed." KQDS contends, however, that the Commission should consider the fact that the stations both have been operating at a loss. In this regard, KQDS submits income statements showing Fant Broadcasting with a net loss of $161,937 for the year November 5, 1996 through October 31, 1997, and Great Duluth with a net loss of $59,726 for the same period. 11. Effect on Competition and Diversity. KQDS contends that the number of media voices in the Duluth/Superior market has remained constant since 1996 when the Commission determined, in granting a waiver of the one-to-a-market rule to the current licensees, that adequate competition and diversity existed. According to KQDS, there are still four commercial television stations, including KNLD(TV), in the Duluth/Superior market. KQDS represents that KNLD(TV)'s competitors are all VHF stations owned by group owners and affiliated with the three major networks, and all provide better coverage than KNLD(TV). KQDS also reports that there is one non-commercial VHF television and eleven low power television stations in the market. KQDS states that the number of radio stations has increased since 1996, and that there are now at least 25 radio stations licensed and operating in the Duluth/Superior market (including seven AM stations, ten FM stations, and eight educational FM stations). KQDS reports that cable penetration is approximately 53 percent, or approximately the same as in 1996, with approximately 50 cable systems and four MMDS cable systems operating in the market. 12. KQDS submits that the joint operation of the three stations since 1996 has not negatively affected competition and diversity, and that the three stations are not powerful competitors in the market. KQDS further notes the Commission's statement in its previous grant of this combination that "combinations involving small or weak stations decrease potential for negative concentration." Greater Muskegon Broadcasters, Inc., 11 FCC Rcd at 15470, citing Second Report and Order, 4 FCC Rcd at 1753. Discussion 13. In evaluating a request for a waiver of the one-to-a-market rule, the Commission's goal "is to permit the public to benefit from such efficiencies of operation as may be achieved through the use of common facilities and staff, consistent with the maintenance of diversity and vigorous competition within the market areas involved." Second Report and Order Recon., 4 FCC Rcd at 6491. The Commission has recognized that "[i]n smaller markets, where competition is usually more limited, of particular importance would be demonstrated financial difficulties and the practical question of whether a waiver grant ... would in fact increase or decrease the vigor of competition and diversity in the market." Id. at 6491-6492. Thus, in determining whether the public interest would be served by grant of a one-to-a-market waiver, the Commission evaluates and balances other specific factors against its long-standing interest in maximizing competition and promoting diversity. Kargo Broadcasting, Inc., 5 FCC Rcd 3442, 3443 (1990). 14. We have granted one-to-a-market waivers where the potential benefits of the combination, such as economies of scale, cost savings and programming benefits, indicate that waiver will serve the public interest, e.g., Tulsa 23, 5 FCC Rcd 727, 728 (1990). KQDS has shown that its consolidated operation of the three stations will result in significant cost savings and enhanced operational efficiency. KQDS has explained that these benefits will be generated through further streamlining of the stations' operations and through utilization of the expertise of Red River, which is commonly owned with KQDS. More importantly, KQDS promises that these cost savings will result in significant benefits to the public, enabling KQDS to expand KNLD(TV)'s hours of operation and to provide more extensive public service and other programming to the Duluth/Superior market. In addition, KQDS states that it intends to operate KNLD(TV) as a local Fox Television Network affiliate, providing programming that is currently unavailable from any local television station in the Duluth/Superior area. 15. In considering the types of facilities that would be operated on a consolidated basis, we note that KNLD(TV), a UHF station, currently has a smaller coverage area than its three commercial competitors, all VHF stations. Moreover, even after construction of the new tower, pursuant to our recent grant of Fant's request to modify KNLD(TV)'s facilities, KNLD(TV)'s coverage still would be less than its competitors. Similarly, KDDS(AM), one of seven AM radio stations serving the Duluth/Superior market, operates at only 1 kw of power. As explained in the Second Report and Order, consolidations involving UHF television stations and small AM stations are less likely to affect the public interest adversely than consolidated operation of larger facilities. 4 FCC Rcd at 1753. Although the facilities of KQDS-FM are comparable to those of other FM stations operating in the market, we conclude that common ownership of the three stations will not vest KQDS, which has no other media interests in the market, with significantly superior facilities that would present issues of market dominance inconsistent with the public interest. 16. Although KQDS asserts that the stations have been operating at a loss and provides rudimentary financial information to support that statement, there are no notes of explanation and no extended history of documented financial difficulties. We are thus unable to conclude that KDDS(AM), KQDS-FM, and KNLD(TV) are entitled to consideration as stations experiencing financial difficulties in the Duluth/Superior market. Such determination, however, does not bar grant of KQDS's request, because it is not necessary that all five of the case-by-case factors be satisfied in order to obtain a waiver of the rule. See Louis C. DeArias, Receiver, 11 FCC Rcd 3662 (1996); and Samuel M. Altdoerffer, III, 12 FCC Rcd 9945 (1997). 17. Finally, based on our independent assessment of the Duluth/Superior television market, we find that the proposed combination will not create any undue concentration of ownership or control of broadcast media in the Duluth/Superior market. Our analysis of 1997 advertising revenues in the Duluth/Superior market shows that the combination constitutes 10.1 percent of the radio advertising market and 2.8 percent of the combined radio and television advertising market. We have determined that after the assignment is approved, the Duluth/Superior market will be served by 30 radio stations (including 11 AM stations and 19 FM stations), representing 18 separately owned and operated media "voices." In addition, we have confirmed that the market is served by four television stations other than KNLD(TV), including one noncommercial station and three commercial VHF stations. 18. We further find that the applicants have demonstrated that the Duluth/Superior market is served by numerous other media, including 50 cable systems, 11 LPTV stations, four MMDS stations, and seven daily newspapers. We also consider it significant that KNLD(TV) is a UHF station and KDDS(AM) is a small AM station. As KQDS rightly noted, combinations involving small or weak stations decrease the potential for negative concentration. Moreover, because this combination of stations is already commonly owned, there will be no net adverse impact on diversity or competition as a result of the proposed transaction. Given the number of other media voices in the market and the nature of the AM and television station involved, we conclude that grant of the one-to-a-market waiver request will not have a detrimental effect on competition and diversity in the market. 19. To summarize, we conclude that grant of the one-to-a-market waiver request will result in significant cost savings that will inure to the public's benefit through improved service and programming and the introduction of a full-time, more competitive UHF television station. We further conclude that diversity and vigorous competition within the market areas involved will continue to exist. Based on the totality of the circumstances, and our treatment of waiver requests from licensees serving similar size markets, we conclude that grant of the one-to-a-market, permanent waiver request would be in the public interest. Conclusion 20. Having determined that the applicants are qualified in all respects, we conclude that the grant of these applications would serve the public interest, convenience, and necessity. 21. Accordingly, IT IS ORDERED, That the request of KQDS Acquisition Corporation for permanent waiver of the Commission's one-to-a-market rule, 47 C.F.R.  73.3555(c), IS GRANTED. 22. IT IS FURTHER ORDERED, That the application for assignment of the license of KNLD(TV) from Fant Broadcasting Company of Minnesota, Inc. to KQDS Acquisition Corporation (File No. BALCT-980115IR), and the applications for assignment of the licenses of KDDS(AM) (File No. BAL-980115GE) and KQDS-FM (File No. BALH-980115GF) from Great Duluth Broadcasting Company, Inc. to KQDS Acquisition Corporation ARE GRANTED. FEDERAL COMMUNICATIONS COMMISSION Magalie Roman Salas Secretary