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Reinstated 2021

FCC Broadcast Incubator Program Has Never Had an Applicant

No one has ever applied to participate in the FCC’s broadcast incubator program, according to an FCC spokesperson. Created in 2018, then tied up in the Prometheus court proceedings (see 2104010067) for years afterward, the program aimed at providing more access to capital for minority and female radio station owners was reinstated in 2021 but a year later is seen by some as dead. The agency hasn't received any applications and doesn't track informal inquiries, an FCC spokesperson told us. “I think those interested in promoting diversity in the industry have pretty much given up on this program,” said former FCC Commissioner Henry Rivera, a longtime participant in FCC diversity efforts. “NAB has been supportive of this program since its creation and encourages the FCC to promote this important initiative as it actively encourages greater diversity in broadcast ownership,” an NAB spokesperson emailed. “It is an incomplete success,” said David Honig, of the Multicultural Media, Telecom and Internet Council.

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Created under then-FCC Chairman Ajit Pai in 2018, the incubator program was knocked down by the 3rd U.S. Circuit Court of Appeals in 2019 alongside the rest of the FCC’s 2014 quadrennial ownership review and reinstated slightly over a year ago after the Supreme Court overturned the 3rd Circuit. The program was intended to pair a new entrant radio station owner with an incumbent broadcast group that would provide the incubatee with “the financial and operational support it lacks” for a three-year-term. After that term, the incubatee would have an option to fully purchase the incubated station, and the incubator company could receive limited waivers of the FCC’s local radio ownership rules.

In 2018, Pai wrote that the idea for the program had been kicking around the FCC since the National Association of Black Owned Broadcasters proposed it in 1990. “And in the last 26 years, the proposal has been discussed in no fewer than seven different dockets. That’s a lot of talk. But talk doesn’t get the job done,” said a Pai statement in 2018. “So, this Commission has adopted a different attitude, one borrowed from Elvis Presley: ‘A little less conversation, a little more action.’ NAB supported the program at the time by NAB, but it was panned by a number of public interest and diversity groups as unlikely to be effective, a sentiment echoed by then-Commissioner Jessica Rosenworcel. “There is nothing bold here,” she said in a statement with the August 2018 report and order that established the program’s rules. “I fail to see how it will make a material difference in the diversity of media ownership.”

Broadcasters, FCC officials and diversity advocates point to a wide range of reasons why the program hasn’t worked. Groups like MMTC were expected to funnel participants to the program, and there was never sufficient buy-in among incubating companies or prospective incubatees, Honig said. “Only a handful” of companies and prospective diverse owners ever showed interest, he said. Patrick Communications broadcast broker Gregory Guy has had clients interested in participating, but none ever panned out. He said he believes uncertainty about how the project would be implemented is a deterrent. “It’s never been done before, and there’s a hesitancy to try it,” Guy said.

Honig, Rivera and broadcast industry officials pointed to the program’s three-year trial period as too onerous for broadcasters. The final rules required “years of detailed reporting to ensure that an incubating company’s pledge of incubation was fulfilled,” Rivera said. “The Commission was trying to prevent fraud. However, the cost of compliance, and the three-year delay before the local ownership rule waiver could be claimed as a reward for incubation, made the final product unattractive to the industry.” The largest broadcasters in the best position to incubate diverse owners are all public companies that are unlikely to invest money for years with an uncertain outcome, said radio broker Mark Jorgenson.

The incubator program’s ownership waivers for participants were widely criticized by MMTC, NABOB and other groups as too permissive when the program was created, and NABOB and MMTC went to court over that inclusion. The FCC’s own Advisory Committee on Diversity and Digital Inclusion said then the waivers could be abused to allow companies to incubate in small markets in exchange for waivers in large ones. But just as no one has applied to the incubator program, no company has taken advantage of those waivers, Honig conceded. A limited ownership waiver for a single market is unlikely to be that attractive to many large broadcasters at the moment, Guy said.

The timing is also likely a factor, numerous industry officials said. The year since the program was reinstated has not been a banner year for station sales, said Jorgenson. With the industry still recovering from COVID-19 advertising and supply chain woes, big radio groups aren’t out searching for stations to buy and there’s little motivation for them to entangle themselves in the incubator program, Guy said. “COVID changed everything,” said DuJuan McCoy, CEO of Circle City Broadcasting

Honig doesn’t want to see the incubator program terminated, but doesn’t think it’s likely to receive applicants any time soon. He said the FCC should shift focus to other ways to promote access to capital for minority and women would-be broadcasters, such as through rule changes that would allow owners of expanded band AM stations to offer their original AM stations to designated entities, or promoting the return of the minority tax certificate. However, Honig conceded that a resurrected tax certificate might not be more effective than the incubator program: the certificate encouraged companies to sell to diverse purchasers by deferring capital gains taxes, but brokers told us that with the reduced value of broadcast stations and lack of potential buyers, many moderate station deals don’t generate much in capital gains.

There’s plenty of qualified people that want to get into broadcasting,” said McCoy. “It is very tough to have full buy-in from the people that own the radio stations.” McCoy said he believes that right now there is interest among larger broadcasters and banks in working with more diverse businesses and that a lack of promotion could be holding back the incubator program. “I get calls frequently from companies looking to make deals with a black-owned business,” McCoy said. Many companies may not know about the program, he said. A former senior FCC official agreed, saying the current FCC hasn’t promoted the program, and that companies may believe the current agency leadership doesn’t support it. The FCC declined to comment on future plans for the incubator program.

When there is buy-in from big companies, incubator relationships work at getting new entrants into the industry, McCoy said. “Check out this incubation program!” he said in an email linking to an article about AT&T’s relationship with the One America News Network. McCoy in the past has criticized companies for investing in ventures like OAN rather than minority-owned businesses. “Didn’t need policy for this to happen! Makes you wonder, huh?"