December 7, 2010 MEMORANDUM TO IREX GEORGIA Regulation of Foreign Ownership of Broadcast Media You asked us to provide examples of countries with specific legislative regulations that limit foreign ownership of broadcast media. Permitting foreign investment in a country s media can provide additional capital to help finance an independent media. But it is also important for regulators to have access to information on the sources of media ownership. Many countries have balanced these interests and permitted foreign ownership of media, subject to limitations and regulatory reporting requirements. This memorandum provides an overview of regulations in Australia, Austria, France, India, Poland, Taiwan, Turkey, and the United States. These eight case studies demonstrate methods governments have used to strike a balance between permitting some level of foreign investment in broadcasting, while not threatening the independence of the domestic media. 1 Overall, three main principles appear frequently in these regulations: 1. Australia 1. establishing a maximum level of foreign investment; 2. maintaining final approval over foreign investments through a government body or agency; and 3. focusing on transparency to know who holds ownership stakes. Following a highly charged debate about media ownership and diversity in Australia that lasted more than a decade, amendments to the Broadcasting Service Act of 1992 were passed in 2007. While these amendments liberalized the old rules, repealing broadcastingspecific restrictions on foreign investment, the media remains a sensitive sector under Australian foreign investment policy. As such, all investments by foreign interests are subject to approval by the treasurer. Broadcast media in Australia also is subject to restrictions on cross-media ownership. Media owners may not control more than two of the three media platforms 1 Many countries do not have any regulations restricting foreign ownership of broadcast media, including Belgium, Denmark, Germany, New Zealand, Romania, and the United Kingdom. SF: 144241-2
(commercial television, commercial radio, or newspapers) in any one market. A cross-media acquisition must not result in unacceptable media diversity. In metropolitan radio license areas, this would occur where the number of independent media operators falls below five and in regional radio license areas where the number of independent media operators falls below four. 2. Austria Under the Austrian Private TV Act, private broadcasters or their members must be Austrian citizens or legal persons or partnerships under commercial law that are domiciled in Austria. Nationals of and partnerships or legal persons domiciled in contracting states of the European Economic Area ( EEA ) Agreement have equal status to their Austrian equivalents. Several categories of persons also are precluded from providing broadcasting services in Austria: (1) legal persons established under public law, except for churches, religious associations, and the Federal Ministry of Defense with respect to operating information broadcasting services; (2) political parties; and (3) legal persons or partnerships in which the above-listed entities are direct shareholders. Foreigners (meaning non-eea resident or domicile), legal entities under the control or significant influence of foreigners, or foreign-domiciled entities up to the fourth level of parent companies, may not hold more than 49 percent of the shares of a broadcaster organized as a corporation, partnership, or cooperative. In other words, foreigners control over Austrian broadcasters may only be indirect (via four levels of corporate ownership). 3. France Under the 1986 Radio and Television Law, France distinguishes between European Union ( EU ) persons (including French persons, as well as natural and legal persons domiciled in other EU countries) and non-eu persons in its regulation of broadcast media ownership: An EU person may hold up to 49 percent of the share capital or the voting rights of a company that has an authorization to provide a national television service, where the average audience for this service exceeds eight percent; An EU person may hold up to 33 percent of the share capital or the voting rights of a company that has an authorization to provide a local televisiion service, where the average audience for this service exceeds eight percent. Non-EU legal or natural persons may not hold, individually or collectively, more than twenty percent of the share capital or the voting rights of a company holding a license for a terrestrial radio or television broadcasting service in France. Foreign ownership of cable or satellite services is permitted. 4. India India has shown a trend in the last decade of liberalizing foreign investment regulation of the media sector, although some significant restrictions remain. Foreign ownership - 2 -
of broadcast media is regulated under the Foreign Direct Investment Policy 2010, issued by the Department of Industrial Policy and Promotion, the Ministry of Commerce and Industry, and the Government of India. Regulation varies according to the type of technology involved. Foreign investment is permitted up to 20 percent in terrestrial FM radio services and up to 49 percent in cable television network and direct-to-home ( DTH ) services. However, foreign direct investment (as opposed to non-resident Indian and person of Indian origin investments and portfolio investments) may not exceed 20 percent for DTH services. Foreign direct investment of up to 74 percent is permitted in headend-in-the-sky services; 49 percent of this is allowed automatically, while another 25 percent may be allowed after obtaining prior approval of the Foreign Investment Promotion Board. 5. Poland In Poland, amendments to the country s Broadcasting Act in April 2004 lifted a 33 percent capital restriction on foreign ownership by entities based in EU countries. Poland s Broadcasting Act provides that a broadcasting license may be granted to a Polish company in which foreign entities have an interest only if: the equity of foreign parties or the foreign interest in the share capital of a company does not exceed 49 percent; and the articles of association of the company provide that: o the majority of the persons authorized to represent the company or conduct the company s activities or the members of the management board of the company are Polish citizens residing in Poland; o the share of votes of foreign entities and subsidiaries of foreign entities in the shareholders meeting or in the general shareholders meeting may not exceed 49 percent; o foreign entities may not have directly or indirectly a majority of votes exceeding 49 percent in the non-commercial partnership; and o persons of Polish nationality who permanently reside in Poland constitute a majority of members of the supervisory board of the company. Additionally, the purchase or acquisition by a foreign person of shares or interest or the acquisition of rights in shares or interest in a company holding a broadcasting license to requires the consent of the president of the National Broadcasting Counsel. 6. Taiwan Taiwan limits foreign ownership in its telecommunications sector in several ways. No foreign investment is allowed in terrestrial broadcasters. For cable broadcasters, the Cable Radio and Television Law provides that the total direct and indirect foreign investment must be less than 60 percent of the broadcaster s total issued shares. Direct foreign shareholding is limited to legal entities, and the total shares directly held by any one foreign shareholder may not - 3 -
exceed 20 percent of the total shares issued. In addition, the government may reject applications by foreign investors planning to establish or operate cable radio or television in Taiwan if it deems that the foreign investment would have an adverse effect on national security, public order, or social morals. The meaning of the terms national security, public order, and social morals are unclear and depend on the judgments of the government regulator. Under Taiwan s Satellite Broadcasting Law, the total shares of a direct foreign investment in a Taiwan-incorporated satellite broadcaster must be less than 50 percent of the total issued shares. An offshore satellite broadcaster may offer programs in Taiwan by setting up a branch office or appointing a distributor, provided that the NCC grants a broadcast approval. In addition to limits of foreign ownership, there also are restrictions regarding the nationality of those holding leading positions in the telecommunications industry. Under these rules, the majority of directors and board members including chairman, directors, or CEO must be Taiwanese citizens. Additionally, the Cable Radio and Television Law mandates that the chairman of the board of directors and at least two-thirds of the directors and two-thirds of the supervisors of a company operating a cable radio or television system must be Taiwan citizens. 7. Turkey The main law regulating the Turkish broadcasting sector is the Establishment of Radio and Television Companies and Their Broadcasts No. 3984, which entered into force in 1994. Under this law, foreign natural or legal persons (1) may hold a maximum of 25 percent of the shares of a broadcasting company, and (2) are only permitted to own shares in one such company. However, a draft law liberalizing this regulation is currently under consideration by the Turkish parliament, and was approved in early November 2010 by the parliament s Constitutional Commission. It is expected that the law will be presented to a vote in the general assembly soon. If it passes, the new law would double the allowable percentage of foreign ownership in a broadcasting company to 50 percent and would permit ownership in up to two broadcasting companies. 8. United States Foreign corporations who wish to invest in broadcast stations licensed in the United States by the Federal Communications Commission ( FCC ) are regulated in multiple ways. Direct Ownership. First, United States law prohibits a foreign entity from directly owning directly more than twenty percent of a broadcast licensee s capital stock owned of record or voted. The FCC does not have discretion to make exceptions. Ownership in a Parent Company. Second, a foreign entity may not own more than twenty-five percent of the capital stock of record or voted of a parent or holding company that controls the licensee of a station. If a foreign entity owns more than twenty-five percent of a parent company for a station, the FCC can still approve the ownership if it finds the transaction to be in the public interest. As a practical matter, the FCC is highly unlikely to approve a - 4 -
transaction in which a foreign entity owns or votes more than twenty-five percent of the parent company s capital stock. In fact, this has occurred only once in recent years, under unique circumstances. 2 The FCC has given very little guidance on what it would take into account in the public interest analysis, but it has suggested that one of the purposes of the foreign ownership restrictions is to protect the airwaves from undue foreign influence. Debt. Third, the FCC considers the amount of debt held by foreign entities, either directly in a station or in a parent company. The FCC will look at the economic reality of the situation to determine whether an investment is debt or if it is really a capital contribution. In general, the FCC will consider five factors in resolving this issue: (1) whether there is a written unconditional promise to repay the money on demand and to pay a fixed rate of interest; (2) whether there is subordination to or preference over any indebtedness of the company; (3) the company s debt/equity ratio; 3 (4) whether the alleged debt is convertible to stock; and (5) the relationship between holdings of stock in the corporation and holdings of the interest in question. In addition, all broadcasters are required to file annually with the FCC a detailed ownership report disclosing the identities of all of their direct and indirect owners, whether those owners are domestic or foreign. This requirement permits regulators to know the identities of any foreign companies or individuals that may own equity in U.S.-based television and radio broadcast companies. Foreign investment in the United States that implicates the nation s national security also is subject to review by the Committee on Foreign Investment in the United States ( CFIUS ). In general, a foreign ownership interest of 10 percent is likely to result in requiring CFIUS approval. CFIUS also will look to other indicia of foreign control, including the existence of a management agreement, participation by the foreign interest on the board of directors, and/or other rights the foreign interest holds. Additionally, any time the transfer or assignment of an FCC broadcast license involves a substantial change in ownership or control, the FCC must approve the transaction. The FCC first places the application on public notice for a period of thirty days during which petitions to deny the application may be filed by interested parties. Informal objections may be filed any time until the FCC acts upon the application. If the FCC grants an assignment or 2 The only time the FCC has approved an alien ownership interest of more than 25 percent in the parent company of an FCC licensee was in Fox Television Stations, Inc ( FTS ). FTS had controlled the licenses of FCC licensed stations since 1985, but in 1995 the FCC determined that FTS s parent corporation, an Australian company, exceeded the 25 percent benchmark. In finding that the public interest was served by permitting FTS to continue to hold the licenses, the FCC relied in large part on what it considered FTS s good faith reliance over 10 years that it was in compliance with the foreign ownership limits, the cost of divesting its interests, and the fact that an American citizen, Rupert Murdoch, exercises control over FTS. The FCC considered these unique circumstances that warranted its finding that the public interest would not have been served by refusing or revoking FTS s licenses. 3 The FCC has noted that courts have considered a debt to equity ratio of 21:1 as strong evidence that the loans are not bona fide. - 5 -
transfer application, interested parties have an additional thirty days from public notice of the grant in which to file for reconsideration of the decision or appeal the decision within the FCC. Finally, a contested grant of such an application can be appealed to a federal court. * * * Please let us know if you have questions or comments, or if we can provide any additional guidance. Kurt Wimmer (kwimmer@cov.com) Mali Friedman (mfriedman@cov.com) Kerry Monroe (kmonroe@cov.com) - 6 -