Jessell | Priority 2021: Minority Tax Certificate Redux

A few months after riots ripped through American cities in the wake of Martin Luther King Jr.’s assassination in 1968, the late Andrew “Skip” Carter gave a speech before the National Association of Television and Radio Announcers in Miami.

Carter had earned his spot before the African-American organization because he was a true industry pioneer. He became one of the first black station owners by buying into KPRS Kansas City, Mo. (now KPRT) in 1952. That AM along with the FM companion he put on the air in 1963 (now KPRS) are still in his family.

Carter’s message that day in 1968 was that African Americans should look beyond producing programming, spinning records and announcing. “We ultimately must own, control and operate our own means of mass communication,” he said.

Some in the room may have heeded the advice, but black ownership in broadcasting has never amounted to much. There were only a handful of black owners in 1968, and, even though Congress and the FCC created programs in the 1970s and 1980s to increase their ranks, they remain thin.

The FCC’s lastest official count (in 2017) found that just 2.3% of the 10,174 full-power TV, AM and FM stations are owned by African Americans. If you lump in other “races” and Hispanics, the percentage swells to 8.5%. Women own 7.6% of the stations.

Take a look at TVNewsCheck’s Top 30 TV groups ranking last week. You’ll see just one minority-owned group, Bryon Allen’s Allen Media, and one owned by a woman (Liz Murphy Burns’ Morgan Murphy Media). And keep in mind that those 30 groups account for 94% of TV station revenue, according to BIA Advisory Services. They represent nearly the entire broadcast TV industry.

With the country again experiencing racial strife reminiscent of 1968, we should be working to get those percentages up and the best way of doing that is by reviving the so-called minority tax certificate in Congress.

Administered by the FCC, the program granted sellers of stations to minorities a certificate that allowed them to defer capital gains taxes.

The certificate was highly popular because it benefitted both sellers and buyers. Sellers got a tax break sometimes worth millions or tens of millions of dollars and buyers got a station, often at a good discount because sellers were willing to share their tax savings.

Between 1978 and 1995, the FCC awarded 359 certificates, 285 for radio deals, 43 for TV and 31 for cable, according to the agency. The 359 was out of around 16,000 transactions, but still the program significantly increased the ranks of minority owners from .05% of all stations to 2.9%.

The late Ragan Henry, for one, took full advantage of the certificate. In 1989, the African-American broadcaster owned more FM stations than anyone in the country, bumping up against the 14-station FCC limit then in place.

Unfortunately, the Republican-controlled Congress killed the certificate program in 1995. The Republicans were not fans of affirmative action, didn’t like the tax revenue hits, doubted the connection between ownership diversity and program diversity that was one of the certificate’s justifications and,  according to some, were fuming that a major Democratic contributor like Viacom owner Sumner Redstone was set to become a major sell-side beneficiary.

Despite its sudden end, interest in the certificate has never waned and there has been near continuous efforts to revive it over the past 20 years.

The NAB tells me that the program is one of its legislative priorities with President Gordon Smith taking a personal interest. (He supported an earlier version when he was in the Senate.)

But the Republicans continue to stand in the way.

For the legislation to move, voters this fall will have to put the Dems back in control of the Senate and put Trump back in the real estate business. Actually, it might only take a Trump loss. Absent his pervasive influence, enough Republicans of a moderate bent might sign up for what is a modest affirmation action initiative.

If the Dems do capture Congress and the White House, certificate proponents will need to act fast. Since 1995, the Dems have been in control of the two branches for just two years, the first two years of the Obama administration. That window closed almost as fast as it opened.

Several arguments can be made for the certificate and other programs aimed at increasing minority ownership. Mine is simple. It’s a way to even things up. Call it a bit of reparation if you like.

In the first 50 years of broadcasting, it could not have been easy for minorities to latch onto highly-coveted radio and TV licenses when the FCC was handing them out for free.

Minorities lacked capital and the right business and government connections. And although I have  found no evidence of outright discrimination against minorities in licensing, I suspect there was plenty.

What’s more, there was in the early days a policy of not granting licenses to companies that proposed to serve niche audiences as some black applicants did. You had to serve a “general” audience.

In other words, you could get license if you intended to serve a “general” audience, meaning, I suppose, an audience of mostly white people, but not if you wanted to serve an audience of mostly black people. Doesn’t seem fair to me.

In an article for the Southern Journal of Policy and Justice, minority ownership and employment activist David Honig tells the story of white-owned WIXX-AM Fort Lauderdale, Fla.

In 1963, the FCC moved to revoke its license on the grounds that by programming part-time for the local black community, the station was reneging on its promise to serve the “general audience.” The FCC dropped the case when WIXX-AM dropped the programming geared to black audiences. That’s the way it was.

It wasn’t until the Carter administration that policymakers came around to the idea that they ought to do something to correct past wrongs and increase broadcast ownership by minorities. The certificate and other programs were the result.

While minorities have not had to deal with such blatantly unfair policies since the 1960s, it is worth noting that minority ownership has also been stunted by another powerful force: consolidation.

During the 1990s and early 2000s, the government eased way back on ownership limits in broadcasting, opening the door to station consolidators like iHeart in radio and Sinclair and Nexstar in TV.

Many small radio broadcasters — minority and non-minority — sold out to them, some because the money was good; others because they felt they couldn’t compete with the deep-pocketed groups with multiple stations in their markets.

I’m told that incumbent small broadcasters were sometimes threatened by ravenous buyers: either sell or face competition from a station with the same format and lower ad rates.

Admittedly, the tax certificate in its original incarnation had some problems. Chief among them was that some deals seemed to do more for the rich white people involved in them than they did for the minorities.

One that I remember came in 1993 when Times Mirror sold four TV stations to Argyle Communications for $335 million.

Argyle was structured so that a Katz sales executive named Ibrahim Morales would hold 51% of the equity even though he put only $153,000 into the deal, while Robert Marbut, the former head of the Harte-Hanks group, and other big investors put in nearly $50 million, according to Newsday.

Because Morales was Hispanic, his nominal 51% interest qualified the deal for a tax certificate that allowed Times Mirror to defer up to $50 million in taxes.

A year after the deal closed, Argyle sold the four stations to New World Communications for a whopping $717 million. I don’t know what Morales’s end was, but I’m sure it wasn’t anywhere near 51%. Newsday said he could be bought out of Argyle by the big money at any time for $1 million.

But the deal that did in the certificate was Viacom’s proposed 1995 sale of its cable systems for $2.4 billion to an outfit called RCS Pacific headed by Frank Washington, an African American, who as an FCC official in the 1970s helped create the tax certificate program. With the certificate, Viacom would be able to defer hundreds of millions of dollars in taxes.

Although Washington was to have a 21% interest in the RCS and act as controlling general partner, he was putting only $1 million of his own money in the deal. The rest of the equity was coming from Leo Hindery’s InterMedia Partners and John Malone’s Tele-Communications Inc.

The Washington Post got right to the point: “Viacom to Get Big Tax Break in Cable Deal.”

That headline and others like it caught the attention of the Republican Congress, which had it out of Viacom owner Sumner Redstone. After some hurried hearings, it quashed the certificate just months after the Viacom had been announced.

After that happened, Washington was sent packing and Viacom cut a new deal to sell its systems to Malone for $2.25 billion.

Last week, in the heat of the George Floyd protests and rioting, communications attorney David Oxenford reviewed the tax certificate push of Rep. G.K. Butterfield (D-N.C.) and Sen. Gary Peters (D-Mich.).

According to Oxenford, their pending bill addresses some of the objections that led to its demise in 1995 and that have discouraged some from supporting since then.

“To overcome some of the constitutional objections, the bill apples to all ‘socially-disadvantaged individuals’ — not just to businesses that are minority-owned,” he says in outlining the measure.

“To overcome the concerns about this program being exploited by big businesses that don’t need government assistance, the program proposes to cap the size of the sale that could take advantage of the certificate — a cap somewhere between $10 million and $50 million, as decided by the FCC after a rulemaking.

“The bill also requires that socially-disadvantaged individuals be involved in the management of the stations acquired, and that the properties be held for at least three years to avoid the purchased stations quickly being turned over to non-qualifying businesses.”

In recent days, Jim Winston, president of the Association of Black-Owned Broadcasters, and Radio Ink Publisher Deborah Parenti, have also called for the resurrection of the certificate.

I am championing the revival of the certificate even though I suspect that it may be too little, too late.

It’s a different media world than it was in 1995. If the certificate returns next year with a deal cap of, say, $50 million, it would be of little value in TV. That’s not going to buy you much these days and anything it would buy is probably not worth buying. It took Bryon Allen $305 million to get his toehold in the business.

There would be many more buy opportunities in radio at $50 million. But the business is simply not as appealing as it was. Faced with brutal competition from satellite radio and online audio of all sorts, radio is losing its grip on the America public and, I believe, is in an irreversible, albeit slow, decline.

I still believe Carter had it right when he said he and other African Americans “must own, control and operate our own means of mass communication,” by which he could only have meant broadcasting and publishing.

If he were speaking today rather than 1968, I think he would have a much more expansive definition of “mass communication.”

Harry A. Jessell is editor at large of TVNewsCheck. He can be contacted at 973-701-1067 or here. You can read earlier columns here.