Academic journal article Federal Communications Law Journal

Business Solutions to the Alien Ownership Restriction

Academic journal article Federal Communications Law Journal

Business Solutions to the Alien Ownership Restriction

Article excerpt


     A. The Old Studio System
     B. The Foundation Crumbles
        1. Antitrust
        2. Television
     C. The New System
        1. Disney
        2. Time Warner
        3. Sony
        4. NBC Universal
        5. Viacom
        6. News Corporation
        7. Summary

     A. The Communications Act
     B. Impact in the Entertainment Industry
     C. Attempts at Circumvention

     A. Eliminating the Rule
     B. Restructuring Corporations
     C. Divestiture of Companies Owning Broadcast Licenses.



Since 1912, Congress has outlawed foreign ownership or control of a broadcast station. (1) This restriction is codified in its current form under the Communications Act of 1934 (1934 Act). (2) By looking at the extensive legislative history of these statutes, scholars have reached a consensus on two main reasons why Congress passed the rule. The first of the two reasons is based on national security. If a foreign-owned company were granted a broadcast license, it could use the station to broadcast propaganda or to jam American radio signals in times of war. (3) Secondly, the foreign ownership restriction can be viewed as a protectionist measure used to promote American ownership of American media, and to prevent foreign takeovers. (4)

There has been a growing movement in scholarship over the past several decades to eliminate this ownership restriction. Some argue that foreign ownership poses no threat to national security anymore, or that the President can suspend the license under his war powers if such a threat arises. (5) Others argue that this restriction on trade hurts American interests abroad on reciprocity grounds, (6) as well as American interests at home by limiting the market value of broadcast stations. (7) On constitutional grounds, some argue that the alien ownership restriction presents an unwarranted limitation on speech. (8)

At the same time, mass media has been simultaneously expanding and converging. Media companies have been discovering new markets and merging old ones with increasing rapidity over the last few decades. For example, the mobile phone ring tone market provided a huge boon to the cellular and music industries in the early- to mid-2000s ($600 million in 2006 alone), (9) and in the late 2000s, the introductions of so-called "smart phones" (such as Apple's iPhone) merged existing telephone and computer technologies into a single device. (10) While this revolution has tremendous potential, it has also created tremendous instability for the businesses involved. Companies have discovered that the best way to survive this instability is to fuse with other companies involved in different types of media, thus forming large, vertically integrated conglomerates.

The alien ownership restriction has played a strong role in this reshuffling of the media and entertainment industries. These conglomerates require huge infusions of capital, especially upon formation. In today's increasingly international economy, fewer and fewer companies are fully owned or controlled by American citizens. This presents an obvious problem for any entertainment conglomerate that has broadcast licenses-in order to raise capital from foreign sources, the conglomerate must either divest itself of any company with a broadcast license, or that company could run the risk of losing the license, which could ruin its business.

Much has been written about the foreign ownership restriction in its century of existence. There are excellent works arguing for the repeal of the statute, and other equally excellent works arguing for a reinterpretation of the statute for the sake of free trade. However, this Note approaches the foreign ownership restriction from a business perspective, and so does not argue for change, but rather explores the options available to a foreign-owned media conglomerate that wishes to have a presence in the American market. …

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