Prometheus Radio Project v. Federal Communications Commission

Opinions of the United

2004 Decisions States Court of Appeals

for the Third Circuit

6-24-2004

Prometheus Radio v. FCC

Precedential or Non-Precedential: Precedential

Docket No. 03-3388

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"Prometheus Radio v. FCC" (2004). 2004 Decisions. Paper 537.

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PRECEDENTIAL

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Nos. 03-3388, 03-3577, 03-3578, 03-3579, 03-3580, 03-3581, 03-3582, 03-3651,

03-3665, 03-3675, 03-3708, 03-3894, 03-3950, 03-3951, 03-4072, 03-4073 & 04-1956

PROMETHEUS RADIO PROJECT

vs.

FEDERAL COMMUNICATIONS COMMISSION;

UNITED STATES OF AMERICA

Prometheus Radio Project, Petitioner in No. 03-3388

Media General, Inc., Petitioner in No. 03-3577

National Association of Broadcasters, Petitioner in No. 03-3578

Network Affiliated Stations Alliance, ABC Television Affiliates Association, CBS

Television Affiliates Association and NBC Television Affiliates,

Petitioners in No. 03-3579

Fox Entertainment Group, Inc. and Fox Television Stations, Inc.,

Petitioners in No. 03-3580

Viacom Inc., Petitioner in No. 03-3581

National Broadcasting Company, Inc., and Telemundo Communications Group, Inc.,

Petitioners in No. 03-3582

Sinclair Broadcast Group, Inc., Petitioner in No. 03-3651

Media Alliance, Petitioner in No. 03-3665

Paxson Communications Corporation, Petitioner in No. 03-3675

National Council of the Churches of Christ in the United States, Petitioner in No. 03-3708

Tribune Company, Petitioner in No. 03-3894

Paxson Communications Corporation, Petitioner in No. 03-3950

Emmis Communications Corporation, Petitioner in No. 03-3951

Center for Digital Democracy and Fairness & Accuracy in Reporting,

Petitioners in No. 03-4072

Clear Channel Communications, Petitioner in No. 03-4073

American Hispanic Owned Radio Association, Civil Rights Forum on Communications

Policy, League of United Latin American Citizens, Minority Business Enterprise Legal

Defense and Education Fund, Minority Media and Telecommunications Council,

National Asian American Telecommunications Association, National Association of

Latino Independent Producers, National Coalition of Hispanic Organizations, National

Council of La Raza, National Hispanic Media Coalition, National Indian

Telecommunications Institute, National Urban League, Native American Public

Telecommunications, Inc., PRLDEF-Institute for Puerto Rican Policy, UNITY:

Journalists of Color, Inc. and W omen’s Institute for Freedom of the Press, Petitioners in

No. 04-1956

On Petition for Review of An Order of

the Federal Communications Commission

(FCC No. 03-127)

Argued February 11, 2004

Before: SCIRICA, Chief Judge, AM BRO and FUENTES, Circuit Judges

(Filed June 24, 2004)

Andrew Jay Schwartzman, Esquire (Argued)

Cheryl A. Leanza, Esquire

Media Access Project

1625 K Street, N.W., Suite 1118

Washington, DC 20006

Counsel for Prometheus Radio Project, Center for Digital Democracy and

Fairness and Accuracy in Reporting

Shelby D. Green, Esquire

Pace University School of Law

78 North Broadway

White Plains, NY 10603

Counsel for National Council of the Churches of Christ in the United States

Samuel L. Spear, Esquire

Spear Wilderman Borish Endy Spear & Runckel

230 South Broad Street, Suite 1400

Philadelphia, PA 19102

Counsel for Prometheus Radio Project

Angela J. Campbell, Esquire (Argued)

James A. Bachtell, Esquire

Karen Henein, Esquire

Institute for Public Representation

2

Georgetown University Law Center

600 New Jersey Avenue, N.W., Suite 312

Washington, DC 20001

Counsel for Media Alliance and Office of Communication of the United Church of

Christ, Inc.

Glen B. Manishin, Esquire (Argued)

Stephanie A. Joyce, Esquire

Kelley Drye & Warren LLP

8000 Towers Crescent Drive, Suite 1200

Vienna, VA 22182

Counsel for Consumers Union and Consumer Federation of America

Robert A. Long, Jr., Esquire

Kevin C. Newsom, Esquire

Heidi C. Doerhoff, Esquire

Covington & Burling

1201 Pennsylvania Avenue, N.W.

Washington, DC 20004-1401

Counsel for CBS Television Network Affiliates Association, NBC Television

Affiliates and Network Affiliated Stations Alliance

Wade H. Hargrove, Esquire

Mark J. Prak, Esquire

Brooks, Pierce, Mclendon, Humphry & Leonard

1600 Wachovia Capitol Center

150 Fayetteville Street Mall

Raleigh, NC 27601

Counsel for ABC Television Affiliates Association

Henk Brands, Esquire (Argued)

Patrick S. Campbell, Esquire

John H. Longwell, Esquire

Paul, Weiss, Rifkind, Wharton & Garrison LLP

1615 L Street, N.W., Suite 1300

Washington, DC 20036

Counsel for Fox Entertainment Group, Inc., Fox Television Stations, Inc. and

Viacom Inc.

3

Michael K. Kellogg, Esquire

Mark L. Evans, Esquire

Kellogg, Huber, Hansen, Todd & Evans, PLLC

1615 M Street, N.W., Suite 400

Washington, DC 20036

Counsel for National Broadcasting Company, Inc. and Telemundo

Communications Group, Inc.

Donald B. Verrilli, Jr., Esquire (Argued)

Ian Heath Gershengorn, Esquire

Elaine J. Goldenberg, Esquire

Jenner & Block, LLC

601 Thirteenth Street, N.W., 12 th Floor

Washington, DC 20005

Henry L. Baumann, Esquire

Jack N. Goodman, Esquire

Jerianne Timmerman, Esquire

National Association of Broadcasters

1771 N Street, N.W.

Washington, DC 20036

Counsel for National Association of Broadcasters

John R. Feore, Jr., Esquire

Michael D. Hays, Esquire

Kenneth D. Salomon, Esquire

M. Anne Swanson, Esquire

Theodore L. Radway, Esquire

Jason E. Rademacher, Esquire

Dow, Lohnes & Albertson, PLLC

1200 New Hampshire Avenue, N.W., Suite 800

Washington, DC 20036-6802

Counsel for Millcreek Broadcasting, LLC, Media General, Inc., Simmons Media

Group and Paxson Communications Corporation

4

John E. Fiorini III, Esquire †

Helgi C. Walker, Esquire † *

Eve Klindera Reed, Esquire† *

Andrew G. McBride, Esquire*

Richard J. Bodorff, Esquire*

James R. Bayes, Esquire ††

Kathleen A. Kirby, Esquire ††

Richard E. Wiley, Esquire †† (Argued)

Martha E. Heller, Esquire ††

Wiley Rein & Fielding LLP

1776 K Street, N.W.

Washington, DC 20006

†

Counsel for Emmis Communications Corporation

* Counsel for Clear Channel Communications, Inc.

††

Counsel for Newspaper Association of America, Belo Corporation,

Gannett Co., Inc. and Morris Communications Company, LLC

Kathryn R. Schmeltzer, Esquire (Argued)

Barry H. Gottfried, Esquire (Argued)

Tony Lin, Esquire

Paul A. Cicelski, Esquire

Scott R. Flick, Esquire

Christopher J. Sadowski, Esquire

Shaw Pittman LLP

2300 N Street, N.W.

Washington, DC 20037

Counsel for Sinclair Broadcast Group, Inc. and Univision Communications Inc.

Miguel A. Estrada, Esquire (Argued)

Michael J. Edney, Esquire

Gibson, Dunn & Crutcher LLP

1050 Connecticut Avenue, N.W.

Washington, DC 20036

Counsel for Clear Channel Communications, Inc.

5

Carter G. Phillips, Esquire (Argued)

R. Clark W adlow, Esquire

Richard D. Klingler, Esquire

James P. Young, Esquire

Anita L. Wallgren, Esquire

Sidley Austin Brown & Wood LLP

1501 K Street, N.W.

Washington, DC 20005

Crane H. Kenney, Esquire

Tribune Company

435 N. Michigan Avenue

Chicago, IL 60611

Counsel for Tribune Company

Jerome M. Marcus, Esquire (Argued)

Jonathan Auerbach, Esquire

Berger and Montague, P.C.

1622 Locust Street

Philadelphia, PA 19103

Dianne Smith, Esquire

Capitol Broadcasting Company, Inc.

2619 Western Blvd. 27606, Box 12000

Raleigh, NC 27605

Counsel for Capitol Broadcasting Company, Inc.

David Honig, Esquire

Nicolaine Lazarre, Esquire (Argued)

Fatima Fofana, Esquire

Julie Smith, Esquire

Minority M edia and Telecommunications Council

3636 16 th Street N.W., #B-366

Washington, DC 20010

Counsel for American Hispanic Owned Radio Association, Civil Rights Forum on

Communications Policy, League of United Latin American Citizens, Minority

Business Enterprise Legal Defense and Education Fund, Minority Media and

Telecommunications Council, National Asian American Telecommunications

Association, National Association of Latino Independent Producers, National

Coalition of Hispanic Organizations, National Council of La Raza, National

Hispanic Media Coalition, National Indian Telecommunications Institute,

6

National Urban League, Native American Public Telecommunications, Inc.,

PRLDEF-Institute for Puerto Rican Policy, UNITY: Journalists of Color, Inc. and

Women’s Institute for Freedom of the Press

Stephen D. Gavin, Esquire

Katrina C. Gleber, Esquire

Patton Boggs LLP

2550 M Street, N.W.

Washington, DC 20037

Counsel for Nassau Broadcasting Holdings, Inc., and Nassau Broadcasting II,

LLC

David A. Irwin, Esquire

Irwin, Campbell & Tannenwald

1730 Rhode Island Avenue, N.W., Suite 200

Washington, DC 20036

Counsel for Family Stations, Inc., Sunbelt Communications Company, Press

Communications, LLC and Diversified Communications

James L. Winston, Esquire

Rubin, Winston, Diercks, Harris & Cooke

1155 Connecticut Avenue, N.W., 6 th Floor

Washington, DC 20036

Counsel for National Association of Black Broadcasters, Inc. and

Rainbow Push Coalition, Inc.

R. Hewitt Pate, Assistant Attorney General

Makan Delrahim, Deputy Assistant Attorney General

Catherine G. O’Sullivan, Esquire

Nancy C. Garrison, Esquire

James J. Fredricks, Esquire

United States Department of Justice

Antitrust Division

601 D Street, N.W .

Patrick Henry Building

Washington, DC 20530

Counsel for United States of America

John A. Rogovin, General Counsel (Argued)

Daniel M. Armstrong, Associate General Counsel

Jacob M. Lewis, Associate General Counsel (Argued)

7

C. Grey Pash, Jr., Esquire

Nandan M. Joshi, Esquire

Federal Communications Commission

445 12 th Street, S.W.

Washington, DC 20554

Counsel for the Federal Communications Commission

OPINION OF THE COURT

Table of Contents

I. Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

A. The 1934 Communications Act and Early Broadcast Ownership

Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

B. Deregulation Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

C. The Telecommunications Act of 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

D. Regulatory Review Since 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

E. The Commission’s 2003 Report and Order . . . . . . . . . . . . . . . . . . . . . . . . 22

F. The Order’s Modification of Broadcast Media Ownership Rules . . . . . . 24

1. Local Television Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

2. Local Radio Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

3 & 4. Newspaper/Broadcast and Radio/Television Cross-Ownership . . 26

5. National Television Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

8

6. Dual Network Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

G. Procedural History of the Current Appeals . . . . . . . . . . . . . . . . . . . . . . . . 28

H. Subsequent Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

II. Jurisdiction and Standard of Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

A. Standard of Review Under the Administrative Procedure Act . . . . . . . . . 30

B. Standard of Review Considerations Under Section 202(h) . . . . . . . . . . . 32

1. “Determine whether any such rules are necessary in the public

interest.” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

2. “Repeal or modify any regulations it determines to be no longer

in the public interest.” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

C. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

III. Mootness and the National Television Ownership Rule . . . . . . . . . . . . . . . . . . . . . 43

IV. Cross-Ownership Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

A. Regulatory Background and the 2002 Biennial Review . . . . . . . . . . . . . . 47

B. The Commission’s decision not to retain a ban on newspaper/broadcast

cross-ownership is justified under § 202(h) and is supported by record

evidence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

1. Newspaper/broadcast combinations can promote localism. . . . . . . 49

2. A blanket prohibition on newspaper/broadcast combinations is

not necessary to protect diversity. . . . . . . . . . . . . . . . . . . . . . . . . . 51

C. The Commission’s decision to retain some limits on common ownership

9

of different-type media outlets was constitutional and did not violate

§ 202(h). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

1. Continuing to regulate cross-media ownership is in the public

interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

2. Continuing to regulate cross-media ownership does not violate

the Fifth Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

3. Continuing to regulate cross-media ownership does not violate

the First Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

D. The Commission did not provide reasoned analysis to support the

specific Cross-Media Limits that it chose. . . . . . . . . . . . . . . . . . . . . . . . . 57

1. Overview of the Commission’s Diversity Index Methodology . . . 58

2. The Commission did not justify its choice and weight of

specific media outlets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

3. The Commission did not justify its assumption of equal

market shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

4. The Commission did not rationally derive its Cross-Media

Limits from the Diversity Index results. . . . . . . . . . . . . . . . . . . . . . 72

5. The Commission should provide better notice on remand. . . . . . . 76

V. Local Television Ownership Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

A. Regulatory Background and the 2002 Biennial Review . . . . . . . . . . . . . . 78

B. We uphold several threshold challenges to the Commission’s overall

10

regulatory approach. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

1. Limiting local television station ownership is not duplicative of

antitrust regulation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

2. Media other than broadcast television may contribute to viewpoint

diversity in local markets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

3. Consolidation can improve local programming. . . . . . . . . . . . . . . 84

4. The Commission adequately noticed its decision to allow

triopolies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

C. We uphold the Commission’s decision to retain the top-four

restriction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

D. We remand the specific numerical limits for the Commission’s further

consideration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90

E. We remand the Commission’s repeal of the Failed Station Solicitation

Rule. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

VI. Local Radio Ownership Rule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

A. Regulatory Background and the 2002 Biennial Review . . . . . . . . . . . . . . 97

B. We uphold the Commission’s new definition of local markets. . . . . . . . . 99

1. The Commission justified using Arbitron Metro markets. . . . . . . 100

2. The Commission justified including noncommercial stations. . . . 106

C. We uphold the Commission’s transfer restriction. . . . . . . . . . . . . . . . . . 107

1. Transfer restriction is “in the public interest.” . . . . . . . . . . . . . . . 108

11

2. Transfer restriction is reasoned decisionmaking. . . . . . . . . . . . . . 109

3. Transfer restriction is constitutional. . . . . . . . . . . . . . . . . . . . . . . 110

D. We affirm the attribution of Joint Sales Agreements. . . . . . . . . . . . . . . . 112

1. Attribution of JSAs is “necessary in the public interest.” . . . . . . 113

2. Attribution of JSAs is reasoned decisionmaking. . . . . . . . . . . . . . 113

3. Attribution of JSAs is constitutional. . . . . . . . . . . . . . . . . . . . . . . 114

E. We remand the numerical limits to the Commission for further

justification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

1. The Commission’s numerical limits approach is rational and in

the public interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

2. The Commission did not support its decision to retain the

existing numerical limits with reasoned analysis. . . . . . . . . . . . . 119

a. The Commission did not sufficiently justified “five

equal-sized competitors” as the right benchmark. . . . . . . . 120

b. The Commission did not sufficiently justified that the

existing numerical limits actually ensure that markets

will have five equal-sized competitors. . . . . . . . . . . . . . . . 121

c. The Commission did not support its decision to retain the

AM/FM subcaps. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

VII. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

12

AM BRO, Circuit Judge

In these consolidated appeals we consider revisions by the Federal

Communications Commission to its regulations governing broadcast media ownership

that the Commission promulgated following its 2002 biennial review. On July 2, 2003,

the Commission announced a comprehensive overhaul of its broadcast media ownership

rules. It increased the number of television stations a single entity may own, both locally

and nationally; revised various provisions of the regulations governing common

ownership of radio stations in the same community; and replaced two existing rules

limiting common ownership among newspapers and broadcast stations (the

newspaper/broadcast cross-ownership rule and the radio/television cross-ownership rule)

with a single set of “Cross-Media Limits.” See Report and Order and Notice of Proposed

Rulemaking, 18 F.C.C.R. 13,620 (2003) (the “Order”).

Several public interest and consumer advocacy groups (collectively, the “Citizen

Petitioners”)1 petitioned for judicial review of the Order in various courts of appeals,

1

For convenience we will use this designation throughout our opinion to refer, jointly

or severally, to the petitioners and intervenor who raise anti-deregulatory challenges to

the Order, including Prometheus Radio Project, Media Alliance, National Council of the

Churches of Christ in the United States, Fairness and Accuracy in Reporting, Center for

Digital Democracy, Consumer Union and Consumer Federation of America, Minority

Media and Telecommunications Council (representing numerous trade, consumer,

professional, and civic organizations concerned with telecommunications policy as it

relates to racial minorities and women), and Office of Communication of the United

Church of Christ (“UCC”) (intervenor).

The Network Affiliated Stations Alliance, representing the CBS Television

Network Affiliates Association, the NBC Television Affiliates, and the ABC Television

Affiliates, and Capitol Broadcasting Company, Inc. (intervenor) also raised anti-

13

contending that its deregulatory provisions contravened the Commission’s statutory

mandates as well as the Administrative Procedure Act, 5 U.S.C. §§ 551 et seq. (the

“APA”). Associations of networks, broadcasters, and newspaper owners 2 also challenged

the Order, arguing that pro-regulatory revisions as well as the absence of further

deregulation violate the Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat.

56 (1996) (the “1996 Act”), the APA, and the United States Constitution. The Judicial

Panel on Multidistrict Litigation, acting pursuant to the random selection procedures of

28 U.S.C. § 2112(a), consolidated the petitions in this Court. On September 3, 2003, we

stayed implementation of the rules pending our review.

For the reasons stated below, we affirm the power of the Commission to regulate

media ownership. In doing so, we reject the contention that the Constitution or § 202(h)

of the 1996 Act somehow provides rigid limits on the Commission’s ability to regulate in

deregulatory challenges to the national television ownership rule (see infra Parts I.F.5,

III).

2

Rather than identifying these petitioners and intervenors individually when discussing

their positions throughout this opinion, we refer to them collectively as the “Deregulatory

Petitioners.” They include: Clear Channel Communications, Inc.; Emmis

Communications Corporation; Fox Entertainment Group, Inc.; Fox Television Stations,

Inc.; Media General Inc.; National Association of Broadcasters; National Broadcasting

Company, Inc.; Paxson Communications Corporation; Sinclair Broadcast Group;

Telemundo Communications Group, Inc.; Tribune Company; Viacom Inc.; Belo

Corporation (intervenor); Gannett Corporation (intervenor); Morris Communications

Company (intervenor); Millcreek Broadcasting LLC (intervenor); Nassau Broadcasting

Holdings (intervenor); Nassau Broadcasting II, LLC (intervenor); Newspaper Association

of America (intervenor); and Univision Communications, Inc. (intervenor).

14

the public interest. But we must remand certain aspects of the Commission’s Order that

are not adequately supported by the record. Most importantly, the Commission has not

sufficiently justified its particular chosen numerical limits for local television ownership,

local radio ownership, and cross-ownership of media within local markets. Accordingly,

we partially remand the Order for the Commission’s additional justification or

modification, and we partially affirm the Order. The stay will continue pending our

review of the Commission’s action on remand.3

I. Background

A. The 1934 Communications Act and Early Broadcast Ownership Regulation

In 1934 Congress authorized the Commission to grant licenses for private parties’

3

Our dissenting colleague asserts several times (indeed it is a principal theme) that we

somehow substitute our own policy judgment for that of the Commission. Our response

is simple. It is impossible to substitute our policy judgment for that of the Commission

when we have no view on its policies save that it act with reason. The proof for this

statement is that we do not reverse, but remand (and only in part).

Differences with our dissenting colleague touch only some of the many issues

presented on appeal. He believes that the Commission’s work, while in part flawed,

comes close enough to merit our approval. Our response: not yet. He believes that any

imperfections and failings by the Commission can be rectified at the next quadrennial

review without the need for a court-ordered remand. Our response: to do so is to abdicate

the role assigned to us (see our standard of review discussion at Part II infra), a role,

incidentally, our colleague does not deny. What we do is not novel, as it reprises many of

the same reasoned analysis concerns expressed by the D.C. Circuit Court of Appeals in

Fox Television Stations v. FCC, 280 F.3d 1027 (D.C. Cir. 2002), modified on reh’g, 293

F.3d 537 (D.C. Cir. 2003), and Sinclair Broadcast Group Inc. v. FCC, 284 F.3d 148

(D.C. Cir. 2002).

The bottom line: the Commission gets another chance to justify its actions. Once

that occurs and the case returns to us, we may yet close the loop of agreement with our

colleague.

15

exclusive use of broadcast frequencies. Recognizing that the finite radiofrequency

spectrum inherently limits the number of broadcast stations that can operate without

interfering with one another, Congress required that broadcast licensees serve the public

interest, convenience, and necessity. Communications Act of 1934, 47 U.S.C. § 309(a);

see also id. §§ 307(a), 310(d), 312.

“In setting its licensing policies, the Commission has long acted on the theory that

diversification of mass media ownership serves the public interest by promoting diversity

of program and service viewpoints, as well as by preventing undue concentration of

economic power.” FCC v. Nat’l Citizens Comm. for Broad., 436 U.S. 775, 780 (1978)

(“NCCB”). The Commission’s early regulations reflected its presumption that a single

entity holding more than one broadcast license in the same community contravened

public interest. See Genesee Radio Corp., 5 F.C.C. 183, 186–87 (1938). In 1941, the

Commission announced that it would not license more than one station in the same area to

a single network organization. See Nat’l Broad. Co. v. United States, 319 U.S. 190,

206–08, 224–27 (1943) (upholding the rule). At the same time, the Commission

prohibited common ownership of stations within the same broadcast service (AM radio,

FM radio, and television) in the same community. See Rules Governing Standard and

High Frequency Broadcast Stations, 5 Fed. Reg. 2382, 2384 (June 26, 1940) (FM radio);

Rules Governing Standard and High Frequency Broadcast Stations, 6 Fed. Reg. 2282,

2284–85 (May 6, 1941) (television); Rules Governing Standard and High Frequency

Broadcast Stations, 8 Fed. Reg. 16065 (Nov. 27, 1943) (AM radio). Regulations limiting

16

an entity to the common ownership of seven AM radio stations, seven FM radio stations,

and seven television stations survived judicial scrutiny in 1956. See United States v.

Storer Broad. Co., 351 U.S. 192 (1956). In the 1970s the Commission adopted its first

cross-ownership bans, which prohibited, on a prospective basis, the common ownership

of television and radio stations serving the same market, as well as combinations of radio

or broadcast stations with a daily newspaper in the same community. Amendment of

Sections 73.35, 73.240 and 73.636 of the Commission Rules Relating to Multiple

Ownership of Standard, FM and Television Broadcast Stations, 22 F.C.C.2d 306, ¶ 5

(1970); Amendment of Sections 73.34, 73.240 and 73.636 of the Commission’s Rules

Relating to Multiple Ownership of Standard, FM, and Television Broadcast Stations, 50

F.C.C.2d 1046 (1975). The Supreme Court upheld the newspaper/broadcast cross-

ownership ban as a “reasonable means of promoting the public interest in diversified mass

communications.” NCCB, 436 U.S. at 802.

B. Deregulation Initiatives

The 1980s saw a deregulatory trend for media ownership. The Commission raised

its national ownership limits to permit common ownership of 12 stations in each

broadcast service (though still prohibiting station combinations that would reach more

than 25% of the national audience). Amendment of Section 73.3555 (formerly 73.35,

73.240, and 73.636) of the Commission’s Rules Relating to Multiple Ownership of AM,

FM, and Television Broadcast Stations, 100 F.C.C.2d 74 ¶¶ 38, 39 (1985). The

Commission also determined that UHF television stations should not be deemed to have

17

the same audience reach as VHF stations,4 due to “the inherent physical limitations of [the

UHF] medium,” and therefore applied a 50% “discount” to UHF audiences as counted

under the national audience limitation. Id. ¶¶ 42–44. In other words, UHF stations count

only half of their audiences in determining compliance with the national television

ownership rule.

In 1989 the Commission eased its “one to a market” radio/television cross-

ownership rules by allowing waiver requests for radio/television cross-ownership in the

25 largest television markets. The Commission stated that it would look favorably upon

requests for waivers where there would be 30 independently owned broadcast “voices”

remaining in the market after consolidation. Amendment of Section 73.3555 of the

Commission’s Rules, the Broadcast Multiple Ownership Rules, 4 F.C.C.R. 1741, ¶ 1

(1989). In 1992, the Commission relaxed local and national radio ownership restrictions

and adopted a tiered approach to radio concentration that allowed a single entity to own

more radio stations in the largest markets (up to three AM and three FM stations, subject

to a local audience reach limitation of 25% and a national cap of 30 AM stations and 30

FM stations) and fewer in the smallest markets. Revision of Radio Rules and Policies, 7

F.C.C.R. 6387, ¶ 27 (1992).

4

VHF (Very High Frequency) stations (channels 2 to 13), which broadcast on

frequencies between 30 and 300 MHz, can reach households up to 76 miles away. UHF

(Ultra High Frequency) stations (channels higher than 13), which broadcast between 300

and 3000 MHz—reach only 44 miles, and, consequently, far fewer non-cable households

than VHF stations. Order ¶ 586.

18

C. The Telecommunications Act of 1996

In 1996 Congress overhauled the Communications Act by enacting the

Telecommunications Act of 1996. The 1996 Act contemplated a “pro-competitive, de-

regulatory national policy framework designed to accelerate rapidly private sector

development of advanced telecommunications and information technologies and services

to all Americans by opening all telecommunications markets to competition.” S. Rep.

No. 104–230, at 1–2 (1996). The 1996 Act eliminated all limits on national radio

ownership and raised the national television audience reach cap from 25% to 35%. 1996

Act §§ 202(a), (c)(1)(B), 110 Stat. at 110–11. Congress also eased local radio ownership

limits, establishing a four-tier sliding scale limit of numerical caps that allowed for as

many as eight co-owned radio stations in the largest markets. Id. § 202(b)(1), 110 Stat. at

110.

The 1996 Act did not contain a new local television rule, but it directed the

Commission to “conduct a rulemaking proceeding to determine whether to retain, modify,

or eliminate” its existing local television ownership limitations. Id. § 202(c)(2), 110 Stat.

at 111. It also expanded the applicability of the one-to-a-market radio/television cross-

ownership restriction waiver to the fifty largest markets. Id. § 202(d), 110 Stat. at 111.

Finally, the 1996 Act instructed the Commission to review biennially its broadcast

ownership rules “to determine whether any of such rules are necessary in the public

interest as the result of competition.” Id. § 202(h), 110 Stat. at 111–12. Section 202(h)

also required the Commission to “repeal or modify any regulation it determines to be no

19

longer in the public interest.” Id.

D. Regulatory Review Since 1996

In 1999 the Commission responded to Congress’s directive under § 202(c) of the

1996 Act to review its local television rule and announced that it would relax its

prohibition on the common ownership of television stations with overlapping signals.

The Commission’s new rule would allow two commonly owned television stations (a

television station “duopoly”) in the same Designated Market Area (“DMA” or “market”)

as long as (1) neither station was ranked among the four largest (“top-four”) stations in

the market and (2) eight independently owned stations remained in the market post-

merger. Review of the Commission’s Regulations Governing Television Broadcasting, 14

F.C.C.R. 12,903, ¶ 8 (1999) (“1999 Television Rule Review”). In the same rulemaking,

the Commission also relaxed the one-to-a-market radio/television cross-ownership

restriction and allowed radio/television station combinations to exist within three-tiered

limits that depend on the size of the market. Id. ¶ 9.5

Meanwhile, in 1998 the Commission began the first biennial review of its

broadcast ownership regulations as required under § 202(h). In 2000 it announced that it

would retain the national television ownership rule (the 35% limit provided in the 1996

5

These limits allowed an entity to own one television station (or two if permitted under

the new local television rule) and (1) up to six radio stations in markets where at least 20

independent voices would remain post-merger, (2) up to four radio stations in markets

where at least 10 independent voices would remain post-merger, or (3) one radio station

notwithstanding the number of independent voices in the market. Id.

20

Act) and its cable/broadcast cross-ownership rule after determining that both rules

remained “necessary in the public interest.” 1998 Biennial Regulatory Review—Review

of the Commission’s Broadcast Ownership Rules and Other Rules Adopted Pursuant to

Section 202 of the Telecommunications Act of 1996, 15 F.C.C.R. 11,058, ¶ 4 (2000)

(“1998 Biennial Regulatory Review”).6 On appeal, however, the United States Court of

Appeals for the D.C. Circuit held that the Commission had not sufficiently explained its

reasons for retaining either of these rules. Fox Television Stations v. FCC, 280 F.3d

1027, 1043–44, 1051–52 (D.C. Cir. 2002) (“Fox I”), modified on reh’g, 293 F.3d 537

(D.C. Cir. 2002) (“Fox II”). As for the national television ownership rule, the Court

determined that the agency had taken a “wait and see” approach in evaluating its

competition and diversity effects, which was impermissible in light of § 202(h)’s mandate

to repeal or modify rules found no longer necessary in the public interest. Id. at 1042. It

remanded the rule to the Commission for additional justification. Id. at 1049. The Court

vacated the cable/broadcast cross-ownership rule, however, finding that the

Commission’s decision to retain it was arbitrary and capricious and contrary to § 202(h).

Id. at 1053.

6

The Commission also announced that it would propose modification of the

newspaper/broadcast cross-ownership rule and the dual network rule (which allows a

broadcast station to affiliate with more than one network except that stations may not

affiliate with more than one of the four largest networks: ABC, CBS, Fox, and NBC, see

47 C.F.R. § 73.658(g)). The Commission also found that the local radio rule was

necessary in the public interest, but announced that it would seek further comments on

alternative methods for defining radio station markets. 1998 Biennial Regulatory Review

¶ 4.

21

A few months later, the same Court reviewed the local television multiple-

ownership rule. Sinclair Broad. Group, Inc. v. FCC, 284 F.3d 148 (D.C. Cir. 2002). The

petitioner challenged the “eight independent voices” exception, contending that it lacked

foundation or connection to the Commission’s goal of promoting diversity in local

markets. Id. at 152. The Court determined that the Commission had adequately justified

its decision to retain the local television rule under the APA and § 202(h), but that it had

not provided a rational basis for the exclusion of non-broadcast media from the eight

voices exception. Id. at 165. It remanded the rule for the Commission’s further

justification. Id. at 169.

E. The Commission’s 2003 Report and Order

In September 2002 a Notice of Proposed Rulemaking (the “Notice”) announced

that the Commission would review four of its broadcast ownership rules pursuant to

§ 202(h): the 35% national audience reach limit remanded in Fox; the local television rule

remanded in Sinclair; the radio/television cross-ownership rule; and the dual network

rule. 2002 Biennial Regulatory Review Notice of Proposed Rulemaking, 17 F.C.C.R.

18,503, ¶ 6 (2002). The Notice also advised that the Commission was incorporating into

its biennial review pending proceedings on two additional rules: its rule limiting radio

station ownership in local markets and its rule prohibiting newspaper/broadcast cross-

ownership. Id. ¶ 7.

The Commission established a M edia Ownership Working Group (“M OW G”),

which commissioned twelve studies ranging from consumer surveys to economic

22

analyses of media markets. These reports were released for public comment in October

2002. Interested parties filed thousands of pages of comments, consisting of legal, social,

and economic analyses, empirical and anecdotal evidence, and industry and consumer

data to respond to the issues identified in the Commission’s Notice. Notably, nearly two

million people weighed in by letters, postcards, e-mails, and petitions to oppose further

relaxation of the rules. Statement of Commissioner Jonathan S. Adelstein, Dissenting, 18

F.C.C.R. 13,974, 13,977 (July 2, 2003). The Commission also heard public comment at a

February 2003 “field hearing” in Richmond, Virginia.7

On June 2, 2003, the Commission adopted the Order modifying its ownership rules

to provide a “new, comprehensive framework for broadcast ownership regulation” by a

vote of 3–2.8 Order ¶ 3. The Order was released on July 2, 2003.

F. The Order’s Modification of Broadcast Media Ownership Rules

After reaffirming the Commission’s three traditional policy objectives in

promoting the public interest—competition, diversity, and localism—Order ¶ 8, the

Commission considered whether each of the six rules remained in the public interest and

proposed modifications where it believed necessary. With respect to each of the rules, the

Commission determined as follows.

7

Two Commissioners (Jonathan S. Adelstein and Michael J. Copps) held and attended,

between them, thirteen additional public forums, using their own office resources.

Statement of Commissioner Michael J. Copps, Dissenting, 18 F.C.C.R. 13,951, 13,956

(July 2, 2003).

8

Commissioners Copps and Adelstein dissented.

23

1. Local Television Ownership

The existing local television ownership rule allowed television station duopolies,

so long as at least one of the stations was not ranked among the market’s four largest

stations and so long as at least eight independently owned and operated full-power

television stations would remain in the market post-merger. 47 C.F.R. § 73.3555(b). The

Order modified this rule to permit television station triopolies in markets with 18 or more

television stations and television station duopolies in markets with 17 or fewer television

stations. Order ¶ 134. These limits are subject to the restriction (effectively a ban subject

to a waiver provision) that a single firm may not own more than one top-four station in a

market. This restriction forecloses common station ownership in markets with fewer than

five television stations. Id. ¶ 186. The existing rule effectively precludes duopolies in

most markets; only the largest 70 markets of the nation’s 210 DM As could comply with

the “eight voices” test. Adelstein Dissent, 18 F.C.C.R. at 13,998. The new rule would

allow triopolies in the nine largest DMAs, which represent 25.2% of the population.

Duopolies could exist under the new rule in the largest 162 markets, representing 95.4%

of the nation’s population. Id. at 13,997–98.

2. Local Radio Ownership

Although the Order retained the existing numerical limits on radio ownership that

Congress established in § 202(b) of the 1996 Act,9 it modified other aspects of the rule.

9

In the 1996 Act, Congress directed the Commission to revise the local radio

ownership limits to provide that: (1) in a radio market with 45 or more commercial radio

24

First, it changed the method for determining radio markets by replacing the “contour-

overlap” method (described in detail in Part VI.B infra) with the geography-based market

delineations created by Arbitron, a company that generates market data for radio

advertisers. Order ¶ 239. Additionally, the Commission would now include

noncommercial stations in the station count for each market. Id. The Commission

grandfathered any existing radio station combinations rendered noncompliant under the

newly defined markets, id. ¶ 484, but generally restricted transfer of these combinations,

id. ¶ 487. The Commission also changed the local radio ownership rule by deciding to

attribute “Joint Sales Agreements” (agreements under which a licensee sells advertising

time on its station to a broker station for a fee) toward the brokering entity’s numerical

limit. Id. ¶ 239.

3 & 4. Newspaper/Broadcast and Radio/Television Cross-Ownership

The Commission has prohibited common ownership of a full-service television

broadcast station and a daily public newspaper in the same community since 1975.

Amendment of Sections 73.35, 73.240, and 73.636 of the Commission’s Rules Relating to

stations, a party may own up to 8 commercial radio stations, not more than 5 of which are

in the same service (AM or FM); (2) in a radio market with between 30 and 44

commercial radio stations, a party may own up to 7 commercial radio stations, not more

than 4 of which are in the same service; (3) in a radio market with between 15 and 29

commercial radio stations, a party may own up to 6 commercial stations, not more than 4

of which are in the same service; and (4) in a market with 14 or fewer commercial radio

stations, a party may own up to 5 commercial radio stations, not more than 3 of which are

in the same service, except that a party may not own more than 50 percent of the stations

in that market. 1996 Act, § 202(b)(1), 110 Stat. at 110.

25

Multiple Ownership of Standard, FM, and Television Broadcast Stations, 50 F.C.C.2d

1046 (1975). Additionally, the Commission regulates the number of television and radio

stations that may be commonly owned with limits that vary with the size of the market.

47 C.F.R. § 73.3555(c).

The Order announced the Commission’s decision to repeal both cross-ownership

rules (television/newspaper, radio/television) and replace them with a single set of Cross-

Media Limits. The Commission determined that neither cross-ownership prohibition

remained necessary in the public interest to ensure competition, diversity, or localism.

Order ¶¶ 330, 371. The new Cross-Media Limits prohibit newspaper/broadcast

combinations and radio/television combinations in the smallest DM As, i.e., those with

three or fewer full-power commercial or noncommercial television stations. Id. ¶ 454. In

contrast, in the largest markets—those with more than eight television stations—common

ownership among newspapers and broadcast stations is unrestricted. Id. ¶ 473. In

medium-sized markets—those with between four and eight television stations—one entity

may own a newspaper and either (a) one television station and up to 50% of the radio

stations that may be commonly owned in that market under the local radio rule or (b) up

to 100% of the radio stations allowed under the local radio rule. Id. ¶ 466.

In structuring its Cross-Media Limits, the Commission drew upon a

methodological tool named the “Diversity Index,” which the Commission developed as a

measure of viewpoint diversity in local markets to identify those “at-risk” markets where

consolidation would have a deleterious effect. Id. ¶¶ 391, 442. The Diversity Index,

26

explained more fully in Part IV.D.1 below, is a highly modified version of the formula for

measuring market concentration—the Herfindahl-Hirschman Index—applied by the

Department of Justice and Federal Trade Commission to analyze mergers. Id. ¶ 428.

5. National Television Ownership

The national television ownership rule prohibits entities from owning television

stations that in the aggregate reach a certain percentage of our country’s households. 47

C.F.R. § 73.3555(e)(1). Section 202(c) of the 1996 Act directed the Commission to

delete the then-existing twelve-station cap and raise the audience reach limit from 25% to

35%. After the D.C. Circuit Court remanded the Commission’s decision in the 1998

biennial review to retain the limit at 35%, Fox I, 280 F.3d at 1049, the Commission

decided to increase the audience reach limit to 45%. Order ¶ 499. The Commission also

declined to repeal or modify its existing 50% discount for UHF stations’ audiences as

counted toward the audience reach limit. Id. ¶ 500.

6. Dual Network Rule

Under the dual network rule, a television station may affiliate with more than one

network except that it may not affiliate with more than one of the four largest networks,

ABC, CBS, Fox, and NBC. 47 C.F.R. § 73.658(g). The rule effectively permits common

ownership of networks to the exclusion of the top four. Order ¶ 592. The Commission

determined that the dual network rule remained necessary in the public interest, and thus

27

did not repeal or modify it. Id.10

G. Procedural History of the Current Appeals

Within days of the publication of the Order, several organizations filed petitions

for review of the Commission’s revised rules in various courts of appeals, some

contending that the Commission had gone too far in revising the rules, and others

asserting that the Commission had not gone far enough. Some of these organizations,

including the Prometheus Radio Project, filed their petitions in this Court. Under 28

U.S.C. § 2112(a), petitions to review administrative orders filed in different circuit courts

within the first ten days of the appeal period trigger a lottery conducted by the Judicial

Panel on Multidistrict Litigation. On August 19, 2003, the Panel announced that our

Court had been selected in the lottery and consolidated the appeals here. We entered a

stay of the effective date of the proposed rules after a hearing on September 3, 2003.

Prometheus Radio Project v. FCC, No. 03-3388, 2003 WL 22052896 (3d Cir. Sept. 3,

2003). We then denied the Deregulatory Petitioners’ motion, joined by the Commission,

to transfer venue to the D.C. Circuit Court on September 16, 2003. Prometheus Radio

Project v. FCC, No. 03-3388 (3d Cir. Sept. 16, 2003) (order denying motion to transfer).

After pushing back briefing and oral argument at the request of the parties, on February

11, 2004, we heard approximately eight hours of oral argument addressing the merits of

Petitioners’ claims.

10

No party to this case challenges the retention of this rule.

28

H. Subsequent Legislation

In January 2004, while the petitions to review the Order were pending in this

Court, Congress amended the 1996 Act by increasing from 35% to 39% the national

television ownership rule’s audience reach cap in § 202(c). Consolidated Appropriations

Act, 2004, Pub. L. No. 108-199, § 629, 118 Stat. 3, 99 (2004). The legislation also

amended § 202(h) in two ways: (1) making the Commission’s biennial review obligation

quadrennial; and (2) insulating from § 202(h) review “rules relating to the 39 percent

national audience reach limitation.” 118 Stat. at 100. Prior to oral argument, Petitioners

filed letter briefs addressing the effect of these amendments on their challenges to the

Order.

II. Jurisdiction and Standard of Review

This is an appeal of an agency decision under the Communications Act of 1934, 47

U.S.C. §§ 151 et seq. Our jurisdiction is based on 47 U.S.C. § 402(a) and 28 U.S.C.

§ 2342(1). Our standard of review is governed by the APA and the 1996 Act provision

authorizing the Commission’s periodic regulatory review.11

11

The Deregulatory Petitioners raise an additional threshold argument that Fox and

Sinclair provide the “law of the case” because the Order results in part from the D.C.

Circuit Court’s remand in those two decisions. Though we recognize that the Order must

be consistent with these remand directives, the decisions themselves do not fit within the

law of the case doctrine, under which a prior decision binds only future proceedings in the

“same litigation.” See, e.g., Hamilton v. Leavy, 322 F.3d 776, 786–87 (3d Cir. 2003).

This case involves petitions for review of the Commission’s comprehensive

reexamination of a larger set of its broadcast ownership rules, in which a different set of

parties participated, a different record was compiled, and different results were reached.

So understood, the law of the case doctrine does not constrain our review here.

29

A. Standard of Review Under the Administrative Procedure Act

Our standard of review in the agency rulemaking context is governed first by the

judicial review provision of the APA, 5 U.S.C. § 706. Under it, we “hold unlawful or set

aside agency action, findings, and conclusions” that are found to be “arbitrary,

capricious, an abuse of discretion, or otherwise not in accordance with the law . . . [or]

unsupported by substantial evidence.” Id. § 706(2)(a), (e); N.J. Coalition for Fair Broad.

v. FCC, 574 F.2d 1119, 1125 (3d Cir. 1978).

The scope of review under the “arbitrary and capricious” standard is “narrow, and

a court is not to substitute its judgment for that of the agency.” Motor Vehicle Mfrs.

Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983) (“State Farm”).

Nevertheless, we must ensure that, in reaching its decision, the agency examined the

relevant data and articulated a satisfactory explanation for its action, including a “rational

connection between the facts found and the choice made.” Id. (quoting Burlington Truck

Lines, Inc. v. United States, 371 U.S. 156, 168 (1962)). Normally, we may find an

agency rule is arbitrary and capricious where

the agency has relied on factors which Congress has not intended it to

consider, entirely failed to consider an important aspect of the problem,

offered an explanation for its decision that runs counter to the evidence

before the agency, or is so implausible that it could not be ascribed to a

difference in view or the product of agency expertise. The reviewing court

should not attempt itself to make up for such deficiencies; we may not

supply a reasoned basis for the agency’s action that the agency itself has not

given.

Id. (citing SEC v. Chenery Corp., 332 U.S. 194, 196 (1947)); see also Robert Wood

30

Johnson Univ. Hosp. v. Thompson, 297 F.3d 273, 280 (3d Cir. 2002). Put another way,

we reverse an agency’s decision when it “is not supported by substantial evidence, or the

agency has made a clear error in judgment.” AT&T Corp. v. FCC, 220 F.3d 607, 616

(D.C. Cir. 2000) (citing Kisser v. Cisneros, 14 F.3d 615, 619 (D.C. Cir. 1994)).

We will, however, “uphold a decision of less than ideal clarity if the agency’s path

may reasonably be discerned.” State Farm, 463 U.S. at 43 (quoting Bowman Transp.,

Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 286 (1974)). But an agency that

departs from its “former views” is “obligated to supply a reasoned analysis for the change

beyond that which may be required when an agency does not act in the first instance” in

order to survive judicial scrutiny for compliance with the APA. State Farm, 463 U.S. at

41–42.

Finally, the traditional APA standard of review is even more deferential “where

the issues involve ‘elusive’ and ‘not easily defined’ areas such as programming diversity

in broadcasting.” Sinclair, 284 F.3d at 159. Yet even when an administrative order

involves policy determinations on such elusive goals, a “rationality” standard is

appropriate. See NCCB, 436 U.S. at 796–97 (finding that the Commission acted

rationally in determining that diversification of ownership would enhance the possibility

of increasing diverse viewpoints). Additionally, when an agency has engaged in line-

drawing determinations and our review is necessarily deferential to agency expertise, see

AT&T Corp., 220 F.3d at 627, its decisions may not be “patently unreasonable” or run

counter to the evidence before the agency. Sinclair, 284 F.3d at 162.

31

B. Standard of Review Considerations Under Section 202(h)

The Order was promulgated as part of the periodic review requirements of

§ 202(h) of the 1996 Act. Consequently, our review standard is informed by that

provision, which, at the time of the Order’s release, read:

(h) Further Commission Review. The Commission shall review its rules

adopted pursuant to this section and all of its ownership rules biennially[12 ]

as part of its regulatory reform review under section 11 of the

Communications Act of 1934 and shall determine whether any of such rules

are necessary in the public interest as the result of competition. The

Commission shall repeal or modify any regulation it determines to be no

longer in the public interest.

110 Stat. 111–12. Section 11 of the Communications Act, to which § 202(h) refers, was

also added by the 1996 Act to ensure that the Commission review periodically its

regulations governing telecommunications services to “determine whether any such

regulation is no longer necessary in the public interest as a result of meaningful economic

competition between providers of such service” and “repeal or modify any regulation it

determines to be no longer necessary in the public interest.” 47 U.S.C. § 161.

The text and legislative history of the 1996 Act indicate that Congress intended

periodic reviews to operate as an “ongoing mechanism to ensure that the Commission’s

regulatory framework would keep pace with the competitive changes in the marketplace”

resulting from that Act’s relaxation of the Commission’s regulations, including the

broadcast media ownership regulations. 2002 Biennial Regulatory Review, 18 F.C.C.R.

12

As noted in Part I.H above, Congress has since replaced “biennially” with

“quadrennially” in this provision.

32

4726, ¶¶ 16, 17 (2003) (citing preamble to the 1996 Act; H.R. Conf. Rep. No. 104-458

(1996)). Put another way, the periodic review provisions require the Commission to

“monitor the effect of . . . competition . . . and make appropriate adjustments” to its

regulations. Id. ¶ 5.

As noted, the first sentence of § 202(h) requires the Commission to “determine”

whether media concentration rules are “necessary in the public interest as the result of

competition.” The second sentence contains a separate instruction to the Commission: to

“repeal or modify” those rules “no longer in the public interest.” 110 Stat. 111–12. We

analyze each of these instructions in turn.

1. “Determ ine whether any such rules are necessary in the public

interest.”

Recognizing that competitive changes in the media marketplace could obviate the

public necessity for some of the Commission’s ownership rules, the first instruction

requires the Commission to take a fresh look at its regulations periodically in order to

ensure that they remain “necessary in the public interest.” This raises the question of

what is “necessary.”

In the context of § 11 of the Communications Act, 47 U.S.C. § 161—which, like

§ 202(h), requires the Commission periodically to review its telecommunications

regulations and determine whether they “remain necessary in the public interest”—the

Commission has interpreted “necessary” to mean “useful,” “convenient” or “appropriate”

rather than “required” or “indispensable.” Setting out its rationale for this interpretation

33

in the 2002 Biennial Regulatory Review, 18 F.C.C.R. 4726, ¶¶ 14–22 (2003), the

Commission determined that the 1996 Act’s legislative history indicated that Congress

meant “no longer necessary” to mean “no longer in the public interest” and “no longer

meaningful.” 18 F.C.C.R. 4726, ¶ 17 (citing H.R. Conf. Rep. No. 104-458, at 185

(1996)).

Next, the Commission found that an “indispensable” construction of “necessary”

as to § 11 would be unreasonably inconsistent with the Communications Act’s grant of

general rulemaking authority to the Commission. Id. ¶ 18 n.31. Under 47 U.S.C.

§ 201(b) the Commission is authorized to “prescribe such rules and regulations [regarding

services and charges of communications common carriers] as may be necessary in the

public interest to carry out the provisions of this Act.” In AT&T Corp. v. Iowa Utilities

Board, the Supreme Court interpreted this provision as a grant of “general rulemaking

authority.” 525 U.S. 366, 374 (1999). Characterizing this interpretation “not as a

limitation on the Commission’s authority, but a confirmation of it,” the Commission

concluded that the standard of review applicable to its rulemaking authority under § 201

is a “plain public interest” standard. 18 F.C.C.R. 4276, ¶¶ 18 n.31, 22 (citing 525 U.S. at

374, 378). The Commission reasoned that the same standard must also apply to the

review process required under § 11 in order to avoid absurd results. If the rulemaking

and review standards were different, the Commission could promulgate any rule that is

useful, but then, at the next periodic review, would have to revoke any of those rules that

do not also meet a higher standard of “indispensable.” Id. ¶ 18 & n.33. Under such a

34

system, periodic review would either be inefficient or irrelevant, as the Commission could

effectively sidestep the more stringent review standard by subsequently reissuing any

“useful” rule that it had to repeal for failing to be “indispensable.” Id. ¶ 18.

Lastly, the Commission rejected arguments that there is controlling judicial

precedent for an “indispensable” construction of “necessary.” It acknowledged that the

Supreme Court and the D.C. Circuit Court of Appeals have upheld such constructions, see

id. ¶ 19 (citing Iowa Utils. Bd., 525 U.S. at 374, 378; GTE Serv. Corp. v. FCC, 205 F.3d

416 (D.C. Cir. 2000)), but countered that these cases “simply demonstrate that terms such

as ‘necessary’ . . . must be read in their statutory context.” Id. Furthermore, the

Commission found judicial support for its interpretation of “necessary” in the D.C.

Circuit Court’s decision in Sinclair, 284 F.3d at 159, regarding the Commission’s

periodic review of its local television ownership rule under § 202(h). The Commission

noted that the Sinclair Court did not expressly adopt any particular definition of

“necessary,” but, in affirming the Commission’s § 202(h) finding that the rule furthers

diversity and is thus necessary in the public interest, id. at 160, it “did not articulate a new

or higher public interest yardstick.” 18 F.C.C.R. 4726, ¶ 20.13 Nor did the D.C. Circuit

Court’s decision in Fox foreclose its interpretation of “necessary,” the Commission

13

More generally, the Commission cited several Supreme Court decisions interpreting

“necessary” to mean “useful” or “convenient” or “appropriate.” Id. ¶ 15 n.24 (citing,

inter alia, McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 413 (1819) (under the

Constitution’s Necessary and Proper Clause, U.S. Const. Art. I, § 8, cl. 18, “necessary”

means “convenient” or “useful”)).

35

determined, because on rehearing the Court deleted language in its initial decision that the

Commission had applied too lax a standard in reviewing its broadcast media ownership

rules under § 202(h).14 Id. ¶ 14 (citing Fox II, 293 F.3d at 540).

For these reasons, the Commission determined that § 11’s requirement that it

review its telecommunications regulations to determine whether they remain “necessary

in the public interest” does not require it to employ a more stringent standard than “plain

public interest” found in other parts of the Communications Act. Id. ¶¶ 18, 22 (citing 47

U.S.C. § 201(b) as an example).

Recently, the D.C. Circuit Court upheld, in the context of § 11, the Commission’s

interpretation of “necessary” contained in the 2002 Biennial Regulatory Review. Cellco

P’ship v. FCC, 357 F.3d 88 (D.C. Cir. 2004). Recognizing that “necessary” is a

“chameleon-like” word whose “meaning . . . may be influenced by its context,” the Cellco

Court determined that it would uphold any reasonable interpretation that did not

contravene the express provisions of the Communications Act. Id. at 94, 96 (citing

Chevron U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842–43 (1984)). It

went on to determine that the Commission’s interpretation is both reasonable and

consistent with the Communications Act, endorsing the Commission’s view that

“necessary” must mean the same thing in the periodic review context as in the rulemaking

14

In addressing available remedies, the Fox I Court interpreted “necessary” to mean that

“a regulation should be retained only insofar as it is necessary in, not merely consonant

with, the public interest.” 280 F.2d at 1050. This language was expressly excised in Fox

II, 293 F.3d at 540.

36

context in order to avoid absurd results. Id. at 98.

Cellco also acknowledged that the Commission’s interpretation of “necessary” is

consistent with the many courts that have endorsed a “useful” or “appropriate”

interpretation over an “essential” or “indispensable” one. Id. at 97 (citing, inter alia,

NCCB, 436 U.S. at 795–96; McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 413 (1819);

Cellular Telecomm. & Internet Ass’n v. FCC, 330 F.3d 502, 510 (D.C. Cir. 2003)

(specifically rejecting an “indispensable” connotation of “necessary” as used in the

Communications Act’s enforcement forbearance provision, § 10(a))).

Finally, the Cellco Court rejected suggestions that the Commission’s interpretation

was inconsistent with its prior decisions in Sinclair and Fox. As noted above, Sinclair did

not expressly adopt any particular definition of “necessary” and Fox I’s suggestion of a

heightened standard was expressly retracted by Fox II, 293 F.3d at 540. Cellco limited

Fox I’s statement that “necessary” implied a presumption in favor of modification or

elimination of existing regulations, see 280 F.3d at 1048, to the context in which it was

made: discussing whether vacating or remanding the national television ownership rule

was the appropriate remedy. Cellco, 357 F.3d at 98. And while Sinclair apparently

endorsed this language from Fox I, see 284 F.3d at 159, the Cellco Court characterized

Sinclair as merely “piggyback[ing]” on Fox I without “adopt[ing] a general presumption

in favor of modification or elimination of regulations when considering a substantive

challenge to the adequacy of the Commission’s determinations.” Cellco, 357 F.3d at 98.

In sum, the D.C. Circuit Court determined that the definition of “necessary” was not

37

constrained by either its Fox or Sinclair decision. It remained an open issue for the

Commission to decide in the first instance, as it did when it released the 2002 Biennial

Regulatory Review. Id.

For the same reasons proffered by the Commission and endorsed by the D.C.

Circuit Court to reject the “indispensable” definition of “necessary” under § 11, we do so

under § 202(h). Though § 11 and § 202(h) are separate statutory provisions, they are both

periodic review provisions from the same statute. As evidence of their relatedness,

§ 202(h) imposes periodic review obligations “as part of its regulatory reform review

under section 11 of this Communications Act of 1934,” 110 Stat. at 111.15 We see no

reason to adopt a different definition of “necessary” under § 202(h) than under § 11.

Moreover, interpreting § 202(h)’s first sentence to require the Commission to review its

rules to determine whether they are indispensable in the public interest would lead to

incongruous results when compared to the instruction in § 202(h)’s second sentence,

which requires the Commission to “repeal or modify any regulation it determines to be no

longer in the public interest.” 16 For the “determine” instruction to be meaningful,

15

Additionally, the Commission itself impliedly incorporated the 2002 Biennial

Regulatory Review’s interpretation of “necessary” under § 11 when citing it in the “legal

framework” section of the Order. Order ¶ 11 n.15.

16

Because § 202(h) omits the word “necessary” in the “repeal or modify” instruction, it

is arguably even more amenable to the “appropriate” or “useful” connotation of

“necessary” than § 11. But like the Commission, “we do not think that difference

[between § 11 and § 202(h)] is significant given what we believe ‘necessary in the public

interest’ means.” 18 F.C.C.R. 4726, ¶ 14 n.20.

38

“necessary” must embody the same “plain public interest” standard that Congress set out

in the “repeal or modify” instruction.17 Lastly, as explained by the Cellco Court, the

“convenient,” “useful,” or “helpful” definition of “necessary” is not foreclosed to the

Commission by any judicial precedent, including Fox and Sinclair. So in interpreting the

Commission’s obligation under § 202(h) to review its broadcast media ownership rules to

determine whether they are “necessary in the public interest,” we adopt what the

Commission termed “the plain public interest” standard under which “necessary” means

“convenient,” “useful,” or “helpful,” not “essential” or “indispensable.”

2. “Repeal or modify any regulations it determines to be no longer in the

public interest.”

Turning to the second instruction of § 202(h), the Commission is required to

“repeal or modify” rules that are “no longer in the public interest.” Having concluded

that the first instruction requires the Commission to determine whether any existing rule

fails to satisfy the “plain public interest” standard, the relationship between the first and

17

Anticipating the argument that consistency between the first and second sentences

could still be achieved using the “indispensable” interpretation of “necessary” for both,

we respond that requiring the Commission to repeal or modify any regulations it

determined were not essential to the public interest would lead to incongruous results

when compared to the plain public interest standard that governs the Commission’s

authority to regulate the broadcast industry. See NCCB, 436 U.S. at 796 (“[S]o long as

the regulations are not an unreasonable means for seeking to achieve the [Commission’s

public interest] goals, they fall within [its] general rulemaking authority” under the

Communications Act.). Just as the Commission and Cellco observed in the § 11 context,

the “repeal or modify” instruction would be meaningless because the Commission could

repromulgate (in its rulemaking functions) under the lower “useful” standard any

regulation it was forced to repeal or modify for not being “indispensable” under § 202(h).

39

second instruction is evident. Under the second instruction, the Commission must repeal

or modify the regulations that it has determined under the first instruction do not satisfy

that same standard.

While we acknowledge that § 202(h) was enacted in the context of deregulatory

amendments (the 1996 Act) to the Communications Act, see Fox I, 280 F.3d at 1033;

Sinclair, 284 F.3d at 159, we do not accept that the “repeal or modify in the public

interest” instruction must therefore operate only as a one-way ratchet, i.e., the

Commission can use the review process only to eliminate then-extant regulations. For

starters, this ignores both “modify” and the requirement that the Commission act “in the

public interest.” What if the Commission reasonably determines that the public interest

calls for a more stringent regulation? Did Congress strip it of the power to implement

that determination? The obvious answer is no, and it will continue to be so absent clear

congressional direction otherwise.18

What, then, makes § 202(h) “deregulatory”? It is this: Section 202(h) requires the

Commission periodically to justify its existing regulations, an obligation it would not

otherwise have. A regulation deemed useful when promulgated must remain so. If not, it

must be vacated or modified.

18

For example, in enacting a periodic review requirement for the Commission’s

broadcast media ownership regulations, Congress gave no express indication that it

intended to restrict the Commission’s rulemaking authority. See, e.g., Am. Hosp. Ass’n v.

NLRB, 499 U.S. 606, 613 (1991) (stating that “if Congress had intended to curtail in a

particular area the broad rulemaking authority [it has] granted[,] . . . we would have

suspected it to do so in language expressly describing an exception [to that authority]”)

40

Misguided by the Fox and Sinclair Courts’ “deregulatory presumption”

characterization and lacking the benefit of Cellco’s subsequent clarification, the

Commission concluded that § 202(h) “appears to upend traditional administrative law

principles” by not requiring it to justify affirmatively a rule’s repeal or modification.

Order ¶ 11. This overstates the case. Rather than “upending” the reasoned analysis

requirement that under the APA ordinarily applies to an agency’s decision to promulgate

new regulations (or modify or repeal existing regulations), see State Farm, 463 U.S. at

43, § 202(h) extends this requirement to the Commission’s decision to retain its existing

regulations. This interpretation avoids a crabbed reading of the statute under which we

would have to infer, without express language, that Congress intended to curtail the

Commission’s rulemaking authority and to contravene “traditional administrative law

principles.” 19

C. Conclusion

Though our standard of review analysis is lengthy, it is in the end amenable to a

straightforward summing-up: In a periodic review under § 202(h), the Commission is

19

A purely textual inquiry is also of no avail to the Deregulatory Petitioners. As we

noted above, § 202(h) does not use the word “necessary” in the second sentence to qualify

the public interest standard that governs the Commission’s “repeal or modify” instruction.

Like the Commission (as we point out in note 16 supra), “we do not think that

difference . . . is significant given what we believe ‘necessary in the public interest’

means.” 18 F.C.C.R. 4726, ¶ 14 n.20. But even if “necessary in the public interest”

under the first sentence meant “indispensable,” we still would not have to import that

heightened standard to the second. Textually it is not there. If “necessary” appears twice

in § 11 and in the first sentence of § 202(h), but is absent from its second sentence, logic

favors deliberate omission by Congress over inadvertence.

41

required to determine whether its then-extant rules remain useful in the public interest; if

no longer useful, they must be repealed or modified.20 Yet no matter what the

Commission decides to do to any particular rule— retain, repeal, or modify (whether to

make more or less stringent)—it must do so in the public interest and support its decision

with a reasoned analysis. We shall evaluate each aspect of the Commission’s Order

accordingly.

III. Mootness and the National Television Ownership Rule

The national television ownership rule caps the number of television stations that a

single entity may own on a national basis. In the 1996 Act, Congress limited the number

of commonly owned stations to those reaching no more than 35% of the national

audience. 1996 Act § 202(c)(1)(B), 110 Stat. 111. In its first biennial review, the

Commission retained the 35% cap as “necessary in the public interest,” but the D.C.

Circuit Court held that the Commission had not adequately justified this decision. Fox I,

280 F.3d at 1048. On remand and in connection with its 2002 biennial review

proceeding, the Commission increased the cap from 35% to 45%. Order ¶ 583. The

Commission also decided to retain its method of discounting by 50% the audiences of

UHF stations toward the cap. Id. ¶ 586.

20

Although our dissenting colleague states that he differs “from the majority on the

applicable standard of review,” we can discern no real disagreement between his

formulation of the standard of review and ours. Rather, we see disagreement only over

the question of whether the Commission’s Order survives the standard of review as we

both have described it.

42

Subsequently, however, Congress enacted a new national television ownership

cap. In its 2004 Consolidated Appropriations Act, it modified § 202(c)(1)(B) of the 1996

Act to provide that “[t]he Commission shall modify its rules for multiple

ownership . . . by increasing the national audience reach limitation for television stations

to 39%.” See Pub. L. No. 108-199, § 629, 118 Stat. 3, 99 (2004). Because the

Commission is under a statutory directive to modify the national television ownership cap

to 39%, challenges to the Commission’s decision to raise the cap to 45% cap are moot. 21

Cf. PLMRS Narrowband Corp. v. FCC, 182 F.3d 995, 1002 (D.C. Cir. 1999) (challenges

to Commission’s later-modified order are moot).

Although the 2004 Consolidated Appropriations Act did not expressly mention the

UHF discount, challenges to the Commission’s decision to retain it are likewise moot.

Congress instructed the Commission to “increase the national audience reach limitation

for television stations to 39%.” 118 Stat. at 99. Since 1985 the Commission has defined

“national audience reach” to mean “the total number of television households” reached by

an entity’s stations, except that “UHF stations shall be attributed with 50 percent of the

21

The Deregulatory Petitioners stated that the Commission’s rationale for retaining a

national television ownership limit “raises troubling First Amendment questions.” Br. of

Petitioners Fox, NBC, Telemundo, and Viacom (“Network Petitioners”) at 31. We

recognize that a constitutional challenge would not necessarily be mooted by intervening

legislation. But even if we interpreted this “troubling . . . questions” language as raising a

constitutional challenge to the 45% national audience reach limit, we see no reason to

decide the constitutionality of Congress’s 39% limit, as these same Petitioners

subsequently argued that “any pending challenges to the June order [regarding the

national television ownership rule] will be mooted” by the 2004 Consolidated

Appropriations Act. Network Petitioners’ Letter Br. at 2 (Feb. 2, 2004).

43

television households” reached. 47 C.F.R. § 73.3555(e)(2)(i); Multiple Ownership of AM,

FM and Television Broadcast Stations, 50 Fed. Reg. 4666, 4676 (Feb. 1, 1985). W e

assume that when Congress uses an administratively defined term, it intended its words to

have the defined meaning. See, e.g., Bragdon v. Abbott, 524 U.S. 624, 631 (1998).

Furthermore, because reducing or eliminating the discount for UHF station audiences

would effectively raise the audience reach limit, we cannot entertain challenges to the

Commission’s decision to retain the 50% UHF discount. Any relief we granted on these

claims would undermine Congress’s specification of a precise 39% cap.

As additional evidence of the mootness of challenges to the UHF discount, we note

that the 2004 Consolidated Appropriations Act also added a sentence to § 202(h): “This

subsection does not apply to any rules relating to the 39% national audience limitation.”

118 Stat. at 100. The UHF discount is a rule “relating to” the national audience

limitation. See 47 C.F.R. § 73.3555(e)(2) (providing for the UHF discount in a section

qualified “for the purposes of this paragraph (e),” the national television ownership rule

paragraph). Congress apparently intended to insulate the UHF discount from periodic

review, a position that is consistent with our reading of the legislation as endorsing the

almost 20-year-old regulatory definition of “national audience reach” that provides for the

UHF discount.

Although we find that the UHF discount is insulated from this and future periodic

review requirements, we do not intend our decision to foreclose the Commission’s

consideration of its regulation defining the UHF discount in a rulemaking outside the

44

context of Section 202(h). The Commission is now considering its authority going

forward to modify or eliminate the UHF discount and recently accepted public comment

on this issue. 69 Fed. Reg. 9216–17 (Feb. 27, 2004). Barring congressional intervention,

see, e.g., S. 1264, 108th Cong. § 12 (2003) (proposing phase-out and 2008 sunset of the

UHF), the Commission may decide, in the first instance, the scope of its authority to

modify or eliminate the UHF discount outside the context of § 202(h).

IV. Cross-Ownership Rules

The Commission’s decision to repeal its newspaper/broadcast cross-ownership

rules22 in favor of new Cross-Media Limits has been attacked on all fronts. Some

petitioners support the repeal but argue that the Cross-Media Limits are too restrictive.

Others challenge the repeal decision and argue that the new limits are too lenient. W e

conclude that the Commission’s decision to replace its cross-ownership rules with the

Cross-M edia Limits is not of itself constitutionally flawed and does not violate § 202(h).

But we cannot uphold the Cross-Media Limits themselves because the Commission does

not provide a reasoned analysis to support the limits that it chose.

A. Regulatory Background and the 2002 Biennial Review

Since the 1970s, the Commission has enforced two separate limits on the common

ownership of different-type media outlets in local markets. One cross-ownership rule

prohibits the common ownership of a full-service television broadcast station and a daily

22

The Commission also repealed its radio/television cross-ownership rule in favor of

the Cross-Media Limits, but no petitioner challenges this aspect of the Order.

45

public newspaper in the same community. 47 C.F.R. § 73.3555(d). The other limits the

number of television and radio stations to the following combinations: (1) in markets

where at least 20 independently owned media voices would remain post-merger, two

television stations and six radio stations or one television station and seven radio stations;

(2) in markets where at least 10 independent voices would remain, two television stations

and four radio stations; and (3) in other markets, two television stations (subject to the

local television ownership rule) and one radio station. Id. § 73.3555(c).

The Commission considered both cross-ownership rules during its 2002 biennial

review under § 202(h). In the Order, the Commission announced that because neither

rule remained necessary in the public interest, it was repealing them and replacing them

with a single set of Cross-M edia Limits. The three-tiered Cross-Media Limits regulate

common ownership depending on the size of the market: small (those with three or fewer

full-power commercial or noncommercial television stations), mid-sized (between four

and eight television stations), and large (more than eight television stations). In small

markets, newspaper/broadcast combinations and radio/television combinations are

prohibited. Order ¶ 454. In medium-sized markets, an entity may own a newspaper and

either (a) one television station and up to 50% of the radio stations that may be commonly

owned in that market under the local radio rule or (b) up to 100% of the radio stations

allowed under the local rule. Id. ¶ 466. In large markets, cross-ownership is unrestricted.

Id. ¶ 473.

B. The Comm ission’s decision not to retain a ban on newspaper/broadcast cross-

46

ownership is justified under § 202(h) and is supported by record evidence.

The Commission determined that the rule prohibiting newspaper/broadcast cross-

ownership was no longer necessary in the public interest for three primary reasons: (1) the

ban is not necessary to promote competition in local markets because most advertisers do

not view newspapers and television stations as close substitutes, Order ¶ 332; (2) the ban

undermines localism by preventing efficient combinations that would allow for the

production of high-quality local news, id. ¶ 343; and (3) there is not enough evidence to

conclude that ownership influences viewpoint to warrant a blanket cross-ownership ban,

thus making it unjustifiable on diversity grounds, id. at ¶ 364, (and moreover, the

presence of other media sources—such as the Internet and cable—compensate for the

viewpoint diversity lost to consolidation, id. ¶ 365). The Citizen Petitioners object to the

localism and diversity components of the Commission’s rationale. We conclude

differently, as reasoned analysis supports the Commission’s determination that the

blanket ban on newspaper/broadcast cross-ownership was no longer in the public interest.

Part II.C supra.

1. Newspaper/broadcast combinations can promote localism.

The Commission measured the promotion of localism by considering “the

selection of programming responsive to local needs and interests, and local news quantity

and quality.” Order ¶ 78. Evidence that existing (grandfathered) newspaper-owned

broadcast stations produced local news in higher quantity with better quality than other

stations convinced the Commission that the ban on newspaper/broadcast combinations

47

undermined its localism interest. The Commission principally relied on the findings of its

MOWG study that newspaper-owned television stations provide almost 50% more local

news and public affairs programming than other stations, an average of 21.9 hours per

week. Id. ¶ 344 (citing Thomas C. Spavins et al., The Measurement of Local Television

News and Public Affairs Programs (MOW G Study No. 7) at 3 (Sept. 2002)). The

Commission also found corresponding advantages in quality of local coverage provided

by newspaper-owned stations, as shown by ratings (measuring consumer approval) and

industry awards (measuring critical approval). Id. ¶ 344–45 (citing, among other things,

findings by the Project for Excellence in Journalism that newspaper-owned stations “were

more likely to do stories focusing on important community issues and to provide a wide

mix of opinions, and they were less likely to do celebrity and human interest features”).

The Citizen Petitioners argue that the MOW G study was flawed because it

examined all newspaper/broadcast station combinations, including “intermarket”

combinations (entities that own a newspaper and broadcast stations in different cities), as

well as “intramarket” combinations (entities that own a newspaper and a broadcast station

in the same city). But the Citizens Petitioners do not suggest that a study entirely focused

on intramarket combinations would have different results. The six intramarket

combinations that were included in the study (grandfathered exceptions to the cross-

ownership ban) averaged more local news and public affairs programming as compared to

the overall average (26 weekly hours compared to 21.9) and higher ratings for their 5:30

p.m. and 6:00 p.m. news programs (9.8 and 11 compared to 7.8 and 8.2). MOWG Study

48

No. 7 app. A; Comments of Newspaper Association of America, MB Docket No. 02-277

at 15 (Jan. 2, 2003).

The Citizen Petitioners also protest the Commission’s reliance on anecdotal

evidence of pro-localism combinations and its disregard of anecdotal evidence to the

contrary. Significantly, however, the Commission used anecdotal evidence23 merely to

illustrate its statistical findings— it did not rely on anecdote as the sole basis for its

conclusions about localism. Moreover, the Commission properly discounted anecdotal

evidence of a Canadian newspaper conglomerate’s detrimental effect on localism. Can

West, which controls 30% of Canada’s daily newspaper circulation, requires its

newspaper editors to publish editorials from headquarters, which it forbids local editorials

to contradict. But the Commission explained that the Can West example shows the peril

of national ownership and corporate centralization of media services, which is not

relevant to the Commission’s regulations on local combinations. Order ¶ 352. In

summary, the Citizen Petitioners’ arguments do not unsettle the Commission’s conclusion

that the newspaper/broadcast cross-ownership ban undermined localism.

2. A blanket prohibition on newspaper/broadcast combinations is not

necessary to protect diversity.

23

For example, Gannett Company reported that the “media integration” resulting from

its newspaper/broadcast combination in Phoenix “improved efficiency, particularly in

situations characterized by fast-breaking news such as the massive wildfires near Phoenix

last year.” Both of Belo Corporation’s Dallas outlets “have been able to cover a wider

range of stories through information sharing between the separate newspaper and

television news staffs.” Order ¶ 348.

49

The Commission offered two rationales for its conclusion that a blanket

prohibition on newspaper/broadcast combinations is no longer necessary to ensure

diversity in local markets. First, it found that “[c]ommonly-owned newspapers and

broadcast stations do not necessarily speak with a single, monolithic voice.” Id. ¶ 361.

Given conflicting evidence in the record 24 on whether ownership influences viewpoint,

the Commission reasonably concluded that it did not have enough confidence in the

proposition that commonly owned outlets have a uniform bias to warrant sustaining the

cross-ownership ban. Id. ¶ 364.

Second, the Commission found that diverse viewpoints from other media sources

in local markets (such as cable and the Internet) compensate for viewpoints lost to

newspaper/broadcast consolidations. Id. ¶ 366. We agree record evidence suggests that

cable and the Internet supplement the viewpoint diversity provided by broadcast and

24

On one hand, the record contained examples of a newspaper-owner’s affiliations and

biases influencing the news and editorial pages. But there were also examples of

commonly owned newspapers expressing different viewpoints (such as that the Tribune

Company’s newspapers did not endorse the same candidate in the 2000 presidential

election). The MOWG submitted a statistical study of 10 newspaper-television

combinations; in half of them the newspaper’s overall “slant” was noticeably different

from the broadcast television’s “slant” on the news. See David Pritchard, Viewpoint

Diversity in Cross-Owned Newspapers and Television Stations: A Study of News

Coverage of the 2000 Presidential Campaign (MOW G Study No. 2) (Sept. 2002). But

the Pritchard Study was the subject of much criticism for its flawed methodology (no

control group of independent media outlets for comparison) and narrow scope (it only

looked at one factor in judging “slant”). Order ¶ 362.

50

newspaper outlets in local markets.25 As discussed more fully below, we believe that the

Commission gave too much weight to the Internet in deriving the Cross-Media Limits.

But separate from the question of degree, we conclude that it was acceptable for the

Commission to find that cable and the Internet contribute to viewpoint diversity.

C. The Commission’s decision to retain some limits on common ownership of

different-type media outlets was constitutional and did not violate § 202(h).

The Deregulatory Petitioners support the Commission’s repeal of the

newspaper/broadcast cross-ownership ban but object to its decision to retain any

restriction on the common ownership of newspaper and broadcast media outlets. First

they argue that any limits on newspaper/broadcast cross-ownership violate § 202(h),

because, as the Commission acknowledges, the evidence suggests that the cross-

ownership restrictions are not in the public interest. They also argue that the Cross-Media

Limits violate the First and Fifth Amendments of the United States Constitution. We

disagree on all counts.

1. Continuing to regulate cross-media ownership is in the public interest.

The Commission’s finding that a blanket prohibition on newspaper/broadcast

cross-ownership is no longer in the public interest does not compel the conclusion that no

regulation is necessary. See Order ¶ 364. As described above, the Commission found

25

See, e.g., Joel Waldfogel, Consumer Substitutability Among Media (MOW G Study

No. 3) (Sept. 2002) (suggesting that consumers view Internet news sources as a substitute

for daily newspapers and broadcast news).

51

evidence to undermine the premise that ownership always influences viewpoint,26 but it

did not find the opposite to be true. And while the Commission found that other media

sources contributed to viewpoint diversity in local markets, it could not have found that

the Internet and cable were complete substitutes for the viewpoints provided by

newspapers and broadcast stations. See MOW G Study No. 3 (finding that the Internet and

cable rank as sources of local news, but they do not outrank newspapers and broadcast

television). Given the Commission’s goal of balancing the public’s interests in

competition, localism, and diversity, it reasonably concluded that repealing the cross-

ownership ban was necessary to promote competition and localism, while retaining some

limits was necessary to ensure diversity.27

2. Continuing to regulate cross-media ownership does not violate the Fifth

Amendm ent.

26

Indeed, ample evidence supported its conclusion that ownership can influence

viewpoint. See Order ¶¶ 24–25; Comments of the UCC et al., MB Docket No. 02-277 at

4 (Jan. 2, 2003) (“UCC Comments”) (citing a Pew Research Center study of television

journalists and executives that found nearly one quarter of journalists purposefully avoid

newsworthy stories and nearly as many soften the tone of stories to benefit the interest of

their news organizations); id. at 5 (citing a 2002 study finding that outlets included more

references to their own products and services and treated those items more favorably than

others, thus exhibiting a “synergy bias”); Comments of Consumer Federation of America,

MB Docket 02-277 at 41 (Jan. 2, 2003) (citing a 2002 study finding that election

information on news pages was slanted in favor of candidate endorsed on the editorial

page); id. at 44 (citing a 2001 survey of news directors finding that media owners and

sponsors pressure reporters to slant the news).

27

We also note that the Commission provided for a waiver of the Cross-M edia Limits

upon a demonstration “that an otherwise prohibited combination would, in fact, enhance

the quality and quantity of broadcast news available in the market.” Order ¶ 481.

52

The Deregulatory Petitioners argue that the Cross-Media Limits violate the Equal

Protection Clause of the Fifth Amendment because they single out newspaper owners for

special restrictions that do not apply to other media outlets. This argument is foreclosed,

however, by the Supreme Court’s decision in NCCB that endorsed the constitutionality of

the 1975 newspaper/television cross-ownership ban. 436 U.S. at 801–02. Rather than

concluding that newspaper owners were singled out for different treatment, the Court

determined that “the regulations treat newspaper owners in essentially the same fashion as

other owners of the major media of mass communication” by imposing limits on them as

well as owners of television and radio stations. Id. at 801. We decline the Deregulatory

Petitioners’ invitation to disregard Supreme Court precedent because of changing times.

Surely there are more media outlets today (such as cable, the Internet, and satellite

broadcast) than there were in 1978 when NCCB was decided. But it cannot be assumed

that these media outlets contribute significantly to viewpoint diversity as sources of local

news and information. See Part IV.D.2 infra. Even if it could, it is the Supreme Court’s

prerogative to change its own precedent. See State Oil Co. v. Khan, 522 U.S. 3, 20 (1997)

(stating that only the Supreme Court can overrule its own precedent); Am. Civil Liberties

Union of N.J. v. Black Horse Pike Reg’l Bd. of Educ., 84 F.3d 1471, 1484 (3d Cir. 1996)

(stating that we are obliged to follow Supreme Court precedent “until instructed otherwise

by a majority of the Supreme Court”).

3. Continuing to regulate cross-media ownership does not violate the First

Amendm ent.

53

The Deregulatory Petitioners argue that the Commission’s decision to retain

restrictions on the common ownership of newspapers and broadcast stations contravenes

the First Amendment because it limits the speech opportunities of newspaper owners and

broadcast station owners, and hence limits the public’s access to information. Yet again

their challenge is foreclosed by NCCB, where the Supreme Court affirmed the

Commission’s authority, despite a First Amendment challenge, to regulate

broadcast/newspaper cross-ownership in the public interest. Due to the “physical

scarcity” of the broadcast spectrum, the Court scrutinized the regulation to discern a

rational basis. 436 U.S. at 799. The Commission’s action, it held, was “a reasonable

means of promoting the public interest in diversified mass communications.” Id. at 802.

The Deregulatory Petitioners suggest, as they did in mounting their Fifth

Amendment challenge, that the expansion of media outlets since NCCB’s day requires a

rethinking of the scarcity rationale and the lower level of constitutional review it entails.

Again we decline their invitation to disregard precedent, and we are not alone. See FCC

v. League of Women Voters of Cal., 468 U.S. 364, 376 & n.11 (1984) (upholding the

scarcity rationale until Congress speaks to the issue); Fox I, 289 F.3d at 1046 (“First,

contrary to the implication of the networks’ argument, this court is not in a position to

reject the scarcity rationale even if we agree that it no longer makes sense. The Supreme

Court has already heard the empirical case against that rationale and still ‘declined to

question its continuing validity.’” (citing Turner v. FCC, 512 U.S. 622, 638 (1994))).

Even were we not constrained by Supreme Court precedent, we would not accept

54

the Deregulatory Petitioners’ contention that the expansion of media outlets has rendered

the broadcast spectrum less scarce. In NCCB, the Court referred to the “physical

scarcity” of the spectrum—the fact that many more people would like access to it than

can be accommodated. 436 U.S. at 799. The abundance of non-broadcast media does not

render the broadcast spectrum any less scarce. See, e.g., Ruggiero v. FCC, 278 F.3d

1323, 1325 (D.C. Cir. 2002), rev’d en banc, 317 F.3d 239 (D.C. Cir 2003) (citing the

Commission’s statement that “[n]ow . . . radio service is widely available throughout the

country and very little spectrum remains available for new full-powered stations.”).

In this context, we will apply a rational basis standard to the Commission’s

restrictions on the common ownership between newspaper and broadcast stations, and

uphold them if they are rationally related to a substantial government interest. See NCCB,

436 U.S. at 799–800; see also Am. Family Ass’n v. FCC, 365 F.3d 1156, 1168 (D.C. Cir.

2004). In NCCB, the Supreme Court endorsed a substantial government interest in

promoting diversified mass communications. Id. at 795, 802. The Supreme Court held

that the Commission had “acted rationally in finding that diversification of ownership

would enhance the possibility of achieving greater diversity of viewpoints.” Id. at 796.

Here, as in NCCB, the Commission justified its continued restrictions on common

ownership of newspapers and broadcast stations as promoting the public interest in

viewpoint diversity. Order ¶ 355. The Court has said that limiting common ownership is

a reasonable means of promoting the public interest in viewpoint diversity. NCCB, 436

U.S. at 796. Therefore, applying NCCB, we hold that the Commission’s continued

55

regulation of the common ownership of newspapers and broadcasters does not violate the

First Amendment rights of either.

D. The Commission did not provide reasoned analysis to support the specific

Cross-Media Limits that it chose.

The Commission concluded that cross-ownership limits were necessary in specific

situations to guard against “an elevated risk of harm to the range and breadth of

viewpoints that may be available to the public.” Order ¶ 442. But recognizing that

ownership limits impede the speech opportunities for both broadcasters and newspapers,

the Commission endeavored to craft new limits “as narrowly as possible.” Id. ¶ 441. In

that vein, the Commission sought to identify “at risk” local markets—those with high

levels of viewpoint concentration—where continued regulation was necessary. By

focusing its regulation on those markets, the Commission hoped to avoid needlessly

overregulating markets with already ample viewpoint diversity.

But for all of its efforts, the Commission’s Cross-Media Limits employ several

irrational assumptions and inconsistencies. We do not object in principle to the

Commission’s reliance on the Department of Justice and Federal Trade Commission’s

antitrust formula, the Herfindahl-Hirschmann Index (“HHI”), as its starting point for

measuring diversity in local markets. In converting the HHI to a measure for diversity in

local markets, however, the Commission gave too much weight to the Internet as a media

outlet, irrationally assigned outlets of the same media type equal market shares, and

inconsistently derived the Cross-Media Limits from its Diversity Index results. For these

56

reasons, detailed below, we remand for the Commission to justify or modify further its

Cross-M edia Limits.

1. Overview of the Commission’s Diversity Index Methodology

The Commission designed a methodology called the Diversity Index to identify “at

risk” markets where limits on cross-media ownership should be retained. The Diversity

Index was “inspired by” the HHI, which the Department of Justice and the Federal Trade

Commission use to measure proposed mergers’ effect on competition in local markets.

Id. ¶ 394. A market’s HHI score is the sum of market shares squared. A highly

competitive market will have a lower HHI score than a concentrated one. For example,

compare the HHI score of a market with 10 equal-sized competitors (10 [competitors] x

10 [each competitor’s market share percentage]2 = 1000) to the HHI score of a market

with only five equal-sized competitors (5 x 202 = 2000).28 The Department of Justice and

the Federal Trade Commission categorize markets with HHI scores above 1800 as

“highly concentrated.” If a proposed merger would exceed that level of concentration,

the agencies believe that it would be harmful to the competition in that market. At its

core, the Diversity Index here uses the same sum of market share-squared formula.

First, the Commission selected which media outlets to include in its analysis of

viewpoint diversity in local markets based on consumers’ reported preferences for

28

Of course, the HHI formula also works where the components of a market are not of

equal size. In a market where one company controls 50% of the market share, two

control 20%, and another controls 10%, the HHI formula is 50 2 + 20 2 + 20 2 + 10 2 = 3400.

57

sources of local news and information. The Commission determined that broadcast

television, daily and weekly newspapers, radio, and Internet (via cable connection and

DSL, dial-up, or other connections) are the relevant contributors to viewpoint diversity in

local markets. See Neilsen Media Research, Consumer Survey on Media Usage (MOWG

Study No. 8) (Sept. 2002). Based on the popularity of each media source, the

Commission assigned each a relative weight: broadcast TV 33.8%, daily newspapers

20.2%, weekly newspapers 8.6%, radio 24.9%, Internet (cable) 2.3% and Internet (DSL,

dial-up, or other connection) 10.2%. Order ¶¶ 412, 415, 427.

Next, the Commission selected many sample markets 29 for which it would

determine a Diversity Index score. In each of those markets, it counted the number of

outlets within each media type and assigned each outlet an equal market share. (For

example, the New York City market has 23 television stations, so each one was attributed

an equal 4.3% 30 market share.) The Commission calculated the ownership share by

multiplying the number of outlets owned by an entity by the market share. (Univision

29

The Commission calculated Diversity Index scores for all markets with five or fewer

television stations, all markets with 15 and 20 television stations, and ten randomly

selected markets with between six and ten stations. For sample market Diversity Index

calculations, see Order app. C.

30

Throughout this discussion of the Diversity Index, we adopt the Commission’s

convention and report the decimals of intermediate products and quotients (such as 4.3

here) rounded to the nearest tenth. Final products (such as 13.0 reported in the next

sentence) are derived from the unrounded intermediate product and then rounded to the

nearest tenth.

58

owns three television stations in New York, so its ownership share was 3 x 4.3% =

13.0%.) Each ownership share was then given its relative weight by media type.

(Univision’s 13.0% share was thus subject to the 33.8% multiplier for television stations).

The Commission then squared all of the weighted ownership shares; their sum was the

market’s total Diversity Index score. But in markets with cross-owned shares (outlets of

different media types owned by the same entity) the entity’s weighted ownership shares

were summed together before they were squared. (ABC owned one television station and

four radio stations in New York, so the Commission added its weighted ownership share

for the television station (4.3% x 33.8% = 1.45%) to its weighted ownership share for the

radio stations (6.7% x 24.9% = 1.67% ) for a combined ABC ownership share of 3.12%.

The square of 3.12 was included in the summation). See generally Order app. C.

After the Commission calculated Diversity Index scores for markets of different

sizes, it determined how those scores would change in several different consolidation

“scenarios.” To illustrate, the Commission determined that markets with five television

stations had an average Diversity Index score of 911. If a newspaper and television

station combined in a market of that size, that score would increase by 223, to 1134. The

other combination scenarios were: (1) one television station and all of the radio stations

allowed to be commonly owned under the local radio rule; (2) one newspaper and all of

the radio stations allowed to be commonly owned under the local radio rule; (3) one

newspaper, one television station, and half of the number of radio stations allowed to be

commonly owned under the local radio rule; (4) two television stations; (5) one

59

newspaper and two television stations; and (6) one newspaper, two television stations,

and all of the radio stations allowed under the local radio rule. Order app. D.

Finding that all of the consolidation scenarios resulted in relatively high increases

to the average Diversity Index scores for the smallest markets (those with three or fewer

television stations), the Commission prohibited newspaper/television, newspaper/radio,

and radio/television combinations in those markets. Order ¶¶ 456, 459, 460. In the large

markets (nine or more stations), all of the consolidation scenarios resulted in acceptable

increases to the average Diversity Index scores, so the Commission imposed no limits on

cross-media ownership in those markets. In the mid-sized markets (between four and

eight television stations), the Commission found that all of the scenarios, except the two

involving a newspaper and television duopoly, should be allowed, based on their modest

increases to the average Diversity Index scores for those markets. Id. ¶ 466.

2. The Commission did not justify its choice and weight of specific media

outlets.

Petitioners from both sides of the regulatory spectrum attack the Commission’s

selection of media outlets for inclusion in the Diversity Index formula. The Citizen

Petitioners argue that the Commission gave too much weight to the Internet at the

expense of television and daily newspapers, thereby understating the level of

concentration and overstating the level of diversity in a market. The Deregulatory

Petitioners, on the other hand, argue that the Diversity Index understates the actual

amount of diversity in a market by ignoring important media outlets, primarily cable

60

television. As explained below, we affirm the Commission’s reasoned decision to

discount cable. But we think that the same rationale also applies to the Internet.

Therefore, its decision to count the Internet as a source of viewpoint diversity, while

discounting cable, was not rational.

The Commission properly excluded cable because of serious doubts as to the

extent that cable provided independent local news—the Commission’s recognized

indicator of viewpoint diversity in local markets. Order ¶ 394 (“News and public affairs

programming is the clearest example of programming that can provide viewpoint

diversity. . . . [and] the appropriate geographic market for viewpoint diversity is local.”).

While the responses to one question in the Commission’s survey suggested that cable is a

significant source of local news, see MOWG Study No. 8 tbl. 8, the Commission did not

find this credible because the responses to other survey questions suggested that

respondents were counting broadcast signals that are transmitted as cable channels as

sources of local news on cable. See id. tbl. 18 (from a list of popular national cable news

channels and a choice for “local cable news channels,” almost half of the respondents

chose “other” as their source for cable network news, indicating that cable news channels

were probably confused with broadcast networks’ news). The survey’s indication that

cable is an independent source of local news was also undercut by external evidence,

including Neilsen ratings, that local cable channels are the least watched of any broadcast

or cable stations in the market. Order ¶ 414. Furthermore, the Commission noted that

local cable channels are not available everywhere, but only in select markets. Id. ¶ 414

61

n.924; see also UCC Comments at 30–31 (reporting that only 10 to 15% of cable systems

include channels that provide local and public affairs programming—i.e., public,

educational, and governmental access channels—and that there are only 22 local news

cable channels in the country, five of which serve the New York City area). Thus, the

Commission justifiably excluded cable from its Diversity Index calculations.

Similarly, the responses to one of the Commission survey questions suggested that

the Internet is a source of local news. See MOW G Study No. 8 31 tbl.1 (18.8% of

respondents listed the Internet as a source of local news). But the survey did not identify

which websites respondents used as sources of local news. 32 There is a critical distinction

between websites that are independent sources of local news and websites of local

31

The dissent suggests that the MOWG Studies, “although not perfect . . . , are a

significant improvement over the study in Sinclair” that the D.C. Circuit Court

determined did not support the Commission’s decision to limit the definition of “voices”

in its local television rule. But this comparison is not relevant because, as we point out,

the Commission inconsistently applied the results of its analysis.

32

The follow-up question for the respondents who reported using the Internet as a news

source asked which sites they had used in the past seven days as a source of local or

national current affairs, so their responses to this question are not helpful in determining

whether the Internet is a source of independent local news. To the extent that we can

glean anything from this question— unlikely, as the predominant response was “other”

(34.9%)—the most popular websites identified were those of national cable news

channels, MSN.com (22.4%) and CNN.com (19.1%), indicating that most people had

those types of websites in mind when they reported using the Internet for news. (The

other responses were: Yahoo.com (17.9%), MSNBC.com (5.9%), NewYorkTimes.com

(5.1%), FoxNews.com (2.2%), USAToday.com (1.8%), ABCNews.com (1.8% ),

CBSNews.com (1.7%), Netscape.com (1.7% ), Excite.com (1.3%), Iwon.com (1.2%),

AT&T.net (1.1%), WallStreetJournal.com (1.0%), none (7.3%), don’t know (3.5%), and

refuse (0.5%)).

62

newspapers and broadcast stations that merely republish the information already being

reported by the newspaper or broadcast station counterpart. The latter do not present an

“independent” viewpoint and thus should not be considered as contributing diversity to

local markets. Accordingly, the Commission should have discounted the respondents

who primarily rely on these websites from its total number of respondents who indicated

that they use the Internet to access local news. 33

Furthermore, just as the Commission discounted responses indicating that cable

was an independent source of local news because this finding conflicted with other record

evidence, it should have discounted the Internet responses as well. The Commission does

not cite, nor does the record contain, persuasive evidence that there is a significant

presence of independent local news sites on the Internet. According to the record, most

sources of local news on the Internet are the websites for newspapers and broadcast

television stations. See, e.g., UCC Comments at 33 (62% of Internet users get local news

from newspaper websites, 39% visit television station websites). And the examples the

Commission does cite—the Drudge Report and Salon.com— have a national, not local,

33

The dissent acknowledges the flaws in the MOWG Study No. 8 survey, but suggests

that because the survey “can be fine-tuned on the next round of reviews” it should not be

the basis for remand. But we decline to abdicate our obligation to provide meaningful

judicial review. Just as the Commission may not rely on a “wait-and-see” approach to

rulemaking, Sinclair, 284 F.3d at 164, neither can we. We review an agency’s decision

for whether it is rationally derived from the record evidence—not whether the agency

may (or may not) “fine tune” the record at the next mandated review. Furthermore, just

as we may not supply a reasoned basis for the agency’s action that the agency itself has

not given, State Farm, 463 U.S. at 43, we also do not supply evidence to an agency in the

hopes that the agency will include that evidence in a future study.

63

news focus. 34 Order ¶ 427.

The Commission suggests that “the virtual universe of information sources” on

the Internet qualifies it as a source of viewpoint diversity. Order ¶ 427. But to accept

this rationale we would have to distort the Commission’s own premise that local news is

an indicator of viewpoint diversity. E.g., id. ¶ 391 (Diversity Index measures “the

relative importance of these media as a source of local news”).35 Search-engine

sponsored pages such as Yahoo! Local and about.com,36 which were suggested by

commenters as sources of local news and information, may be useful for finding

restaurant reviews and concert schedules, but this is not the type of “news and public

affairs programming” that the Commission said was “the clearest example of

programming that can provide viewpoint diversity.” Id. ¶ 394.

To accept its “universe of information” characterization of the Internet’s viewpoint

34

Moreover, the Drudge Report is an “aggregator” of news stories from other news

outlets’ websites and, as such, is not itself normally a “source” of news, national or local.

35

The Order also speaks of “news and public affairs programming” or “local news and

current affairs information” when referring to measures of viewpoint diversity. E.g.,

Order ¶¶ 394, 406, 409.

36

The dissent also takes notice of the Independent Media Center websites such as

phillyimc.com. We agree that this is a good example of independent local news on the

Internet. But the IMC provides local links in only eight markets in the United States.

The Commission does not even mention these websites in its analysis of the Internet, let

alone argue that IM C websites in eight local markets will offset the viewpoint diversity

lost when newspapers and broadcast stations are allowed to consolidate. And even if we

believed that to be the case, it is not our role to insert our own analysis to substitute for

that which is missing from the agency’s rationale. State Farm, 463 U.S. at 43 (“[W ]e

may not supply a reasoned basis for the agency’s action that the agency itself has not

given.”).

64

diversity, we would also have to disregard the Commission’s professed intent to focus its

consideration of viewpoint diversity on media outlets. Id. ¶¶ 20, 391. In terms of

content, “the media” provides (to different degrees, depending on the outlet) accuracy and

depth in local news in a way that an individual posting in a chat room on a particular issue

of local concern does not. But more importantly, media outlets have an entirely different

character from individual or organizations’ websites and thus contribute to viewpoint

diversity in an entirely different way. They provide an aggregator function (bringing

news/information to one place) as well as a distillation function (making a judgment as to

what is interesting, important, entertaining, etc.).37 Individuals (such as political

candidates) and entities (such as local governments or community organizations) may use

the Internet to disseminate information and opinions about matters of local concern (such

as the extension of a bike path on the Schuylkill River in Center City Philadelphia, see

dissent Part IV.A.1), but these individuals and organizations are not, themselves, media

outlets. W e agree that the Internet “helps citizens discharge the obligations of citizenship

in a democracy,” Order ¶ 393, when someone can go cityofglenfalls.com to find the city

council’s next agenda or use sfgov.org to learn how to get a marriage license in San

Francisco. See Comments of the Hearst Corporation, MM Docket No. 01-235 at 11 &

n.36, apps. A & C (Dec. 3, 2001) (“Hearst Comments”) (listing these website addresses,

among others, as examples of local government websites). But local governments are

37

See Brief of Petitioner Media General, Inc., at 55 (noting “each media outlet in a

community is actually a platform for the expression of many viewpoints”).

65

not, themselves, “media outlets” for viewpoint-diversity purposes. Like many entities,

they just happen to use a particular media outlet—the Internet— to disseminate

information.

Similarly, advertiser-driven websites such as hvnet.com and sfadvertiser.com, see

Hearst Comments at apps. A & C, hardly contribute to viewpoint diversity. Like local

governments, the sponsors of these websites are not “media outlets” just because they

have “local information” that they want the public to have— if they were, their

advertisements in telephone directories would also have to count toward viewpoint

diversity. Compare Order ¶ 424 (explaining that the Commission would not count

toward viewpoint diversity a local newspaper’s comics and classified ads because, while

the subscriber is “undoubtedly getting a valuable service, it is not clear that the service

has anything to do with news and current affairs”).

The Commission attempts to justify different treatment for cable and the Internet

by suggesting that local cable news channels are only available in select markets, while

the Internet is available everywhere. Not only is this distinction demonstrably false (as

even the Commission acknowledged that almost 30% of Americans do not have Internet

access, Order ¶ 365), it is irrelevant. That the Internet is more available than local cable

news channels does not mean that it is providing independent local news. On remand the

Commission must either exclude the Internet from the media selected for inclusion in the

Diversity Index or provide a better explanation for why it is included in light of the

exclusion of cable. See Sinclair, 284 F.3d at 163–65 (unexplained inconsistency was

66

arbitrary and capricious).

3. The Comm ission did not justify its assumption of equal market shares.

Both the Citizen Petitioners and the Deregulatory Petitioners object to the

Commission’s decision to assign all outlets within the same media type (that is, television

stations, daily papers, or radio stations) an equal market share. The assumption of equal

market shares is inconsistent with the Commission’s overall approach to its Diversity

Index and also makes unrealistic assumptions about media outlets’ relative contributions

to viewpoint diversity in local markets.38

The Commission’s decision to assign equal market shares to outlets within a media

type does not jibe with the Commission’s decision to assign relative weights to the

different media types themselves, about which it said “we have no reason to believe that

all media are of equal importance.” Order ¶ 409; see also id. ¶ 445 (“Not all voices,

however, speak with the same volume.”). It also negates the Commission’s proffered

rationale for using the HHI formula in the first place—to allow it to measure the actual

38

The dissent views these flaws, effectively, as “harmless error” because the

Commission called the Diversity Index a “useful tool” that “informs, but does not replace,

our judgment in establishing rules of general applicability that determine where we

should draw lines between diverse and concentrated markets.” Order ¶ 391. But

nowhere in the Order, in its briefs, or in its oral argument did the Commission identify

any consideration other than the Diversity Index as having influenced the formulation of

the Cross-M edia Limits. Rather, the Cross-Media Limits prospectively ban certain

combinations in specific markets, and allow others, based on nothing but the relative

increases those combinations would have on the average Diversity Index scores of

markets of that size.

67

loss of diversity from consolidation by taking into account the actual “diversity

importance” of the merging parties, something it could not do with a simple “voices” test.

Id. ¶ 396. Finally, assigning equal market shares to outlets that provide no local news

almost certainly presents an understated view of concentration in several markets, thus

contravening the Commission’s goal of making “the most conservative assumption

possible” about viewpoint diversity. Id. ¶ 400.

Additionally, there is no dispute that the assignment of equal market shares

generates absurd results. For example, in New York City, the Dutchess Community

College television station and the stations owned by ABC each receive an equal 4.3%

market share. Or compare the Dutchess Community College station’s weighted share of

1.5% (4.3% times the 33.8% multiplier for television) to a mere 1.4% weighted,

combined share assigned to the New York Times Company’s co-owned daily newspaper

and radio station. Order app. C. A Diversity Index that requires us to accept that a

community college television station makes a greater contribution to viewpoint diversity

than a conglomerate that includes the third-largest newspaper in America39 also requires

us to abandon both logic and reality.

The Commission’s attempt to justify its failure to consider actual market share of

outlets within a media type is not persuasive. It suggests that actual-use data use data is

not relevant because “current behavior is not necessarily an accurate predictor of future

39

Source: Audit Bureau of Circulations. See http://www.accessabc.com/.

68

behavior.” Order ¶ 423. But this truism did not prevent the Commission from preferring

actual-use data in assigning relative weight to the different media types. The Commission

also suggests that, compared to consumer preferences for a general media type (which are

generally stable), consumers’ preferences for particular media outlets are fluid because

they depend on the media outlet’s chosen format or quantity or quality of content, which

are easily changed. Id. ¶ 422. But while variance in the local news content of individual

media outlets is conceivable—e.g., the home shopping television station could start

carrying local news—the Commission does not provide any evidence that media outlets

actually undergo any such radical content change, let alone that they regularly do so.

Simply put, the Commission needs to undergird its predictive judgment that stations can

freely change the level of their news content with some evidence for that judgment to

survive arbitrary and capricious review. Fox I, 280 F.3d at 1051.

Lastly, the Commission attempts to justify its refusal to employ actual-use data by

arguing that collecting “information on viewing/listening/reading of local news and

current affairs material” would make it “necessary first to determine which programming

constituted news and current affairs,” which in turn “would present both

legal/Constitutional and data collection problems.” Order ¶ 424. With respect to

“legal/Constitutional” problems, the Commission is apparently concerned about

categorizing programming as news or “non-news.” But the Commission obtained actual-

use data in M OW G Study No. 8 without any “legal/Constitutional problems.” There it

avoided having to make content-distinguishing judgments simply by asking

69

respondents where they got their local news. And the Commission’s reference here to

data collection problems is vague and unexplained; there is no suggestion that obtaining

actual-use data for outlets within a media type would be prohibitively more onerous than

obtaining the same data for the media types themselves, as it did in MOW G Study No. 8.

Because the Commission’s reasons for eschewing actual-use data in assigning

market shares to outlets within a media type and assuming equal market shares are

unrealistic and inconsistent with the Commission’s overall approach to the Diversity

Index and its proffered rationale, we remand for the Commission’s additional

consideration of this aspect of the Order.

4. The Commission did not rationally derive its Cross-Media Limits from

the Diversity Index results.

After the Commission calculated the average Diversity Index scores for markets of

various sizes, it set out to determine whether the increase in those scores resulting from

different consolidation scenarios would have an acceptable or unacceptable effect. The

Commission’s results, contained in appendix D of the Order, are replicated here for ease

of reference. (We have used boldface type to indicate those increases in Diversity Index

scores that the Commission found acceptable in crafting the Cross-Media Limits.)

70

Base Case Average C hange in Diversity Index, Resulting from Mergers

TV Average 100% New s- New s- New s- 2 TV New s- New s-

stations Diversity Radio + paper + paper + paper + 1 stations paper + paper +

in Index 1 TV 100% 1 TV TV 2 TV 100%

market score station Radio station station + stations Radio +

50% 2 TV

Radio stations

1 1707 651 271 910 1321 — — —

2 1316 301 335 731 1009 — — —

3 1027 190 242 331 515 — — —

4 928 138 236 242 408 — — —

5 911 111 263 223 393 91 376 846

6 889 79 239 200 340 63 357 688

7 753 73 171 121 247 47 242 533

8 885 79 299 152 314 36 308 734

9 705 64 198 86 207 28 172 473

10 635 56 107 51 119 23 101 292

15 595 43 149 48 145 10 97 302

20 612 49 222 40 128 6 80 350

As illustrated by the chart’s figures that are not in boldface type, the Commission

prohibited all cross-media consolidation in the smallest markets where, under any of their

sample consolidation scenarios,40 the increase in Diversity Index would be excessive.

The Commission decided to permit all of the scenarios in the largest markets, finding the

Diversity Index increases to be acceptable. In the mid-sized markets, the Commission

40

The Commission did not report a Diversity Index increase for those scenarios that

would be precluded by the modified local television ownership rule, see generally Part V

infra, which would prohibit television station duopolies in markets with fewer than five

stations.

71

allowed most of the consolidation scenarios but prohibited consolidations involving a

newspaper and a television duopoly.

The Deregulatory Petitioners suggest that the Commission should have prohibited

only cross-ownership mergers that would lead to an increase of more than 400 points,

consistent with the practice of the Department of Justice to block mergers that would

increase the local market’s HHI score by over 400 points. As illustrated by the chart

above, this approach would have generated far more permissive Cross-Media Limits. The

Citizen Petitioners argue, on the other hand, that the Commission should have prohibited

cross-ownership mergers that lead to an increase of more than 100 points, the increase

that triggers the Department of Justice’s “further review.” But the decision of where to

draw the line between acceptable increases and unacceptable increases is almost always

the Commission’s to make. Deference to the Commission’s judgment is highest when

assessing the rationality of the agency’s line-drawing endeavors. See NCCB, 436 U.S. at

814–15; AT&T Corp., 220 F.3d at 627. The Commission rationalized its decision to

make conservative assumptions in order to “protect[ its] core policy objective of

viewpoint diversity.” Order ¶ 399; see also Sinclair, 284 F.3d at 153 (Commission

determined that antitrust merger guidelines “might be too low as their purpose lay in

defining the point at which antitrust scrutiny is required, and not in encouraging a wide

array of voices and viewpoints”).

Although the Commission is entitled to deference in deciding where to draw the

line between acceptable and unacceptable increases in markets’ Diversity Index scores,

72

we do not affirm the seemingly inconsistent manner in which the line was drawn. As the

chart above illustrates, the Cross-Media Limits allow some combinations where the

increases in Diversity Index scores were generally higher than for other combinations that

were not allowed. Consider the mid-sized markets (four to eight stations), where the

Commission found that a combination of a newspaper, a television station, and half the

radio stations allowed under the local radio rule would increase the average Diversity

Index scores in those markets by 408 (four stations), 393 (five), 340 (six), 247 (seven),

and 314 (eight) points respectively. These permitted increases seem to belong on the

other side of the Commission’s line. They are considerably higher than the Diversity

Index score increases resulting from other combinations that the Commission permitted,

such as the newspaper and television combination, 242 (four stations), 223 (five), 200

(six), 121 (seven), and 152 (eight). They are even higher than those resulting from the

combination of a newspaper and television duopoly—376 (five stations), 357 (six), 242

(seven), and 308 (eight)—which the Commission did not permit. The Commission’s

failure to provide any explanation for this glaring inconsistency is without doubt arbitrary

and capricious, and so provides further basis for remand of the Cross-Media Limits.41

41

The dissent suggests that the Commission provides sufficient justification in the

Order when it explains why the newspaper + 2 TV stations combination is not allowed in

midsized markets but the newspaper + 1 TV station + 50% of allowed radio stations

combination is allowed. Order ¶ 467 (suggesting that a newspaper will benefit more

from the consolidation with its first-acquired TV station than with subsequently acquired

stations). But this does not address why the newspaper + 1 TV station + 50% allowed

radio stations combination was permitted when its Diversity Index score increases were

overall much greater than the Diversity Index score increases for other allowed

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5. The Commission should provide better notice on remand.

Our decision to remand the Cross-Media Limits also gives the Commission an

opportunity to cure its questionable notice. Under the APA, an agency must publish

notice of either the terms or substance of the proposed rule or a description of the subjects

and issues involved. 5 U.S.C. § 553(b)(3). We have held that “the adequacy of the notice

must be tested by determining whether it would fairly apprise interested persons of the

‘subjects and issues’ before the agency.” Am. Iron & Steel Inst. v. EPA, 568 F.2d 284,

293 (3d Cir. 1977). The Citizen Petitioners argue that, in order to “fairly apprise” the

public, the Commission is also obligated to provide notice of its underlying methodology,

the reasoning from which it derived the proposed rule. The Commission’s notice only

indicated that it was considering “creating a new metric” to “reformulate [its] mechanism

for measuring diversity and competition in a market,” and that it was contemplating

“design[ing] a test that accords different weights to different outlet types.” Notice, 17

F.C.C.R. 18,503, ¶¶ 113–15. The Citizen Petitioners argue that the Commission should

have publically noticed the Diversity Index once it determined that was the methodology

on which it would rely to derive the Cross-Media Limits. See McLouth Steel Prods.

Corp. v. Thomas, 838 F.2d 1317 (D.C. Cir. 1988) (failure to describe a particular “model”

for computing contamination levels was not adequate notice); United States v. Nova

combinations. In other words, the Commission may have proffered an explanation for

why “F” should be treated differently from seemingly similar “D,” but it does not explain

why “D” should be treated similarly from seemingly different “A,” “B,” and “C.”

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Scotia Food Prods. Corp., 568 F.2d 240, 251 (D.C. Cir. 1977) (agency’s failure to

provide notice of the data from which it derived regulation foreclosed “criticism of the

methodology used or the meaning to be inferred from the data”).

The Commission argues that the Diversity Index was formulated as a response to

comments, and it need not seek additional public comment on data formulated as a

response to earlier comments.42 We are mindful that the APA’s notice obligations are not

supposed to result in a notice-and-comment “revolving door.” “Rulemaking proceedings

would never end if an agency’s response to comments must always be made the subject of

additional comments.” Cmty. Nutrition Inst. v. Block, 749 F.2d 50, 58 (D.C. Cir. 1984).

But courts have also suggested that an agency may withhold notice of its comment-

derived data only in the absence of prejudice. Id. (“The response may, moreover, take the

form of new scientific studies without entailing the procedural consequences appellants

would impose, unless prejudice is shown.”); see also Solite Corp. v. EPA, 952 F.2d 473,

484 (D.C. Cir. 1991) (allowing agency to use “‘supplementary’ data, unavailable during

the notice and comment period, that ‘expand[s] on and confirm[s]’ information contained

in the proposed rulemaking and addresses ‘alleged deficiencies’ in the pre-existing data,

so long as no prejudice is shown” (citing Cmty. Nutrition Inst., 749 F.2d at 57–58)

(alteration in original)). As the Diversity Index’s numerous flaws make apparent, the

42

The Commission also argues that the Diversity Index was “simply an analytical tool”

for measuring diversity. Resp’t Br. at 90–91. But as we noted before, see supra note 38,

it offers no suggestion that anything other than the Diversity Index was used to formulate

the Cross-Media Limits.

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Commission’s decision to withhold it from public scrutiny was not without prejudice. As

the Commission reconsiders its Cross-Media Limits on remand, it is advisable that any

new “metric” for measuring diversity and competition in a market be made subject to

public notice and comment before it is incorporated into a final rule.

V. Local Television Ownership Rule

Both the Citizen Petitioners and the Deregulatory Petitioners challenge the

Commission’s modification to the local television ownership rule, which would allow

triopolies in markets of 18 stations or more and duopolies in other markets, subject to a

restriction on combinations of the four largest stations in any market. We uphold the top-

four restriction but remand the numerical limits for the Commission to harmonize certain

inconsistencies and better support its assumptions and rationale. We also remand for the

Commission to reconsider or justify its decision to expand the rule’s waiver

provision—applicable to sales of failed, failing, or unbuilt television stations—by

eliminating the requirement that waiver applicants notice the station’s availability to out-

of-market buyers.

A. Regulatory Background and the 2002 Biennial Review

As part of the 1996 Act, Congress directed the Commission to conduct a

rulemaking to determine whether to “retain, modify, or eliminate” its local television

ownership rule, which at the time prohibited the common ownership of two television

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stations with overlapping Grade B signal contours.43 § 202(c)(2), 110 Stat. 111;

Amendment of Sections 73.35, 73.240, and 73.636 of the Commission’s Rules Relating to

Multiple Ownership of Standard, FM and Television Broadcast Stations, 45 F.C.C. 1476,

¶ 3 (1964) (establishing the restriction on the common ownership of televisions stations).

In response to Congress’s directive, the Commission promulgated a rule allowing

an entity to own two television stations in the same DMA, provided that: (1) the Grade B

field-strength contours of the stations do not overlap; and (2) (a) at least one of the

stations is not ranked among the four highest-ranked stations in the DMA, and (b) at least

eight “voices”—that is, independently owned, operational, commercial or noncommercial

full-power broadcast television stations—would remain in the DMA after the proposed

combination. 1999 Television Rule Review, 14 F.C.C.R. 12,903, ¶ 8; 47 C.F.R.

§ 73.3555(b). The D.C. Circuit Court reviewed this so-called “duopoly rule,” and in 2002

remanded it for the Commission to justify its decision to count only broadcast television

stations as voices to the exclusion of other non-broadcast media. Sinclair, 284 F.3d at

162.

The Commission consolidated Sinclair’s remand order with its 2002 biennial

review under § 202(h). The Order announced the Commission’s decision to abandon the

duopoly rule in favor of a rule that would permit common ownership of two commercial

43

The Commission considers two field-strength contours, Grade A and Grade B, as

indicators of a station’s approximate extent of coverage over average terrain in the

absence of interference. Grade B contours measure a weaker signal than Grade A, and

thus have a wider coverage area. 47 C.F.R. § 73.683.

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stations in markets that have 17 or fewer full-power commercial and noncommercial

stations, and common ownership of three commercial stations in markets that have 18 or

more stations. Both limits are subject to a restriction44 on the common ownership of

stations ranked among the market’s largest four based on audience share. Order ¶ 186.

The Commission also decided to expand its criteria for waiving the rule’s ownership

restrictions for proposed combinations that involve failed, failing, or unbuilt stations by

eliminating the requirement that waiver applicants provide notice of the sale to out-of-

market buyers. Id. ¶ 225.

B. We uphold several threshold challenges to the Commission’s overall

regulatory approach.

Before we consider the specific modifications to the local television rule, we

address some threshold challenges to the Commission’s regulatory approach.

1. Limiting local television station ownership is not duplicative of

antitrust regulation.

We reject the Deregulatory Petitioners’ contention that the Commission’s local

television rule is duplicative of antitrust enforcement (by the Department of Justice and

the Federal Trade Commission) and, thus, not in the public interest. The Commission

ensures that license transfers serve public goals of diversity, competition, and localism,

44

Under the new rule, the top-four restriction may be waived on a case-by-case basis.

In deciding whether to grant a waiver, the Commission may consider such factors as

ratings information demonstrating the competitive effect of the merger, the proposed

merger’s effect on the stations’ ability to transition to a digital signal, and the proposed

merger’s effect on localism and viewpoint diversity. Order ¶¶ 227–30. The top-four

restriction waiver, however, is only available in markets of 11 or fewer stations.

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while the antitrust authorities have a different purpose: ensuring that merging companies

do not raise prices above competitive levels. See, e.g., Clayton Act, § 7, 15 U.S.C. § 18

(restraining mergers that would lessen competition in a market); Dep’t of Justice and

Federal Trade Comm’n, Horizontal Merger Guidelines § 0.1 (1997 rev. ed.) (“Merger

Guidelines”) (seeking to protect consumers by ensuring mergers do not result in

anticompetitive prices).

The Deregulatory Petitioners contend that the Commission’s new regulations are

not derived from its professed reliance on audience preference, which the Commission

suggests distinguishes its regulatory approach from that of the antitrust authorities. Order

¶ 65 (pointing out that it considers audience preferences plus advertising data as

indicators of competition, while the antitrust authorities focus on prices). But the

Commission’s local television ownership rule does reflect audience preferences in at least

three ways. First, the Commission decided to focus its competition analysis on the

delivered program market (as opposed to the video programming market or the video

advertising market) because that is the market that “directly affects viewers.” Id. ¶ 141.

Second, as discussed in Part V.C below, the Commission used audience preference data

to support its conclusion that common ownership of local television stations can improve

program quality. Id. ¶ 150. Third, as also discussed in Part V.C, the Commission

justified the top-four restriction on evidence of an audience share “cushion” between the

top-four stations and the fifth-ranked station in most markets. Id. ¶ 195. Thus, we reject

the Deregulatory Petitioners’ suggestion that the local television ownership rule does not

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reflect the Commission’s concern for audience preferences.

Finally, we note that the Commission reviews all license transfers, 47 U.S.C.

§ 310(d), while the antitrust agencies typically review only large mergers. See 15 U.S.C.

§ 18a(a) (a merger must only be reported to the FTC and DOJ if the size of the transaction

exceeds $200 million or if the assets of one party exceed $10 million and the assets of the

other party exceed $100 million). Eighty-five percent of station mergers that have taken

place since 2000 would not have been subject to antitrust review because the parties’

assets fell below these thresholds. Br. of Intervenor UCC at 37 (citing BIA Financial

Network, Television Market Report (2d ed. 2003)). In this context, it hardly seems that

the Commission’s local television station ownership rule is duplicative of other agencies’

antitrust enforcement.

2. Media other than broadcast television may contribute to viewpoint

diversity in local markets.

Recognizing that allowing more television concentration in local markets could

detract from viewpoint diversity, the Commission rationalized its decision to deregulate

with its finding that media other than broadcast television contribute to viewpoint

diversity. Order ¶ 171. This is a departure from the Commission’s rationale for the

existing rule—the issue remanded by the Sinclair Court—that only television stations are

relevant to its diversity analysis.

We agree with the Commission’s conclusion that broadcast media are not the only

media outlets contributing to viewpoint diversity in local markets. Yet because we

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remand the Commission’s numerical limits, as explained in Part V.D below, we need not

decide the degree to which non-broadcast media compensate for lost viewpoint diversity

to justify the modified rule. Rather, we leave it for the Commission to demonstrate that

there is ample substitutability from non-broadcast media to warrant the particular

numerical limits that it chooses on remand.

We note that the record contains only weak evidence that cable can substitute for

broadcast television as a source of viewpoint diversity. For example, the Commission

found that among cable subscribers (a class that already omits one-third of American

households) only 30% have access to local cable news channels. See Order ¶ 414 n.924;

see also supra Part IV.D.2 (describing why the Commission concluded that a majority of

survey respondents’ purported reliance on cable as a source of local news was probably

based on confusion with broadcast news); Reply Comments of the UCC, MM Docket No.

01-235 at 5 (Feb. 15, 2002), UCC Comments at 30–31. W ith respect to the Internet,

while record evidence indicates a negative correlation between respondents’ reliance on

broadcast television and the Internet as news sources (suggesting that people who use the

Internet for local news do so at the expense of television), the Internet is also limited in its

availability and as a source of local news. Compare MOWG Study No. 3 at 3, 34; with

UCC Reply Comments at 10 and MOWG Study No. 8 tbl. 097. Therefore, it seems that

the degree to which the Commission can rely on cable or the Internet to mitigate the

threat that local station consolidations pose to viewpoint diversity is limited.

3. Consolidation can improve local programming.

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The Commission supported its decision to relax the existing “eight voices” rule

with findings that common ownership of television stations in local markets can result in

“consumer welfare enhancing efficiencies” by eliminating redundant expenses and

increasing opportunities for cross-promotion and related programming. Order ¶ 147. To

promote localism, the Commission found that these efficiencies translated into improved

local news and public interest programming.45 Id. ¶ 164. Evidence supporting this

conclusion included findings that commonly owned television stations are more likely to

carry local news than other stations and air a similar quality and quantity of local news as

other stations. See Bruce M. Owen et al., Effect of Common Ownership or Operation on

Television News Carriage, Quantity and Quality, in Comments of Fox Entertainment

Group, Inc. et al., MB Docket 02-277 (Jan. 2, 2003). And a study of seven commonly

owned broadcast television stations indicates that consolidation generally improved

audience ratings—the studied stations increased their audience shares by an average of

3.2% over the share they enjoyed prior to entering into co-ownership with another station.

Order ¶ 150 & n.295 (citing Mark R. Fratrik, Television Local Marketing Agreement and

Local Duopolies: Do They Generate New Competition and Diversity? (Jan. 2003),

appendix to Comments of Coalition Broadcasters et al., MM Docket 02-277 (Jan. 2,

45

This finding is consistent with the Commission’s 1999 decision to relax the local

television ownership rule because local ownership combinations were likely to yield

efficiencies that “can in turn lead to cost savings, which can lead to programming and

other service benefits that enhance the public interest.” Order ¶ 155 (citing 1999

Television Rule Review, 14 F.C.C.R. 12,903, ¶ 34).

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2003)). In light of this evidence, we reject the Citizen Petitioners’ contention that the

Commission’s finding of localism benefits from consolidation was unsupported.

4. The Comm ission adequately noticed its decision to allow triopolies.

We also reject the Citizen Petitioners’ contention that the Commission failed to

provide adequate notice that it was considering a rule that would allow triopolies. The

APA requires agencies to publish a notice of proposed rulemaking that contains “either

the terms or substance of the proposed rule or a description of the subjects and issues

involved.” 5 U.S.C. § 553(b). The Notice advised parties that any reevaluation of the

television ownership rule would take account of the remand ordered by Sinclair, which

left it to the Commission to reexamine its “voices” test as well as “the numerical limit,

given that there is a relationship between the definition of voices and the choice of a

numerical limit.” Notice, 17 F.C.C.R. 18,503, ¶ 76 (citing Sinclair, 284 F.3d at 162).

Specifically, the Commission asked for comment on “different economic incentives”

relating to diverse viewpoints in newscasting that might exist “among stand-alone

stations, duopolies, or triopolies.” Id. ¶ 80. This leaves little doubt that the Notice

provided a sufficient “description of the subjects and issues involved” in the

Commission’s decision to allow triopolies.

C. We uphold the Commission’s decision to retain the top-four restriction.

Though the Commission recognized that the combination of television stations

within the same market could yield efficiencies that benefit consumers, the Commission

also recognized that station combinations only have an overall public “welfare-

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enhancing” effect when the consolidation does not create a “new largest” entity. Order ¶

194 (citing, inter alia, R. Preston McAfee & Michael Williams, Horizontal Mergers and

Antitrust Policy, 40 J. Indus. Econ. 181–87 (June 1992)). Thus, the Commission

determined that it had to limit allowable station combinations to those that would not

create excessive market power in a “new largest” entity. Finding that a significant

“cushion” of audience share percentage points generally separates top-four stations from

the fifth-ranked stations, the Commission decided that a top-four restriction would ensure

that station consolidations did not lead to excessive market power. Id. ¶ 195–96. The

Commission also recognized that efficiencies are less prevalent when financially strong

stations merge with each other. Id. ¶ 197. For example, top-four stations are already

more likely to be originating local news46 and to have made the transition to digital

television. Id. ¶¶ 198–99.

The Deregulatory Petitioners assert that the top-four restriction prevents small-

market stations from yielding any of the benefits of consolidation. They argue that by

effectively precluding any consolidation in markets with fewer than five stations, the

Commission deprives the benefit of consolidation from stations—those in small

markets—who need it most. But the Commission’s local television rule is protective of

46

The Commission found that 85% of top-four stations offer local news programs, as

compared to 19% of stations outside the top four. Order ¶ 198 (citing Bruce M. Owen et

al., News and Public Affairs Programming Offered by the Four Top-Ranked Versus

Lower-Ranked Television Stations, included in Comments of Fox Entertainment Group,

Inc., et al., MB Docket 02-277 (Jan. 2, 2003)).

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small-market stations. The numerical limits already allowed, in effect, extra47

concentration to ensure that small-market stations would realize the efficiency benefits of

consolidation. As for the smallest markets with fewer than five stations—where the top-

four restriction operates to preclude any consolidation—it was not unreasonable for the

Commission to conclude, as it did, that the detriment of concentrated market power—e.g.,

reduced incentive to improve programming of mass appeal—outweighed the efficiency

benefits. Id. ¶¶ 197, 200. And, while we recognize that the Commission “cannot save an

irrational rule by tacking on a waiver procedure,” ALLTEL Corp. v. FCC, 838 F.2d 551,

561 (D.C. Cir. 1988), we note that the modified rule allows the Commission to waive the

top-four restriction in small markets where those consolidations would be beneficial

overall.48

47

As explained more fully in the next subpart, the Commission justified its numerical

limits on the belief that they would ensure six equal-sized competitors in most markets.

But the Commission departed from this rationale when it allowed duopolies in markets

with five to eleven stations. Order ¶ 201. The Commission explained that stations in

those small and mid-sized markets are experiencing greater competitive difficulty than

stations in large markets. Id. (citing data on the comparative profitability of stations in

markets of various sizes). Thus, the Commission determined, it was necessary to allow

some additional concentration in those markets (relative to that allowed in the larger

markets) so that small and mid-sized market stations would realize the efficiency benefits

of consolidation.

48

The Deregulatory Petitioners challenge the waiver provision as well, suggesting that

the Commission’s decision to limit its availability to markets with fewer than 12 stations

is an arbitrary and capricious number “plucked out of thin air.” See Sinclair, 284 F.3d at

162.

This text is long and has been trimmed here. Open the source document for the complete record.