Amicus Curiae Brief — Federal Communications Commission, et al., Petitioners v. Prometheus Radio Project, et al.

Nos. 19-1231 & 19-1241

IN THE

FEDERAL COMMUNICATIONS COMMISSION, ET AL.,

Petitioners,

v.

PROMETHEUS RADIO PROJECT, ET AL.,

Respondents.

NATIONAL ASSOCIATION OF BROADCASTERS, ET AL.,

Petitioners,

v.

PROMETHEUS RADIO PROJECT, ET AL.,

Respondents.

On Petition for Writs of Certiorari to the

United States Court of Appeals for the Third Circuit

BRIEF OF GRAY TELEVISION, INC. AS AMICUS

CURIAE IN SUPPORT OF PETITIONERS

KEVIN P. LATEK

ROBERT J. FOLLIARD III

GRAY TELEVISION, INC.

4370 Peachtree Rd., NE

Suite 400

Atlanta, GA 30319

(404) 266-8333

May 20, 2020

DAVID E. MILLS

Counsel of Record

ELIZABETH B. PRELOGAR

ROBERT M. MCD OWELL

COOLEY LLP

1299 Pennsylvania Ave., NW

Suite 700

Washington, DC 20004

(202) 842-7800

dmills@cooley.com

[Additional counsel listed on inside cover]

BARRETT J. ANDERSON

COOLEY LLP

4401 Eastgate Mall

San Diego, CA 92121

(858) 550-6000

Counsel for Amicus Curiae

I

TABLE OF CONTENTS

Page

STATEMENT OF INTEREST..................................... 1

SUMMARY OF ARGUMENT...................................... 3

ARGUMENT ................................................................. 4

I.

II.

Gray’s Business Model Is To Improve

And Expand Local News Coverage

Through Increased Investment Allowed

By Economies of Scale. ...................................... 4

A.

The Economics of Local

Television. ............................................... 5

B.

Gray’s Business Strategy. ...................... 8

C.

The FCC’s Duopoly Rule. ..................... 16

The Court Should Grant The Petitions

Because The Third Circuit’s Decision

Creates Uncertainty For Businesses

Like Gray’s And Forestalls Further

Improvements To Local News

Production In Small And Mid-Sized

Markets............................................................. 23

CONCLUSION ............................................................ 26

II

TABLE OF AUTHORITIES

Page(s)

Statutes

47 U.S.C.

§ 308 ..........................................................................5

§ 309 ..........................................................................5

Telecommunications Act of 1996, Pub. L. No.

104-104, § 202(h), 110 Stat. 56 111-12

(1996) .........................................................................4

Other Authorities

47 C.F.R.

§ 73.622 .....................................................................5

§ 73.3555 .................................................................17

Federal Communications Commission, “Part

4—Broadcast Services Other Than

Standard Broadcast,” 6 Fed. Reg. 2282

(May 6, 1941) ................................................... 18, 20

In the Matter of 2002 Biennial Regulatory

Review—Review of the Commission’s

Broadcast Ownership Rules,

18 FCC Rcd. 13620 (2003) .....................................15

In the Matter of 2014 Quadrennial Regulatory

Review—Review of the Commission's

Broadcast Ownership Rules and Other

Rules Adopted Pursuant to Section 202 of

the Telecommunications Act of 1996,

29 FCC Rcd. 4371 (2014) .......................................17

III

TABLE OF AUTHORITIES

(continued)

Page(s)

In the Matter of 2014 Quadrennial Regulatory

Review—Review of the Commission's

Broadcast Ownership Rules and Other

Rules Adopted Pursuant to Section 202 of

the Telecommunications Act of 1996,

32 FCC Rcd. 9802 (2017) ...............................passim

In the Matter of Amendment of Section

73.3613 of the Commission’s Rules

Regarding Filing of Contracts,

33 FCC Rcd. 10381 (2018) .....................................17

In the Matter of Annual Assessment of the

Status of Competition in the Market for the

Delivery of Video Programming ,

32 FCC Rcd. 568 (2017) ...................................... 6, 7

In the Matter of Review of the Commission’s

Regulations Governing Television

Broadcasting,

14 FCC Rcd. 12903 (1999) .............................. 18, 19

USA Station Group Partnership of Atlanta v.

Community Cable Television ,

15 FCC Rcd. 6279 (2000) .........................................5

Steven Waldman, The Information Needs of

Communities, Federal Communications

Commission (July 2011) .......................... 16, 20, 21

U.S. Gov’t Accountability Office, GAO-10-369,

Media Programming: Factors Influencing

the Availability of Independent

Programming in Television and

Programming Decisions in Radio (2010)................7

STATEMENT OF INTEREST1

Gray Television, Inc. (“Gray”) is a national

television broadcast company headquartered in

Atlanta, Georgia.

Gray owns or operates 162

television

stations

that

collectively

reach

approximately 24% of U.S. television households in 93

Designated Market Areas (“DMAs”), as defined by The

Nielsen Company.2 While Gray owns stations in

markets as large as Tampa, Florida (DMA #12 of 210),

its stations are primarily concentrated in small and

mid-sized markets across the country, with the

1

No counsel for a party authored this brief in whole or in part,

and no person other than amicus or its counsel made a monetary

contribution to this brief’s preparation and submission. All

parties were provided notice of this filing 10 days before its due

date and have consented to this filing. Undersigned counsel

previously represented Cox Media Group (“CMG”), a broadcaster

and an intervenor below and, by default, a respondent

here. CMG did not participate on the merits below and informed

this Court and all counsel of record that it will not participate in

this case. Undersigned counsel does not currently represent

CMG in this case.

2

See The Nielsen Company, Local Television Market Universe

Estimates (2019–2020), https://www.nielsen.com/wp-content/

uploads/sites/3/2019/09/2019-20-dma-ranker.pdf. For reference,

the top ranked DMA is New York City, with 6,824,120 television

households. The tenth ranked DMA is Atlanta, with 2,269,270

households. The top 27 DMAs have more than 1,000,000

households each. DMAs 28–59 have between 500,000 and

1,000,000 households each. DMAs 60–105 have between 250,000

and 499,999 households each. DMAs 106–164 have between

100,000 and 249,999 households each. And DMAs 165–210 have

fewer than 100,000 households each, with Glendive, Montana

ranked DMA #210, with 3,630 households.

2

majority in markets with fewer than 500,000

television households.

Gray has a substantial interest in the two

petitions because, as a national broadcast company,

its business is governed by the media ownership

regulations

promulgated

by

the

Federal

Communications Commission (“FCC”). Gray has

advocated for relief from the FCC’s outdated

ownership rules for a decade. In comments and ex

parte letters, Gray has repeatedly explained to the

FCC why permitting duopolies in small and mid-sized

markets would improve service to the public and help

stations maintain their financial health in an

environment of accelerating competition. Gray raised

these same points in comments that it submitted in

the FCC proceeding that generated the 2017 revisions

to station ownership rules, which were reversed by the

decision of the U.S. Court of Appeals for the Third

Circuit below.

Gray also has an interest in the petitions because

it is directly affected by the decades-old ownership

rules that the FCC seeks to modernize, but that were

effectively reinstated by the Third Circuit’s decision.

Those obsolete rules directly impede Gray’s business

strategy for competing in today’s media environment,

which is to acquire leading television stations in small

and mid-sized markets, improve and expand their

local programming, and then acquire a second station

in those markets to obtain greater local scale and

spread costs among multiple stations.

3

SUMMARY OF ARGUMENT

Local television stations were once at the center

of broadcast media and entertainment in the United

States, but recent decades brought a proliferation of

competition from the Internet and other modern forms

of media and programming. With Americans able to

consume media from so many new sources unavailable

in past eras, television audiences in small and midsized markets have fragmented while the costs of

producing local news have exploded, saddling

television stations with more expenses and less

revenue. New business models—like the strategy

adopted by Gray—leverage national and local

economies of scale to re-invigorate local television in

small and mid-sized markets, along with the stations’

local news operations, all of which benefits the public

interest. But the FCC’s long-outdated ownership

rules, adopted at a different time to regulate a

different broadcast market, prevent these new

business models from achieving their full promise.

The FCC recognized that the time had come to

update those regulations and took critical steps to do

so in the 2017 regulations. But the Third Circuit,

which has repeatedly stood in the way of the FCC’s

modernization efforts, once again invalidated the

FCC’s new rules.

The Third Circuit’s ruling

significantly hinders further investment and

expansion of local news production in small and midsized markets to the detriment of the millions of

Americans who live in those cities and towns. The

Court should grant the petitions and reverse the Third

Circuit’s decision.

4

ARGUMENT

Petitioners explain how the Third Circuit’s

decision in this case conflicts with Section 202(h) of the

Telecommunications Act of 1996, Pub. L. No. 104-104,

§ 202(h), 110 Stat. 56 111-12 (1996). Gray agrees with

those arguments and will not repeat them here.

Instead, Gray submits this brief to explain the realworld harms that result from the Third Circuit’s

decision, which demonstrate the urgent need for this

Court’s review.

I.

Gray’s Business Model Is To Improve And Expand

Local News Coverage Through Increased

Investment Allowed By Economies of Scale.

Gray’s core business strategy depends on

leveraging its national scope to acquire leading local

television stations in small and mid-sized markets,

and then invest in, expand, and modernize those

stations’ newsgathering and reporting capabilities.

When possible, Gray also seeks to acquire a second

television station in each local market to take

advantage of economies of scale and spread its high

fixed costs across two stations.

Moreover, by

associating the local brand of the leading station in the

market with the second-acquired station and

promoting Gray’s programming across both stations,

Gray elevates the profile of the second station and

both stations achieve higher ratings than either could

on its own.

Gray has achieved great success with this

approach, realizing increased revenue and improving

local news coverage across the country. But the FCC’s

outdated rules regulating ownership of television

5

stations—originally adopted in 1941—present an

enormous obstacle to Gray’s ability to compete in the

vastly changed modern media landscape. The Third

Circuit’s decision preventing the FCC from

modernizing those rules has a serious and negative

effect on Gray’s model, with harmful consequences for

the development of local news programming in small

and mid-sized markets.

A. The Economics of Local Television.

Federal law provides the FCC the power to grant

broadcast licenses to television stations, with only a

limited number of licenses available in any one

geographic area. See 47 U.S.C. §§ 308, 309; 47 C.F.R.

§ 73.622. Each commercial television station in the

United States is assigned to a community located in

one of 210 Designated Market Areas (“DMAs”) defined

by The Nielsen Company. 3 These markets are ranked

by size according to the number of television

households they contain, with the market having the

most ranked 1 (New York City) and the market having

the fewest ranked 210 (Glendive, Montana). 4 Each

DMA is an exclusive geographic area consisting of all

counties (and in some cases, portions of counties) in

which the home-market commercial television

stations receive the greatest percentage of total

viewing hours. See USA Station Group Partnership of

Atlanta v. Community Cable Television , 15 FCC Rcd.

6279, 6279, ¶ 2 (2000).

Television station revenue is derived primarily

from two sources: (1) local, regional, and national

3

4

See The Nielsen Company, supra note 2.

See The Nielsen Company, supra note 2.

6

advertising and (2) retransmission consent fees. See

In the Matter of Annual Assessment of the Status of

Competition in the Market for the Delivery of Video

Programming, 32 FCC Rcd. 568, 609, ¶ 103 (2017)

(“2017 Video Competition Report”). First, advertising

revenue

mainly

consists

of

payments

for

advertisements broadcast by television stations. See

id. at 616, ¶¶ 120–21. Advertising rates are generally

based on the size of the audience generated by a

particular program aired on a particular station. See

id. at 609, ¶ 103. With smaller populations and

therefore fewer viewers, smaller markets necessarily

generate less advertising revenue than larger

markets.

In the Matter of 2014 Quadrennial

Regulatory Review—Review of the Commission's

Broadcast Ownership Rules and Other Rules Adopted

Pursuant to Section 202 of the Telecommunications

Act of 1996, 32 FCC Rcd. 9802, 9835–36, ¶ 77 (2017)

(“2017 Reconsideration Order”). Thus, purchasing or

producing the highest rated programming with the

largest number of viewers is crucial to the success of

small-market television stations.

The

second

major

source

of

revenue,

retransmission consent fees, consists of payments by

multichannel

video

programming

distributors

(“MVPDs”)—e.g., cable and satellite television

companies—in exchange for a television station’s

permission for an MVPD to retransmit the station’s

signal to its paying subscribers.

2017 Video

Competition Report at 618, ¶ 124. Retransmission

consent rates are largely driven by affiliation with one

of the “Big 4” television networks (ABC, CBS, FOX,

and NBC) and, to a lesser extent, the local ratings of

7

an individual television station. 2017 Reconsideration

Order at 9836, ¶ 77. Because retransmission consent

rates are paid on a per-subscriber basis, smaller

markets necessarily generate less retransmission

consent revenue than larger markets.

The two types of programming most likely to drive

a station’s audience ratings higher, and thus increase

station revenues, are affiliation with a Big 4 network

and building a strong local news brand. 2017 Video

Competition Report at 614, ¶ 117 (comparing ratings

of network-affiliated stations to independent stations);

Pew Research Center, For Local News, Americans

Embrace Digital But Still Want Strong Community

Connection 4 (Mar. 26, 2019) (“2019 Pew Report”)

(“Local TV stations are turned to most for local news,

primarily through the TV set; most other providers

have larger digital share”);5 U.S. Gov’t Accountability

Office, GAO-10-369, Media Programming: Factors

Influencing the Availability of Independent

Programming in Television and Programming

Decisions in Radio 19–20 (2010).

At the same time, it is resource intensive to

purchase Big 4 network programming and to produce

local news, requiring substantial capital investment

and ongoing operating expenses.

See 2017

Reconsideration Order at 9836, ¶ 77, n.229 (“In

5

Available at https://www.journalism.org/2019/03/26/for-localnews-americans-embrace-digital-but-still-want-strongcommunity-connection/. While this Pew publication shows

declining ratings for local television news in the past year, local

news remains more highly rated than non-network, non-news

programming.

8

particular, the record suggests that local news

programming is typically one of the largest

operational costs for broadcasters; accordingly,

stations may find that common ownership enables

them to provide more high-quality local programming,

especially in revenue-scarce small and mid-sized

markets.” (citing Letter from Robert M. McDowell,

Counsel to Gray Television, Inc., to Marlene H.

Dortch, Secretary, FCC, MB Docket No. 14-50, et al.,

at 3–4, 7–8 (June 28, 2017) (“2017 Ex Parte Letter”));

see also Adam Jacobson, Retransmission Consent

Revenue: An 11% Growth Engine , Radio+Television

Business Report (July 30, 2019). 6 Networks charge

local stations substantial programming fees for

network affiliation. Id. And local news production

requires capital spending for facilities and equipment

and continued expenses for talent and news

production, making such production one of

broadcasters’ largest operational costs.

2017

Reconsideration Order at 9836, ¶ 77.

The challenge of operating a profitable television

station in small and mid-sized markets is that the

station owner must find a way to afford the expenses

of operating a top-rated station despite the fact that

the station will necessarily generate smaller revenues

than its larger-market counterparts.

B. Gray’s Business Strategy.

Gray’s business strategy is to acquire the leading

station in a small or mid-sized market and, through

heavy investment, expand and improve local news

6

Available at https://www.rbr.com/retransmission-consentrevenue-an-11-growth-engine/.

9

programing in that market. Often the top-rated

station in its market—especially in smaller markets—

has held that position for decades, and the former

owner has ceased investing in that station. Once Gray

acquires the station, it purchases new, state-of-the-art

broadcast equipment and modernizes the workforce to

increase efficiency and profitability.

Gray also

expands the station’s local news programming, which

typically includes hiring more journalists and news

producers. With that leading station as a beachhead,

Gray acquires a second station in the same market—

usually

one

that

is

undervalued

and

underperforming—and

invests

the

resources

necessary to transform it into another top station.

Often the second station airs little or no local news

programming before Gray acquires it. In these

situations, Gray’s top station will share its news

programming with the second station, expanding local

news available in the market. Gray’s top-rated station

will heavily promote the availability of expanded news

programming on both stations to drive higher ratings.

Through this strategy, Gray acquires and converts

stations that were providing limited or no news and

public affairs programming into local-market news

leaders. Gray thereby both improves the stations’

profitability and creates an important community

resource that was previously lacking.

Gray’s strategy has been extremely successful. In

2019, Gray’s stations were the top-ranked stations in

68 of Gray’s 93 markets and claimed one of the top two

spots in 86 of those markets. At a time when local

newspapers and radio stations continue to shrink the

amount of local news they provide—particularly in

10

small markets—the public services that Gray’s

stations provide are increasingly critical to viewers’

ability to stay informed.

An example of Gray’s substantial investments in

smaller markets is WCJB TV20, which provides

coverage to the Gainesville, Florida DMA and to

Marion and Columbia Counties in North Central

Florida, located in the Orlando and Jacksonville

DMAs, respectively. Gray acquired WCJB in 2017.

For decades WCJB has been the dominant market

leader in Gainesville, yet soon after acquiring it, Gray

invested more than half a million dollars in improving

and expanding the station’s local news coverage. As a

direct result of those investments, WCJB has (among

other things) enlarged its Marion news bureau from

300 to 2,000 square feet, built a state-of-the-art news

set with a nine-screen video array behind the anchor

desk, and acquired new studio cameras and livebroadcast equipment (including four transmitters, two

receivers, and several remote workstations), and an

upgraded weather system with new local weather

cameras.

Gray immediately more than doubled

WCJB’s ability to conduct live broadcasts, allowing

the station to broadcast four live shots in four different

locations in one show. WCJB also invested in its staff,

hiring an additional live reporter to its morning show

team, creating new digital executive producer and

promotions producer positions, and adding shifts for

digital-dedicated producers. WCJB is planning to add

additional reporter positions in the near future. With

Gray’s resources, WCJB raised its employees’ salaries

across the board, including a 20% higher starting pay

for new reporters. These improvements have allowed

11

WCJB to provide a better, more comprehensive local

news product, and made WCJB a must-carry on cable

and satellite providers because of increased ratings.

Of the many local news operations that Gray has

launched or vastly improved following station

acquisitions, other examples also stand out:



Gray acquired two local television stations in

Roanoke, Virginia: WDBJ in 2016 and WZBJ in

2018. WDBJ has been the clear market leader

for most of its history. In contrast, WZBJ was

an afterthought and barely achieved any

ratings. Gray was only able to acquire WZBJ

because the FCC relaxed its local ownership

rules in the 2017 Reconsideration Order. Since

those purchases, Gray has added 15 hours per

week of local news on WDBJ and 18.5 hours per

week on WZBJ, which has turned WZBJ into a

true market competitor.



In 2016, Gray acquired KWCH and KSCW in

Wichita, Kansas. KWCH was the unquestioned

market leader in Wichita. Meanwhile, Gray

was able to acquire KSCW pursuant to a special

FCC failing station waiver. Since then, Gray

has added 17.5 hours of local news per week to

both stations. The stations have further grown

their viewership since Gray purchased them.

Gray’s television stations do not just cover the

news, they excel in the effort. In 2020, Gray’s stations

won 49 Regional Edward R. Murrow Awards for

excellence in journalism, including two stations—

WVLT in Knoxville, Tennessee and KFVS in Paducah,

Kentucky—that were recognized for overall excellence

12

in local journalism. 7 In 2019, Gray’s stations won 57

Murrow Awards. 8 Also in 2019, Gray’s WCTV in

Tallahassee, Florida won the prestigious NAB

Leadership Foundation Service to America Award for

coverage of the devastation wrought by Hurricane

Maria in Puerto Rico. 9 Gray’s investigative journalism

initiative, InvestigateTV—in which each of Gray’s

stations participates—was awarded two national

Headliner Awards in 2019, one for reporting on the

opioid crisis and another for investigative reporting on

the health and environmental effects of nuclear

7

Gray Television, Inc., RTDNA Awards 4 Regional Edward R.

Murrow Awards to 21 Gray Television Stations, 1–2 (May 13,

2020), https://graytv.gcs-web.com/static-files/effff5ea-2162-4755b44a-a072c808c4f6.

8

Gray Television, Inc., Gray Television’s Stations Awarded for

Commitment to Excellence in Local Journalism With 57 Regional

Edward R. Murrow Awards in 23 Gray Markets, GlobeNewswire

(April

24,

2019),

https://www.globenewswire.com/newsrelease/2019/04/24/1808611/0/en/Gray-Television-s-StationsAwarded-for-Commitment-to-Excellence-in-Local-JournalismWith-57-Regional-Edward-R-Murrow-Awards-in-23-GrayMarkets.html.

9

Gray Washington News Bureau., Gray Stations Honored at

Service to America Awards in DC (June 12, 2019),

https://www.graydc.com/content/news/Gray-stations-honored-atService-to-America-awards-in-DC-511195281.html.

13

weapons storage.10 Further, Gray’s New Orleans

station, WVUE, was honored by the Society of

Professional Journalists for its documentaries,

investigative

reporting,

and

public

service

11

journalism. The list of accolades grows annually as

Gray continues to invest in and improve local news

programming all over the nation.

Gray’s commitment to top-flight journalism is

recognized by local leaders. For example, on April 15,

2020, Governor Asa Hutchinson of Arkansas wrote to

the staff of KAIT-TV in Jonesboro, Arkansas to thank

the station for its coverage of a recent tornado.

Governor Hutchinson’s letter stated, “[b]ecause of

your keen understanding of Arkansas’ weather

patterns and knowledge of your community, you

undoubtedly saved lives during last month’s tornado

that was a direct hit to the City of Jonesboro.” 12

Gray’s investments in increasing and improving

local news programming are made possible through

10

Gray Television, Inc., Gray’s InvestigateTV Receives Two

First Place National Headliner Awards, GlobeNewswire (April

22,

2019),

https://www.globenewswire.com/news-release/

2019/04/22/1807332/0/en/Gray-s-InvestigateTV-Receives-TwoFirst-Place-National-Headliner-Awards.html.

11

Gray Television, Inc., WVUE Receives Three Sigma Delta

Chi Awards from The Society of Professional Journalists, 1 (April

29,

2019),

https://gray.tv/uploads/documents/pressreleases/

Press%20Release%20re%20SPJ%20Awards.pdf.

12

Glen Hale, Gov. Hutchinson Thanks Region 8 News for

Tornado

Coverage,

KAIT8

(May

18,

2020),

https://www.kait8.com/2020/05/18/gov-hutchinson-thanksregion-news-tornado-coverage/.

14

the economies of scale and scope that come from

operating a television business that is far larger than

any single market.

Given the limited revenue

potential of the small and mid-sized markets where

Gray operates, the company can support such highquality local journalism only if it is permitted to build

scale on both a national and a local basis.

Gray builds national scale by acquiring a large

number of stations in a large number of markets. The

revenue enables Gray to invest in its stations. As

newly acquired stations improve their performance,

they fund additional acquisitions, resulting in

additional opportunities for Gray to acquire and

improve stations across the country. Gray also builds

national news scale through maintenance of its

Washington News Bureau, which provides relevant

national news content to all Gray stations, and

InvestigateTV, which produces in-depth investigative

journalism addressing matters of national importance

and is distributed by Gray stations nationwide. 13 Gray

accordingly can spread its national newsgathering

costs across its entire station footprint, significantly

reducing costs for each individual station.

13

See Gray Television, Inc., Gray Announces Opening of

Washington, D.C. News Bureau to Deliver Hyper-Local Coverage

and Analysis of National Issues, Cision PR Newswire (Feb. 2,

2015),

https://www.prnewswire.com/news-releases/grayannounces-opening-of-washington-dc-news-bureau-to-deliverhyper-local-coverage-and-analysis-of-national-issues300028654.html; Gray Television, Inc., supra note 10 (describing

InvestigateTV initiative).

15

Gray builds local scale by, where possible, buying

more than one television station in a given market.

This allows Gray to fund its investment in local service

using two or more local or regional revenue streams.

Gray also builds local scale by buying stations in

adjacent markets and creating regional news bureaus

to create content for local stations in multiple

markets. Spreading these costs among multiple

stations reduces the allocated cost for each station.

Gray’s business strategy advances the significant,

recognized public interest in improving local television

service, particularly news and public affairs

programming. See, e.g., In the Matter of 2002

Biennial Regulatory Review—Review of the

Commission’s Broadcast Ownership Rules, 18 FCC

Rcd. 13620, 13644, ¶ 79 (2003) (“We agree that the

airing of local news and public affairs programming by

local television stations can serve as a useful measure

of a station's effectiveness in serving the needs of its

community.”).

For example, an industry expert

appointed by the FCC noted that:

Despite the industry’s problems, the best

of the local TV stations are still

producing

high-quality

broadcast

journalism of tremendous value to the

community—while reaching a far

broader audience than newspapers in

terms

of

size,

diversity,

and

socioeconomic status.

It is hard to

overstate the importance and value of

these broadcasts. During emergencies,

the local TV station is often considered to

be as vital a part of the local community

16

as the police and fire departments, and

despite cutbacks most local TV reporters

and managers believe they still are able

to excel in the midst of a crisis.

Waldman, The Information Needs of

Communities, Federal Communications Commission

Steven

79 (July 2011) (“Waldman”).14 Local news continues to

provide the important public service of informing the

American citizenry of critical current events, and it

remains the most popular way for individuals to

access the news. See 2019 Pew Report at 4 (“Even as

the preference for digital delivery creeps up on that for

news via TV, local television stations retain a strong

hold in the local news ecosystem. They top the list of

nine types of local news providers, with 38% of U.S.

adults saying they often get news from a local

television station.”).

Gray has replicated this strategy in dozens of

markets across the United States and is eager to

execute it in additional markets. Unfortunately, the

FCC’s outdated ownership rules, now reinstated by

the Third Circuit’s decision below, substantially limits

Gray’s ability to grow the local scale necessary to

continue its investments.

C. The FCC’s Duopoly Rule.

Since the dawn of broadcasting in the 1930s, the

FCC has sought to limit the ownership of television

stations that broadcasters can own on the national

14

Available at https://transition.fcc.gov/osp/inc-report/The_

Information_Needs_of_Communities.pdf.

17

and local levels. See In the Matter of Amendment of

Section 73.3613 of the Commission’s Rules Regarding

Filing of Contracts, 33 FCC Rcd. 10381 (2018). In

creating and maintaining these restrictions, the FCC

reasoned that structural ownership limitations were

necessary to preserve localism, diversity of ownership,

and competition in local television markets. See In the

2014 Quadrennial Regulatory Review—Review of the

Commission's Broadcast Ownership Rules and Other

Rules Adopted Pursuant to Section 202 of the

Telecommunications Act of 1996 , 29 FCC Rcd. 4371,

4377, ¶ 14 (2014) (“The media ownership rules have

consistently been found to be necessary to further the

Commission’s longstanding policy goals of fostering

competition, localism, and diversity.”).

On a local basis, the FCC maintains a Local

Television Ownership Rule that limits the number of

television stations that an entity can own. See 47

C.F.R. § 73.3555. 15 Although the FCC has repeatedly

attempted to modernize that rule, the Third Circuit

has consistently rejected the agency’s efforts, to the

substantial detriment of the local communities

affected by the Third Circuit’s decisions.

The FCC adopted its first limitation on local

television

ownership

in

1941.

Federal

Communications Commission, “Part 4—Broadcast

15

In addition, on a national basis, the FCC maintains a cap on

the percentage of national television households any single owner

of television stations can reach. That rule does not significantly

affect Gray’s efforts to acquire television stations in small and

mid-sized markets, and it was not part of the proceeding that led

to the Third Circuit’s decision in this case.

18

Services Other Than Standard Broadcast,” 6 Fed. Reg.

2282, 2284–2285 (May 6, 1941) (“1941 FCC Report”).

Dubbed the “one to a market” rule, it prohibited a

single owner from acquiring more than one full-power

television station in any television market. Id. That

remained the rule for nearly sixty years, until 1999,

when the FCC modestly relaxed the rule to allow an

entity to own a second television station in a market

if: (1) at least one of the stations was not ranked in the

top four (the “Top 4 Test”), and (2) at least eight

“independent voices”— i.e., independently-owned fullpower television stations—remained in the DMA after

consummation of the transaction (the “Eight Voices

Test”). In the Matter of Review of the Commission’s

Regulations Governing Television Broadcasting , 14

FCC Rcd. 12903, 12932–33, ¶ 64 (1999). Unless

prospective station owners could satisfy these two

tests, they were generally prohibited from acquiring a

second station in a DMA, a regulatory hurdle that

became known as the “Duopoly Rule.”

The Duopoly Rule included a waiver process by

which a station owner could apply for permission from

the FCC to acquire a second station in a DMA under

limited circumstances. Id. at 12936–41, ¶¶ 71–87.

Specifically, an owner may buy a second station in a

DMA if the target station is a “failed” station that has

not been in operation due to financial distress for at

least four consecutive months immediately prior to the

application, or is a debtor in an involuntary

bankruptcy or insolvency proceeding at the time of the

application. Id. at 12936–38, ¶¶ 71–77. In addition,

an owner can purchase a second station if the

acquisition target is a “failing” station that (1) has an

19

all-day audience share of no more than 4%; (2) has had

negative cash flow for three consecutive years

immediately prior to the application; and (3)

consolidation of the two stations would result in

tangible and verifiable public interest benefits that

outweigh any harm to competition and diversity. Id.

at 12938–40, ¶¶ 78–82.

Under this 1999 version of the Duopoly Rule,

ownership of more than one station in a television

market was limited to markets with at least nine fullpower television stations. Because the vast majority

of small and mid-sized markets have eight or fewer

stations, the 1999 Duopoly Rule still prohibited the

ownership of two full-power stations in most markets

outside the top 50 DMAs. Id. at 12935, ¶ 70. For

station owners like Gray that concentrate their efforts

in small and rural local markets, the modest changes

to the Duopoly Rule in 1999 effectively made no

difference. Except for the limited instances when a

failing station waiver allowed Gray to acquire a second

station in a few markets, the FCC’s ownership

limitations remained stalled in their 1941 form.16

When the “one to a market” rule was adopted,

television was in its infancy and radio was by far the

16

Since 2013, Gray has acquired seven stations under a failing

station waiver, despite a lack of eight independently owned

stations in those markets following the transaction. Before the

20

more popular form of broadcast media. 1941 FCC

Report at 2284–2285; see also Golden Age of Radio in

the US, Digital Public Library of America.17 Local

television stations, radio stations, and newspapers

provided the only sources of information and

entertainment for the majority of the population. See

Waldman at 59–60. While television eventually

eclipsed radio in audience and influence, this market

structure persisted well into the 1980s. See Radio

News Surpassed by TV in Survey , N.Y. Times (Sept.

1, 1984).18 Since the 1980s, local broadcast television

stations have faced an ever-growing onslaught of new

competitors. First cable operators introduced video

services that offered dozens, and later hundreds, of

new video channels. These niche channels—offering

24/7 sports, movies or national news programming—

began to fragment a video audience that had

previously belonged exclusively to broadcasters.

Waldman at 105.

Beginning in the late 1990s with the advent of

high-speed service connections, the Internet began

delivering countless channels of information to an

increasing number of households. Id. at 116. “Surfing

the Net” further diminished the pull of local television

and, as the Internet matured, websites like YouTube

began offering an endless supply of competitive video

2017 Reconsideration Order, the FCC never granted a waiver

allowing the purchase of a second Top 4 rated station in a market.

17

Available at https://dp.la/exhibitions/radio-golden-age/radiotv (last visited on May 18, 2020).

18

Available at https://www.nytimes.com/1984/09/01/arts/

radio-news-surpassed-by-tv-in-survey.html.

21

programming. Id. at 118, 164. Since 1980, primetime

television ratings have declined more than 70%. See

2017 Ex Parte Letter, at Exhibit A, Slide 9. For a

business that depends on selling advertising

measured by audience size, this decline has

irrevocably changed the competitive market in which

local television stations operate. Nonetheless, the

“one to a market” rule remained until the FCC

adopted the reforms under review in this case.

The Duopoly Rule remained essentially

unchanged until 2017, despite the fact that the

marketplace for local television service changed

dramatically during this time.

In its 2017

Reconsideration Order, the FCC revised the Duopoly

Rule both to eliminate the Eight Voices Test and to

permit station owners to apply for permission to own

two Top 4 stations in a market. 2017 Reconsideration

Order at 9831, ¶ 66. In reversing its 2016 decision to

retain the older version of the Duopoly Rule, the FCC

found that the older Rule failed to respond to

marketplace changes and failed properly to credit the

“importance of broadcast television stations in their

local markets.” Id. at 9832, ¶ 69. In particular, the

FCC found that marketplace changes and increasing

competition justified relaxing the rules to ensure that

broadcasters can compete fairly. Id. at 9833–34, ¶¶

71–72. While broadcast television retains a central

place in the local video market, the FCC recognized

that local broadcast station ownership does not justify

regulation that is otherwise unnecessary to promote

competition. Id.

With respect to the Eight Voices Test, the FCC

reasoned that retaining the rule was arbitrary

22

because there is nothing magic about the number

eight and because prohibiting duopolies in markets

with fewer stations “prevents combinations that

would likely produce significant public interest

benefits.” Id. at 9876, ¶ 8 (Appendix B). Moreover:

In multiple instances, the Commission

acknowledged the potential public

interest benefits of common ownership,

which potentially allow a local broadcast

station to invest more resources in news

or other public interest programming

that meets the needs of its local

community. We find that the Eight

Voices Test denies the public interest

benefits produced by common ownership

without any evidence of countervailing

benefits to competition from preserving

the requirement. Furthermore, these

markets—including many small and

mid-sized markets that have less

advertising revenue to fund local

programming—are the places where the

efficiencies of common ownership can

often yield the greatest benefits. Our

action in repealing the Eight-Voices Test

will enable local television broadcasters

to realize these benefits and better serve

their local markets. In particular, the

record suggests that local news

programming is typically one of the

largest

operational

costs

for

broadcasters; accordingly, stations may

find that common ownership enables

23

them to provide more high-quality local

programming, especially in revenuescarce small and mid-sized markets.

Id. at 9835–36, ¶ 77.

With respect to the Top 4 Test, the FCC found

that the potential competitive harms it was originally

intended to prevent would not occur in all markets and

that “the rule may prohibit combinations that do not

present public interest harms or that offer potential

public interest benefits that outweigh any potential

harms.” Id. at 9837, ¶ 79. Accordingly, the FCC

replaced the Top 4 Test with a case-by-case review of

proposed transactions to determine whether a Top 4

combination is in the public interest. Id.

The FCC enacted these revisions to the Duopoly

Rule in November 2017, finally recognizing that

marketplace changes had eliminated any justification

for the “one to a market” rule in small and mid-sized

markets. Unfortunately, in September 2019, the

Third Circuit reinstated the older version of the Rule

containing the Eight Voices and Top 4 Tests, and thus

effectively reverted the regulatory landscape to its

1941 form for small and mid-sized markets.

II. The Court Should Grant The Petitions Because

The Third Circuit’s Decision Creates Uncertainty

For Businesses Like Gray’s And Forestalls

Further Improvements To Local News Production

In Small And Mid-Sized Markets.

By repeatedly rejecting the FCC’s attempts to

modernize its ownership rules and effectively freezing

the Duopoly Rule in its 1941 form, the Third Circuit

has significantly impeded further expansion and

24

improvements in local news production by companies

like Gray. For example, following the FCC’s 2017

modernization of the Duopoly Rule, but before the

Third Circuit’s decision reversing those changes, Gray

was able to complete three transactions:



In 2018, Gray acquired WFFP-TV (now WZBJ)

from Morning Star Broadcasting, LLC. This

was Gray’s second full-power station in the

Roanoke-Lynchburg DMA, which has fewer

than eight independently owned stations.



As part of Gray’s merger with Raycom Media

in early 2019, the FCC approved Gray’s

ownership of two Top 4 combinations, in

Honolulu, Hawaii and Amarillo, Texas, and

the creation of a station combination in

Richmond, Virginia, which lacks eight

independently owned stations.



In 2019, Gray acquired Top 4 station

KDLT(TV) from Red River Broadcasting in

Sioux Falls, South Dakota, Gray’s second Top

4 station in that DMA, which was acquired

pursuant to the FCC’s now-suspended case-bycase review process for Top 4 combinations.

Gray has made substantial investments in those

stations, providing viewers in those DMAs with

comprehensive local news and public interest

coverage. But each of these local station combinations

would have violated the older version of the Duopoly

Rule that was reinstated by the Third Circuit, and

thus would not have been permitted by the FCC prior

to its modernization of that rule or under the Third

Circuit’s current ruling.

25

The Third Circuit’s decision calls into question the

viability of these acquisitions. While the FCC has not

yet suggested that it would force Gray to unwind any

of the three transactions it completed under the

modernized Duopoly Rule, as long as the 1941 form of

the Rule remains effectively reinstated in small and

mid-sized markets, Gray’s ability to continue owning

and operating these stations will be in doubt. Further,

Gray must obtain FCC approval of these combinations

when it seeks to renew its license to own each station,

and the FCC would need to approve any attempt by

Gray to sell these stations to another party as a

combination. These risks make investment in these

stations more difficult and uncertain, and undermine

the ability of Gray and companies like it to continue

investing in and expanding local news service.

The Third Circuit’s decision not only creates

uncertainty for Gray, but also prevents Gray from

implementing its business strategy in additional small

and mid-sized markets.

For example, Gray’s

acquisition of WCJB in Gainesville and subsequent

investments in that station (as discussed above) have

made WCJB into a ratings giant. The next logical step

for Gray would be to acquire a second station to

leverage its investments and take advantage of

economies of scale.

The Third Circuit’s ruling,

however, locks in place FCC rules that generally

prohibit Gray from further acquisitions in Gainesville.

Viewers in such small and mid-sized markets will thus

be deprived of the benefits of Gray’s investments and

its proven track record of improving news and public

service in local communities.

26

For the foregoing reasons, it is imperative that the

Court grant the petitions and reverse the Third

Circuit’s decision so that the FCC’s modernized

Duopoly Rule can take effect.

CONCLUSION

The Court should grant the petitions for writs of

certiorari.

Respectfully submitted,

KEVIN P. LATEK

ROBERT J. FOLLIARD III

GRAY TELEVISION, INC.

4370 Peachtree Rd., NE

Suite 400

Atlanta, GA 30319

(404) 266-8333

BARRETT J. ANDERSON

COOLEY LLP

4401 Eastgate Mall

San Diego, CA 92121

(858) 550-6000

DAVID E. MILLS

Counsel of Record

ELIZABETH B. PRELOGAR

ROBERT M. MCD OWELL

COOLEY LLP

1299 Pennsylvania Ave., NW

Suite 700

Washington, DC 20004

(202) 842-7800

dmills@cooley.com

Counsel for Amicus Curiae

May 20, 2020