Appendix — Federal Communications Commission v. Home Box Office, Inc.

Supreme Court brief1977

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Supre ne Court, U. 8.

FILED

| JUN 4

No. | 1977

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In the Supreme Court of the United States

8 Ooroser TRRN, 1976

7671724

FeperaL CoMMUNICATIONS COMMISSION, PETITIONER

Home Box Orion, Ino., ET At.

PETITIONER’S APPENDIX

WEENEER EK. HARTENBERGER,

General Counsel,

DANIEL M ARMSTRONG,

Associate General Counsel,

JACEK DAVID SMITH,

KEITH H. FAGAN,

Counsel,

Federal Communvcations Commission,

Washington, D.C. 20564.

INDEX TO APPENDICES

Appendix A: Opinion of the United States Court of Appeals

for the District of Columbia Circuit ....................

Appendix B: Special Concurring Opinion of Circuit Judge

Appendix C: First Report and Order of the Federal Com-

ee eee

Appendix D: Memorandum Opinion and Order Upon Recon-

sideration of the Federal Communications Commission

Appendix E: Second Report and Order of the Federal Com-

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Appendix F: Memorandum Opinion and Order Ta Re Home

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Appendix G: Judgment of the United States Court of Ap-

peals for the District of Columbia Circuit

Appendix H: Opinion of the United States Court of Appeals

for the District of Columbia Circuit on Motion for Stay

, 1. ee

Appendix I: Communications Act of 1934, as amended, 47

U.S.C. 151, 152(a), 153(a), 153(b), 307(b), 326 and

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219

247

Appendix A

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 75-1280 et al.

HoME Box OFFICE, INC., PETITIONER

FEDERAL COMMUNICATIONS COMMISSION and

UNITED STATES OF AMERICA, RESPONDENTS

PROFESSIONAL BASEBALL et al., INTERVENORS

Petitions for Review of Orders of the

Federal Communications Commission

Argued April 20, 1976

Decided March 25, 1977

SYLLABUS

These 15 consolidated cases challenge four orders of

the Federal Communications Commission which, taken

together, regulate and limit the program fare cablecast-

ers and subscription broadcast television stations may

offer to the public for a fee set on a per-program or per-

channel basis. Acting under its rulemaking authority,

the Commission in 1975 issued rules which prohibited

pay exhibition of: (1) feature films more than three,

but less than 10, years old; (2) specific sports events

(e. g., the World Series) shown on broadcast television

within the previous five years; (3) more than the mini-

mum number of non-specific (i. e., regular season) sports

events which had not been broadcast in any of the five

preceding years, and in some cases only half that num-

ber; and (4) all series programs (i. e., programs with in-

terconnected plot or substantially the same cast of prin-

cipal characters). In addition, the Commission prohibited

commercial advertising in conjunction with pay exhibi-

tion of programming and limited the overall number of

hours of pay operation which could be devoted to sports

and feature films to 90% of total pay operations. See

47 C. F. R. §§ 73.643, 76.225 (1975). By subsequent or-

ders in the same rulemaking, the series programming

restriction was removed and recordkeeping requirements

were imposed on feature film programming. The stated

purpose of these rules was to prevent competitive bidding

away of popular program material from the free televi-

sion service to a service in which the audience would

have to pay a fee to see the same material. Such com-

petitive bidding, or “siphoning,” is said to be possible

because the money received from pay viewers is signifi-

cantly more for some programs than money received

from advertisers to attach their messages to the same

material. For this reason, even a relatively small number

of pay viewers could cause a program to be siphoned re-

gardless of the wishes of a majority of its free viewers.

Held:

1. Review of the rulemaking record indicates that the

pay cable television regulations must be considered sepa-

rately from those regulating subscription broadcast tele-

vision. Because the Commission has exceeded its author-

ity over cable television in promulgating the pay cable

rules and because there is no evidence to support the

need for regulation of pay cable television, these rules

must be vacated. Pp. 29-67.

a. The Communications Act of 1934, 47 U.S.C.

§ 151 et seg., contains no provision expressly author-

izing the Commission to regulate cable television.

The Supreme Court has nonetheless sanctioned regu-

lation of cable television under § 2(a) of the Act, 47

U.S.C. 8 152 (a), but only where the ends to be

achieved were “long established” in the field of broad-

cast television or were “congressionally approved.”

See United States v. Midwest Video Corp., 406 U.S.

649, 667-668 (1972) ; United States v. Southwestern

Cable Co., 392 U.S. 157, 173-176 (1968). These

cases and considerations of administrative consist-

ency further indicate that in most instances the

proper test for Commission jurisdiction over pay

cable television is whether the ends proposed to be

achieved by Commission regulations are also well

understood and consistently held ends for which

broadcast television could be regulated. See United

States v. Midwest Video Corp., supra, 406 U.S. at

667-668 ; cf. Greater Boston Television Corp. v. FCC,

143 U.S.App.D.C. 383, 394, 444 F.2d 841, 852

(1970), cert. denied, 403 U.S. 923 (1971). See also

Hampton v. Mow Sun Wong, 426 U.S. 88, 116

(1976). Pp. 30-34.

b. Under the standard set out above, the Com-

mission has exceeded its jurisdiction and its rules

must be vacated as unauthorized by law insofar as

they regulate cable television. Pp. 34-48.

e. Even if the Commission had jurisdiction to

promulgate its anti-siphoning rules, there is no evi-

dence in the record supporting the need for regula-

tion. Consequently, the rules must be vacated since

a “regulation perfectly reasonable and appropriate

in the face of a given problem [is] highly capricious

if that problem does not exist.” City of Chicago v.

FPC, 147 U.S.App.D.C. 312, 323, 458 F.2d 731, 742

(1971), cert. denied, 405 U.S. 1074 (1972). Pp. 48-

60.

d. Moreover, although the Commission properly

recognized the need to balance the benefits of regu-

lation against the detriment to unfettered competi-

tion, it proceeded incorrectly. Contrary to the Com-

mission’s position, United States v. Southwestern

Cable Co., supra, does not sanction regulation of

cable television to prevent “unfair competition,” but

even if it did, the “unfairness” recognized in South-

western Cable is not present here. Moreover, the

balance between regulation and competition is not

to be resolved on the basis of legal precedent, but

by a considered decision uron the record in each

rulemaking. Pp. 60-67.

2. The cable television rules are inconsistent with the

First Amendment. Even though substantially similar

rules which applied to broadcast television were upheld

by this court in National Ass’n of Theatre Owners

(NATO) v. FCC, 136 U.S.App.D.C. 352, 420 F.2d 194

(1969), cert. denied, 397 U.S. 922 (1970), that case is

not controlling since “differences in the characteristics of

new media justify differences in the First Amendment

standards applied to them.” Red Lion Broadcasting Co.

v. FCC, 395 U.S. 367, 386 (1969). Pp. 67-83.

a. The constitutional question in NATO was

straightforward: whether a grant of a broadcast

license could be conditioned on terms which made

reference to the kind and content of programs being

offered to the public. Phrased this way, the question

was identical to that resolved in the affirmative over

25 years before NATO in National Broadcasting

Co. v. United States, 319 U.S. 190, 212-217, 226-

227 (1943). Although NATO did not itself cite

National Broadcasting Co., there was no need for it

to break new First Amendment ground and a read-

ing of NATO shows that it did not do so. The con-

flict among speakers using the electromagnetic spec-

trum which justified Commission regulation in

NATO and National Broadcasting Co. is absent

— . —

from cable television, however. For this reason, the

conventional justification for Commission regulation

of broadcast speakers cannot be applied to regulation

of cable television. Pp. 67-72.

b. The absence in cable television of the physical

limitations of the electromagnetic spectrum does not

automatically lead to the conclusion that no regula-

tion of cable television is valid under the First

Amendment. Because “the right of free speech * * *

does not embrace a right to snuff out the free speech

of others,” Red Lion Broadcasting Co. v. FCC, supra,

395 U.S. at 387, government may adopt reasonable

regulations separating broadcasters competing and

juterfering with each other for the same audience. In

determining whether such regulations comport with

the First Amendment, the proper test is that set out

in United States v. O’Brien, 391 U.S. 367, 377

(1968). Pp. 73-77.

e. Analysis of the Commission’s stated reasons for

promulgating the anti-siphoning rules indicates that

the rules are intended to remove a conflict between

those with and those without access to pay cable

television. This purpose is unrelated to the suppres-

sion of free expression as required by O’Brien. None-

theless, the rules are invalid because the record here

will not support the conclusion that there is in fact

conflict between these groups. Moreover, the re-

straints imposed by the rules are greater than neces-

sary to further any legitimate government interest,

and this overbreadth is not cured by the waiver pro-

visions associated with the rules since the procedures

established for obtaining a waiver are fundamentally

at odds with the standards set out in Freedman v.

Maryland, 380 U.S. 51 (1965). Pp. 77-83.

8. During the pendency of the rulemaking proceeding

before the Commission, and even after the rulemaking

record was supposed to be closed while the Commission

deliberated, there were numerous ex parte contacts made

between the parties to the rulemaking and various com-

missioners and Commission employees. Although this

court sua sponte ordered the Commission to prepare and

submit a list of all “ex parte presentations together with

the details of each,” it is still not possible to determine

the effect of such communications on the integrity of the

rulemaking. As a result, the elaborate public discussion

in the dockets here under review may be a sham and a

fiction. Our fundamental notions of judicial review re-

quire that reviewing courts have access to “the full ad-

ministrative record” that was presumably before an

agency when it exercised its discretion and promulgated

rules. See Citizens to Preserve Overton Park, Inc. v.

Volpe, 401 U.S. 402, 415-420 (1971). Where there have

been frequent ex parte contacts, it is simply not possible

to know the contents of the “full administrative record.”

Moreover, ex parte contacts violate fundamental notions

of fairness implicit in due process. Sangamon Valley

Television Corp. v. United States, 106 U.S.App.D.C. 30,

269 F.2d 221 (1959). For these reasons, it is impera-

tive that agency officials involved in the decisional proc-

ess of a rulemaking shun ex parte contacts on the sub-

ject matter of the rulemaking from the time a notice of

proposed rulemaking issues until a final decision in the

proceeding. If ex parte contacts nonetheless occur, the

substance of the contacts must be reduced to writing and

put in a public file. Pp. 84-101.

4. Rules substantially similar to the subscription

broadcast television rules were affirmed by this court

over six years ago in NATO v. FCC, supra. At that time

the Commission acted on an elaborate rulemaking record

containing data generated in trial operations of a sub-

scription broadcast station at Hartford, Connecticut. It

appears that few, if any, subscription stations have begun

operation in the interim. Accordingly, the best informa-

— —

—

tion available with respect to subscription broadcast tele-

vision is that reviewed in NATO, which has not been

called into question in the instant rulemaking. For this

reason, NATO requires affirmance of the rules promul-

gated in the dockets here under review to the extent

that such rules apply to subscription broadcast television,

subject, however, to further review upon completion of

additional hearings regarding e parte contacts as or-

dered herein. Pp. 101-104.

Remanded.

—

Notice: This opinion is subject to formal revision before publication

in the Federal Reporter or U.S. App. D.C. Reports. Users are requested

to notify the Clerk of any formal errors in order that corrections may be

made before the bound volumes go to press.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 75-1280

HoME Box OFFICE, INC., PETITIONER

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA, RESPONDENTS

PROFESSIONAL BASEBALL, et al., INTERVENORS

No. 75-1284

METROMEDIA, INC., PETITIONER

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA, RESPONDENTS

PROFESSIONAL BASEBALL, et al., INTERVENORS

10 11

No. 75-1342 No. 75-1496

UNITED ARTISTS CORPORATION AND

HOME Box OFFICE, INC., PETITIONER

METRO-GOLDWYN-MAYER INC., PETITIONERS

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA, RESPONDENTS

AMERICAN BROADCASTING COMPANIES, INC., et al.,

INTERVENORS

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA, RESPONDENTS

PROFESSIONAL BASEBALL, et al., INTERVENORS

No. 75-1358 No. 75-1555

8 MOTION PICTURE ASSOCIATION OF AMERICA, INC.,

ME FFICE, INC., P IONER

HOME Box OFFICE, , PETIT 1 —

FEDERAL COMMUNICATIONS COMMISSION AND | FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA, RESPONDENTS | UNITED STATES OF AMERICA, RESPONDENTS

CBS, INC., et al., INTERVENORS AMERICAN BROADCASTING COMPANIES, INC, et al.,

INTERVENORS

No. 75-1430

CoLUMBIA PICTURES INDUSTRIES, INC., et al., PETITIONERS No. 75-1785

0 NATIONAL ASSOCIATION OF BROADCASTERS, PETITIONER

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA, RESPONDENTS FEDERAL COMMUNICATIONS COMMISSION AND

PROFESSIONAL BASEBALL, et al., INTERVENORS UNITED STATES OF AMERICA, RESPONDENTS

No. 75-1788

AMERICAN BROADCASTING COMPANIES, INC.,

PETITIONER

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA, RESPONDENTS

No. 75-1807

CBS INC., PETITIONER

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA, RESPONDENTS

NATIONAL CITIZENS COMMITTEE FOR BROADCASTING,

INTERVENOR

No. 75-1869

NATIONAL BROADCASTING COMPANY, INC., PETITIONER

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA, RESPONDENTS

— ere. 8 we SES

No. 75-2129

CBS INC., PETITIONER

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA, RESPONDENTS

No. 75-2130

AMERICAN BROADCASTING COMPANIES, INC.,

PETITIONER

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA, RESPONDENTS

No. 75-2131

NATIONAL ASSOCIATION OF BROADCASTERS, PETITIONER

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA, RESPONDENTS

No. 75-2172

NATIONAL BROADCASTING COMPANY, INC., PETITIONER

FEDERAL COMMUNICATIONS COMMISSION AND

UNITED STATES OF AMERICA, RESPONDENTS

Petitions for Review of Orders of the

Federal Communications Commission

Argued April 20, 1976

Decided March 25, 1977

Simon H. Rifkind, of the bar of the Court of Appeals

of New York, pro hac vice, by special leave of court,

with whom Stuart Robinowitz, Bruce S. Kaplan, Harry

M. Plotkin, George H. Shapiro, Linda A. Cinciotta, Ronald

A. Cass, Susan P. Carr, and Moses Silverman were on

the brief, for petitioner in Nos. 75-1280, 75-1342, and

75-1358.

Robert W. Coll, with whom James A. McKenna, Jr.

and Steven A. Lerman were on the brief, for petitioner

in Nos. 75-1788 and 75-2130 and for intervenor American

Broadcasting Companies, Inc. in Nos. 75-1280, 75-1284,

75-1342, 75-1430, 75-1496, 75-1555, and 75-1358; also

argued for all broadcasters.

Arthur Scheiner, with whom Richard A. Solomon,

Robert D. Hadl, and Richard A. Moore were on the brief,

for petitioners in No. 75-1430.

Gerald Meyer, of the bar of the Court of Appeals of

New York, pro hac vice, by special leave of court, with

whom Lawrence S. Lesser was on the brief, for peti-

tioners in No. 75-1496.

Barry Gressman, Attorney, Deparment of Justice, with

whom Samuel R. Simon, Attorney, Department of Jus-

tice, was on the brief, for respondent United States of

America. Robert B. Nicholson, Attorney, Department of

Justice, entered an appearance for respondent United

States of America in No. 75-1785. Lee I. Weintraub,

Attorney, Department of Justice, entered an appearance

for respondent United States of America in No. 75-2172.

Carl D. Lawson, Attorney, Department of Justice, en-

tered an appearance for respondent United States of

America.

Daniel M. Armstrong, Associate General Counsel, Fed-

eral Communications Commission, with whom Ashton R.

Hardy, General Counsel, and Jack David Smith, Coun-

sel, Federal Communications Commission, and Frederick

W. Finn, Counsel, Cable Television Bureau, were on the

brief, for respondent Federal Communications Commis-

sion. Joseph A. Marino, Associate General Counsel, Fed-

eral Communications Commission, at the time the record

was filed, also entered an appearance for respondent

Federal Communications Commission.

Curtis T. White, with whom Frank W. Lloyd, III was

on the brief, for intervenor National Citizens Committee

for Broadcasting.

Thomas J. Dougherty and Preston R. Padden were on

the brief for petitioner in No. 75-1284.

John B. Summers and James J. Popham were on the

brief for petitioner in Nos. 75-1785 and 75-2131.

Sidney Schreiber and James Bouras were on the brief

for petitioner in No. 75-1555.

Joel Rosenbloom, Peter D. Bewley, Stephen A. Weis-

wasser, and Lowell B. Miller were on the brief for peti-

tioner in Nos. 75-1807 and 75-2129 and for intervenor

CBS Ine. in Nos. 75-1280, 75-1284, and 75-1358. J.

Roger Wollenberg entered an appearance for petitioner in

No. 75-1807.

Bernard G. Segal, Corydon B. Dunham, and Howard

Monderer were on the brief for petitioner in Nos. 75-

1869 and 75-2171.

Henry Geller filed a brief as amicus curiae urging

reversal in Nos. 75-1280, 75-1284, 75-1342, 75-1358, 75-

1430, 75-1470, 75-1496, and 75-1555.

Kenneth A. Cox, William J. Byrnes, and Raymond C.

Fay filed a brief on behalf of American Mothers Com-

mittee, Inc., et al., as amici curiae.

James F. Fitzpatrick and Frank G. Washington were

on the brief for intervenor Professional Baseball in Nos.

75-1280, 75-1284, 75-1358, 75-1430, and 75-1496.

James A. McKenna, Jr., Robert W. Coll, and Steven

A. Lerman entered appearances for intervenors Forward

Communications Corporation, et al., in Nos. 75-1280, 75-

1284, 75-1358, 75-1430, 75-1496, and 75-1555.

Arthur Scheiner entered an appearance for intervenor

Twentieth Century-Fox Film Corporation.

Before WRIGHT and MACKINNON, Circuit Judges, and

WEIGEL,” District Judge.

Ri. 1 —.— States District Court for the Northern

istrict o ifornia, sitting by designation

U.S.C. § 292(d) (1970). 2

— —

—

— — — A¶—ũ4ever1!1!ͤůłñĩũj—

PER CuURIAM:’ In these 15 cases, consolidated for pur-

poses of argument and decision, petitioners challenge

various facets of four orders of the Federal Communica-

tions Commission which, taken together, regulate and

limit the program fare “cablecasters” and “subscription

broadcast television stations“ may offer to the public

for a fee set on a per-program or per-channel basis.‘

The opinion in this case is issued as a per curiam, not be-

cause it has received less than full consideration by the court,

but because the complexity of the issues raised on appeal made

it useful to share the effort required to draft this opinion

among the members of the panel.

2 “Cablecasting” refers to the origination of programming

on a cable television system, in contradistinction to the re-

transmission of signals that have been received over the air

from conventional broadcast television stations. See 47 C. F. R.

88 76.5(v)-(x) (1975). The rules challenged here apply to

both “access” cablecasters, who lease (or are given) channel

time from cable system operators, id. § 76.5(x), and “origina-

tion” cablecasters, who are system operators, id. § 76.5(w).

Id. § 76.225. The rules challenged here apply only to cable-

casting on systems which also carry broadcast signals. See id.

§§ 76.5(a), 76.225. Although some petitioners have argued

that the rules should be extended to all cablecasters, we think

the Commission has given a rational basis for this distinction.

See First Report and Order, 52 FCC 2d 1, 47-48 (1975), JA

71-72.

* Subscription broadcast television stations are those with

the technical capability to broadcast programs “intended to

be received in intelligible form by members of the public only

for a fee or charge.” 47 C.F.R. § 73.641 (b) (1975).

¢ Jurisdiction over these petitions for review is based on 47

U.S.C. § 402 (1970) and 28 U.S.C. § 2342 (1970).

In addition to the four orders promulgating, modifying, or

refusing to waive the anti-siphoning“ rules, petitioner Home

Box Office, Inc. and amicus Henry Geller request that we

order the Commission to complete its “program exclusivity”

proceedings. “Program exclusivity” refers to an alleged

broadcast network practice of obtaining exclusive exhibition

Technically, the orders reviewed here amend previous,

more stringent, Commission rules.“ While this proce-

rights against cablecasters. This problem was apparent!

first brought to the attention of the Commission in 1971 pom

it issued a notice of proposed rulemaking at that time. See

Notice of Proposed Rule Making, 27 FCC 2d 18 (1971)

(Docket 18179). No further action appears to have been

taken in this docket. The issue was raised again in the pro-

ceeding here under review, Docket 19554. The issue was not

decided in the First Report and Order, supra note 2. Instead,

a “Notice of Inquiry” was issued, 52 FCC 2d 87 (1975), JA

111, establishing Docket 20402, a proceeding in which the issue

was to be resolved. Almost 18 months have passed since

issuance of this notice and over a year since the close of the

comment period. Yet we are unaware that any action has been

taken by the Commission. We agree with the Commission in

Docket 19554 that the use of exclusivity clauses “raise[s]

anti-trust questions,” Further Notice of Proposed Rule Making

and Order for Oral Argument, 48 FCC 2d 453, 462 n.16

(1974), JA 18. In view of this, and in view of the potentially

deleterious effect of exclusivity on the interest of viewers in

having the greatest possible access to diverse sources of in-

formation, we think the Commission should by now have

— ian ae Therefore, we today enter an

order “‘com ing] agency action * * * un

layed.” 5 U.S.C. 5 706 (1) (1970). Een

In FCC Docket 18397 rules originally develo for appli-

cation to subscription broadcast television were 5 *

cablecasting. 20 FCC 2d 201 (1969). Petitions for reconsid-

eration of this order were filed with the Commission by many

of the parties here. See Notice of Proposed Rule Making and

Memorandum Opinion and Order, 35 FCC 2d 893, 894 n.5

(1972), JA 2. These petitions were denied. Id. at 899, JA 7.

At the same time, however, the Commission instituted further

rulemaking with regard to pay cablecasting under new Docket

19554. In In re Home Bor Office, Inc., 51 FCC 2d 317 ( 1975)

JA 141, which is also on review here, the Commission took

the view that the rules adopted as a result of the rulemaking

in Docket 18397 were final and binding and would not be

waived. See 51 FCC 2d at 321, JA 145. We disagree with this

interpretation, however. See note 27 infra. 3

[continued]

— —— —

dural nicety has not gone unnoticed by those petitioners

who attack only the amendments to the rules on the

theory that they represent a major, but unexplained and

hence arbitrary, change of prior Commission policy,’ it

The subscription broadcast television rules were adopted by

the Commission in Docket 11279, see Fourth Report and

Order, 15 FCC 2d 466 (1968). These rules were affirmed by

this court in National Ass’n of Theatre Owners (NATO) v.

FCC, 186 U.S.App.D.C. 352, 420 F.2d 194 (1969), cert. denied,

397 U.S. 922 (1970). Subsequently the Commission enter-

tained petitions for amendment of its subscription television

and pay cable rules as they related to sports. Notice of Pro-

posed Rule Making, 35 Fep. REG. 11040 (1970) (Docket

18893). One order was entered in this docket, Report and

Order, 34 FCC 2d 271 (1972), which amended the subscription

television sports rule. Petitions for reconsideration were filed

in this proceeding, and consideration of these petitions was

granted and consolidated with the further consideration of pay

cable rules announced in Docket 19554. See Notice of Proposed

Rule Making and Memorandum Opinion and Order, supra, 35

FCC 2d at 898, JA 6. The rules promulgated in the First Re-

port and Order, supra note 2, constitute the Commission’s de-

cision on reconsideration of its earlier Report and Order in

Docket 18893. The First Report and Order terminated Docket

18893. See 52 FCC 2d at 68, JA 92. Subsequently, however,

the Commission issued its Second Report and Order in Docket

19554, —— FCC 2d ——, 35 P & F RADO REG. 2p 767 (1975),

JA 131, which repealed 47 C.F.R. § 76.225 (e), and the Com-

mission took the view in that Order that it could repeal the

equivalent subscription broadcast television section of its

regulations, 47 C.F.R. § 73.643 (g), as well. See FCC 2d

——, JA 139. Such an extension is technically in violation

of the Administrative Procedure Act, 5 U.S.C. 8 553 (b)

(1970), because the broadcast inquiry was terminated and

the Second Further Notice of Proposed Rule Making, 52 FCC

2d 83 (1975), JA 197, entered after the First Report, supra,

made no reference to broadcast television. No party has raised

an objection to this procedure, and we think that, given the

similarity of the issues and parties involved, this was harmless

error. Sec 5 U.S.C. § 706 (1970).

¢This group includes the major broadcast networks, the

National Association of Broadcasters, and one group of amici.

has largely escaped those who take the o ing vi

that any regulation exceeds the authority ‘of the —

mission.’ We accept neither view in full but instead up-

hold the orders challenged here insofar as they relate to

subscription broadcast television and vacate the orders

as arbitrary, capricious, and unauthori i

3 uthorized by law in all

I. THE FACTUAL BACKGROUND

At the heart of these cases are the Commission’s “pay

cable” rules, set out in the margin for convenience.“

This view is taken by the Justice De

‘his vi partment, th

— — producers of programs suitable — —

— er e or broadeast television, and a group of

* Cable television system o essee

le te perators or channel |

1 in origination or access cablecasting pectic - ome

— which a per- program or per channel charge is made

shall comply with the following requirements:

(a) Feature films shall : >t be cablecas

* * 2 g t b

— — —— to the mandatory * ——

é ents of Su D of thi

9 — of this Part 76, except as pro-

(1) A feature film may be cablecast if—

(i) The film has been in general release i

in th

anywhere in the United States for three (3) years — —

prior to its proposed cablecast;

(ii) A conventional television broadcast ion licensed

station |

in the marke b b at g. te bald apres

ual rig ibit the film. F

of this subdivision, a television station affiliated "with a

ae 3 be deemed to hold a present con-

t rig ibit a film i ich i

2 San if the network to which it

(iii) The film has been in general rel i

ease

anywhere in the United States for more 1

years prior to its proposed cablecast and the film has not

been exhibited in the market of the cable television system

over conventional television for three (3) years prior to

its proposed cablecast. Once a film has been cablecast in

the market pursuant to this subdivision, or broadcast on

a subscription basis pursuant to § 73.643 (a) (1) (iii), such

film may thereafter be cablecast in the market without

regard to its subsequent exhibition over conventional

television ;

(iv) The film is in a foreign language;

(2) Feature films otherwise excluded by this para-

gIrlaph may be cablecast upon a convincing showing to

the Commission that they are not desired for exhibition

over conventional television in the market of the cable

television system, or that the owners of the broadcast

rights to the films, even absent the existence of sub-

scription television, would not make the films available

to conventional television.

(3) Every cable television system operator or channel

lessee engaging in origination or access cablecasting pur-

suant to this paragraph shall maintain, or cause to be

maintained, for public inspection a file listing the title

of the film, the date on which it was cablecast and the

provision of this paragraph pursuant to which it was

cablecast. When a feature film is cablecast pursuant

to paragraph (a) (1) (ii) of this section, the station or

network serving the market and holding a present con-

tractual right to exhibit the film shall be specified. These

files shall be retained for a period of two years.

(b) Sports events shall not be cablecast live by a cable

television system subject to the mandatory signal car-

riage requirements of Subpart D of Part 76, except as

provided in this paragraph.

(1) A specific event may be cablecast if the event has

not been broadcast live over conventional television in the

market of the cable television system during any one of

the five (5) seasons preceding the proposed cablecast.

If a regularly recurring event takes place at intervals

of more than one year (e.g., summer Olympic games),

the event shall not be cablecast if it has been broadcast

live over conventional television in the market during

any one of the ten (10) years preceding the proposed

cablecast.

(2) New specific sports events that result from the

restructuring of existing sports shall not be cablecast

until five (5) seasons after their first occurrence. There-

after, subscription cablecasts shall be governed by para-

graph (b) (1) of this section.

(3) The number of non-specific events which may be

cablecast in any given season shall be determined as

follows:

(i) If less than twenty-five (25) percent of the events

in a category of non-specific events were broadcast live

over conventional television in the market of the cable

television system during each of the five (5) seasons pre-

ceding the proposed cablecast, the number of events in

the category cablecast shall not exceed the number of

events in the category not broadcast in that season among

the preceding five (5) seasons when the largest number

of events in the category were broadcast.

(ii) If twenty-five (25) percent or more of the events

in a category of non-specific events were broadcast live

over conventional television in the market of the cable

television system during any one of the five (5) seasons

preceding the proposed cablecast, the number of events

in the category cablecast shall not exceed fifty (50) per-

cent of the number of events in the category not broad-

cast in that season among the preceding five (5) seasons

when the largest number of events in the category were

broadcast. However, if the number of events in the cate-

gory to be broadcast in the current season is a reduction

from the number of events broadcast in that season

among the preceding five (5) seasons when the largest

number of events in the category were broadcast, the

number of events in the category which may be cablecast

pursuant to this subparagraph shall be reduced in pro-

portion to the reduction in events broadcast.

cablecast programming hours shall consist of feature films

and sports events combined. The percentage calculations

may be made on a yearly basis, but absent a showing

of good cause, the percentage of such programming hours

— ene ae

The effect of these rules is to restrict sharply the ability

of cablecasters to present feature film and sports pro-

grams if a separate program or channel charge is made

for this material. In addition, the rules prohibit cable-

casters from devoting more than 90 percent of their

cablecast hours to movie and sports programs and fur-

ther bar cablecasters from showing commercial advertis-

ing on cable channels on which programs are presented

for a direct charge to the viewer.’ Virtually identical

restrictions apply to subscription broadcast television.“

may not exceed ninety-five (95) percent of the total cable-

cast programming hours in any calendar month.

(d) No commercial advertising announcements shail

be carried on subscription channels during such opera-

tions except before and after such programs for promo-

tion of other programs for which a per-program or per-

char nel charge is made.

47 C.F.R. § 76.225 (1975), as amended by Second Report and

Order, supra note 5.

* Commercial advertising on I — 1 —

f bscription cablecasting was also, at one time, restric

by the —— See 47 C. F. R. § 74.1117 (1969), deleted,

39 FED. REG. 43310 (1974).

1% Subscription television broadcast programming shall

comply with the following requirements:

(a) Feature films shall not be broadcast except as pro-

vided in this paragraph.

(i) A feature film may be broadcast if —

(i) The film has been in general release in theaters

anywhere in the United States for three (3) years or less

prior to its proposed broadcast;

(ii) A conventional television broadcast . station li-

censed in the market of the subscription television broad-

cast station holds a present contractual right to exhibit

the film. For purposes of this subdivision, a television

station affiliated with a television network will be deemed

to hold a present contractual right to exhibit a film if the

network to which it is affiliated holds such a right;

(iii) The film has been in general release in theaters

anywhere in the United States for more than ten (10)

years prior to its proposed subscription broadcast and

the film has not been exhibited over conventional tele-

vision in the market of the subscription television broad-

cast station for three (3) years prior to its proposed

subscription broadcast. Once a film has been broadcast

in the market pursuant to this subdivision or cablecast on

a subscription basis pursuant to 8 76.225 (a) (1) (iii), such

film may thereafter be broadcast on a subscription basis

in the market without regard to its subsequent exhibition

over conventional! television;

(iv) The film is in a foreign language;

(2) Feature films otherwise excluded by this para-

graph may be broadcast upon a convincing showing to

the Commission that they are not desired for exhibition

over conventional television in the market or that the

owners of the broadcast rights to the films, even absent

the existence of subscription television, would not make

the films available to conventional television.

(3) Every subscription television broadcast station

over which a feature film is broadcast pursuant to this

paragraph shall maintain for public inspection a file list-

ing the title of the film, the date on which it was broad-

cast and the provision of this paragraph pursuant to

which it was broadcast. When a feature film is broadcast

pursuant to subparagraph (1) (ii) of this paragraph, the

station or network, serving the market and holding a

present contractual right to exhibit the film shall be

specified. These files shall be retained for a period of two

years.

( b) Sports events shall not be broadcast live except as

provided in this paragraph.

(1) A specific event may be broadcast if the event has

not been broadcast live over conventional television in

the market of the subscription television broadcast sta-

tion during any one of the five (5) seasons preceding the

proposed subscription broadcast. If a regularly recurring

event takes place at intervals of more than one year (e. g.,

summer Olympic games), the event shall not be broad-

cast on a subscription basis if it has been broadcast live

over conventional television in the market of the sub-

scription television broadcast station during any one of

the ten (10) years preceding the proposed subscription

broadcast.

(2) New specific sports events that result from the

restructuring of existing sports shall not be broadcast

on a subscription basis until five (5) seasons after their

first occurrence. Thereafter, subscription broadcasts

shall be governed by paragraph (b) (1) of this section.

(3) The number of non-specific events which may be

broadcast on a subscription basis in any given season shall

be determined as follows:

(i) If less than twenty-five (25) percent of the events

in a category of non-specific events were broadcast live

over conventional television in the market of the sub-

scription television broadcast station during each of the

five (5) seasons preceding the proposed subscription

broadcast, the number of events in the category broadcast

on a subscription basis shall not exceed the number of

events in the category not conventionally broadcast in

that season among the preceding five (5) seasons when

the largest number of events in the category were broad-

cast over conventional television.

(ii) If twenty-five (25) percent or more of the events

in a category of non-specific events were broadcast live

over conventional television in the market of the subscrip-

tion television broadcast station during any one of the

five (5) seasons preceding the proposed subscription

broadcast, the number of events in the category broadcast

on a subscription basis shall not exceed fifty (50) percent

of the number of events in the category not broadcast in

that season among the preceding five (5) seasons when

the largest number of events in the category were broad-

cast over conventional television. However, if the number

of events in the category to be broadcast over conventional

television in the current season is a reduction from the

number of events broadcast in that season among the

preceding five (5) seasons when the largest number of

events in the category were broadcast, the number of

events in the category which may be broadcast on a sub-

To understand the function of these rules, it is useful

to trace their origins.

The first application to establish a subscription broad-

cast television service was filed with the Commission in

1952. After a series of administrative proceedings and

hearings before Congress,“ the Commission announced in

1959 that it would license a number of trial systems

in order to gather information about the technical and

scription basis pursuant to this subparagraph shall be

reduced in proportion to the reduction in events broadcast

over conventional television.

carried during subscription television operations except

for promotion of subscription television broadcast pro-

grams before and after such programs.

(d) Not more than 90 percent of the total subscription

programming hours shall consist of feature films and

sports events combined. The percentage calculations may

be made on a yearly basis, but, absent a showing of good

cause, ti e percentage of such programming hours may

not exceed 90 percent of the total subscription program-

ing hours in any calendar month.

(e) Any television broadcast station licensee or per-

mittee authorized to broadcast subscription programs

shall broadcast in addition to its subscription broadcasts,

at least the minimum hours of nonsubscription pro-

gramming required by § 73.651.

(f) Except as they may be otherwise waived by the

Commission in authorizations issued hereunder, the rules

and policies applicable to regular television broadcast sta-

tions are applicable to subscription television operations.

47 C. F. R. § 73.643 (1975), as amended by Second Report ard

Order, supra note 5. ‘

™ See 20 FED. REG. 988 n.1 (1955).

See generally NATO v. FCC, supra note 5, 136 U.S. App.

D.C. at 354, 420 F.2d at 196.

economic aspects of subscription television.“ In its Fourth

Report and Order, 15 FCC 2d 466, issued in 1968, the

Cormmission analyzed in detail results achieved in the

Hartford, Connecticut trial system and concluded that

permanent subscription operations should be authorized

with certain limitations.

For present purposes, the relevant limitations included

restrictions on feature films, sports events, and series

programs that could be shown for a fee, and prohibited

commercial advertising during subscription operations.“

The purpose of these limitations was twofold. First, the

Commission had agonized over both its authority to dedi-

cate one or more channels from the electronic spectrum

to subscription operations and the desirability of doing

so. Such channels are scarce, and opponents of subscrip-

tion television had argued that they should be used for

conventional programming which would, of course, be free

to all viewers.“ The Commission ultimately concluded

that it had the required authority,“ a position sustained

by this Court in National Ass’n of Theatre Owners

(NATO) v. FCC, 136 U.S.App.D.C. 352, 420 F.2d 194

(1969), cert. denied, 397 U.S. 922 (1970), but that sub-

scription service would not be desirable unless the pro-

gramming presented was distinct from that on conven-

tional advertiser-supported television.“ As a result, the

Commission placed restrictions on the number of hours

of feature films and sports programs, both readily avail-

Third Report, 26 FCC 265 (1959), aff'd, Connecticut

Committee Against Pay TV v. FCC, 112 U.S.App.D.C. 248,

301 F.2d 835, cert. denied, 371 U.S. 816 (1962).

See 15 FCC 2d at 597-598.

18 See generally Fourth Report and Order, supra note 5, 15

FCC 2d at 466-488.

% See First Report, 23 FCC 532, 536-540 (1957).

* See Fourth Report, supra note 5, 15 FCC 2d at 483-488.

able on conventional television, that could be shown and

prohibited commercial advertising in an effort to remove

any economic pressure to appeal to a mass audience, a

pressure to which the Commission attributed the same-

ness of conventional television fare.“ A second reason for

restricting the feature films, sports events, and series

programs that could be shown on subscription television

was the Commission’s fear that the revenue derived from

subscription operations would be sufficient to allow sub-

scription operators to bid away the best programs in these

categories, thus reducing the quality of conventional tele-

vision.“ By limiting the subscription operator to material

that would not otherwise be shown on television, the Com-

mission hoped both to prevent such “siphoning” “ and to

enhance the diversity of program offerings on broadcast

television as a whole.

The cable television industry has a similarly lengthy

technical and regulatory history. Starting in the 1940’s

as community antenna television systems (CATV) de-

signed to bring better or more distant broadcast signals

into the home, cable systems developed through the 1960’s

into media with enough channels to accommodate both

retransmission of broadcast television programs and origi-

nation of special services such as weather or stock ex-

change reports.“ More recently, cable companies began

eablecasting their own programs on channels not used

18 See id. at 474-488, 564-566. See also First Report and

Order, supra note 2, 52 FCC 2d at 43, JA 67; Report and

Order, 23 FCC 2d 382, 391-392 (1970) (Docket 12782).

1% See Fourth Report, supra note 5, 15 FCC 2d at 554-573.

20 In these proceedings the Commission has changed its

vocabulary from the pejorative “siphoning” to the more neu-

tral term “migration.” See Transcript of Oral Argument at

56, 57, 59.

22 See CABINET COMM. ON CABLE COMMUNICATIONS, REPORT

TO THE PRESIDENT 10-11 (1974).

for retransmission services, and the abundance of chan-

nels on modern systems (presently 35 or more) * promises

that program origination will remain an important part

of cable programming.

The Commission’s regulation of cable television reflects

its technological development. At first the Commission

‘eschewed regulation altogether.” However, as CATV sys-

tems with multiple channels developed, the Commission

asserted jurisdiction over cable operations to prevent

fragmentation of audiences and revenues between local

broadcasters and competing cable systems which were

bringing distant broadcast signals into local markets.“

In 1968 the Commission launched a further, broad-

ranging inquiry into the uses to which cable television

might be put in the national communications network.”

The outcome of these proceedings was a series of regula-

tions which, among other things, required cable systems

in major markets to provide cablecasting services, to set

aside “access channels” on which members of the public

could rent time to produce and transmit their own shows,

and to furnish channels for government and educational

use. The Commission specifically declined, however, to

promulgate rules for cable television similar to those

22 See Transcript of Oral Argument at 43; br. for petitioner

Home Box Office at 9.

23 See CABINET COMM. ON CABLE COMMUNICATIONS, supra

note 21, at 10.

** See generally United States v. Southwestern Cable Co.,

392 U.S. 157, 161-168 (1968).

0 Notice of Proposed Rulemaking and Notice of Inquiry, 15

FCC 2d 417 (1968).

20 First Report and Order, 20 FCC 2d 201, 223-225 (1969).

The Commission also extended the equal time, sponsorship

me py and fairness doctrines to cable television in this

adopted for subscription broadcast television. See First

Report and Order, 20 FCC 2d 201, 204 (1969). The

reasons given were that the Commission had no informa-

tion which would indicate that pay cable television could

penetrate any television market to the extent needed to

“siphon” programming, see id. at 204 & n.4, and that

the Commission would in any event be able to act in

time to correct any adverse effects on conventional broad-

casting, see id. at 204.

Nine months later the Commission reversed its course

and applied the rules developed in the subscription broad-

east field to cable television. See Memorandum Opinion

and Order, 23 FCC 2d 825 (1970): The reasons for such

a quick reversal are not clear in the Order, and a number

of the petitioners here filed petitions to reconsider im-

position of the subscription broadcast rules on the ground

that the Commission’s abrupt change of course was ar-

bitrary and not adequately explained. See Notice of

Proposed Rule Making and Memorandum Opinion and

Order, 35 FCC 2d 893, 894 n.5 (1972), JA 2. These

petitions for reconsideration were denied. See id. at 899,

JA 7. In this same order Docket 19554, which spawned

the orders reviewed here, was established. In its First

Many parties to this proceeding, see, e.g., br. for respond-

ent United States; br. for petitioner Home Box Office, = in-

cluding the Commission itself, see br. for respondent FCC,

have preseated arguments predicated on an assumption that it

is appropriate for this court to review the validity of the pay

cablecasting rules de novo, although other parties, see, e. g., br.

of petitioner American Broadcasting Companies, Inc., appear

to take the position that only the rather limited question of the

validity of the relaxation of prior Commission rules is before

this court. No party has addressed this problem expressly

although the Commission, in In re Home Bor Office, Inc., supra

note 5, 51 FCC 2d at 321, JA 145, takes the position that the

rules promulgated in its Memorandum Opinion and Order in

Docket 18397, 23 FCC 2d 825 (1970), are final. Upon review

of the record, we hold today that, as to pay cablecasting, the

rules are before us for de novo consideration.

The critical question is the effect of the Commission’s Notice

of Proposed Rule Making and Memorandum Opinion and

Order, 35 FCC 2d 893 (1972), JA 1. In that Order the Com-

mission, after surveying points raised by the petitions for

reconsideration before it (some of which were addressed to

procedural infirmities and others to the substance of the

Memorandum Opinion and Order in Docket 18397, supra),

stated:

8. * * * [I]n view of the importance of the issue as

against the paucity of prior comment and the indication

that additional opportunity for comment will elicit useful

new material, we have decided to issue a further Notice of

Proposed Rule Making so that we may hear from all

parties concerned and to reconsider the rules.

10. In light of our decision to allow for further com-

ment on the pay-cablecasting rules, we think it unneces-

sary to comment at length on the [substantive] issues

raised in the reconsideration pleadings. * * *

35 FCC 2d at 896, 897-898, JA 4, 5-6 (emphasis added).

Nonetheless, the Commission, [iln accordance with” the

above quoted paragraphs, denied the petitions for reconsider-

ation of its Memorandum Opinion and Order in Docket 18397.

Id. at 899, JA 7.

We think such a disp sition is fundamentally at odds with

the purpose of reconsider. ‘ion as envisioned by $ 405 of the

Communications Act, 47 J.S.C. § 405 (1970), and is also

contrary to the Commission’s own rules, 47 C.F.R. § 1.106

(1975). Section 405 of the Communications Act provides in

relevant part:

* * * The filing of a petition for rehearing shall not

be a condition precedent to judicial review of any * * *

order, decision, report, or action, except where the party

seeking such review (1) was not a party to the proceed-

ings resulting in such order, decision, report, or action,

or (2) relies on questions of fact or law upon which the

Commission * * * has been afforded no opportunity to

pass. The Commission * * * shall enter an order, with

a concise statement of the reasons therefor, denying a

petition for rehearing or granting such petition, in whole

or in part, and ordering such further proceedings as may

be appropriate. * * *

The obvious purpose of § 405 is to afford the Commission an

opportunity to consider and pass upon matters prior to their

presentation to the court. Joseph v. FCC, 131 U.S. App. D.C.

207, 210, 404 F.2d 207, 210 (1968) ; Gerico Investment Co. v.

FCC, 99 U.S.App.D.C. 379, 380, 240 F.2d 410, 411 (1957) ; see

Saginaw Broadcasting Co. v. FCC, 68 App.D.C. 282, 286, 96

F.2d 554, 558, cert. denied, 305 U.S. 613 (1938). To hold, as

the Commission has done here, that further consideration of

its order is needed but that the order is nonetheless final for

purposes of judicial review is to thwart this fundamental! pur-

pose of § 405. Moreover, had a party taken an immediate

appeal from the Notice of Proposed Rule Making and Memo-

randum Opinion and Order, supra, this court would in all

likelihood have deferred consideration of that appeal until the

Commission had finished its reconsideration of the rules in

order to have the benefit of the further proceedings. See

Wrather-Alvarez Broadcasting, Inc. v. FCC, 101 U.S.App.D.C.

324, 327, 248 F.2d 646, 649 (1957). Finally, the “concise

statement of reasons” given by the Commission here is tan-

tamount to the statement: We have denied your petitions

for reconsideration because you have raisea such serious

issues that we think the rules need to be reconsidered.” Surely,

denial on these grounds is arbitrary, capricious, and in clear

contravention of the purposes of § 405.

We need not rely on § 405 alone, however, because the Com-

mission’s own procedural rules disallow the disposition of the

petitions for reconsideration made here. As we read § 1.106

of those rules, the Commission may dispose of petitions for

reconsideration in only three ways. First, it may deny the

petitions. 47 C.F.R. § 1.106(j) (1975). Second, it may grant?

petition and make a ruling on its merits in the same order. /d.

§ 1.106(k) (1). Third, it may grant a petition but defer its

ruling on the merits until after further proceedings. Id.

§ 1.106(k) (2). Here, however, the Commission has taken a

fourth course—instituting further proceedings in order to rule

on the merits of the petitions for reconsideration, but also

denying the petitions. In contrast, in the same Notice of Pro-

posed Rule Making and Memorandum Opinion and Order the

Commission adopted the procedure set out in § 1.106(k) (2)

with regard to its proceedings on subscription broadcast tele-

Report and Order in this docket, 52 FCC 2d 1 (1975),

JA 25, the Commission re-adopted, with minor modifica-

tions, the pay cable rules originally announced. Peti-

tions for reconsideration of this Report and Order were

denied, except to the extent that some petitioners sought

to establish reporting requirements designed to enhance

enforcement of the rules. Memorandum Opinion and

Order, 54 FCC 2d 797 (1975), JA 117. Contemporane-

ously the Commission issued a Second Further Notice of

Proposed Rule Making, 52 FCC 2d 83 (1975), JA 107,

eliciting additional information on the rules relating to

vision. See 35 FCC 2d at 899, JA 7. We think the proper

procedure here too would have been that set out in

§ 1.106(k) (2), and we therefore hold that the Commission’s

order with respect to pay cablecasting must be read to be con-

sistent with that section. In accordance with § 1.106(k) (2),

therefore, we further hold that the orders entered in Docket

19554 are the rulings on the merits of the petitions for recon-

sideration.

Although we would normally be hesitant to decide the merits

of an appeal where the briefs of the parties indicate a funda-

mental confusion over the issues open on appeal, we do not

think that our disposition of the procedural posture of this

case is prejudicial to any of the parties before us. Although

we do not have the benefit of a record of the proceedings in

Docket 18397, which would normally be part of the record on

an appeal from the grant of a motion to reconsider, the Com-

mission has itself commented on the “paucity” of information

in that record. See 35 FCC 2d at 896, JA 7. Moreover, many

of the parties who took the position that the issue here was

relaxation of prior rules in fact made arguments that were

relevant only if the issue was de novo reconsideration. Fur-

thermore, the Commission itself adequately represented those

who would defend the rules on de novo review.

For all foregoing reasons, we hold that the effect of our

ruling today is to remove in toto all regulations of the Com-

mission—now codified at 47 C. F. R. § 76.225 (1975)—regulat-

ing program formats on pay cable television.

series programming.” On the basis of that information

the Commission deleted any restriction on subscription

use of series programs. Second Report and Order, ——

FCC 2d ——, 35 P & F RADIO Rec, 2d 767 (1975),

JA 131.”

To understand the postulated “siphoning” phenomenon

and its potential harm, it is useful to consider the struc-

ture of the television industry today. In 1975 there were

70.1 million American homes with television sets, of

which 9.8 million had access to some cable system.“ Al-

though the number of cable subscribers is large, in-

dividual cable systems are quite small, with the largest

having only 101,000 customers and with only 224 of

approximately 3,405 systems having more than 10,000

subscribers. The number of homes that presently have

access to pay cable facilities is about a half million and

is growing rapidly.“ Most of these homes are located

outside major television markets, with the exception of

the New York City area and parts of California.“ Ex-

tension of service to other urban areas might be ac-

complished at a capital cost of some $8 billion, but lay-

28 Series programs are those “with interconnected plot or

substantially the same cast of principal characters.” 47 C. F. R.

§ 76.225(c), deleted by Second Report and Order, supra note

2° See also note 5 supra.

0 STAFF OF SUBCOMM. ON COMMUNICATIONS OF HOUSE

COMM. ON INTERSTATE AND FOREIGN COMMERCE, CABLE TELE-

VISION: PROMISE VERSUS REGULATORY PERFORMANCE 11

(1976) (Subcomm. Print) (hereinafter cited as PROMISE

VERSUS PERFORMANCE).

Id. at 19.

Id. at 17.

Transcript of Oral Argument at 4, 27.

Id. at 77.

ing cable to reach that half of the American popula-

tion which lives in rural areas would by any estimate

be extremely expensive, perhaps requiring an additional

$240 billion.“ Because of these capital requirements, ex-

tension of cable service with cablecasting capability to

the country as a whole does not seem possible in the

immediate future.

Similarly, access of all Americans to cable seems fore-

closed by the cost of cable service. Cable service charges

are generally separated into two distinct fees, one basic

fee entitling the viewer to receive only broadcast signals,

the other entitling the viewer to see cablecast programs

as well. The basic fee is approximately $5-$6 monthly.“

Technical capability exists today to distribute and bill

for cablecast programs on a program-by-program basis,

but this is not currently done. Instead a single fee of

$5-$7 monthly, in addition to the basic fee, is charged

for access to the cablecasting channels.“ Nonetheless, as

the name of one petitioner suggests, it is quite literally

possible to turn the home receiver into a “Home Box

Office,” thereby marketing television features in much

the same way that movies are marketed in theaters to-

day. As with other box offices, however, only those with

enough money to buy a ticket can get in to see the show.

Siphoning is said to occur when an event or program

currently shown on conventional free television is pur-

chased by a cable operator for showing on a subscription

cable channel. If such a transfer occurs, the Commission

believes, the program or event will become unavailable

for showing on the free television system or its showing

on free television will be delayed (since the commercial

Id. at 26.

% PROMISE VERSUS PERFORMANCE, supra note 30, at 17.

** First Report and Order, supra note 2, 52 FCC 2d at 2,

JA 26.

appeal of the cable showing is the assurance of earlier

access to program material, an assurance that might it-

self be brought about by agreement between the seller

of the program or event and the subscription cable-

caster).** In either case a segment of the American

people—those in areas not served by cable or those too

poor to afford subscription cable service—could receive

delayed access to the program or could be denied access

altogether. The ability of the half-million cable sub-

scribers thus to preempt the other 70 million television

homes is said to arise from the fact that subscribers are

willing to pay more to see certain types of features than

are advertisers to spread their messages by attaching

them to those same features. For example, according to

Commissioner Robinson,“ subscribers may be willing to

pay 15 to 30 cents per viewing hour for the privilege of

viewing a recent feature film, while advertisers are will-

ing to pay only three cents per viewer. As a result a

pay audience of one million could routinely buy a film

away from a nonpaying audience of five to ten million.

Whether such a siphoning scenario is in fact likely

to oceur and, if so, whether the result of siphoning would

be to lower the quality of free television programming

available to certain areas of the country or to certain

economic strata of the population are matters of great

dispute among the Commission and the various petition-

The position of the Commission is not clear. The concern

in the subscription television proceeding was that material

shown on subscription television would simply become un-

available for conventional viewing. See Fourth Report and

Order, supra note 5, 15 FCC 2d at 494-509. Here, at least

with regard to feature films, the Commission seems to have

identified the evil to be avoided as delay in showing a film on

conventional television. See First Report and Order, supra

note 5, 52 FCC 2d at 49-50 (162), JA 73-74.

„First Report and Order, supra note 5, 52 FCC 2d at 77

(dissenting opinion), JA 101.

ers and intervenors seeking review of the Coimmission’s

regulations in this case. Other petitioners both here and

before the Commission argue that the rules which ostensi-

bly place cable in a subordinate role in order to increase

program diversity—a goal which has been basic to a

number of Commission regulations “—in fact diminish

diversity by prohibiting subscription cable operators from

showing the programs that are most likely to be the fi-

nancial backbone of a successful cable operation. As a

result, it is claimed, cultural and minority programming

that could otherwise “piggyback” on a cable system sup-

ported by more broadly popular fare is precluded. In-

deed, some petitioners argue that the subscription broad-

cast television rules had the effect of killing that medium

in its infancy by denying it access to necessary program-

ming—a charge supported by the apparent lack of any

viable commercial applications of subscription broadcast

television today and left unrefuted by the Commission—

and urge us not to let the Commission similarly snuff out

pay cable. Finally, other petitioners take the position

that the threat of siphoning is very real and that the

Commission’s rules do not adequately cope with this

threat to conventional television service.

II. Pay CABLE RULES

A. Statutory Authority

In determining the Commission’s authorit, to promul-

gate the pay cable rules, we by no means write on a

clean slate. This court has recognized that the Communi-

cations Act of 1934, 47 U.S.C. § 151 et seg., must be

construed at least in some circumstances to allow the

Commission to regulate cable television system opera-

F. g., 47 C. F. R. § 76.201 (1974) (origination require-

ments), removed, 39 FED. REG. 43310 (1974); 47 C. F. R.

$ 73.658 (prime time access regulations). N

tions. See Carter Mountain Transmission Corp. v. FCC,

116 U.S.App.D.C. 93, 321 F.2d 359, cert. denied, 375

U.S. 951 (1963) ; Buckeye Cablevision, Inc. v. FCC, 128

U.S. App. D.C. 262, 387 F.2d 220 (1967). This view has

been adopted by other Courts of Appeals, see, e.g., Amer-

ican Civil Liberties Union v. FCC, 523 F.2d 1344, 1351

(9th Cir. 1975), and confirmed by the Supreme Court,

see United States v. Midwest Video Corp., 406 U.S. 649

(1972); United States v. Southwestern Cable Co., 392

U.S. 157 (1968). As the Supreme Court explained in

Southwestern Cable, supra, to construe the Communica-

tions Act narrowly would be to defeat the purpose of

Congress “ ‘to maintain, through appropriate administra-

tive control, a grip on the dynamic aspects of radio trans-

mission.’” 392 U.S. at 172, quoting FCC v. Pottsville

Broadcasting Co., 309 U.S. 184, 188 (1940). Yet, de-

spite the latitude which must be given the Commission

to deal with evolving technology, its regulatory authority

over cable television is not a carte blanche. Unless these

regulations are “justified by reasons which are properly

the concern of [the Commission], Hampton v. Mow Sun

Wong, 426 U.S. 88, 116 (1976), they must be set aside.

1. The Standard for Determining Statutory Authority

Midwest Video Corp. and Southwestern Cable Co. hold

that the Commission may only exercise authority over

cable television to the extent “reasonably ancillary” to

the Commission’s jurisdiction over broadcast television.

United States v. Southwestern Cable Co., supra, 392 U.S.

at 178; United States v. Midwest Video Corp., supra, 406

U.S. at 670. See generally National Ass’n of Regulatory

Utility Comm’rs v. FCC, 174 U.S.App.D.C. 374, 379.

380, 394-395, 401-406, 533 F.2d 601, 606-607, 621-

622, 628-633 (1976). This standard was first enunciated

in Southwestern Cable Co., in which the Supreme Court

was asked to pass on the Commission’s authority to pro-

mulgate rules prohibiting importation of “distant sig-

nals” into the San Diego television market. 392 U.S.

at 159-160. The purpose of these rules was to prevent

division of audiences and revenues between cable televi-

sion and fledgling UHF and educational television sta-

tions. Competition by cable operators, the Commission

feared, would make these new ventures unprofitable,

thereby frustrating the Commission’s long-standing * and

congressionally approved“ policy of attempting to pro-

vide locally controlled broadcast television service. See

392 U.S. at 173-177.

In finding that the Commission was authorized to pro-

mulgate the challenged rules, the Southwestern Court

first held that cable television was an instrument of “in-

terstate and foreign communication by wire or radio”

within the meaning of Section 2(a) of the Communica-

tions Act of 1934, 47 U.S.C. § 152(a) (1970). 392 U.S.

at 167-169. For this reason the Commission was held to

have “regulatory authority” over cable television. /d. at

178. However, the Court chose not “to determine in de-

tail the limits of the Commission’s authority to regulate

„Distant signals are those which a viewer would not or-

dinarily be able to receive without the assistance of a com-

munity antenna television system.

See United States v. Southwestern Cable Co., supra note

24, 392 U.S. at 174-176 & n.43. See generally R. NolL, M.

Peck & J. MCGOWAN, ECONOMIC ASPECTS OF TELEVISION

REGULATION 99-108 (1973).

„The Southwestern Court referred a number of times to

instances of congressional approval of the Commission’s

policy of local control of broadcasting. See 392 U.S. at 173

& n.38; id. at 174 & n.39; ef. id. at 175-176 n.43. The Court

also referred to congressional support for the Commission’s

policy of encouraging UHF development, and read legisla-

tion requiring television receivers shipped in interstate com-

merce to have UHF capability, Pub. L. No. 87-529, 76 Stat.

150 (1962), as support for the Commission’s restrictions on

cable. See 392 U.S. at 175 & nn.41 & 42.

[cable television!“ under Section 2(a). Id. at 178. In-

stead, stressing that “ the achievement of an agency’s

ultimate purposes’” was at stake, id. at 177, quoting

Permian Basin Area Rate Cases, 390 U.S. 747, 780

(1968), the Court noted that the rules were “reasonably

ancillary to the effective performance of the Commission’s

various responsibilities for the regulation of television

broadcasting,” id. at 178, and that to carry out such re-

sponsibilities the Commission could issue ‘such rules and

regulations and prescribe such restrictions and condi-

tions, not inconsistent with law’ as ‘public convenience,

intevest, or necessity requires.’” Id., quoting 47 U.S.C.

§ 303(r) (1970).

In United States v. Midwest Video Corp., supra, a

decision which affirmed the Commission’s jurisdiction by

a narrow margin, a four-judge plurality of the Supreme

Court again applied the “reasonably ancillary” standard

to determine the scope of the Commission’s jurisdiction

over cable television operations. Upholding the Commis-

sion’s rules requiring operators of large cable systems to

cablecast programs on some channels, the plurality reiter-

ated that Section 2(a) conferred regulatory power on the

Commission, but that “§ 2 (a) does not in and of itself

prescribe any objectives for which the Comm. ssion's regu-

latory power over [cable television] might properly be

exercised.” 406 U.S. at 661. The plurality then stated

that the test for determining whether a rule reflected a

proper objective was whether it would “ ‘further the

achievement of long-established regulatory goals in the

field of television broadcasting.’” Id. at 667-668, quoting

United States v. Southwestern Cable Co., supra, 392 U.S.

at 654. Under this standard the Commission was held

to be authorized to require cable program origination

since such a requirement furthered Commission policies

with respect to both enhancement of local service and

diversification of control of available television and cable

programming. See 406 U.S. at 668-670.

The deciding vote in Midwest Video Corp. was cast

by Chief Justice Burger, who wrote:

Candor requires acknowledgment, for me at least,

that the Comm‘ssion’s position strains the outer lim-

its of even the C n-ended and pervasive jurisdiction

that has evolved by decisions of the Commission and

the courts. * * *

406 U.S. at 676. Nonetheless, the Chief Justice was will-

ing to uphold the challenged regulations on the ground

that “when [cable system operators] interrupt the signal

and put it to their own use for profit, they take on bur-

dens, one of which is regulation by the Commission.”

Id.“ Justice Douglas, writing for four dissenting Jus-

tices, took yet a third position, apparently agreeing that

the appropriate test for Commission jurisdiction was ex-

pressed by the “reasonably ancillary” standard, but find-

ing that to uphold the regulations challenged in Midwest

would “make the Commission’s authority over activities

‘ancillary’ to its responsibilities greater than its author-

ity over any broadcast licensee.” /d. at 681.

The Supreme Court’s opinions in Southwestern Cable

Co. and Midwest Video Corp. thus look in two directions.

First, they recognize an expansive jurisdiction for the

Commission based on Section 2(a) of the Communications

Act and the need to give the Commission sufficient lati-

tude to cope with technological developments in a rapidly

changing field. But the opinions are also narrow. Even

the broadest opinion, that of the plurality in Midwest

Video Corp., recognizes that the Commission can act only

for ends for which it could also regulate broadcast tele-

„Were one to accept the Chief Justice’s theory of jurisdic-

tion, the Commission’s rules wou:d have to be set aside with

respect to access cablecasters, sce note 2 supra, who rent

time from those who “interrupt the signal,” since there is no

evidence in this record that these independent entrepreneurs

are in any way subsidized by cable system owners who are

the only legal entities offering retransmission services.

vision. Indeed, even this standard will be too commodious

in certain cases, since as we discuss in Part III infra the

scope of the Commission’s constitutionally permitted au-

thority over broadcast television in areas impinging on the

First Amendment is broader than its authority over cable

television, Finally, the opinions in both cases go no far-

ther than to allow the Commission to regulate to achieve

“long-established” goals or to protect its “ultimate pur-

poses.” That these cases establish an outer boundary to

the Commission’s authority we have no doubt, cf. Na-

tional Ass’n of Regulatory Utility Comm' rs v. FCC,

supra; STAFF OF SUBCOMM. ON COMMUNICATIONS, COMM.

ON INTERSTATE AND FOREIGN COMMERCE, CABLE TELEVI-

SION: PROMISE VERSUS REGULATORY PERFORMANCE 80-83

(1976) (Subcomm. Print), and if judicial review is to

be effective in keeping the Commission within that boun-

dary, we think the Commission must either demonstrate

specific support for its actions in the language of the

Communications Act or at least be able to ground them

in a well-understood and consistently held policy devel-

oped in the Commission’s regulation of broadcast televi-

sion, cf. Greater Boston Television Corp. v. FCC, 143

U.S. App. D.C. 383, 394, 444 F.2d 841, 852 (1970), cert.

denied, 403 U.S. 923 (1971).*

2. Applying the Jurisdictional Standard

The purpose of the Commission’s pay cable rules is to

prevent “siphoning” of feature film and sports material

from conventional broadcast television to pay cable.“ Al-

Judge MacKinnon is of the view that the FCC's jurisdic-

tion to regulate cablecasting in the interests of the broad-

casting industry is restricted to instances where the cable

stations substantially rely on broadcast signals or their activi-

ties amount to unfair competition.

As promulgated in the First Report and Order, supra

note 2, the rules also applied to series programming. Since

the rules have subsequently been amended to delete series

programming restrictions, sec note 28 supra, we do not deal

with this aspect of the rules here.

though there is dispute over the effectiveness of the rules,

it is clear that their thrust is to prevent any competition

by pay cable entrepreneurs for film or sports material

that either has been shown on conventional television or

is likely to be shown there.“ How such an effect furthers

any legitimate goal of the Communications Act is not

clear. The Commission states only that its “mandate to

act in the public interest requires that [it] strive to

maintain the public’s ability to receive the informational

and entertainment programming now provided by con-

ventional television at no direct cost,” First Report and

Order, supra, 52 FCC 2d at 43, JA 67, and that its ac-

tion “is designed to enhance the integrity of broadcast

signals and is a proper execution of our responsibility

under Section 2(b) [sic] of the Communications Act

, id. at 45, JA 69.

Insofar as the Commission places reliance on such con-

clusory phrases as “enhance the integrity of broadcast

signals,” we think it has crossed “the line from the

tolerably terse to the intolerably mute.” Greater Boston

Television Corp. v. FCC, supra, 143 U.S. App. D.C. at 394,

444 F.2d at 852. Beneath such generalities, however,

the Commission seems to be making two more specific

arguments which relate the public interest to retention

of the conventional television structure. First, the Com-

mission appears to take the position that it has both the

See, e.g., First Report and Order, supra note 2, 52 FCC

2d at 51-55, JA 75-79. This position is most clearly ex-

pressed in the Commission’s standard for waiving its film

rules:

[Waivers will be granted upon a convincing showing to

the Commission that a film desired for subscription ex-

hibition is not desired for exhibition over conventional

television in the market, or that the owner of the film,

even absent the existence of subscription television,

would not make the film available to conventional tele-

vision,

Id. at 55, JA 79.

obligation and the authority to regulate program format

content to maintain present levels of public enjoyment.

For this reason, and because the Commission also seems

to assert that the overall level of public enjoyment of

television entertainment would be reduced if films or

sports events were shown only on pay cable or shown on

conventional television only after some delay, it con-

cludes that anti-siphoning rules are both needed and au-

thorized. Second, and closely related, is the argument

pressed here by counsel for the Commission that Section 1

of the Communications Act, 47 U.S.C. § 151 (1970), man-

dates the Commission to promulgate anti-siphoning rules

since cable television cannot now and will not in the near

future provide a nationwide communications service.

See Transcript of Oral Argument at 57-58. Before con-

sidering each of these arguments in turn, we note that

we do not understand the Commission to be asserting

that subscription cable television will divide audiences

and revenues available to broadcast stations in such a

manner as to put the very existence of these stations in

doubt. See Memorandum Opinion and Order, supra, 54

FCC 2d at 800-802 (M 10, 11, 18), JA 120-122; Second

Report and Order, supra, —— FCC 2d at ——, 35 P&F

RADIO REG. 2p at 772, JA 136 (“[wle possess no evi-

dence which indicates that the advertising revenues gen-

erated by conventional television will be diminished as

a result of subscription operations”). See also First Re-

port and Order, 20 FCC 2d 201, 216-217 (1969). The

Supreme Court’s opinion in Southwestern Cable Co. is

not, therefore, directly applicable.

The question of the Commission’s obligation or au-

thority to regulate television to maintain public enjoy-

ment is one whose analysis takes us into a thicket of

disagreement between this court and the Commission.

See Citizens Committee to Save WEFM v. FCC, 165 U.S.

App. D.C. 185, 191-207, 506 F.2d 246, 252-268 (1974)

(en banc). Although this controversy has taken place

in the context of the Commission’s obligation to regulate

changes in radio broadcast formats, much of what has

been said is directly relevant here.“ The traditional

view of the Commission is well summarized by its then

chairman, Dean Burch:

It would be a simple matter for the Commission

to dictate to each licensee of the 62 stations in the

Chicago area which entertainment format each

should use. Such an approach might maximize—at

least in the short run—the diversity of formats and

types of programming available to the public. But

it would not be the approach contemplated by Con-

gress when it created the Commission in 1934. Broad-

cast stations are, of course, licensed to serve the

public interest, but as the Supreme Court observed

back in 1940, the Communications Act also “recog-

nizes that the field of broadcasting is one of free

competition.” In short, “(t]he regulatory responsi-

bility of the Commission in the broadcast field essen-

tially involves the maintenance of a balance between

the preservation of a free competitive broadcast sys-

tem, on the one hand, and the reasonable restriction

of that freedom inherent in the public interest stand-

ard provided in the Communications Act, on the

other.”

The Commission has struck this balance by re-

quiring licensees to conduct formal surveys to as-

certain the need for certain types of non-entertain-

ment programming, while allowing licensees wide

discretion in the area of entertainment program-

ming. Thus with respect to the provision of news,

public affairs, and other informational services to

the community, we have required that broadcasters

conduct thorough surveys designed to assure famili-

arity with community problems and then develop

„* The Communications Act does not expressly regulate

television. Title III of the Act, which covers radio broad-

casting, has been construed to cover television because § 3 (b)

of the Act, 47 U.S.C. § 153 (b) (1970), defines “radio com-

munication” to include transmission of pictures.

programming responsive to those identified needs. In

contrast, we have generally left entertainment pro-

gramming decisions to the licensee or applicant’s

judgment and competitive marketplace forces. As

the Commission stated in its Programming Policy

Statement, 25 Fed. Reg. 7293 (1960), „ol ur view

has been that the station’s [entertainment] program

format is a matter best left to the discretion of the

licensee or applicants, since as a matter of public

acceptance and of economic necessity he will tend to

program to meet the prefererves of his area and

fill whatever void is left by the ;

other stations.” * programming of

Zenith Radio Corp., 40 FCC 2d 223, 230 (1973) (foot-

notes omitted) .“ In addition, in many other proceedings

the Commission has taken the position that the First

Amendment and the anti-censorship provision of the

Communications Act, 47 U.S.C. § 326 (1970), strip it

of any authority to require or to prohibit broadcast of

any particular material. See, e.g., Ad Hoc Comm. on the

Sugar Bowl, 29 P & F RADIO REG. 2p 70 (1973) ; Broad-

cast of Elections Projections, 38 FCC 2d 378 (1972):

Washington Women’s Strike for Peace, 6 P & F Rapio

REG. 2p 307, 308 (1965). As we understand the tradi-

tional position of the Commission, therefore, it is that

regulation of entertainment program format is incon-

sistent with the Communications Act and is also un-

necessary, but for reasons inapposite here.

In WEFM this court en banc rejected the laissez faire

approach of the Commission, holaing: )

There is a public interest in a diversity of broadcast

entertainment formats. The disappearance of a dis-

tinctive format may deprive a significant segment

These views were not those of the Commission as a whole,

but of only six commissioners. Nonetheless, the Commission

as a whole has cited approvingly the argument quoted in

text. See Notice of Inquiry, 57 FCC 2d 580, 580-581 (1976).

of the public of the benefits of radio, at least at

their first-preference level. When faced with a pro-

license assignment encompassing a format

change, the FCC is obliged to determine whether the

format to be lost is unique or otherwise serves a

specialized audience that would feel its loss. If the

endangered format is of this variety, then the FCC

must affirmatively consider whether the public in-

terest would be served by approving the proposed

assignment, which may, if there are substantial

questions of fact or inadequate data in the applica-

tion or other officially noticeable materials, necessi-

tate conducting a public hearing in order to resolve

the factual issues or assist the Commission in dis-

cerning the public interest. Finally, it is not suffi-

cient justification for approving the application that

the assignor has asserted financial losses in provid-

ing the special format; those losses must be at-

tributable to the format itself in order logically to

support an assignment that occasions a loss of the

format.

165 U.S.App.D.C. at 201, 506 F.2d at 262. Our position

is thus unmistakable: The Communications Act not only

allows, but in some instances requires, the Commission to

consider the preferences of the public, and the Commis-

sion in discharging this authority must regulate the

entertainment programming which station owners can

present whenever a significant segment of the public is

threatened with the loss of a preferred broadcast format.*

Were WEFM the last word, it is at least possible that

the Commission could promulgate the anti-siphoning

rules under the theory of jurisdiction recognized by the

plurality in Midwest Video Corp., since the end to be

achieved—protection of preferred television service for

* Judge MacKinnon is of the view that Citizens Committee

to Save WEFM v. FCC, 165 U.S.App.D.C. 185, 506 F.2d 246

(1974), constitutes a binding decision of this court, but he

continues to adhere to the views he expressed in dissent when

that decision issued. 165 U.S.App.D.C. at 224, 506 F.2d at 285.

those not served by cable television—would also justify

regulation of the broadcast media.”

The Commission has not, however, acquiesced in

WEFM. Instead, it recently launched and concluded a

proceeding on “Changes in the Entertainment Formats

of Broadcast Stations.” See Notice of Inquiry, 57 FCC

2d 580 (1976); Memorandum Opinion and Order, 60

FCC 2d 858 (1976). Its conclusions there bear repeating

in some detail. First, the Commission has reiterated its

conclusion that it has no statutory authority to dictate

entertainment formats. Format regulation, it is argued,

is analogous to imposing common carrier responsibilities

on broadcasters. Since Section 3(h) of the Communica-

tions Act, 47 U.S.C. § 153(h) (1970), specifically ex-

cludes broadcasters from the category of “common car-

riers,” “Congress intentionally refrained from extending

the full range of regulatory tools deemed appropriate for

While WEFM offers some support for the Commission’s

authority to promulgate anti-siphoning rules, the application

of WEFM to cable television requires thought and argument

going beyond anything said in that case. The facts of WEFM

made it a particularly appropriate case for Commission in-

tervention. At stake was a classical music format provided

by only one other station in WEFM's service area. 165 U.S.

App.D.C. at 193, 506 F.2d at 254. On the other hand, the

“contemporary music” format proposed for WEFM was al-

ready supplied in whole or in part by 13 of the Chicago area’s

61 radio broadcast stations. d. at 193 n.4, 506 V. 2d «> 254

n.4. In these circumstances, retentien <2 WEFM’s classical

format raised no serious question of depriving other viewers

of their favored formats and the proposed format change

would only have added to an apparent surfeit of contempo-

rary and rock music. Certainly a different case would have

been presented were fewer stations involved (raising an issue

of conflicts among the first preferences of viewers) or had

WEFM proposed to offer another format in scarce supply.

In addition, even if WEFM did provide statutory authority

to the Commission to act as it has here, the constitutionality

of the jurisdiction thus conferred is a wholly separate issue,

to be analyzed under the principals set out in Part III infra.

——äͤ 2 ↄ

common carrier regulation to the field of broadcast regu-

lation.” Memorandum Opinion and Order, supra, 60 FCC

2d at 859. In particular, “Congress did not enact [a]

requirement that broadcasters receive Commission au-

thority to commence or discontinue programming, in-

cluding program format services, offered to the public.

Id. This conclusion is further supported, in the Com-

mission’s view, by Columbia Broadcasting System, Inc.

v. Democratic National Committee, 412 U.S. 94 (1973),

and FCC v. Sanders Brothers Radio Station, 309 US.

470 (1940). See 60 FCC 2d at 860-861. A second point

relevant here is the Commission’s professed inability to

determine the boundaries of a “particular entertainment

format.” Id. at 862. “The Commission does not know, as

a matter of indwelling administrative expertise, whether

a particular format is ‘unique’ or, indeed, assuming that

it is, whether it has been deviated from by a licensee.’

Id. In any case, concludes the Commission, “|ijt is im-

possible to determine whether consumers would be better

off [with any particular format] without reference to the

actual preferences of real people.” Id. at 864.

If the Commission’s own recently announced standards

are applied to the rules challenged here, it seems clear

that the rules cannot stand. The very essence of the

feature film and sports rules is to require the permis-

sion of the Commission “to commence * * * program-

ming, including program format services, offered to the

public.” However, it has been the consistent position of

the Commission itself that cablecasters, like broadcasters,

are not to be regulated as common carriers, a view sus-

tained by a number of courts. See, e. g., American Civil

Liberties Union v. FCC, supra, 528 F.2d at 1344; Phila-

delphia Television Broadcasting Co. v. FCC, 123 US.

App.D.C. 298, 359 F.2d 282 (1966). Moreover, given the

similarities between cablecasting operations and broad-

casting, we seriously doubt that the Communications Act

could be construed to give the Commission “regulatory

tools” over cablecasting that it did not have over broad-

In analyzing the feature film and sports rules under

the standards announced by the Commission in its broad-

cast format change proceeding, we do not wish to imply

that we have reconsidered the position of this court in

WEFM. The sole purpose of undertaking this analysis

is to demonstrate that the Commission has, in this pro-

ceeding, seemingly backed into an area of regulation in

which it would not assert jurisdiction were it to face the

issues directly. Indeed, in this very proceeding, and

despite the Commission’s definition of current quantity

and quality levels of films and sports events as the

minimum level consistent with adequate television serv-

ice, there is no indication that the Commission is pre-

pared to require broadcasters to continue to present ma-

terial presently on conventional television. See br. for

respondent United States at 23; reply br. for petitioner

Motion Picture Association of America at 3-4. In the

absence of this court’s opinion in WEFM, these unex-

plained inconsistencies in agency policy would require

us to set aside the Commission’s rules and remand the

case to the agency to allow it to “supply a reasoned

analysis indicating that prior policies and standards are

being deliberately changed, not casually ignored.” Greater

Boston Television Corp. v. FCC, supra, 143 U.S.App.

D.C. at 394, 444 F.2d at 852; accord, New Castle County

Airport Comm’n v. CAB, 125 U.S.App.D.C. 268, 270, 371

F.2d 733, 735 (1966), cert. denied, 387 U.S. 930 (1967).

Because we understand the Commission’s Memorandum

Opinion and Order in the format change proceeding to

constitute a request to this court to reconsider its posi-

tion in WEFM, see 60 FCC 2d at 865-866, and because

As we have already indicated, see note 49 supra, WEFM

only lends support to Commission jurisdiction and does not

control it. Accordingly, there is no need for us to reconsider

WEFM. Moreover, we decline to consider whether WEFM

should be extended into the cable television context since the

Commission itself has argued that WEFM should be confined

rather than extended.

casting. See pages 33-34 supra. Thus, even if the siphon-

ing rules might in some sense increase the public good,

this consideration alone cannot justify the Commission’s

regulations. See generally Hampton v. Mow Sun Wong,

supra.

In addition, the record before us is devoid of any

“reference to the actual preferences of real people.”

While we would be willing to concede that certain for-

mats, such as the World Series, are sufficiently unique

and popular that a factual inquiry into actual preferences

might not be required, this would not seem to be the

case with either feature films or “non-specific” sports

events.” Moreover, there is not even speculation in the

record about what material would replace that which

might be “siphoned” to cable television. Without such a

comparative inquiry, we do not understand how the Com-

mission could define the current level of programming as

a baseline for adequate service. Finally, with regard to

feature films we question how the Commission, which

has stated that it has no criteria by which to distinguish

among formats, could have determined that feature films

are a sufficiently unique format to warrant protection.

The record demonstrates that broadcasters are increas-

ingly substituting made-for-television movies—for which

“siphoning” is not a problem since the broadcasters own

the copyrights—for feature films. See, e.g., First Report

and Order, supra, 52 FCC 2d at 26, JA 50. The in-

ference from this would seem to be that the Commis-

sion has drawn its categories too narrowly and that a

feature film rule may not really be necessary to en-

sure broadcast presentation of popular movie material.

Whether or not this is the case, the inference is cer-

tainl, oo strong to be dismissed, as the Commission has

done heve, without discussion.

% Non-specific sports events are essentially those that occur

during regular season play. See First Report and Order,

supra note 2, 52 FCC 2d at 59, JA 33.

we are hesitant to approve rules which seem incon-

sistent with the Commission’s best thinking in a closely

analogous area, we think we should not affirm the feature

film and sports regulations on the basis of WEFM.

Before reaching a conclusion on whether remand is

necessary, however, we must consider the Commission’s

second theory of jurisdiction.” Our analysis is hampered

by the failure of the Commission to make clear its argu-

ment that Section 1 of the Communications Act,” as

interpreted by this court in NATO v. FCC, supra, re-

quires rules against “siphoning” of material away from

free television. In the subscription broadcast proceeding

the petitioning theater owners sought to block that part

of the Commission’s subscription television rules which

permitted subscription television by arguing that Section

1 of the Act prohibited the Commission from withdraw-

ing one channel from the broadcast spectrum for use by

only the few who might be willing to pay for the privi-

lege of receiving broadcast signals. See First Report, 23

FCC 582, 536-540 (1957). The Commission, in dis-

missing such an interpretation of the Act, stated:

[Section 1 has] been relied on in support of an argu-

ment to the effect that the Act did not contemplate

or permit, and in fact bars authorization by the

In large part this argument appears to be a post hoc ra-

tionalization of counsel which, of course, could not provide a

basis for sustaining the Commission. See Burlington Truck

Lines, Inc. v. United States, 371 U.S. 156, 168-169 (1962).

Section 1 provides in relevant part:

For the purpose of regulating interstate and foreign

commerce in communication by wire and radio so as to

make available, so far as possible, to all the people of

the United States a rapid, efficient, Nation-wide, and

world-wide wire and radio communication service with

adequate facilities at reasonable charges, * * * there is

created a commission to be known as the “Federal Com-

munications Commission” * * *,

47 U.S.C. § 151 (1970).

Commission of a program service, by broadcast sta-

tions, which would be available only to such mem-

bers of the public as were able and willing to pay

a charge. We believe, however, that such a construc-

tion cannot reasonably be made of these excerpts.

Section 1 states the general purposes of the Act in

broad terms. The reference to “all the people of

the United States” does not, for example, preclude

licensing the use of radio frequencies for the safety

and special radio services. Frequencies so allocated

are not available to all the people of the United

States. While the words “at reasonable charges”

evidently refer to the Commission’s regulation of

rates charged by common carriers for message com-

munications, and does not, presumably, refer to

charges for programs disseminated over broadcast

stations, it may be noted that this express reference

to charges is unaccompanied by any prohibitive lan-

guage concerning charges for programs transmitted

by broadcast stations.

Id. at 588. In NATO this court, after reviewing the

legislative history of the Communications Act, 136 U.S.

App. D.C. at 358-360, 420 F.2d at 200-202, agreed, find-

ing that the Act did not prohibit licensing of subscrip-

tion television services, but was indeed “designed to foster

diversity in the financial organization and modus operandi

of broadcasting stations as well as in the content of

programs * * *.” 136 U.S.App.D.C. at 360, 420 F.2d

at 202. Thus, as interpreted by both this court and the

Commission, Section 1 does not itself compel the Com-

mission to protect conventional advertiser-supported tele-

vision broadcasting.

However, counsel for the Commission at oral argu-

ment appeared to be making a second argument about

the meaning of Section 1. Stressing that Section 1 also

mentions that the Commission is to foster “Nation-wide”

service, counsel argued that cable could not be a nation-

wide service in the reasonably foreseeable future and that

“siphoning” would, therefore (the logic behind this

“therefore” is by no means clear), destroy nationwide

service in contravention of the policy of Section 1. See

Transcript of Oral Argument at 57-58. We need not

consider whether Section 1 can be so construed since

counsel’s argument is nothing more than a naked allega-

tion, unsupported in the record. Indeed, the Commis-

sion has nowhere spelled out even a theory of the dy-

namic which could result in loss of broadcast television

service to regions not served by cable. Nor is such a

dynamic readily apparent. For example, cablecasters are

unlikely to withhold feature film and sports material

from markets they do not serve since broadcast of this

material in such markets could not reduce the potentia!

cable audience and because exhibition rights to this ma-

terial would undoubtedly have substantial value. In these

circumstances, the postulated loss of regional service is

too speculative to support jurisdiction. See City of Chi-

cago v. FPC, 147 U.S.App.D.C. 312, 328, 458 F.2d 731,

742 (1971), cert. denied, 405 U.S. 1074 (1972).

Finally, none of the suggested bases for Commission

jurisdiction justifies imposition of the no- advertising“

See note 53 supra.

* No commereial advertising announcements shall be

carried on subscription channels during such operations

except before and after such programs for promotion of

other programs for which a per-program or per-channel

charge is made.

47 C.F.R. § 76.225(e) (1975), as amended by Second Report

and Order, —— FCC 2d ——, 35 P & F RADIO REc. 2D 767

(1975).

and 90-percent “ rules on cable television. These rules

evolved out of the subscription broadcast television pro-

ceeding, see Fourth Report and Order, supra, 15 FCC 2d

at 484, and were retained here apparently because

they raised “little dissent.“ See First Report and Order,

supra, 52 FCC 2d at 66, JA 90. The reasons for which

these rules were adopted in the subscription television pro-

ceeding are not applicable here, however. In the sub-

scription proceeding the Commission determined that the

public interest would not be served if one of very few

available broadcast channels was allocated to subscription

television unless subscription television offered services

distinct from conventional advertiser-supported broadcast-

ing. See 15 FCC 2d at 484. To ensure such a “supple-

mental” role for subscription television, advertising was

prohibited and the broadcast time that could be allocated

to sports and feature films—which were already avail-

able on conventional television—was limited to 90 per-

cent of subscription broadcast time. When these rules

were reviewed by this court, it was again in the context

of a need to allocate scarce spectrum resources. See NATO

v. FCC, supra, 136 U.S. App. D. C. at 365-366, 420 F.2d

at 207-208. Such an allocation problem is clearly not

involved in this case. Moreover, given the abundance of

channels that cable systems can carry, plus the Com-

mission’s rules requiring governmental, educational, and

public access channels on every cable system carrying

broadcast signals, we do not understand the need to

Not more than ninety (90) percent of the total cable-

cast programming hours shall consist of feature films

and sports events combined, * * *

47 C. F. R. § 76.225 (d) (1975), os amended by Second Re-

port and Order, ——— FCC 2d , 35 P & F Rapio REG. 2D

767 (1975).

* 47 C. F. R. §§ 76.251, 76.253 (1975).

restrict feature film and sports programming time to

create the technical conditions for diversity. Without

further explanation of the function these rules are meant

to serve, we cannot affirm the Commission’s authority

to promulgate them,

Although we hold today that the Commission has not

established its jurisdiction on the record evidence be-

fore it, we think it important to note the limits of our

holding. We do not hold that the Commission must find

express statutory authority for its cable television regu-

lations. Such a holding would be inconsistent with the

nature of the FCC’s organic Act and the flexibility

needed to regulate a rapidly changing industry. How-

ever, we do require that at a minimum the Commission,

in developing its cable television regulations, demonstrate

that the objectives to be achieved by regulating cable

television are also objectives for which the Commission

could legitimately regulate the broadcast media. Where

the First Amendment is involved, more will be required.

See Part III infra. Further, we require that the Com-

mission state clearly the harm which its regulations

seek to remedy and its reasons for supposing that

this harm exists. Because our holding is so limited, it is

possible that the Commission will, after remand, be able

to satisfy the jurisdictional prerequisites for regulating

pay cable television. In order to avoid multiple remands,

therefore, we will now consider other objections raised

against these rules.

B. The Evidence

1. Standard of Review

With the exception of the Commission’s ruling in /n re

Home Box Office, Inc., 51 FCC 2d 317 (1975), JA 141,

each of the orders challenged here is the product of rule-

making under Section 303 of the Communications Act,

47 U.S.C. § 303 (1970). Because the statute does not

otherwise indicate, this rulemaking is also informal rule-

making governed by Section 4 of the Administrative Pro-

cedure Act (APA), 5 U.S.C. § 553 (1970), see id. § 553

(a); Ethly Corp. „. EPA, —— U.S. App. D. C. .

——, 541 F.2d 1, 33-34 (1976) (en banc), and the ap-

propriate standard of review is that set out in Section

10 of the APA, 5 U.S.C. § 706 (2) (A)-(D) (1970), see

Ethyl Corp. v. EPA, supra, —— U.S. App. D. C. at

——~—, 541 F.2d at 33-34; National Ass’n of Food Chains,

Inc. „. ICC, —— U.S. App. D.C. , 535

F. 2d 1308, 1313-1314 (1976). See generally Pedersen,

Formal Records and Informal Rulemaking, 85 YALE L. J.

38 (1975); Wright, The Courts and the Rulemaking

Process: The Limits of Judicial Review, 59 CORNELL L.

Rev. 375 (1974).

We have recently had occasion to review at length our

obligation to set aside agency action which is “arbitrary,

capricious, an abuse of discretion, or otherwise not in

accordance with law * *,.” 5 U.S.C. § 706 (2) (A), see

Ethyl Corp. v. EPA, supra, —— U.S.App.D.C. at

——, 541 F.2d at 33-37, and for this reason we need

not labor our aanlysis here. It is axiomatic that we may

not substitute our judgment for that of the agency. Citi-

zens to Preserve Overton Park, Inc. v. Volpe, 401 U.S.

402, 416 (1971). Yet our review must be “searching

and careful,” id., and we must ensure both that the Com-

mission has adequately considered all relevant factors,

see id., and that it has demonstrated a “rational con-

nection between the facts found and the choice made,“

Burlington Truck Lines, Inc. v. United States, 371 U.S.

156, 168 (1962).

Equally important, an agency must comply with the

procedures set out in Section 4 of the APA. Citizens to

Preserve Overton Park, Inc. v. Volpe, supra, 401 US.

at 417. The APA sets out three procedural require-

ments: notice of the proposed rulemaking, an opportunity

for interested persons to comment, and “a concise general

statement of (the] basis and purpose” of the rules ulti-

mately adopted. 5 U.S.C. § 553(b)-(c). As interpreted

by recent decisions of this court, these procedural re-

quirements are intended to assist judicial review as well

as to provide fair treatment for persons affected by a

rule. See Portland Cement Ass’n v. Ruckelshaus, 158

U.S. App. D.C. 308, 326-327, 486 F.2d 375, 393-394 (1973),

cert. denied, 417 U.S. 921 (1974) ; Inter iational Harvester

Co. v. Ruckelshaus, 155 U.S. App. D. C. 411, 445, 478 F.2d

615, 649 (1973); Automotive Parts & Accessories Ass’n

v. Boyd, 132 U.S. App. D.C. 200, 208, 407 F.2d 330, 338

(1968). See also Wright, supra, 59 CORNELL L. REV.

at 380-381. To this end there must be an exchange of

views, information, and criticism between interested per-

sons and the agency. See Portland Cement Ass'n v.

Ruckelshaus, supra, 158 U.S.App.D.C. at 326-327, 486

F.2d at 393-394; ef. National Nutritional Foods Ass'n

v. Weinberger, 512 F.2d 688, 701 (2d Cir.), cert. denied,

423 U.S. 827 (1975). Consequently, the notice required

by the APA, or information subsequently supplied to the

public, must disclose in detail the thinking that has

animated the form of a proposed rule and the data upon

which that rule is based. Portland Cement Ass’n v.

Ruckelshaus, supra, 158 U.S. App. D.C. at 325-327, 486

F.2d at 392-394; International Harvester C.. v. ?uckel-

shaus, supra, 155 U.S.App.D.C. at 445, 47° ¥.2! 649.

Moreover, a dialogue is a two-way sty.%: th por-

tunity to comment is meaningless unless the agency re-

sponds to significant points“ raised by the public. Port-

„ In determining what points are significant, the “arbi-

trary and capricious” standard of review must be kept in

mind. Thus only comments which, if true, raise points rele-

vant to the agency’s decision and which, if adopted, would

land Cement Ass’n v. Ruckelshaus, supra, 158 U.S.App.

D.C. at 326-327, 486 F.2d at 393-394. A response is also

mandated by Overton Park, which requires a reviewing

court to assure itself that all relevant factors have been

considered by the agency. See 401 U.S. at 416; accord,

Duquesne Light Co. v. EPA, 522 F.2d 1186, 1196 (3d

Cir. 1975), vacated on other grounds, —— U.S. —~—,

96 S.Ct. 3185 (June 28, 1976).

From this survey of the case law emerge two dominant

principles. First, an agency proposing informal rule-

making has an obligation to make its views known to the

public in a concrete and focused form so as to make

criticism or formulation of alternatives possible. Second,

the “concise and general” statement that must accompany

the rules finally promulgated

must be accommodated to the realities of judicial

scrutiny, which do not contemplate that the court

itself will, by a laborious examination of the record,

formulate in the first instance the significant issues

faced by the agency and articulate the rationale of

their resolution. * * * [The record must] enable us

to see what major issues of policy were ventilated

by the informal proceedings and why the agency

reacted to them as it did.

Automotive Parts & Accessories Ass’n v. Boyd, supra,

132 U.S.App.D.C. at 208, 407 F.2d at 388; accord,

National Nutritional Foods Ass’n v. Weinberger, supra,

512 F.2d at 701; Pillai v. CAB, 158 U.S. App. D.C. 239,

244-252, 485 F.2d 1018, 1023-1031 (1973); National Air

require a change in an agency’s proposed rule cast doubt

on the reasonableness of a position taken by the agency.

Moreover, comments which themselves are purely speculative

and do not disclose the factual or policy basis on which they

rest require no response. There must be some basis for

thinking a position taken in opposition to the agency is true.

See Portland Cement Ass’n v. Ruckelshaus, 158 U.S. App. D.C.

308, 326-327, 486 F.2d 375, 393-394 (1973).

Carriers Ass’n v. CAB, 141 1 me

2d 185, 198-199 (1970); cf. Camp v. 0 .

a 142-143 (1973) ; Citizens to Preserve Overton Park,

Inc. v. Volpe, supra, 401 U.S. at 420.

2. Applying the Standard

(a) The Need for Regulation

At the outset, we must consider whether the a.

sion has made out a case for undertaking * N bs 4

all since a “regulation perfectly reasonable an 15 =

ate in the face of a given problem may be a.

pricious if that r Z R.. ew * cya A

147 U.S. App. D. C. 1 :

oan ae Commission has framed the problem it

is addressing as uA

how cablecasting can best be regulated - —

beneficial supplement to over-the-air * —

without at the same time undermining the con

operation of that “free” television service.

Notice of Proposed Rule Making and rr —

ion and Order, supra, 35 FCC 2d at 898, JA 6. 7 —

the problem this way, however, is to gloss over e —

that the Commission has — no — ayy — 4 —

television must be a sup » rath

— broadcast television. Such an artificial —

rowing of the scope of the regulatory problem — re

arbitrary and 1 — * = —

illai v B. supra, 8. D. C. 2 „ 48! ö

— ponte nny by narrowing its 2 N —

way the Commission has —.— to 33 a 4

about “siphoning.

: peor wee as selective bidding away 1 —

ming from conventional television, see First f aif “«

Order, supra, 52 FCC 2d at 49, JA 73, sometimes = 2

see id. at 50, JA 74, and sometimes (perhaps) Ae

nancial collapse of conventional broadcasting, compare 1d.

at 45, JA 69, with Second Report and Order, supra.

FCC 2d at , 35 P & F Rapio Rec. 2p at 772, JA

136. As a result, informed criticism has been precluded

and formulation of alternatives stymied.”

Setting aside the question whether siphoning is harm-

ful to the public interest, we must next ask whether the

record shows that siphoning will occur. The Commission

assures us that siphoning is “real, not imagined.” First

Report and Order, supra, 52 FCC 2d at 50, JA 74. We

find little comfort in this assurance, however, because the

Commission has not directed our attention to any com-

ments in a voluminous record which would support its

statement. Moreover, whatever evidence the Commission

thought it had was self-admittedly insufficient to give it

a “clear picture as to the effects of subscription tele-

vision upon conventional broadcasting.“ Id. at 49, JA

This deficiency was brought to the attention of the Com-

mission by, among others, the Justice Department:

[Blefore the question posed [as to the existence of al-

ternatives] can be answered, the Commission must de-

fine exactly what public interests it seeks to protect. Un-

til such a determination is made, the Commission cannot

conclude whether there exists a “less restrictive” means

of serving the public interest. To date, the Commission

has not demonstrated exactly what public interest it

advances by retarding pay cablecasting.

Comments of the Department of Justice in Docket No. 19554,

at 26, JA 251 (Nov. 1, 1972) (emphasis in original).

% The Commission’s lack of a clear picture is directly at-

tributable to its own choice to regulate rather than allow a

period of unregulated experimentation in which data could be

generated that could form a predicate for informed agency

action. This decision was taken over the objections of a

number of parties to this proceeding. See, e. g., Reply Com-

ments of the United States Department of Justice in Docket

No. 19554, at 13, JA 280 (Oct. 4, 1974); Comments of Walter

S. Baer, Henry Geller, and Leland L. Johnson Docket No.

19554, at 11-14, JA 293-296 (Sept. 20, 1974). The sole basis

73. Our own review of the First Report and the joint

appendix filed in these cases suggests that, if there is any

evidentiary support at all, it is indeed scanty. As to the

potential financial power of cable television we are left

to draw the inference from two facts—that championship

boxing matches often appear only on closed-circuit tele-

vision in theaters and that Evel Knievel chose to televise

his jet-cycled dive into the Snake River in the same fash-

ion—and a series of mathematical demonstrations. See id.

at 9, JA 33. See also Memorandum Opinion and Order,

supra, 23 FCC 2d at 828 n.6 (Docket 18397) (reliance

on mathematical demonstration). While the former may

be directly relevant to siphoning of what the Commission

has characterized as “specific” sports events, it is not

at all clear what light they shed on the question of who

for the Commission’s choice to go forward is the conclusory

statement that action was needed at a ‘time when it in-

volves no disruption of existing patterns.’” First Report

and Order, supra note 2, 52 FCC 2d at 49, JA 73, quoting

Memorandum Opinion and Order, 23 FCC 2d 825, 828 (1970)

(Docket 18397). However, this position is precisely the op-

posite of that the Commission took in its First Report and

Order in Docket 18397, 20 FCC 2d 201 (1969), see notes 5 &

27 supra. There the Commission expressly refused to impose

regulations like those challenged here until it gained “some

further experience in this area.” Id. at 204. In particular,

the Commission noted that there was no “trend calling for

action in the public interest,” id., and that the data de-

veloped in the subscription broadcast television proceeding

was not apposite, id. The Commission has not called our

attention to any data which would fill the gaps in its ex-

perience identified in 1969, and we can find none in the

record.

In this state of affairs, where there is no evidence of any

urgent need for preventive action and where approval of the

Commission’s position would foreclose the possibility that

data could be generated in the future that would allow fully

informed decisicnmaking, we are disinclined to give the Com-

mission the “benefit of the doubt” which it argues it should

have. See br. for respondent FCC at 52-53.

is going to pay how much to see feature films and non-

specific sports events on pay cable.“

The meaning of the various mathematical demonstra-

tions is even less certain. Petitioner American Broad-

casting Companies, Inc., for example, has proposed the

following technique for estimating the relative income

available to cable and conventional television:

30. The most comprehensive attempt to develop

a methodology for making this comparison is con-

tained in the reply comments of the American

Broadcasting Company. It there developed a formula

for estimating the pay cable dollars available for

the purchase of any particular program. The for-

mula, in somewhat simplified terms, is as follows:

(Total households) x (percent of households

with tv sets) x (percent of households with tv

sets that are cable tv subscribers) x (percent

of cable tv subscribers that have pay cable op-

tion available) x (percent of subscribers with

pay option that are pay subscribers) x (percent

of pay subscribers that view program in ques-

tion) x (charge to subscriber for program) x

(percent of subscription charge passed through

to program supplier)==(total national pay cable

dollars available for the purchase of program

in question).

ABC’s own assumptions as to the state of the pay

cable television industry in 1980 are as follows:

e Specific sports events are defined in the First Report and

Order, supra note 2, 52 FCC 2d at 59-60, JA 83-84, and in 47

C. F. R. 88 76.225 (b) (1)-(b) (2) (1975). The record reveals

that evidence relating to the siphoning of nonspecific sports

events is scanty but that available data indicate “that there

has been no interference with established over-the-air broad-

casting patterns.” Comments of Professional Baseball in

Docket 19554, at 28, JA 1069 (Sept. 20, 1974).

TE RS RE SET ATED BN ee BE Wie Ae 75,400,000

TV set penetration 1 percent. 97

ß. 1 35

CATV penetration with pay TV potential do- 80

Pay subscriber penetration of systems

reer. 22 15

Percent of pay subscribers viewing

r a 50

Charge to subscriber for program dollars.... 2.25

Percent of pay fee collected passed on to

program producers percent... 35

In the circumstance posited by ABC, slightly more

than 1.5 million homes would pay $2.25 each for a

particular program making available slightly more

tha[n] $1.2 million dollars to the pay cable industry

for the purchase of the program in question. This,

ABC suggests, compares with the $1.5 million dol-

lars a network might pay for two showings of a

“blockbuster” feature film like Love Story during a

five-year period, and with the $1 million dollars that

might be paid for a movie of somewhat less appeal.

First Report and Order, supra, 52 FCC 2d at 9-10, JA

33-34. From this demonstration American Broadcasting

Companies and other petitioners who presented similar

mathematical models would draw the conclusion that

[play cable operations will have more money than

television stations or television networks to purchase

programming and, being creatures of a competitive

economic system, will inevitably purchase much of

the best programming now broadcast on free televi-

sion and leave free television only with what is left

our.” * *

Id. at 10, JA 34.

Even conceding the accuracy of the figures used (a

concession which finds no support in the record, how-

ever), we think the proponents of the mathematical

models have not proved their case. The problem is the

incommensurability of the ultimate figures compared: na-

tionwide income of pay cablecasters in 1980 on the one

—QUU—U—ʒñũ̃. U 2

——— —

—— —

——

hand, and recent, but historical,“ network expenditures

on the other.“ It seems patently obvious that no com-

parison is valid unless financial figures are extrapolated

to the same year. More important is the potential for

distortion introduced into the comparison by using income

on one hand versus expenditure on the other. The

Justice Department and other petitioners have repeatedly

pointed out that the conventional television industry is

highly concentrated and is, therefore, likely to enjoy sub-

stantial monopoly and monopsony power. See, e.g., Com-

ments of the United States Department of Justice in

Docket No. 19554, at 20, JA 168 (April 7, 1969) ; Com-

ments of the United States Department of Justice in

Docket No. 19554, at 15-16, JA 194-195 (Sept. 5, 1969).

Evidence consistent with such an inference is readily

available. For example, Noll, Peck and McGowan report

that television broadcast stations enjoyed a 20 percent

return on sales in 1969 versus eight percent for all manu-

facturing industry“ and suggest that this is evidence

that “competition is less rigorous in television than else-

where in the economy.“ To be sure, television and man-

ufacturing are very different industries, and had the

Commissicn evaluated and rejected the arguments of

the Justice Department and others a different question

The precise date of network expenditure data is not

clear. American Broadcasting Companies’ presentation to the

Commission used 1972 data. See Further Comments of Amer-

ican Broadcasting Companies, Inc. in Docket No. 19554, at 14,

JA 698 (Sept. 20, 1974). In general, data contemporaneous

with the date of comment submission seem to have been used.

The deficiencies noted here were pointed out to the Com-

mission in Comments of Optical Systems Corp. in Docket No.

19554, at 22, JA 1002 (Sept. 20, 1974).

R. NOLL, M. PECK & J. MCGOWAN, supra note 42, at 16.

The National Association of Broadcasters has estimated that

1975 profit margins will average 18.9 percent. See Broad-

casting, July 26, 1976, at 19.

% R. NOLL, M. PECK & J. MCGOWAN, supra note 42, at 17.

would be presented on this review. But the Commission

did not consider whether conventional television broad-

casters could pay more for feature film and sports ma-

terial than at present without pushing their profits be-

low a competitive return on investment and, conse-

quently, it could not properly conclude that siphoning

would occur because it could not know whether or how

much broadcasters, faced with competition, would in-

crease their expenditures by reducing alleged monopoly

profits. Since the Commission did not assess either po-

tential distorting effect of the comparison offered by

the broadcasters, any conclusion it may have drawn from

this evidence would be arbitrary.

We have similar difficulties with the second cardinal

assumption of the Commission, i.e., that “siphoning”

would lead to loss of film and sports programming for

audiences not served by cable systems or too poor to

subscribe to pay cable. See Transcript of Oral Argument

at 61-62; br. for respondent FCC at 53-54. To reach

such a conclusion the Commission must assume that cable

firms, once having purchased exhibition rights to a pro-

gram, will not respond to market demand to sell the rights

for viewing in those areas that cable firms do not reach.

We find no discussion in the record supporting such an

assumption. Indeed, a contrary assumption would be

more consistent with economic theory since it would prima

facie be to the advantage of cable operators to sell broad-

cast rights to conventional television stations in regions

of the country where no cable service existed. Moreover,

the greater the area not covered by cable, the greater

the demand would tend to be for broadcast rights, and

the more likely it would be that, through a combination

of cable and broadcast, nationwide coverage would be

achieved.

We find the Commission’s argument that “siphoning”

could lead to loss of programming for those too poor to

purchase cable television more plausible. Here again,

however, we find that the Commission has not documented

its case that the poor would be deprived of adequate tele-

vision service and, worse, that the Commission, by pro-

hibiting advertising in connection with subscription op-

erations, has virtually ensured that the price of pay cable

will never be within reach of the poor. There is little

disagreement at the theoretical level about the mechanism

through which the poor would be deprived of broadcast

service in markets served by cable television. Cable op-

erators, to be able to sell a show, would require exclusive

exhibitions rights in the markets they served, with the

result that events purchased by cable operators for sub-

scription presentation would be unavailable to broad-

casters, or would be available only after a delay. What

follows from this scenario, even assuming that cable

operators would have the financial strength to outbid

broadcasters, is by no means clear. There is uncontra-

dicted evidence in the record, for example, that the popu-

larity of film material does not decline with an increase

in the interval between first theater exhibition and first

television broadcast. See Comments of Program Suppliers

in Docket No. 19554, at 21, JA 386 (Nov. 1, 1972).

At least as to movies, therefore, “siphoning” may not

harm the poor very much.

Equally important, the pay cable rules taken as a

whole scarcely demonstrate a consistent solicitude for

the poor. Thus, although “free” home viewing relies upon

advertiser-supported programming, the Commission has

in this proceeding barred cable firms from offering ad-

vertising in connection with subscription operations. See

note 55 supra. As a result, the Commission forecloses

the possibility that some combination of user fees and

advertising might make subscription cable television avail-

able to the poor, giving them access to the diverse pro-

gramming cable may potentially bring. As has already

been noted, see pages 46-48 supra, the advertising ban sec-

tion of the regulations was developed to meet wholly dif-

ferent regulatcry problems and it has been retained here,

not because of its intrinsic merit, but only because no one

objected too much. We are thus left with the conclusion

that, if the Commission is serious about helping the poor,

its regulations are arbitrary; but if it is serious about

its rules, it cannot really be relying on harm to the poor.

Whatever may be the ultimate validity of this argument,

its principal defect on this review is that there is no

record evidence to support it.

(b) Consideration of Anticompetitive Effects

Many petitioners, while not conceding the need for

regulation, press a series of additional objections to the

rules which collectively represent a charge that the Com-

mission has failed to consider anticompetitive effects of

the regulatory strategy it has adopted. For analytic pur-

poses the various theories of petitioners can be treated

as two: first, a contention that the Commission has in-

adequately resolved traditional antitrust objections to

the strengthening of broadcasters’ monopsony power over

the feature film and sports broadcasting industries; and,

second, that the Commission has similarly been oblivious

to the rules’ negative impact on its otherwive long-

standing policy favoring diversification of control of pro-

gramming choices. We will treat these arguments

seriatim.

Although much attention has been paid in brief to the

question whether the Commission was obliged to consider

traditional antitrust issues in formulating rules to be

issued under its “public interest, convenience, or neces-

sity” standard, we do not think this precise issue is

before us at this time. Throughout this proceeding the

Commission has sought comments on the anticompetitive

impact of its rules and has asked that less restrictive al-

ternatives be presented to it. Notice of Proposed Rule-

making and Memorandum Opinion and Order, supra, 35

* 47 U.S.C. § 303 (r) (1970).

FCC 2d at 898 (J 12 (b)), JA 6. The Commission, in

its First Report and Order, also treated the antitrust

issue as one which required an answer and properly

stated the issue raised:“ “whether the public interest

considerations which underlie the rules outweigh the pub-

lic interest considerations in support of unfettered com-

petition.” 52 FCC 2d at 45, JA 69. Because the Com-

mission has throughout these proceedings found the anti-

trust issue to be relevant to discharge of its public in-

terest obligation,“ the only issue properly before this

court is whether the Commission met its obligation to

We do not agree with the suggestion of some petitioners

that the Commission must demonstrate that the means it

has chosen have the least impact on competition consistent

with achievement of the Commission’s purposes. To the ex-

tent that First Amendment and antitrust considerations co-

incide, it is necessary to make such a showing. See pp. 76-77

infra. Otherwise, we think our recent decision in United

States v. CAB, 167 U.S.App.D.C. 313, 318-320, 511 F.2d

1315, 1320-1322 (1975), is controlling and requires rejection

of a least restrictive alternative approach. In that case the

Justice Department, advocating a least restrictive alternative

approach, challenged CAB action under § 102 of the Federal

Aviation Act, 49 U.S.C. § 1802 (1970), which expressly in-

corporates anticompetitive effect as one of six factors to be

considered in assessing the “public convenience and neces-

sity.” The Department’s argument was rebuffed in favor

of a balancing approach on the basis of a number of prece-

dents. Anticompetitive factors are also only one of a number

of factors to be considered under the Communications Act,

see, e.g., National Broadcasting Co. v. United States, 319 U.S.

190, 222-224 (1943); FCC v. RCA Communications, Inc., 346

U.S. 86, 94 (1953) ; United States v. Radio Corp. of America,

358 U.S. 334 (1959). Because of the similarity in statutory

schemes, we think United States v. CAB, supra, controls our

standard of review here.

There can be no question that the Commission can prop-

erly consider antitrust issues. See, e.g., National Broad-

casting Co. v. United States, supra note 67, 319 U.S. at 222-

224; FCC v. RCA Communications, Inc., supra note 67, 346

make a record “enabl[ing] us to see * * * why the agency

reacted to [major issues of policy] as it did.” Automo-

tive Paris & Accessories Ass’n v. Boyd, supra, 132 U.S.

App.D.C. at 208, 407 F.2d at 338; see pages 51-52

supra, The short answer is: It did not.

We cannot fathom how the Commission reached the

conclusion that the balance here should be struck in favor

of regulation. Paragraph 150 of the First Report and

Order, which contains the only discussion purporting to

be an explanation, is obviously flawed and is completely

irrelevant to most of the antitrust issues raised.“ The

Commission analogizes the regulatory problem here to

that presented in United States v. Southwestern Cable

Co., supra. This is simply incorrect. The exclusivity and

distant signal rules reviewed there did not implicate

questions of anticompetitive impacts on filmmakers or

sports entrepreneurs and presented no occasion for an

attempt to quantify or qualify the competitive harm re-

sulting from reinforcing broadcasters’ monopsony power

over those industries. Nor did these rules address situa-

tions of alleged selective siphoning; the harm to be avoided

was fragmentation of audiences leading to the financial

demise of UHF and educational broadcasting. Economic

harm in this sense is not at issue here, as the Commis-

sion itself recognizes. See Memorandum Opinion and

Order, supra, 54 FCC 2d 800-802, JA 120-122 (5% 10,

11, 18). See also pages 36, 52-53 supra. Moreover, even a

cursory glance at the Supreme Court’s opinion in South-

western Cabie Co. would show that the Court did not,

U.S. at 94; United States v. Radio Corp. of America, supra

note 67, 358 U.S. at 351; General Telephone Co. of South-

west v. United States, 449 F.2d 846 (5th Cir. 1971); Nat’l

Ass'n of Independent Television Producers & Distributors v.

FCC, 502 F.2d 249, 256 (2d Cir. 1974).

** The Commission's own excellent summary of the antitrust

and diversity issues presented can be found in the First Re-

port and Order, supra note 2, 52 FCC 2d at 37-39, JA 61-63.

contrary to the assertion of the Commission here, affirm

the Commission’s findings that anticompetitive effects

could be tolerated because cable use of broadcast signals

constituted “unfair competition” and consequently regula-

tion was needed “to ameliorate the risk that the burgeon-

ing CATV industry would have a future adverse impact

on television broadcast service, both existing and po-

tential * * *.” 52 FCC 2d at 45, JA 69. Instead the

Court permitted regulation because it would further the

congressionally approved goals of “significantly wider use

of the available ultra-high-frequency channels,” and

of “encourage[ment of] * * * sound and adequate pro-

grams to utilize the television channels now reserved for

educational purposes.” 392 U.S. at 174-175, quoting H.R.

Rep. No. 1635, 89th Cong., 2d Sess. 7 (1966). Therefore,

Southwestern Cable Co. certainly does not establish the

proposition that “unfair competition” requires the gen-

eral protection of broadcast television.

Even had the Southwestern Cable Co. Court approved

the Commission’s “unfair competition” argument, appli-

cation of that argument to cablecasting rather than re-

transmission of broadcast signals is unsupportable. What

was considered unfair by the Commission in the distant

signal cases was that cable was competing with local

broadcasters by bringing into the local area identical

programming plucked out of the air from distant sta-

tions. Because local broadcasters had to pay copyright

royalties for this material and cable did not, cable was

thought to have an unfair advantage. Here, however,

cablecasters and broadcasters alike must pay copyright

royalties, and there is no evidence that the cablecasting

function is in any way subsidized by cable’s broadcast

retransmission function. Even if there were such evi-

dence, reliance on the “unfair competition” argument

Under the recently amended Copyright Act cable opera-

tors will have to pay royalties for use of broadcast signals.

See Pub. L. No. 94-553, § 111, 90 STAT. 2550-2558 (1976).

would still be misplaced since any exaction of an in-

direct charge from pay cable operators to redress the

alleged competitive imbalance would raise the costs of

cable services which must be paid by home viewers, an

effect that would disadvantage the poor, thereby under-

cutting the Commission’s stated authority for promulgat-

ing the pay cable rules. See pages 58-60 supra. Finally,

we do not perceive any public benefit to be achieved by

hobbling cable television to correct the sort of unfair com-

petition alleged by the Commission.“ The Supreme Court

has found that cable’s free use of broadcast signals does

not affect the amount of compensation paid to copyright

holders, Teleprompter Corp. v. Columbia Broadcasting

System, Inc., 415 U.S. 394, 412-418 (1974), and there

can be no doubt that the absence of a charge serves!

the cause of promoting broad public availability of litera-

ture, music, and the other arts,” Twentieth Century Music

Corp. v. Aiken, 422 U.S. 151, 156 (1975).

We further agree with the Justice Department that

the issue of the reasonableness of the balance struck be-

tween regulatory and competitive goals, where these di-

verge, is a matter to be tested on the basis of material

in the rulemaking record, not on the basis of legal pre-

cedent. Because of this, we think it odd that the Depart-

ment has not presented factual data to the Commission

which would allow it to assess the likely effect of its

rules on various fields of competition. The Department’s

" Kor this reason any Commission solicitude for the broad-

cast networks would be misplaced. See FCC v. Sanders Bros.

Radio Station, 309 U.S. 470 (1940) ; Carroll Broadcasting Co.

v. FCC, 103 U.S. App. D.C. 346, 258 F.2d 440 (1958). More-

over, the network petitioners have shown no economic injury

to them arising from cable’s free use of broadcast signals,

and we doubt that such a showing could be made. Ser Tele-

prompter Corp. v. Columbia Broadcasting System, Inc., 415

U.S. 394, 412 (1974) (fee broadcasters can charge is in-

creased by the number of viewers added through cable re-

transmission).

arguments are basically speculative: they are premised

on the unverified assumption that enhancement of com-

petition—actual or potential—is always a good. Cer-

tainly there are no “specific findings” proposed, although

the Department would impose such a standard on the

Commission.“ Indeed, the only argument presented that

rises above the speculative is one based on legal pre-

cedents, not fact—that a private agreement to accom-

plish the result dictated by the pay cable rules would

In this respect the Department’s arguments fall short of

the standard of significance required to mandate a Com-

mission rebuttal. See p. 50 & note 58 supra.

Serious questions would be raised if the Commission

sought to justify its rules solely on the basis of such a pre-

sumption. The Supreme Court in FCC v. RCA Communica-

tions, Inc., supra note 67, while recognizing that enhance-

ment of competition was a relevant factor, reversed the Com-

mission because it had not shown that “competition would

serve some beneficial purpose.” 346 U.S. at 94. Similarly,

the Court has held that the Commission may not deny a li-

cense solely on the ground that a grant would facilitate or

constitute an antitrust violation. See United States v. Radio

Corp. of America, supra note 67. These cases would seem

to stand for the proposition that the Commission may not as-

sume that enhancement of competition is beneficial to the

public interest unless it has examined the consequences of

competition for the interests of listeners and viewers. See

also Citizens Committee to Save WEFM v. FCC, 165 U.S.

App.D.C. 185, 206, 506 F.2d 246, 267 (1974) (en banc).

** We do not adopt the suggestion of the Justice Department

and other petitioners that the Commission must make specific

findings concerning anticompetitive effects and regulatory

benefits before it can properly assess the antitrust issue. Cases

cited in support of this proposition all involved agency ad-

judication or formal rulemaking in which a record is cre-

ated under the strictures of rules of evidence and the stand-

ard of review is substantial evidence. Findings and a record

of the type mandated in such proceedings are not generally

required in informal rulemaking, and we see no need to dif-

ferentiate between antitrust issues and all other issues in

reviewing agency action.

be a boycott and unlawful per se. Br. of respondent

United States at 19. Thus while we appreciate and

salute the participation of the Justice Department in

these proceedings, in the future a greater contribution

could be made if the Department, which is, after all, the

repository of antitrust expertise in the federal govern-

ment, would work with the Commission in developing

the type of data necessary to an informed decision.

Petitioners’ second argument—that the pay cable rules

consolidate network control over program production and

selection and are, therefore, inconsistent with other Com-

mission policy and, perhaps, the First Amendment—had

more force prior to repeal of the series restrictions in

the Second Report and Order, supra. We agree with

petitioners that the series rule would have restricted the

market for independently produced entertainment pro-

gramming, thereby creating an effect directly contrary to

that sought to be achieved in the Prime Time Access

Rules proceedings.“ As a result the series rules could

not have been sustained on the record before us. See

Greater Boston Television Corp. v. FCC, supra, 143 U.S.

App.D.C. at 394, 444 F.2d at 852; New Castle County

Airport Comm’n v. CAB, supra, 125 U.S.App.D.C. at

270, 371 F.2d at 735. The related argument of some

petitioners that the rules will have the effect of reduc-

ing the economic feasibility of cablecasting minority-

interest programming, and hence of reducing diversity,

is plausible, but we cannot say on this record that the

> See Report and Order, 23 FCC 2d 382, 384-395 (1970),

modified, 25 FCC 2d 318 (1970), further modified, 44 FCC

2d 1081 (1974). Interestingly, the purpose of the Prime Time

Access Rule was to help UHF television stations by increas-

ing the supply of quality product. The series programming

restriction, by working against this policy, therefore also

worked against an outcome found vitally important by the

Supreme Court in United States v. Southwestern Cable Co.,

supra note 24, a case the Commission has nonetheless in-

voked in support of its rulemaking authority here.

postulated effect is more than speculative. Certainly an

inquiry into this problem would be appropriate in any

proceedings the Commission might have on remand. Cf.

Citizens Commitlee to Save WEFM v. FCC, supra.

III. First AMENDMENT

More stringent, but substantially similar rules to those

adopted in the dockets under review here were upheld by

this court in NATO v. FCC, supra, and it is wholly be-

cause of this precedent that the Commission believes the

instant rules to be consistent with the First Amendment.

See First Report and Order, supra, 52 FCC 2d at 44 (

148), JA 68. Although we today reaffirm our holding in

NATO, see Part V infra, we decline to extend NATO

to Commission regulation of cable television since we find

important differences between cable and broadcast tele-

vision and “differences in the characteristics of new

media justify diffferences in the First Amendment stand-

ards applied to them.” Red Lion Broadcasting Co. v.

FCC, 395 U.S. 367, 386 (1969).

Despite the novelty and complexity of the anti-

siphoning rules challenged in NATO, the constitutional

question decided there was straightforward: whether a

grant of a broadcast license could be conditioned on terms

which made reference to “the kind and content of pro-

grams being offered to the public.” 136 U.S. App. D. C.

at 365, 420 F.2d at 207. Phrased this way, the issue

could be readily resolved on the basis of time-tested and

well-known theories of the First Amendment. “With

everybody on the air,” wrote Justice Frankfurter over

30 years ago, “nobody could be heard. [The radio

spectrum simply is not large enough to accommodate

everybody. There is a fixed natural limitation upon the

number of stations that can operate without interfering

with one another. Regulation of radio was therefore“

vital to its development * * *.” National Broadcasting

Co. v. United States, 319 U.S. 190, 212-213 (1943)

(footnote omitted). Although government division of

the spectrum into discrete segments and subsequent al.

location of those segments does not necessarily entail

comparative licensing for example, some have suggested

that spectrum segments could be auctioned to the high-

est bidder, thereby obviating the need for government

control of the allocation process the National Broadcast-

ing Co. Court refused to restriet the Commission to the

role of a “traffic officer, policing the wave lengths to

prevent stations from interfering with each other.” 319

U.S. at 215. Instead, the Court held it constitutionally

permissible to allocate channels to “ ‘render the best prac-

ticable service to the community reached * * *,’” id. at

216, quoting FCC v. Sanders Bros. Radio Station, supra,

309 U.S. at 475, and, because of the scarcity of broad-

east facilities, this necessarily allowed “comparative con-

siderations as to the [kind and content of program] serv-

ices to be rendered * * *,” id. at 217; see id. at 226-227;

accord, Red Lion Broadcasting Co. v. FCC, supra, 395

U.S. at 394; Gross v. FCC, 480 F.2d 1288, 1291-1292

(2d Cir. 1973); Carter Mountain Transmission Corp. v.

FCC, supra, 116 U.S.App.D.C. at 98, 321 F.2d at 364.

Review of Commission deliberations culminating in the

rules affirmed in NATO reveals plainly that the sole

purpose of the subscription broadcast television inquiry

and the pilot subscription television operations was to

determine how to allocate television licenses so that the

overall service rendered a community was the “best prac-

76 See also Red Lion Broadcasting Co. v. FCC, 395 U.S. 367,

386-388 (1969); T. EMERSON, THE SYSTEM OF FREEDOM OF

EXPRESSION 660-667 (1970); Robinson, The FCC and the

First Amendment: Observations on 40 Years of Radio and

Television Regulation, 52 MINN. L. REV. 67, 85-86 ( 1967).

But see Kalven, Broadcasting, Public Policy and the First

Amendment, 10 J. LAW & ECON. 15, 30-32 (1967).

See, e. g., Kalven, supra note 76, 10 J. LAW & ECON. at

30-32.

ticable.” * Therefore, there was no need for NATO to

break new First Amendment grouna, and a reading of

the NATO opinion will show that it did not do so.”

The First Amendment theory espoused in National

Broadcasting Co. and reaffirmed in Red Lion Broadcast-

ing Co. cannot be directly applied to cable television since

See generally Fourth Report and Order, supra note 5.

The NATO court did not itself rely on National Broad-

casting Co., although the opinion as a whole is intended to

be a response to the rather narrow question of the Commis-

sion’s authority to allocate television channels to subscription

stations. Nonetheless, the First Amendment discussion in

NATO does recognize the scarcity rationale and cite cases

which in turn rely on National Broadcasting Co. See 136 U.S.

App. D. C. at 365 & n.35, 420 F.2d at 407 & n.35. Ultimately,

however, primary reliance was placed on tests developed in

Banzhaf v. FCC, 132 U.S.App.D.C. 14, 33-35, 405 F.2d 1082,

1101-1103 (1968), cert. denied, 396 U.S. 842 (1969), a case

which affirmed the Commission’s authority to order presenta-

tion of material rebutting cigarette commercials. See 136 U.S.

App.D.C. at 366, 420 F.2d at 408. The First Amendment hold-

ing in Banzhaf, which relied on the commercial speech doc-

trine, has been limited by the subsequent cases of Bigelow v.

Virginia, 421 U.S. 809 (1975), and Virginia State Board of

Pharmacy v. Virginia Citizens Consumer Council, Inc., 425

U.S. 748 (1976), and would not in any case be directly appli-

cable to suppression of film and sports programming. On the

other hand, Banzhaf’s requirements that ideas not be affected

and that on balance diversity of expression be increased by

regulation, applied by the NATO court, see 136 U.S.App.D.C.

at 366, 420 F.2d at 408, come directly from National Broad-

casting Co., see 319 U.S. at 226-227, and Red Lion Broadcast-

ing Co., see 395 U.S. at 393. Thus, if NATO moves beyond

National Broadcasting Co. at all, it is only to the extent that

it imposes the additional requirement that regulation increase

diversity. NAT O's conclusion that the subscription broadcast

television rules would increase diversity is not, however, trans-

ferable to the pay cable rules since any assessment of First

Amendment gains and losses must be made on the basis of

the record in front of us today and not on the basis of legal

precedent.

an essential precondition of that theory—physicai inter-

ference and scarcity requiring an umpiring role for gov-

ernment—is absent.“ Interference among speakers on a

The Commission in brief has argued that, regardless of

the applicability of NATO, decisions affirming prior cable

television rules, including some applicable to cable systems

that did not use broadcast signals, provide precedent for up-

holding the pay cable rules against a First Amendment at-

tack. We think the Commission’s reliance is misplaced, as a

review of the cited cases will show. In some cases the First

Amendment issue was simply not mentioned and may not

even have becn raised on review. See, e.g., United States v.

Midwest Video Corp., 406 U.S. 649 (1972); United States v.

Southwestern Cable Co., supra note 24. In others the rationale

was the scarcity argument developed in National Broadcast-

ing Co. The earliest of these cable cases, Carter Mountain

Transmission Corp. v. FCC, 116 U.S.App.D.C. 93, 321 F.2d

359, cert. denied, 375 U.S. 951 (1963), did not in fact deal

with regulation of cable television. It held simply that the

Commission could deny a microwave license to a cable system

operator for use in retransmitting broadcast signals in con-

junction with cable television unless he agreed to use the

licensed facility in 2 manner not endangering the economic

health of broadcasters serving the same area. This principle

is uncontroversial, see FCC v. Sanders Bros. Radio Station,

supra note 71, 309 U.S. at 476, and was justified entirely on

Justice Frankfurter’s logic in National Broadcasting Co. See

116 U.S. App. D.C. at 98, 321 F.2d at 364. A similar fact situa-

tion was presented in Idaho Microwave, Inc. v FCC, 122

U.S.App.D.C. 253, 352 F.2d 729 (1965). The subsequent case

of Buckcue Cahlevision, Inc. v. FCC, 128 U.S. App. D.C. 262,

387 F.2d 220 (1967), did involve application of Commission

rules to a cable system that did not use microwave broadcast

facilities. The issue presented was whether Commission rules

prohibiting cable transmission of signals imported from dis-

tant broadcast stations (now codified at 47 C. F. R. §§ 76.51-

76.161 (1975)) violated cable operators’ First Amendment

rights. In holding that the rules were constitutional the court,

without discussion, cited National Broadcasting Co. and Car-

ter Morntain. thus apparently incorrectly treating the case as

one involving the scarcity and «llocation rationale. See 128

U.S. App. D.C. at 267 n.23, 387 F.2d at 225 n.23. The Eighth

single cable is controlled by electrical equipment which

divides the cable into channels and by the owners of the

Circuit, in passing on the same rules, cited National Broad-

casting Co. and Buckeye Cablevision and similarly treated the

issue as one indistinguishable from broadcasting:

The Commission’s [rules] regulating CATVs ha[ve] the

same constitutional status under the First Amendment

as regulation of the transmission of signals by the origi-

nating television stations. * * * The crucial consideration

is that they do use radio signals * *.

R * *

Black Hills Video Corp. v. FCC, 399 F.2d 65, 69 (8th Cir.

1968). Other cases cited by the Commission rely on various

combinations of National Broadcasting Co., Carter Mountain,

Buckeye Cablevision, or Black Hills Video. In these cireum-

‘stances, the cited cases provide no independent support for

the constitutionality of the pay cable rules.

To the extent that Black Hills Video stands for the proposi-

tion that the Commission in some sense “owns” the broadcast

spectrum and can condition use of broadcast signals accord-

ingly, it must be rejected. The public owns parks, sidewalks,

and other “public forums,” and yet it is beyond argument

that use of such property by the public cannot be conditioned

on whether the government agrees with or desires to allow

or disallow the ideas which a speaker seeks to convey. See,

e.g., Police Department v. Mosley, 408 U.S. 92, 97-98 (1972) ;

T. EMERSON, supra note 76, at 660. Moreover, on the record

before us there is no evidence that cablecasting and signal

retransmission are not completely separate and distinct activi-

ties, cf. Teleprompter Corp. v. Columbia Broadcasting System,

Inc., supra note 71, 415 U.S. at 405 (no “nexus” between

broadcast and retransmission functions); consequently any

constitutionally permissible public control over broadcast sig-

nals is beside the point as justification for control of the

cablecast function. Further, as we have already indicated,

see note 44 supra, Commission power over recipients of

broadcast signals would not extend to access cablecasters.

We express no opinion here on the question whether Com-

mission control of microwave radio links used by cablecast

networks would extend the Commission’s constitutionally per-

mitted authority over cable.

cable system who determine who shall have access to each

channel and for how long. Nor is there any apparent

physical scarcity of channels relative to the number of

persons who may seek access to the cable system. Cur-

rently cable systems have the capacity to convey over

35 channels of programming. Technology is now avail-

able that would increase capacity to 80 channels, and in

the future channel capacity may become unlimited. See

br. for petitioner Home Box Office, Inc. at 9; Note, Cable

Television and Content Regulation: The FCC, the First

Amendment and the Electronic Newspaper, 51 N.Y.U.

L. REv. 133, 135 (1976). And even though there is some

evidence that local distribution of cable signals is a

natural economic monopoly,“ which may raise the spectre

of private censorship by the system owner, there is no

readily apparent barrier of physical or electrical inter-

ference to operation of a number of cable systems in a

given locality. In any case, scarcity which is the result

solely of economic conditions is apparently insufficient

to justify even limited government intrusion into the

First Amendment rights of the conventional press, see

Miami Herald Publishing Co. v. Tornillo, 418 U.S. 241,

247-256 (1974), and there is nothing in the record be-

fore us to suggest a constitutional distinction between

cable television and newspapers on this point.“

e See CABINET COMM. ON CABLE COMMUNICATIONS, supra

note 21, at 10; First Report and Order, 20 FCC 2d 201, 222

n.27 (1969) (Docket No. 18397):

cable television’s operations have developed on a non-

competitive, monopolistic basis in the particular areas

served with no instance, to our knowledge, where a mem-

ber of the public subscribes to more than one cable tele-

vision service.

a The Supreme Court in Miami Herald further found that

the statute at issue would have had a chilling effect on presen-

tation of controversial material about public figures. See 418

U.S. at 256-258. This suggests that the Court was concerned

about an overall diminution of diversity. Whether rules seek-

— —

pw. *

The absence in cable television of the physical restraints

of the electromagnetic spectrum does not, however, auto-

matically lead to the conclusion that no regulation of

cable television is valid.“ As Professor Meiklejohn has

ing to reduce private control of scarce communications re-

sources which did not have this effect would be valid thus

appears to be an open question. A requirement that cable

system operators dedicate certain channels to common carrier

use might avoid such an infirmity and two courts, without

reaching the First Amendment issue, have already indicated

that the Commission could compel such sharing of cable chan-

nels. See United States v. Midwest Video Corp., supra note

80; American Civil L derties Union v. FCC, 523 F.2d 1344,

1351 (9th Cir. 1975). Thus, on a proper record, Miami Herald

might present no impediment to some types of Commission

regulations.

Alternatively, local government involvement in the fran-

chise and regulation of cable television, see PROMISE VERSUS

PERFORMANCE, supra note 30, at 20-23, might make cable

owners “the state” for constitutional purposes, thus subject-

ing them to First Amendment scrutiny. Cf. Public Utilities

Comm'n v. Pollak, 343 U.S. 451, 462 (1952); Lehman v. City

of Shaker Heights, 418 U.S. 298, 303 (1974); T. EMERSON,

supra note 76, at 663. Again, this question cannot be resolved

on the record before us.

* The existence of an alternative First Amendment theory

justifying cable regulation is denied by many petitioners.

Their argument, in summary, is that movies (and apparently

sports events) are a form of speech protected by the First

Amendment. Joseph Burstyn, Inc. v. Wilson, 343 U.S. 495

(1952). Consequently the rules constitute a prior restraint on

protected speech which, if not always impermissible, Times

Film Corp. v. City of Chicago, 365 U.S. 43 (1961), is presump-

tively invalid, Bantam Books, Inc. v. Sullivan, 372 U.S. 58, 70

(1963), and is here rebutted by no substantial purpose that

could not be equally well served by less restrictive rules or is,

in any event, invalid because the rules do not afford the pro-

cedural safeguards required by Freedman v. Maryland, 380

U.S. 51 (1965). This argument is not unpersuasive, but on

reflection we do not think it fits the facts of this case.

eloquently demonstrated, see A. MEIKLEJOHN, POLITICAL

FREEDOM 24-48 (1960), rules restricting speech do not

necessarily abridge freedom of speech. In particular, and

regardless of the medium involved, regulations which

transform cacophony into ordered presentation can often

be consistent with the First Amendment since “the point

of ultimate interest is not the words of the speakers, but

the minds of the hearers,” and the latter will not be

affected unless each speaks in turn. Id. at 26; see Red

Lion Broadcasting Co. v. FCC, supra, 395 U.S. at 387-

388. Further, because “the right of free speech * * *

does not embrace a right to snuff out the free speech of

others,” id. at 387; Associated Press v. United States,

326 U.S. 1, 20 (1945), government may adopt reasonable

regulations separating speakers competing and interfer-

ing with each other for the same audience. See Red Lion

Broadcasting Co. v. FCC, supra, 395 U.S. at 387-389.

Restriction becomes abridgment only when government

seeks to limit speech “because it is on one side of the

issue rather than another,” A. MEIKLEJOHN, supra, at

27; see Madison Joint School Dist. No. 8 v. Wisconsin

Empl. Relations Comm’n, —— USS. . , 45 US.

L. WEEK 4043, 4045 (Dec. 8, 1976), or because it is

thought unwise, unfair, false, or dangerous, see, e. g., Po-

lice Depariment v. Mosley, 408 U.S. 92, 95-96 (1972).

See generally Wright, Politics and the Constitution: Is

Money Speech?, 85 YALE L. J. 1001, 1005-1010 (1976).

Certainly this is the broader teaching of National Broad-

casting Co., see 319 U.S. at 215-218, 226-227, and it is a

teaching relevant regardless of the source of conflict be-

tween speakers. See Cox v. New Hampshire, 312 U.S.

569, 576 (1941) (government may regulate conflicting

parades); Kovacs v. Cooper, 336 U.S. 77, 86 (1949)

(suggesting that government regulation of hecklers would

be permissible).

Similarly, the First Amendment does not bar regula-

tion of the “collateral consequences” “ or “collateral as-

pects” “ of speech. For example, use of public places

for speech-related purposes, although a right jealously

guarded by the First Amendment,” is subject to reason-

able restraints intended to ameliorate traffic congestion,”

reduce noise to tolerable levels,“ or prevent “capture” of

unwilling audiences.” To be sure, many cases dealing

with the collateral consequences of speech admit of

analysis in terms of “speech” versus “conduct” or “pure

speech“ versus “speech plus.” But the principle for which

these cases stand cannot be limited to situations in which

the evil arises because of motion unrelated to movement

of the mouth and vocal cords. As the Supreme Court

appears to have recognized (especially in cases dealing

with symbolic speech),“ conduct and speech can often

be separated only in the eyes of the beholder and there-

fore First Amendment doctrines turning on the true “es-

** Kalven, The Concept of the Public Forum: Co v. Louisi-

ana, 1965 Sup. CT. REv. 1, 23.

Brennan, The Supreme Court and the Meiklejohn Inter-

pretation of the First Amendment, 79 Harv. L. REv. 1, 5

(1965).

e See, e.g.. Police Department v. Mosley, supra note 80;

Grayned v. City of Rockford, 408 U.S. 104 (1972). See gen-

erally Kalven, supra note 84.

„See, c.g., Cox v. New Hampshire, 312 U.S. 569 (1941).

** See Grayned v. City of Rockford, supra note 86, 408 U.S.

at 114-121; Kovacs v. Cooper, 336 U.S. 77 (1949).

* See, e.g., Lehman v. City of Shaker Heights, supra note

82.

% See, e.g., Spence v. Washington, 418 U.S. 405 (1974);

Cohen v. California, 403 U.S. 15 (1971); United States v.

O’Brien, 391 U.S. 367 (1968). See also Procunier v. Martinez,

416 U.S. 396 (1974) (applying collateral consequences analy-

sis to prisoner mail censorship).

sence” of an expressive event can provide no very cer-

tain guide to judicial decision.“ Instead, the important

inquiry here, as in Meiklejohn’s conflicting speaker situa-

tion, turns on the purpose for which government regu-

lates. Regulations intended to curtail expression—either

directly by banning speech because of a harm thought to

stem from its communicative or persuasive effect on its in-

tended audience, see Spence v. Washingion, 418 U.S. 405,

411-414 & n.8 (1974); Cohen v. California, 403 U.S. 15

(1971); United States v. O’Brien, 391 U.S. 367, 382

(1968); Joseph Burstyn, Inc. v. Wilson, 343 U.S. 495

(1953), or indirectly by favoring certain classes of

speakers over others, see Madison Joint School Dist. No.

8 v. Wisconsin Empl. Relations Comm’n, supra, ——

U.S. at ——, 45 U.S. L. WEEK at 4045; Buckley v. Valeo,

424 US. 1, 17 (1976); Police Department v. Mosely,

supra, 408 U.S. at 97-98; Grayned v. City of Rockford,

408 U.S. 104 (1972)—can be justified (if at all) only

under categorization doctrines such as obscenity, “fight-

ing words,” or “clear and present danger.” See Ely,

Flag Desecration: A Case Study in the Roles of Cate-

gorization and Balancing in First Amendment Analysis,

88 Harv. L. REV. 1482, 1496-1508 (1975). Regulations

evincing a “governmental interest * * * unrelated to the

suppression of free expression „ United States v.

O’Brien, supra, 391 U.S. at 377, are treated differently,

however. If such regulations [1] further an important

or substantial governmental interest; and [2] if

the incidental restriction on alleged First Amendment

freedoms is no greater than is essential to the furtherance

n See Ely, Flag Desecration: A Case Study in the Roles of

Categorization and Balancing in First Amendment Analysis,

88 HARV. L. REV. 1482, 1493-1496 (1975). Compare, e.g.,

Buckley v. Valeo, 424 U.S. 1, 16 (1976), with Buckley v.

Valeo, 171 U.S.App.D.C. 172, 191-195, 519 F.2d 821,

840-844 (1975), and Wright, Politics and the Constitution: Is

Money Speech?, 85 YALE L. J. 1001 (1976).

of that interest,” id. (bracketed numbers added), then

the regulations are valid.”

Applying O’Brien here, we cannot say that the pay

cable rules were intended to suppress free expression.

The narrow purpose espoused by the Commission—pro-

tecting the viewing rights of those not served by cable

or too poor to pay for cable—is neutral. Indeed, it is not

unlike a regulation quieting hecklers or enforcing order

on the radio spectrum. As in those situations, the con-

duct regulated would otherwis

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