Appendix — National Football League v. Federal Communications Commission
Supreme Court brief1982
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CLERK
| ALEXANDER L STEVAs.
Supreme Court of the United States
OCTOBER TERM, 1981
NATIONAL ASSOCIATION OF BROADCASTERS, ef al.,
Petition ers,
V.
FEDERAL COMMUNICATONS COMMISSION,
UNITED STATES OF AMERICA, et al.,
Respondents.
PETITION FOR WRIT OF CERTIORARI TO THE
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUPPLEMENTAL APPENDIX
Erwin G. KRASNOW
RAUL R. RODRIGUEZ
National Association of Broadcasters
1771 N St., N. W.
Washington, D.C. 20036
(202) 293-3560
Attorneys for Petitioner
National Association
of Broadcasters
MICHAEL S. HORNE
DONNA M. MURASKY
COVINGTON & BURLING
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20044
(202) 662-6000
Attorneys for Petitioners Hubbard
Broadcasting, Inc.,
Midwest Television, Inc.
Post-Newsweek Stations, Inc.,
and John Blair & Company
SAMUEL MILLER
MILLER AND FIELDS
1901 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
(202) 785-2700
Attorney for Petitioner Matrite J. V.
of New York, Inc.
ARTHUR B. GOODKIND
KOTEEN & BuRT
1150 Connecticut Avenue, N.W.
Washington, D.C. 20036
(202) 467-5700
Attorney for Petitioner McGraw-Hill
Broadcasting Company, Inc.
JAMES A. MCKENNA, JR.
Rosert W. Coil
STEVEN A. LERMAN
DENNIS P. CORBETT
MCKENNA, WILKINSON & KITTNER
1150 Seventeenth Street, N.W.
Washington, D.C. 20036
(202) 861-2600
Attorneys for Petitioner American
Broadcasting Companies, Inc.
GEORGE VRADENBURG III
Harry R. OLSSON, JR.
CB3 INc.
West 52 Street
Yew York, New York 10019
(212) 975-4321
Attorneys for Petitioner CBS Inc.
JEROME J. SHESTACK
R. CLARK WADLOW
SCHNADER, HARRISON, SEGAL & Lewis
1111 Nineteenth Street, N.W.
Washington, D.C. 20006
(202) 463-2900
Attorneys for Petitioner National
Broadcasting Company, Inc.
J. LAURENT SCHARFF
Mark J. TAUBER
Jack N. GOODMAN
PIERSON, BALL & Dowp
1200 Eighteenth Street, N.W.
Washington, D.C. 20036
(202) 331-8566
Attorneys for Petitioner Association of
independent Television Stations, Inc.
Lee M. MITCHELL
Tom W. DAVIDSON
SIDLEY & AUSTIN
1730 Pennsylvania Avenue, N.W.
Washington, D.C. 20006
(202) 624-9000
Attorneys for Petitioner Field
Communications Corporation
THOMAS J. DOUGHERTY
PRESTON R. PADDEN
METROMEDIA, INC.
5151 Wisconsin Avenue, N.W.
Washington, D.C. 20016
(202) 244-5151
Attorneys for Petitioner Metromedia, Inc.
Davio H. Ltoyp
ROBERT ALAN GARRETT
ARNOLD & PORTER
1200 New Hampshire Avenuc, N.W.
Washington, D.C. 20036
(202) 872-3600
Attorneys for Petitioner Commissioner
of Baseball
PHILIP HOCHBERG
Vorys, SATER, SEYMOUR AND PEASE
1828 L Street, N.W.
Suite 1111
Washington, D.C. 20036
(202) 822-8200
Attorney for Petitioners National
Basketball Association and
National Hockey League
VOL. 79 (2d Series) September 26, 1980
No. 6
FEDERAL COMMUNICATIONS COMMISSION
REPORTS
(79 F.C.C. 2d)
Decisions, Reports, Public Notices, and Other Documents of
the Federal Communications Commission of
the United States
VOLUME 79 (2d Series)
Pages 652 to 960
Reported by the Commission
FEDERAL COMMUNICATIONS COMMISSION
Charlies DO. Ferris, Chairman
Robert E. Lee Joseph R. Fogarty
James H. Quel Tyrone Brown
Abbott Washburn Anne P. Jones
UNITED STATES GOVERNMENT PRINTING OFFICE e WASHINGTON, D.C.
For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402 - on a subscription basis
Notice: The contents of this pamphlet are subject to correction by
means of an errata appearing in the bound volumes of the F.C.C.
Reports. Users are requested to notify the F.C.C. Publications Branch
of errors so that an errata can be inserted in the bound volume.
minute programs to federal candidate found reasonable, August 20, 1980,
mimeo No. No. 35087 (Delegated A — te 112
Educational B/ eing Corporation; re renewal of educational TV
station conditionally granted, BC 78-181 OO en
HN and reconsideration
of revised processing guidelines denied, RM-3635, (FCC 80-389) .....
Grayson Enterprises, Inc., et al.; re i for
‚—ͤ—k-Ni V n P — — EERE 3303—õ —* ũ2—*ẽ *
901
Subject Digest
nacceptable
Commission denies application to increase power and antenna height f
— — operation exceeds a hed
implementation of
il
a
1
4
i
improving the.
prime time
— 1 r 1 the number of i
eae ate d eee was wnat in
Commission staff, through delegated authority, finds no violation by
broadcaster for refusal to sell specific class of time to non-federal
candidate 45-day before primary. Broadcaster’s actions
were in e
Act.-Hernstadt, William H., Senator
ee cable television distant and syndicated exclusivity
rules. Criteria evaluated before elim these rules were consumer
welfare, distributional equity, and external effects. to
cable retransmission consent is beyond — aden
authority.-CA 7 V Syndicated Program Exclus. Rules 20988
CATV Distant Si Rules
( .
relationship
Commission granted liberal time period for initial comments, twice
extended time to sub nit comments and reply comments, accepted and
considered a late-filed :tudy and several other untimely filed comments to
insure full and adequate participation. CATV Syndicated
Exclus. Rules 20988.
CA
(See: TV Carriage Economic lope CAT Syndicated Program
(See: CATV Carriage-CA TV Syndicated Program Exclus. Rules)
Common Carrier, Data Processing Service
Motions for Partial of Second Computer Inquiry Decision (77 FCC 2d
384) granted in l
of decision which found enhanced services not subject to Il
and motion to defer effective date of that period of decision
regulation, e
denied. -Second Computer Inquiry 20828
Application for construction permit to FM Station transmitter
— 72 — 11 Commission finds this
will neither increase interference to FM station nor
change class status of permittee.-Santa Monica B/cing, Inc.
Educational Noncommercial TV Station, License
Renewal of educational TV station conditionally granted.
Licensee must establish a full studio in station's dir of Henan, —
public file at station’s f ties, and utilize local recruitment
sources.-Educational B/eing oration
Employment, Minority, Level Of By Licensee (EEO)
Petitions for rule and reconsideration of revised equal
employment (EEO) guidelines —
states that are not in nature and do not
2 ing devices determining which
employment trends-EEO Processing Guidelines
. oo
— 9 Unacceptable-Cincinnati University Board Of
(See: —— Economic Impact-CATV Syndicated Program
ee eng, assignment applications because
s procedures were unclear as to whether li could sell
— 1 stations while in hearing on character issues. Commission
new procedure which enables them to decide before the
whether or not multiple owner can sell non-involved stations while
one station is in hearing-Grayson Enterprises, Inc.
ae
Application, Unacceptable-Cincinnati University Board of Trustees)
Interference, FM Station
(See: Construction Permit Modification Of-Santa Monica B/cing, Inc.)
License, Assignment Of, Volun
(See: — 2 —— fh’
Om ee Ca CATY, Carriage, Boonomic Impact-CATY Sud Program
22
11
Petition To Deny
(See: Construction Permit Modification Of-Santa Monica B/cing, Inc.)
Political Broadcast, Program Time, Period
(See: Authority Delegated, Action On-Ed Noble U.S. Senate Committee)
Political Candidate, Federal Candidate, Reasonable Access
(See: Authority Delegated, Action On-Ed Noble U.S. Senate Committee)
Political Candidate, Purchase Of Time
(See: Authority Delegated, Action On-Hernstadt, William H., Senator)
Political Candidate, State Or Local Office
(See: Authority Delegated, Action On-Hernstadt, William H., Senator)
Petition, Denial Of
Petitions for rule making and reconsideration of revised equal
rong een mae pee eng amr, Eno my sparen =P ogee
revised guidelines are not substantive in nature and do not
— 4 — — —— «ve Ae a
receive staff review for EEO compliance, and are reflective of industry
employment Trends.-EEO Processing Guidelines
Review By Commission
(See: Hearing, Procedure-Grayson Enterprises, Inc.)
Renewal, Granted Conditionally
(See: Educational Noncommercial TV Station, License-Educational
B/cing Corporation)
Ret tat
(See: CATV Carriage-CA TV Syndicated Program Exclus. Rules)
Rules, Amendment Of
(See: CATV Carriage-CATV Syndicated Program Exclus. Rules)
Rule Making, Petition For Denied
(See: Employment, Minority, Acceptable Level Of By Licensee (EEO)
EEO Processing Guidelines)
Tariff, Regulation Of
(See: Common Carrier, Data Processing Service-Second Computer
Inquiry)
Television Station
(See: CATV Carriage, Economic Impact-CATV Syndicated Program
Exclus. Rules)
CATV Carriage, Economic Impact
CATV Program Exclusivity, Syndicated Programming
Hearing
Oral Argument
Television Station
Requests for evidentiary hearing and oral arguments in economic
relationship between television broadcasting and cable television
denied. Commission granted liberal time period for initial
comments, twice extended time to submit comments and reply
comments, accepted and considered a late-filed study and several
other untimely filed comments to insure full and adequate
In the Matter of
Cable Television Syndicated Program | Docket 20988
Exclusivity Rules RM-2721
In the Matter of
Inquiry Into the Economic Relationship | Docket 21284
Between Television Broadcasting and Cable | RM-2919
MemMoRANDUM OPInion AND Ones
(Adopted: July 22, 1980; Released: September 9, 1980)
By tHe Commission: Commissioners Lee, QueLto anp WasHBuRN
DISSENTING.
1. On July 12, 1979, the Commission denied a “Joint Motion for
Revision of Procedures” filed by the Association of I
79 PCC. ad
CATV Syndicated Program Exclus. Rules 653
proceeding for hearing before an Administrative Law Judge who
would take evidence and certify the record to the Commission.' Since
the ity for submission of initial comments had yet to expire,
the ission expressed its opinion that the better course of action
would be to withhold a determination on this request until ccmments
been filed. Accordingly, the Commission’s denial of the quest
made without prejudice to the parties’ renewing their request at a
later date. On September 17, 1979, the Motion Picture Association of
America, in formal comments filed in this proceeding, reiterated a
request for evidentiary hearing.2 On November 7, 1979 the National
Association of Broadcasters (NAB) filed a “Request for Oral Argu-
ment” in this proceeding.
Evidentiory Hearing
2. We are able to approach the question of the utility of cross-
examination procedures in informal rulemaking matters, such as the
proceeding herein, with the assistance of considerable, sometimes
divergent, discussion of this subject by both courts and commentators.
Indeed, commentary on the sufficiency and adequacy of notice and
comment procedures as provided for by the Administrative Procedure
Act in informal rulemaking proceedings as well as on the value of
extra-procedural tools in these kinds of proceedings has been quite
extensive. Some commentators suggest that the reasoning of some of
those court decisions’ recommending extra-procedural devices in
certain circumstances has some “intuitive appea!,” but believe that
such an approach could lead toward “over-proceduralization” and
overkill of the very purpose for which administrative agencies were
created. Se, e. g., Wright, “Court of Appeals Review of Federal
Regulatory Agency Rulemaking,” 26 Admin. L. Rev. 199 (1974). Others
suggest that the benefits of cross-examination, when actually ana-
lyzed, are in reality very limited and that a far more important
consideration which agencies should concern themselves with is the
“1 The joint motion had recommended as well that the Commission suspend the
submission of comments and reply comments and set dates for findings and
comments upon conclusion of the proposed evidentiary hearing.
2 Only the Motion Picture Association of America and the National Association of
Broadcasters renewed the request. The Caucus for Producers, Writers, and Directors,
the National UHF Broadcasting Association and Screen Actors Guild not only did not
renew their request but filed no comments at all. Other parties in their comments
have expressed support for the initial request.
3 See, ¢g., International Harvester Co. v. Ruckelshaus, 478 F. 2d 615, 629-681 (D.C. Cir.
— — — 4 — —
of cross-examination techniques in rulemaking proceedings, where the court indicated
“that a right of crous-examination, consistent with time limitations, might well
extend to particular cases of need” but in this case held “that the absence of a general
right of cross-examination” was not “a departure from ‘basic considerations of
fairness.’ See also Appalachian Power Co. v. EPA, N F. 2d 496 (4th Cir. 1973);
Walter Holm & Co. v. Hardin, 449 F. 2d 1009 (1971); O'Donnell v. Shaffer, 491 F. 2d 59
(D.C. Cir. 1974).
FCC.
vital principle of “assuring challengers timely access to the critical
—— 1 — See, e. g., Williams, “ Hybrid
under the Administrative Procedure Act, A Legal and
Empirical Analysis, 42 C. Chi. L. Rev. 401 (1975). Professor Davis, who
is a leading commentator in the administrative law area, welcomes the
trend favoring the use of new devices for providing procedural
r
the subject of specific use of eross- examination, appears to concede
that experience with this procedural device has proved less than
satisfactory. See, Davis, 1 Administrative Law Treatise §6.39 (2d Ed.
1978). Instead of the different approaches expounded by the courts on
the matter in which agencies should handle “identified issues of
specific fact,” Professor Davis would prefer that of Recommendation
72-5 of the Administrative Conference of the United States which
favors “trial-type hearings in rulemaking ‘on issues of specific fact’ ”
and suggests “that ‘Congress should never require trial-type proce-
dures for resolving questions of policy or of broad or general fact.’ Id.
at §6.20. What underlies this current thought on the subject by both
courts and commentators is not, however, that particular procedural
devices should be mandated but rather that the administrative process
utilized, when considered as a whole, assures that agency decisions are
reached in a manner consistent with notions of fairness and adequate
public participation and that they are supported by sufficient data and
sufficiently comprehensible projections and policy judgments. See
Wright, supra, at 200.4
3. Very recently, the Supreme Court had occasion to consider the
adeyuacy of the procedures prescribed by the Administrative Proce-
dure Act in rulemaking matters in Vermont Yankee Nuclear Power
Corp. v. Natural Resources Defense Council, Inc., 435 U.S. 519 (1978).
Therein, the Court said “that generally speaking this section (5 U.S.C.
553] of the Act established the maximum procedural requirements
which Congress was willing to have the courts impose upon agencies in
ee rulemaking procedures.” Jd. at 524. (footnote omitted). The
multitudinous
279, 290 (1965), quoting from Federal Communications Commission v. Pottaville
Broadcasting Co., 309 U.S. 134, 143, (1940).
Id. at 543. The basic principle to be distilled from this case is that as
long as the administrative agency employs at least the statutory
minima, reviewing courts should refrain from “engrafting their own
For additional commentary on the subject, see Verkuil, “Judicial Review of Informal
” 60 Va.L.Rev. 185 (1974); Hamilton, “Procedures for the Adoption of
Rules of General Applicability: The Need for Procedural Innovation in Administra-
tive Rulemaking,” 60 Calif.L.Rev. 1276 (1972).
CATV Syndicated Program Exclus. Rules 655
notions of proper procedures upon agencies entrusted with substantive
functions by Congress. Id. at 525.
4. We believe that this decision is especially relevant to the present
petition under consideration here to the extent that this petition
strongly suggests that the Commission is obligated to have as a
minimum a limited evidentiary hearing in this rulemaking proceeding.
The Vermont Yankee case specifically addressed a lower court decision
which had determined the intervenors’ primary argument to be
whether “the decision to preciude ‘discovery or cross-examination’
denied them a meaningful opportunity to participate in the proceed-
ings as guaranteed by due process” and which considered the issue for
decision to be “whether the procedures provided by the agency were
sufficient to ventilate the issues. Even though the lower court
admitted that, absent extraordinary circumstances, reviewing courts
should not prescribe the procedural format which an agency should use
to explore a given set of issues and even though the court appeared to
ize that the agency had employed all the procedures required
under Section 553 of the Administrative Procedures Act, the clear
import of its decision was to require the agency to undertake
additional procedures beyond those called for under the Act.“ The
Vermont Yankee case, in overruling the lower court decision, would
seem to indicate quite clearly that administrative agencies have wide
discretion in determining whether procedural devices in addition to
those required under Section 553 of the Administrative Procedure Act
are necessary and that the necessity in undertaking the fashioning of
additional procedural safeguards in rulemaking matters is, if such
circumstances exist, extremely rare.
5. We believe that this summary of the relevant law places in
—— our responsibility under the Administrative Procedure Act
and applicable case law thereunder with respect to the present request.
“8 The Court did indicate, however, that there may be circumstances which might
justify overturning agency action on the basis that the agency failed to employ
adequate procedures b ut stated that “such circumstar.ces, if they exist, are extremely
rare.” Id. at 524. The Court did state that “[a]gencies are free to grant additional
procedural rights in the exercise of their discretion,” Id. at 524, but seemed to caution
that “a totally unjustified departure from well settled agency procedures of long
standing might require judicial correction.” Id at 542. (footnote omitted).
* Natural Resources Defense Council, Inc. v. United States Nuclear Regulatory
Commission, 547 F. 2d 683, (D.C. Cir. 1976).
7 Eg., the court stated:
review is to be meaningful, it must focus on the actual operation of the whole range
of procedures in a particular —including ‘context of fact, statutory frame-
work and nature of action. Id. at 644-645. (footnotes omitted).
CC. ad
656 Federal Communications Commission Reports
We come therefore to the question of whether the requested evidenti-
ary hearing would be appropriate, or is necessary, in the context of this
specific rulemaking proceeding. Among the major arguments pressed
upon us in support of this petition is that the use of this procedure is
necessary to assure that a full opportunity is afforded intereste<
persons to comment on the instant proposals. It is argued that the
uniqueness and importance of this rulemaking proceeding requires
that a more thorough opportunity to explore the issues involved be
provided. It is said that assurance of the soundness of the bases for the
Commission’s proposed new regulatory course can only be provided if
the Commission’s Reports * are exposed to the crucible of an
evidentiary proceeding to explore specified questions designed to test
the validity of the conclusions. In essence, the main thesis of the
petition is that opportunity for meaningful participation in this
proceeding cannot be achieved other than by providing an opportunity
for cross-examination. We do not ascribe to this viewpoint.
6. We firmly believe that an ample opportunity for meaningful
participation has been provided at every critical juncture of this
proceeding. When we commenced our examination into the economic
relationship between television broadcasting and cable television with
dur Notice of Inquiry in Docket 21284, 65 FCC 2d 9 (1977), we
emphasized the importance of the proceeding in terms of a re-
examination of our cable regulatory program which hitherto had
heavily relied upon “a more or less intuitive model” and with particular
reference to the “critical assumptions that are often relied upon in
analyzing cable television’s effect on local broadcast stations.” Para. 2,
id. at 9. Thus, in view of the important questions raised in this notice
which reflected upon the gravity of the underlying policy matters, we
agreed upon a liberal time period of approximately six months for
initial comments, considerably in excess of what had been provided in a
substantial number of other proceedings. We also stated our intention
to delay announcement of a reply comment period until “we [had] some
indication of the number and complexity of the comments received.”
Paras. 23-26, Id. at 23. And in order “to assure the fullest possible
participation in the Inquiry,” we twice formally extended the time to
submit comments and reply comments, we accepted a late-filed study
considered to be of critical importance and provided a period for
respouses thereto and we accepted and considered several other
comments filed out of time.“ We have, in essence, acceded to every
r Report in Docket 20988, FOC 79-242, 71 FCC 2d 951 (1979) (Syndicated Exclusivity
Report) and Report in Docket 21284, FOC 79-241, 71 FOC 2d 682 (1979) (Economic
Inquiry Report).
* See para. 5 n. 4 of the Economic Inquiry Report, supra. Our procedures stemming
from the Notice of Inquiry in Docket 20988, 61 FCC 2d 746 (1976), were not
significantly at variance with those noted ab ove. There, we twice extended the time
period for comments and reply comments and we also considered other comments
filed out of time.
79 PCC. 2d
CATV Syndicated Program Exclus. Rules 657
reasonable request made upoi. us to insure full and adequate participa-
tion. 10
7. Our administrative procedures, which apply to the Notice of
Proposed Rulemaking in Dockets 20988 and 21284, FCC 79-243, 71 FCC
2d 1004 (1979), are the same as those which were applied to the inquiry
phase of this proceeding which, we note, apparently were not deemed
unsatisfactory by petitioners here. We wish to point out that our
rationale for recommending elimination of the cable television distant
signal carriage rules and syndicated program exclusivity rules, includ-
ing the essential information utilized as well as the methodology
employed in reaching our tentative conclusions, has been fully
articulated and is contained in the Economic Inquiry Report, the
Syndicated Exclusivity Report, and the accompanying Notice. These
documents fully explain the methodology and illuminate the criteria
which were used to evaluate the public interest quotient of these rules.
Thus, we have exposed for public scrutiny all the information which
can be regarded as critically relied on in adducing our tentative
conclusions. When we were presented with the argument that certain
parties considered the time frame for comments and reply comments
too short, we responded by granting to all interested persons additional
time within which to complete their filings.''
8. Having provided numerous opportunities to comment at the
various stages of this proceeding, we are now presented with the claim
that we should vary traditional procedure because the procedures
provided thus far are less than satisfactory and that an evidentiary
hearing, limited in nature, is the only way to assure the soundness of
the Commission's proposals. Those who seek the new procedure,
however, do not offer a satisfactory explanation for their particular
preference for this and only this procedure. For example, the joint
motion indicates several questions which arguably could be explorea in
the requested evidentiary hearing process and cites what are charac-
terized as serious questions raised in the Reports. It does not tell us
© Indeed, we also considered two separate petitions for rulemaking which involved
matters deemed so closely related to those under review in these dockets as to
warrant their consideration with them. We subsequently addressed the merits of
these petitions, following notice and comment, in our Notice adopted April 25, 1979,
and specifically incorporated a significant aspect of one of the proposals to provide
an opportunity for further comment even though these matters were brought to the
Commission shortly before scheduled consideration of action in Dockets 20988 and
21284.
1! Specifically, our Order in Dockets 20988 and 21284, FCC 79-426, of July 12, 1979,
which denied the evidentiary hearing request as premature, extended the time for
filing initial and reply comments for an additional sixty days. Mort recently, a
further period of time was provided to allow interested persons the o, portunity to
comment on a new study by Rolla E. Park, Rand Corporation, entitled “Audience
Diversion Due to Cable Television: Response to Industry Comments.” Order in
Dockets 20988 and 21284, adopted December 10, 1979.
79 FCC. 2d
658 Federal Communications Commission Reports
why the present procedures, which traditionally have been used, are
inadequate to address these concerns.'? At a minimum, we would
expect, and indeed should require, that a party wishing to challenge
proposed agency action make a “proffer of the specific issues and
witnesses which they [claim cannot] be explored without [hybrid
rulemaking procedures] National Asphalt Pavement Association v.
Train, 539 9 F. 2d 775, 782 (D.C. Cir. 1978) and International Harvester
Co. v. Ruckelshaus, supra, at 649. Here, there has been no demonstra-
tion that “the legislative procedures have been inadequate,” see
National Resources Defense Council, Inc. v. United States Nuclear
Commission, 539 F. 2d 824, 839 (2d Cir. 1976), or that “the
Commission’s disclosure of greater detail or cross-examination of the
Commission’s staff [is] needed to enable [petitioners] to mount a more
effective argument,” see Long Island R. Co. v. United States, 318
F.Supp. 490 (E. D. N. V. 1970). 13
9. We concede the importance of this proceeding to the affected
industries as well as to the overall public interest. This by itself,
however, does not constitute a sufficient reason for us to depart from
the previous procedural practice which we have followed in rulemaking
proceedings of this type. Our interest, which seems to be the same as
that of the courts and commentators who have addressed this subject,
is in assuring that the critical issues at stake in a particular proceeding
have been carefully scrutinized and in assuring that the agency’s
decision making process, as consummated in the form of final agency
action in the proceeding, results in principled decisionmaking and thus
conforms with traditional notions of “fairness” and “due process”.
Contrary to the assertions made in the joint motion, these consider-
The specific questions which, it is claimed, should be explored in a limited
evidentiary hearing concern whether the data utilized by the Commission as a basis
for the proposed recommendations are representative of th: cable television and
broadcast television universe, whether the methodology used ‘s valid and has been
properly applied, and whether the stated conclusions are ra‘ional and reasonable
inferences from reliable and probative data. These, as well as the “serious questions”
relating to impact on local stations, on non-commercial stations, service to the
viewer, and impact on program supply, hardly appear to be the sort of questions
which are amenable to resolution by means of evidentiary hearing. Instead, they
appear to be questions which fit within the classification of matters “of policy or of
broad or general fact,” see Davis, supra, at §6.20, which are precisely the classes of
questions ill-suited for the requested procedure.
13 We denied the request for an evidentiary hearing prior to submission of comments
on the basis that, once comments had been filed, we would be in a better position to
judge the appropriateness of this procedure in the instant proceeding. We had
anticipated that those parties continuing to urge the necessity of oral as opposed to
written comment procedures would be in a better position after receipt of all
comments and the information gleaned from them to set forth the issues to be
explored and the reasons why these issues could not satisfactorily be explored
through written comments. No further effort to do chis has been undertaken. We do
not believe the request before us is the “circumscribed and justified request{s}” of
the type referred to in International Harvester Co. v. Ruckelshaus, supra, at 631.
79 F.C. 2d
CATV Syd ‘ed Program Exclus. Rules 659
ations do not turn on the presence or absence of one particular
ural device such as cross-examination but instead, on the totality
of the agency’s decision-making process. On the appropriateness and
desirability of cross-examination for this proceeding, we have previ-
ously alluded to some critical thought on its value in informal
rulemaking matters as well as to the less than ideal experience with its
use in different contexts. See also Davis, supra, at §6:21 for discussion
of cross-examination under recent statutes. We are of the opinion that
to pursue the procedural course advocated at this stage would not be
conducive toward our reaching an ultimate public interest determina-
tion in this matter because the cost of such a process both to the
Commission and to outside parties, and most importantly to the public,
both in terms of direct outlays and in terms of delay, would far
outweigh any reasonably foreseeable benefits.'* In our denial of the
Joint Motion, we ascribe to the views expressed by the court in the
Interna. on Harvester case where, after enumerating the difficulties
attending the cross-examination process, the court said that “there is
not insignificant potential for havoc.” 478 F. 2d at 631. There, the court
added that [what is most significant is that these complications are
likely to be disproportionate to the values achieved.” Id. 15
10. Our denial of the request for evidentiary hearing today is not
without precedent in the communications policy field. Even in cases
where under the Communications Act an “opportunity for hearing“, or
equivalent language, is specifically provided in contrast to notice and
comment rulemakings such as this one under the Administrative
Procedure Act, the courts have held that an oral evidentiary hearing is
not required. See, e.g., Bell Telephone Company of Pennsylvania v.
FCC, 503 F. 2d 1250 (8rd Cir. 1974), cert. denied 422 U.S. 1026 (1975),
where the Third Circuit Court of Appeals stated that “merely because
the policy questions at issue are of special importance or complexity”
does not mean that an evidentiary hearing must be held. Id. at 1266.6
In that case, the petitioners claimed that the existence of material
4 We believe that incessant delays can be equally as abrasive to fundamental notions
of “fairness” and “due process” because such delay disserves the pubtic.
10 Other statements have been made to the same effect. e.g., Chief Judge Bazelon, in
the earlier mentioned Natural Resources Defense Council case, stating that
reviewing courts should be reluctant to impost particular procedures on agencies,
and that “requiring cross-examination in a rulemaking proceeding is radical therapy,
which may cause the patient to suffer a slow, painful death.” 547 F. 2d at 655
(Separate statement of Chief Judge Bazelon). In the same case, Judge Tamm,
expressing skepticism over imposing “increased adversarial] procedures in excess of
those customarily required,” intimated that a limited right of cross-examination
affords little relief other than “delay and a tool with which to bargain for
substantive concessions” and that the ultimate benefit derived in many cases is “that
the right of cross-examination at a rulemaking proceeding frequently is better to
have and be denied than to utilize.” 547 F. 2d 660 n. 7 (Concurring statement of
Judge Tamm).
16 See also National Air Carrier Association v. Civil Aeronautics Board, 436 F. 2d 185,
194 (B.C. Cir. 1970), where the court stated that “[t}he fact that these questions are
79 FCC. 2d
660 Federal Communications Commission Reports
factual issues required adjudicatory proceedings in the form of an
evidentiary hearing. Other cases involving communications policy are
of the same import. See, e.g., RCA Global Communications, Inc. v. FCC,
559 F. 2d 881 (2d Cir. 1977), where the Second Circuit Court of Appeals
held that the agency’s failure to provide an evidentiary hearing was
not improper even though Section 222(e)(3) of the Communications Act
provided for “a full hearing” and even though it involved a change in
policy “which will affect many parties and which is based on
complicated economic considerations.” Id. at 887. The Court stated that
“the requirements of a ‘full hearing’ ” was satisfied “by a ‘notice and
comment’ procedure, aided by a lengthy statistical study, and with
many written submissions by each of the immediately interested
parties.” See also American Telephone and Telegraph Company v. FCC,
572 F. 2d 17, 22 (2d Cir. 1978), where the court held that “a dispute
concerning the economic impact of the removal of resale and sharing
restrictions on both carriers and the public” does not require “a trial-
type hearing.“ ' The court’s decision concluded that a “trial-type
hearing was not required to consider the economic impact of the
Commission’s decision” and that the hearing requirement of Section
205(a) of the Act was satisfied by notice and comment procedures. Id.
at 23. In sum, we conclude that no sound basis exists for the type of
procedure requested here.
Oral Argument
11. In the event that the request for an evidentiary hearing is
denied the National Association of Broadcasters has requested that a
more conventional oral argument be held.“ NAB indicates in its
request that oral argument would be appropriate in this proceeding
because any consideration of possible changes in the distant signal and
syndicated exclusivity rules merit the fullest and fairest Commission
review and because oral argument in a proceeding in which the record
is voluminous would focus the Commission’s attention on the most
critical issues and the most compelling arguments of the various
interested parties. It suggests that oral argument not be held until (1)
the Commission has completed all the research it has undertaken or
difficult and important, however, does not mean that an evidentiary hearing is an
essential prerequisite to their satisfactory resolution.” But see American Airlines,
Inc. v. CAB, 359 F. 2d 624, 631 (en banc 1966), cert. denied 385 U.S. 843 (1966).
The court noted that It Ihe issues involves what Professor Davis calls ‘legislative’
rather than ‘adjudicative’ facts. It is the kind of issue involving expert. opinions and
forecasts, which cannot be decisively resolved by testimony. M co the kind of tance
where a month of experience will be worth a year of hearing.” 572 F. 2d at 23,
quoting American Airlines v. CAB, supra, at 633.
% NAB was also one of the original parties to the joint motion request for limited
evidentiary hearing. Subsequent to our denial of the joint motion and grant of
extension of time to file initial and reply comments to September 17 and October 17,
1980, as requested by NAB, it filed this request. On January 10, 1980, in additional
comments filed in this proceeding, it reiterated its request for limited evidentiary
hearing thereby joining in with MPAA.
79 FCC. 2d
CATV Syndicated Program Exclus. Rules 661
commissioned and placed in the record and (2) the Commission’s staff
has prepared and submitted its recommendations to the Commission. 19
12. We agree with the general thrust contained in the request that
the matters under consideration in this proceeding are of considerable
importance and accordingly should receive the fullest and fairest
consideration by the Commission. We are not convinced, however, that
oral argument is an essential or indispensable prerequisite in order to
assure this.2° We believe that many of the reasons which apply to our
decision to deny the request for evidentiary hearing apply as well to
this request. As indicated previously, we have provided interested
persons ample opportunity to inform us of their positions including the
opportunity of apprising us of what in their estimation are the most
critical issues and questions in this proceeding. We seriously doubt that
the comments of interested parties in this proceeding have fallen short
in this regard. Moreover, we have not been presented with persuasive
reasons why the benefits to be gained from this procedure could not or
have not been achieved through the notice and comment procedure. On
the contrary, we believe that the arguments in support of the request
indicate that oral argument might contribute toward further delay
rather than elucidation and final resolution of the matters in Dockets
20988 and 21284. Oral argument would merely add to a record which,
by NAB’s own admission, is already “voluminous”. Oral argument
would not aid the Commission’s deliberations because the critical issues
have already been clearly identified and extensively debated in the
written record; nor would oral argument provide any meaningful
assistance to the staff, because the proceeding would be held after the
staff had already prepared its recommendations.?! Accordingly, we are
not convinced that scheduling of oral argument would achieve
something which has not already been achieved through the extensive
comment procedure already employed in Dockets 20988 and 21284 or
that it would constitute a positive contribution toward a public interest
resolution of this proceeding.
% NAB also appears to prefer that if the staff does not complete preparation of its
recommendations by the date set for oral argument, the oral argument be postponed
and rescheduled to permit submission of the staff's recommendations prior to oral
argument.
© Section 553(c) of the Administrative Procedure Act provides in pertinent part that
“{a}fter notice required by this section, the agency shall give interested persons an
indicates to us that oral presentation or ora! argument is not mandatory but rather
on the Commissions gt.
1 To the extent that such a procedure would contribute toward delay of a final
decision in this matter, we note that the United States Court of Appeals for the D.C.
Cireuit stated in MCI Telecommunications Corp. v. FCC, Case No. 79-1119, slip
opinion at 43 (D.C. Cir. April 2, 1980), “delay in the resolution of administrative
proceedings can also deprive regulated entities, their competitors, or the public of
rights and economic opportunities without the due process the Constitution
requires.” (footnote omitted).
79 FCC. 2d
662 Federal Communications Commission Reports
Accordingly, IT IS ORDERED, That the “Joint Motion for Revision
of Procedures” as resubmitted IS DENIED.
IT IS FURTHER ORDERED, That the request for oral argument
filed November 7, 1979 by the National Association of Broadcasters IS
DENIED.
FeperRaL COMMUNICATIONS COMMISSION,
WU IAI J. Tricarico, Secretary.
79 FCC. 2d
CATV Syndicated Program Exclus. Rules 663
CATV Carriage
CATV Carriage Distant Signal Rules
CATV Program Exclusivity, Syndicated Programming
Retransmission
Rules, Amendment Of
Order deletes cable television distant signal and syndicated
exclusivity rules. Criterial evaluated before eliminating these rules
were consumer welfare, distributional equity, and external effects.
Proposal to adopt cable retransmission consent is beyond Commis-
sion’s statutory authority. 20988.
FCC 80-443
BEFORE THE
FEDERAL COMMUNICATIONS COMMISSION
Wasnincton, D.C. 20554
In the Matter of
Cable Television Syndicated Program Ex- | Docket 20988
clusivity Rules Rm-2721
In the Matter of
Inquiry Into the Economic Relationship | Docket 21284
Between Television Broadcasting and Cable | Rm-2919
Television Rm-3324
REPORT AND ORDER
(Adopted: July 22, 1980; Released: September 11, 1980)
By tHE Commission: CoMMISSIONERS LEE, QUELLO AND WASHBURN
DISSENTING AND ISSUING STATEMENTS; COMMISSIONERS FERRIS,
CHAIRMAN; FOGARTY AND BROWN ISSUING SEPARATE STATEMENTS;
COMMISSIONER JONES CONCURRING AND ISSUING A STATEMENT.
Tass of Conrents
EAA
I. Summary ND INTRODUCTION
D 2. 14
r ORE K 060 59
AE SSE EE .. 10-17
Out, OF THE PRESENT PROCEEDING ...............6.066600cceeeenes 18-21
RS A TS . 227
Summary oF Fl anp THE RULEMAKING PRoposAL ......... 2
ALTERNATIVE Proposals Cosibe ag 2
277 ß eee 3⁵
Precominarny Procepurat Issues ............... n 36-48
FCC. 2d
664 Federal Communications Commission Reports
Taste or Conrents
EAA
r EET a OP CO LO TE *
r 4-48
II. Tee Errect or Distant Sionas on Tevevision Service
To Tur Pusuc
rr So ll 49-54
Sramistica, anp Ecowomermic SWF 55-156
y anp Demanp ror Case TELEVISION .................... 56-80
Tur Impact of Distant SNA on Loc Station eae
ES EE EE x 94115
. 116-136
4 nncnccncecoccesearecosevessece 137-147
Tur Impact oF Distant SIGNALS ON r
K 148-156
e .. a censecoberenevensimbaeceoes 157-184
nnn .... 185-191
III. Tee Errect or SWI Arb Exciusiviry on Tevevision
r r eee 192-202
Tue Impact or Evimmatine THE SYNDICATED
Exciusiviry Ruves ow Locat Station AUDIENCES............. 203-217
Tur Impact of Exuimmatine THe SynpicaTep
Exciusivity Ruces ON Procram Ni
— Dadidkpnaccunseeetadechbooulabinies 241-243
IV. Rerransmission Consent
,, §˙᷑¼‚f‚ ˙· ac usnncedonsbordniensenanaee 244-252
tee eee e 253-276
Re MIE Rt SE . RIS. aie Bele 277-327
V. Conciusions
PORE ES RL ee Sen ebe es 328-333
Aprenpix A History of rue Ruves
Aprenpix B. R E. Tun. “ AUDIENCE Due ro Casie
: ResPonse
Rano N IAH FCC (Nov. 1979)
Aprennix C. NowcommerciaL Epucationat Starion Srupy
Aprennix D. New Case Srupy Data
Aprenpix E. Rute AMPNDMENTS
J. Summary and Introduction
Summary of Decision
1. The basic question presented in this proceeding is whether the
Commission should continue in force rules that restrict the carriage of
distant television broadcast signals by cable television systems. Our
conclusion is that these rules do not benefit the public and should be
eliminated.
2. Existing cable television signal carriage rules limit the —
of distant television signals that cable television systems may distrib-
ute to their subscribers. Syndicated program exclusivity rules also
require the deletion of individual programs from distant signals that
are otherwise available for carriage. The rules in question are found in
79 FCC. 2d
CATV Syndicated Program Exclus. Rules 665
47 C. F. R. Part 76, including particularly Sections 76.59, 76.61, 76.63 and
76.151-76.161. These rules were adopted in the Commission’s 1972
Cable Television Report and Order ' and, although some changes in
them have been made, they retain the basic form given them at that
time.
3. Almost four years ago the Commission initiated a formal inquiry
to review the purpose, effect, and desirability of the syndicated
program exclusivity rules.? This was followed by a similar proceeding
to review the distant signal carriage rules.“ Detailed economic reports
reviewing the functioning of these rules and their impact on the
public’s television service were adopted by the Commission in 1979.
These Reports concluded that the television service received by the
public would not be impaired and would in some respects be signifi-
cantly improved by the elimination of these regulatory constraints.‘
Based on these findings, a Notice of Proposed Rule Making was issued
proposing the elimination of the distant signal and syndicated program
exclusivity rules.5 The purpose of this Notice was to permit interested
persons an opportunity to participate in the rule making process, to
comment on the research and analysis presented by the Commission,
and to set forth relevant in‘ormation of their own relating to the rule
making proposal.
4. We have now carefully reviewed the comments received. This
review persuades us that the proposal was sound and should be
adopted. We have also reviewed proposals submitted to us for
alternative rules that would require cable television system operators
to obtain individual permissions, in the form of retransmission
consents, for the distant television broadcast stations carried. This
proposal is, we believe, essentially related to copyright considerations
and is beyond the authority of the Commission to adopt. Based on the
wealth of information and analysis now before us, we believe the rule
changes proposed should be adopted and that this will significantly
benefit the public with no undue risk of injury to the broadcast service
the public now receives.
General Background
5. Commercial television broadcasting in the United States is
generally recognized to be highly remuverative. It is also a field in
which competition is intended to be the general rule, with each
1 86 FCC 2d 143, 37 Fed. Reg. 3252 (1972).
Notice of Inquiry in Docket 20988, 61 FCC 2d 746, 41 Fed. Reg. 50055 (1976).
3 Notice of Inquiry in Docket 21284, 65 FCC 2d 9, 42 Fed. Reg. 32825 (1977).
* Report in Docket 20988, 71 FCC 2d 951 (1979) (“Syndicated Exclusivity Report”) and
Report in Docket 21284, 71 FOC 2d 682 (1979) (“Economic Inquiry Report”).
Notice of Proposed Rule Making in Dockets 20988 and 21284, 71 FCC 2d 1004, 44 Fed.
Reg. 28347 (1979).
79 FCC. 2d
666 Federal Communications Commission Reports
individual broadcaster left to “survive or succumb according to his
ability to make his programs attractive to the public.
6. Although competition is the general rule, our system of
broadcasting places significant weight on the value of “localism”’ and
on the understanding that broadcast station licensees are public
trustees that must serve the “public interest, convenience, and
necessity” even if, in particular circumstances, that does not comport
with their own immediate economic intervsts.*
7. The juxtaposition of these considerations has created a certain
tension in the law as it is applied to broadcasting. Because competition
is the general requirement, the Commission is not to be concerned with
the effects of competition on station revenues or profits. It must be
concerned, however, if there is evidence that competition is so
destructive or debilitating that it results in a loss of broadcast service
to the public.®
8. The Commission's historic concern in its regulation of the cable
television industry has been that the additional viewing options made
possible by the expanded channel capacity of cable systems and their
ability to introduce distant signals that would not ordinarily attract
viewers in the local market, introduced competition that was likely to
be both inequitable and destructive. When first presented with this
issue, the Commission found in the available evidence no basis for
action. 10 However, in the years that followed, the potential for injury
was felt to outweigh the lack of clearly defined evidence and the
regulation of cable television operations was commenced.'' Although
the Commission’s authority to act in this manner was not specifically
set forth in the Communications Act, the Commission’s general
authority was found by the Supreme Court to be broad enough to
authorize this regulatory activity.
9. The Commission’s assumption of regulatory responsibility in this
area was at each step accompanied by frank admissions that the facts
underlying its theoretical concerns were not fully understood. In 1965,
certain regulations were applied to cable television indirectly but the
Commission found it “impossible, with the data at hand, to isolate
reliably the effects of CATV competition from all the other factors
* FCC v. Sanders Bros. Radio Station, 309 U.S. 470, 475 (1970).
1 Sizth Report and Order in Dockets 8736 et al., 41 FCC 148, 172 paras. 79 and 124
(1952).
* Section 309, Communications Act of 1934, as amended, 47 U.S.C. §309; Enbanc
Programming Inquiry, 44 FCC 2308 (1960).
* FCC v. Sanders Bros. Radio Station, supra; Carroll Broadcasting Co. v. FCC, 258 F.
2d 440 (D.C. Cir. 1958).
10 Report and Order in Docket 12443, 26 FCC 408, 24 Fed. Reg. 3004 (1959).
11 First indirectly, Carter Mountain Transmission Corp. 32 FCC 459 (1962), and then
directly, Second Report and Order in Docket 14895 et al., 2 FOC 2d 725, 31 Fed. Reg.
4540 (1966).
12 U.S. v. Southwestern Cable Co., 392 U.S. 157 (1968).
79 FCC. 2d
CATV Syndicated Program Exclus. Rules 667
which operate to produce particular financial results in differing
settings. In 1966, the Commission adopted new rules for cable
television operations, but stated, with respect to adverse impact on
broadcast service, that “we cannot make that judgment on the record
now before us” and that ill may be that CATV, if allowed full,
unfettered growth, would prove to be an excellent supplement,
bringing additional service and diverse programming to millions of
people in built-up areas who can afford it, without detriment to the
provision of additional local broadcasting service to the entire na-
tion.*** It is, we think, time to get the facts. Again in 1972 the
Commission found itself faced with conflicting evidence and again felt
compelled to act in the face of inherent uncertainties and with no
ability to forecast precisely how cable was likely to develop.'® The
history of our regulatory involvement with cable television is set forth
in some detail in Appendix A to this document. This Report and Order
involves a major alteration in our cable television rules and it is
therefore important that the nature of the change from past policies be
clearly understood so that it is evident that “prior policies and
standards are being deliberately changed, not casually ignored.”
Greater Boston Television Corporation v. FCC, 444 F. 2d 841, 852
(1970). This history should also demonstrate that, because of their
unique origin, the present rules may not be entitled to the benefit of
the doubt sometimes accorded the status quo.
The Existing Rules
10. The signal ccrriage rules are basically of four types:
rules that mandate carriage of particular signals,
- rules that limit the number of distant television broadcast
signals that may be carried,
- rules that require the deletion of particular network or
syndicated programs from signals that are carried, and
rules that require deletion of particular sports programs from
signals that are carried.
In this proceeding we are focusing our attention only on the distant
signal and syndicated program exclusivity rules. Changes in the
13 First Report and Order in Dockets 14895 and 15233, 38 FCC 683, 30 Fed. Reg. 6038 at
paragraph 68 (1965).
Second Report and Order in Dockets 14895 et al., supra at paragraph 155 (1966). See
also Suburban Cable TV Co., Inc., 11 FCC 2d 604, 606 (1968) (separate opinion of
Commissioner Loevinger).
10 Cable Television Report and Order, supra, at paragraph 70. The rules adopted in 1972
were based in part on an industry “Consensus Agreement” which accounts for the
lack of economic analysis of certain parts of the rules. See The Role of Analysis in
page 26, where it is suggested that the parties’ acceptance of the compromise was
made “in a virtual vacuum.”
9 FCC. a
668 Federal Communications Commission Reports
mandatory carriage, sports blackout, and network nonduplication rules
have been explicitly excluded from review in this proceeding.'®
11. The distant signal carriage rules generally vary the number of
distant signals that cable systems may carry based on the size of the
television market (35 mile zone) in which the system is located.“
Systems that are not located within a market, as that term is defined
by the rules, are not subject to any limits. Those in the smaller
television markets (below the 100 largest markets) may carry no
distant independent or network television stations if each of the three
national television networks has a local affiliate and one or more
independent stations exist in the market. If there is no local
independent station or one or more of the national networks do not
have local affiliates, then distant station signals may be imported so
that subscribers have at least one independent station signal and one
station affiliated with each of the national networks.
12. Cable television systems in the 100 largest television markets
are permitted to carry enough local and distant signals to provide
subscribers with at least two independent television stations and one
station affiliated with each of the national television networks.
Moreover, under these rules, at least two distant independent signals
may always be carried and, in the 50 largest markets, if there is no
local independent station, three distant independent stations may be
carried.
13. All cable television systems may also carry specialty stations
(stations whose programming, on an all day basis and in prime time, is
at least one-third foreign language, religious, and/or automated) and
non-commercial educational stations in the absence of justified objec-
tion by local educational stations. Smaller systems (those with under
1000 subscribers) are exempt from these limitations.“
14. The syndicated program exclusivity rules limit the carriage of
10 Notice of Proposed Rule Making in Dockets 20988 and 21284, supra, para. 5 at 1006.
17 The terms “local” and “distant” are used loosely for purposes of this discussion.
Generally speaking a local signal is one that is receivable over-the-air by television
viewers and a distant signal is one that cannot be so received. The dividing line is not
nearly as clear as this suggests, however, and entire proceedings have been devoted
to adding greater definition to these terms. See, for example, Report and Order in
Dockets 16004 and 18052, 53 FCC 2d 855 (1975) (involving television station contour
stations late at night (Report and Order in Docket 20028, 46 FCC 2d 446, 39 Fed. Reg.
33528 (1974)), for the carriage of additional network news programs (Report and
Order in Docket 12359, 57 FCC 2d 68, 41 Fed. Reg. 1063 (1976)), and for the carriage
of additional UHF stations (Report and Order in Docket 20496, 65 FCC 2d 218, 42
Fed. Reg. 36831 (1977)). Specific provision is also made for ad hoc variances from the
79 F.C.C. 2d
CATV Syndicated Program Exclus. Rules 669
individual programs on signals that are otherwise available for
only to cable television systems in the fifty largest and second fifty
largest television markets. In their application to the fifty largest
markets, they require cable television systems, at the request of
television stations, to delete all programs from distant signals that are
under contract for television exhibition to local stations. The rules also
permit the owners of television programs to require deletion of
systems. The rights provided by the rules, however, expire at the end
of specified time periods or on the occurrence of a specified event: (1)
for off-network series, exclusivity commences with the first showing
and lasts until the completion of the first run of the series, but no
longer than one year, (2) for first-run syndicated series, it commences
with the first showing and runs for two years thereafter, (3) for
feature films and first-run non-series syndicated programs, it com-
mences with the availability date of the program and extends for two
years thereafter, and (4) for other types of programs, it commences
with the purchase and continues until completion of the first run but,
in no event, beyond one year.
16. These rules generally require that the distant signal programs
involved be deleted regardiess of when that particular program is
scheduled for showing by the local market station. However, in the
second fifty markets, if the distant syndicated program is broadcast in
prime time it need not be deleted unless the market station seeking
protection is also going to broadcast that program in prime time. The
rules also permit cable television systems to substitute other distant
signal programs, if they are available, in place of those that must be
deleted under these rules.
17. Neither the distant signal nor the syndicated exclusivity rules,
when they were adopted, were applied retroactively. That is, notwith-
standing these regulations, cable systems carrying distant signals prior
to 1972 were permitted to continue carriage of those signals. Moreover,
programs on signals carried prior to 1972 were generally not subject to
Geletion under the syndicated program exclusivity rules. Both of these
“grandfathering” provisions are of particular significance in the
context of this proceeding because they make it possible to view the
operations of a class of cable systems that are in many respects the
equivalent of unregulated operations due to their operational! status at
rules in situations where their genera! application is found to be inappropriate. 47
C.F.R. §76.7.
7 FCC. a
670 Federal Communications Commission Reports
the time our regulation was commenced. As will be discussed in
greater detail below, this ability to observe the operations of unregu-
lated systems is a significant aid to us in determining the impact of a
more general deregulation of the cable television industry.
Origin of the Present Proceeding
18. These rules have increasingly been the subject of criticism in
recent years. In part this criticism is a reflection of the general
disfavor into which regulations limiting competition have fallen. The
perception that these rules were in need of re-evaluation, however, is
also the consequence of: (1) the availability of more complete and
detailed audience survey data reflecting television viewing patterns in
the homes of cable television subscribers, 20 (2) the increasing financial
strength of television broadcasters even in the face of increased cable
television competition,?' and (3) the resolution in 1976 of the status of
cable television under the copyright laws by passage of the Copyright
Revision Act.?? In recognition of these changed circumstances and
motivated by our own statutory responsibility to re-assess on a
continuing basis the public interest value of our policies and
1 See, for example, Staff of House Communications Subcommittee, 94th Cong. 2d
a Promise Versus Regulatory Performance (Subcommittee
t 1976).
20 The national audience rating services for many years made no separate accounting
for viewing in cable homes and, even after they first commenced making separate
viewing data available, the widely scattered nature of cable television across the
country and the relatively small number of households involved made it difficult to
obtain statistically reliable samples.
7” ,nnual broadcast station financial reports to the Commission reflect that, since 1972,
7 eetlice ter Uden the etna ot Go comin tates
station rose more than tenfold.
Generel Revision of the Copyright Law, P. L. 94-553, 17 U.S.C.Sections 101 et seq.
as to the lawfulness of this situation and the appropriate policy that
should be applied were debated almost from the very start of the cable industry. See
Smith, “The Emergence of CATV: A Look at the Evolution of a Revolution,” 58
Proceedings of the IEEE 967 (July 1970). In the late 1950's and early 1960's cable
operators were charged with unfair competition, unjust enrichment, and tortious
interference with contract rights--charges which the courts ultimately rejected in
yo ep egg v. KUTV, Inc., 385 F. 2d 348 (9th Cir., 1964) cert. denied sub nom.
- “her
Television, Inc., 392 U.S. 390 (1968) and Teleprompter Corp. v. CBS, Inc., 415 U.S. 394
(1974). This dispute was resolved by the Congress in 1976 with the passage of the
new copyright act.
79 FCC. 2d
CATV Syndicated Program Exclus. Rules 671
regulations? we issued in November of 1976 our Notice of Inquiry in
Docket 20988, supra, “commencing a detailed review of the rules that
limit cable television carriage of syndicated programs on distant
signals” and in June of 1977 our Notice of Inquiry in Docket 21284,
supra, which commenced “a more general review of the economics of
the relationship between television broadcasting and cable television.”
19. In order to permit the fullest possible participation, the
comment periods in each of these proceedings were extended. Addi-
tional studies undertaken by the Commission’s staff were placed in the
record of Docket 21284 and made available for public comment and
additional outside contract research was undertaken. Voluminous
comments were received in response to each of these notices. Our
examination of the materials filed and our own research efforts led to
our Syndicated Exclusivity and Economic Inquiry Reports. Each of
these Reports reached the conciusion that the rules under review were
having negative rather than positive consequences in terms of the
television service received by the public and that the rules could be
eliminated without undue risk of injury to the public.
20. Based on these Reports, and with their findings incorporated
by reference, we issued a Notice of Proposed Rule Making which
invited public comment on the substance of each of the Reports as well
as on the general conclusion contained therein to the effect that the
Commission could proceed to eliminate these two sets of rules without
incurring any considerable risk of injury to either cable or non-cable
viewing members of the public.
21. To obtain a fuller appreciation of those industries whose
economic incentives, as tempered by regulation, have a major influence
on the video services available to our society, we provided an overview
of the television broadcasting, cable television, and television program
production industries. Notice, Paras. 8-43, supra, at 1006-1021. We
observed that the “competitive juxtaposition of these important
elements of our economy’s communications sector has produced
numerous demands on the (ongress and this Commission for the
23 It should also be noted that the Commission is obliged by the decision of the D.C.
Cireuit Court of Appeals in Geller v. FCC, 610 F. 2d 973 (D.C. Cir. 1979) to reassess
those of the rules which were based on the 1971 industry “Consensus Agreement”
that is described in the Cable Television Report and Order, supra.
% In an effort to assure interested persons the fullest possible opportunity to
participate in the present phase of this proceeding we extended the original time
frames for the submission of comment and reply comment, Order adopted July 12,
1979, FCC 79-426, an’ rovided further opportunity for comment in a new contract
study undertaken at our request and deemed to be of relevance to the proceeding.
The Consumer Assistance Division of the Commission's Office of Public Affairs
distributed notice of the pendency of the proceeding widely to public and consumer
groups with a potential interest in the outcome of the proceeding in order to promote
the widest public participation in the decisional! process.
7 FCC. 2d
672 Federal Communications Commission Reports
imposition of economic regulation.” Para. 44, id. at 1020. We strongly
emphasized, however, as we have on previous occasions?“ that the
Commission's underlying concern in the regulation of both broadcast-
ing and cable television is “with the quantity and quality of video and
telecommunications service that the public receives” and not, as some
might erroneously perceive, “with shifting or safeguarding revenues or
profits, or with the success or failure of any particular firm, industry,
or technology.” Para. 7, id. at 1006.
Criteria for Evaluation
22. In the course of analyzing these rules, both in the two Reports
and in the Notice, we reviewed in considerable detail the historical
rationale on which the Commission had premised these regulations,
and set forth criteria on which to judge their continuing effectiveness.
The restrictions historically were rationalized on one of the four
following grounds:
(1) as a means of assuring the public against a net loss of
television service as a consequence of cable-created audience
losses which it was theorized would undermine the economic
support of television stations and in the process deprive the
poor and those living in areas unserved by cable or video
services;
(2) as necessary to preserve the broadcast television allocations
policy with its emphasis on local service;
(3) as a means of eliminating what was perceived to be the
unfair means by which cable systems competed with local
broadcasters, and
(4) as necessary to assure against injury to the continued
production of television programming. Para. 45, id. at 1021.
23. In re-evaluating the facts and policies underlying the cable
television distant signal and syndicated program exclusivity rules we
identified three criteria by which it seemed to us appropriate to judge
the effects of various policies on the welfare of consumers of video
services. These three criteria, which roughly correspond with those
considered and used in earlier Commission decisions involving cable
television but using somewhat more precise economic terms, relate to:
(1) consumer welfare, (2) distributional equity, and (3) external or
spillover effects. These terms are described in some detail in our
Economic Inquiry Report, supra, at 636-639.26
24. Briefly, consumer welfare is grounded in our responsibility to
assure “efficient” communications service, 47 U.S.C.Sec. 151. It is
25 See, e g., Cable Television Report and Order, supra, at 134 n. 32 where we stated that
“we are guided by the standard of what will best serve the public interest and not by
a desire to protect any industry from the impact of new technology.”
See also Report in Docket 20988, supra, at 955-956 and Notice of Proposed Rule
Making in Dockets 20988 and 21284, supra, at 1023-1027.
79 FCC. 24
CATV Syndicated Program Exclus. Rules 673
reflected in our concern with assuring that policies adopted tend
toward the creation of a communications system that increases the net
video service supplied to the public or otherwise maximizes the value
the public receives from society’s overall investment in the video
distribution system.
25. Distributional equity is related to the allocation between
various segments of society of the costs and benefits of a particular
policy. Cable television service, in contrast with broadcast service, must
be paid for directly and is generally not available to residents of very
low population density areas or urban centers where demand is low and
construction costs are high. Thus, even if the effect of a policy change
to consumers as a whole proved beneficial, some groups might be less
well off as a consequence of that policy change.
26. External or spillover effects are related to our concern with
localism in broadcasting and the obligations of broadcasters to inform
the public. Since the true value of local news and public affairs
programming may not be reflected in the number of individuals who
view it or the value they place on it but rather in the value it has to our
society as a whole and especially to the functioning of our democratic
institutions, it may be regarded.as an “externality” that needs to be
accounted for in regulations since this extra or external value may not
be completely accounted for by ordinary market institutions.
27. To the extent that the rules had in the past been based on a
concern with “unfair” competition, we noted that this appeared to be a
consideration that was coextensive with the issue of the cable
industry's copyright liability. Notice, supra, at 1025. Moreover, we
noted the statement of the Court of Appeals in Home Bor Office, Inc. v.
FCC, 567 F. 2d 9, 42 (D.C. Cir. 1977), cert. denied 434 U.S. (1977)
that [Wie do not perceive any public benefit to be achieved by
hobbling cable television to correct the sort of unfair competition
alleged by the Commission.”
Basis for Rulemaking Proposal
28. Comparing the facts adduced in the two inquiry proceedings
with the criteria set forth for re-evaluating the rules, we concluded
that “none of the four problems which these rules ostensibly address in
fact exists.” (footnote omitted) Para. 63, Notice, supra, at 1026. We
concluded that the distant signal and syndicated exclusivity rules
themselves caused “significant sacrifices in consumer welfare.” Jd. We
found that no significant adverse consequences would befall the ability
of television broadcast stations to provide local programming if the
rules were eliminated and that the likelihood of any viewers being
significantly harmed from elimination of the rules was remote.
Economic Inquiry Report at paras. 140-145, Syndicated Exclusivity
Report at paras. 94-96. We noted that whatever effects deletion of
these rules might have on program supply was derivative of the effects
en television broadcasting and that the effects were found to be
79 FCC. 2d
674 Federal Communications Commission Reports
minimal. Syndicated Exclusivity Report, paras. 43, 45, 72-88 and 95.
We also found no evidence to indicate that the interests of consumers
of video services would be inadequately served by the “markets linking
consumers with the cable, broadcasting and program production
industries” if we eliminated these rules. Notice at para. 57. Finally, we
concluded clear benefits would result from a relaxation of these rules,
including “an increase in the opportunity for diversity and competition
both in the economic marketplace and in the marketplace of ideas.”
Economic Inquiry Report at 143. “The benefits of our current rules are
small,” we said, and. . these benefits go mainly to broadcasters
whose incomes thereby rise faster than they otherwise would. The
costs of our current regulations fall on existing and potential cable
subscribers, each of whom is denied some increase in freedom of choice.
The costs of our present policy also fall on society as a whole, to the
extent that we have inadvertently stifled some participants in the
system of freedom of expression.” Jd. at para. 144. Accordingly, since
we found no material benefits gained from the continuance of these
— we issued our Notice of Proposed Rule Making proposing their
elimination.
Alternative Rule Making Proposals
29. We also considered in our Notice two additional matters
brought to our attention in the form of petitions for rulemaking. The
first of these matters (RM-3324) was filed by the National Telecommu-
nications and Information Administration of the United States
Department of Commerce. It requested that we adopt a regulation
that would compel new cable systems or cable systems expanding
existing operations to obtain the consent of the originating station if
they wished to distribute the non-network programs of that station. It
was urged that this “retransraission consent” policy would achieve a
marketplace solution to cable carriage of distant signals since such a
proposal would leave distribution of this type of programming to
marketplace forces instead of governmental intervention. NTIA
emphasized that complete deregulation of distant signal carriage by
the Commission would merely place increased emphasis on the
Copyright Royalty Tribunal (a separate governmental body whose
responsibilities include establishing the level of copyright fees paid by
cable television systems for the carriage of distant signals).
30. We carefully examined the petition and, on balance, believed
that it should be denied. We stated that to the extent that the proposal
recommended that we refrain from deregulation of distant signal
carriage and impose stricter syndicated exclusivity requirements on
cable systems in the second fifty major television markets (also an
aspect of the proposal) it involved “considerably more which appears
less consistent with reliance on the marketplace.” Para. 78, id. at 1033.
Moreover, we added that to the extent the proposal favored deregula-
tion only if accompanied by a retransmission consent policy and would
79 FCC. 2d
CATV Syndicated Program Exclus. Rules 675
continue to place distant signal carriage restrictions and syndicated
program exclusivity restrictions on cable systems and their subscribers,
“it is inconsistent with our conclusions, enunciated in the Report,
clearly endorsing increased competition in the marketplace.” Para. 79,
id. at 1083-1034. As we had noted:
a major objective of these proceeding was to determine from available economic
would not adversely affect consumers of video service. Para. 81, id.
31. Further, we pointed out our “previous unsuccessful effort to
implement a retransmission consent program” and that in light of this,
we were “extremely reticent to forbear from proceeding on the
evidence and recommendations” unless compelling evidence could be
shown “that substantial injury now or in the foreseeable future would
occur to the public.” Para. 80, id. at 1034. We added that “[i}f our
investigation of marketplace opportunities, deficiencies, and supple-
ments so warrants,” we were confident that we would “be able to take
appropriate action at a later time.” Jd.
32. Nevertheless, we expressed our desire for “a market solution to
the problems of compensating owners of programming materials” for
their use by others. Para. 81, id. We pointed out that the retransmis-
sion consent proposal, as well as the existing compulsory license
system, “prejudge the type of market institutions that can best deal
with the protection of equities” and stated that our preference would
be to allow the marketplace the opportunity to work and impose
regulation only if it was shown that the marketplace would not work.
Id. We therefore invited comment “on how the markets in program
rights might develop, and what actions, if any, the Commission can
legally take that would serve that end.” Jd. We expressed the view that
“we should examine independently the retransmission consent aspect
of the proposal” insofar as it was not contrary to the approach we
proposed by reasons of our findings, and, accordingly, we solicited
comment on it as well as “on preretransmission notification and any
other way to allow the market process to work with the least amount
of intervention.” Para. 82, id. at 1035. We pointed out that our
rejection of the petition on policy grounds avoided the necessity of our
resolving the jurisdictional question posed by it. But to facilitate “a
full discussion of what options we might have to encourage market-
place solutions in lieu of governmental regulation,” we set forth some
of the arguments which might lead us to believe that we do not have
jurisdiction to adopt proposals such as the one embraced by the
petition.
33. The other matter presented to us was a petition for rulemaking
(RM-3346) from the National Association of Broadcasters which
FCC. 2d
requested the Commission to commence rulemaking to consider the
adoption of rules to ensure that the development of “superstations”
does not result in harm to local broadcast service. We carefully
examined the petition and related comments and reached the determi-
nation that no evidence existed to show that “a regulatory problem
either now exists or is being fomented” which would justify a
departure from our decision in Memorandum Opinion and Order in
RM-2952, 68 FCC 2d 57 (1978), less than a year earlier, in which we
declined to restrict carriage of television broadcast signals distributed
to cable systems by means of satellite communication. Para. 104, 118,
id. at 1043, 1050. We concluded that it would be inappropriate to halt
the development of new video opportunities such as those created by
satellite technology “unless it can be clearly shown that the detriments
to the public . . . outweigh the benefits to be derived by consumers.”
Para. 125, id. at 1053.
34. In conclusion, we stated that “we have before us a wealth of
information and analysis” from our Reports and that we had given
careful consideration to the two additional matters brought before us.
Para. 126, id. at 1054. We reiterated our view that the distant signal
carriage restrictions could be terminated “without undue risks and
that the public would benefit by this action.” Jd. We noted our
intention to provide interested persons “a full opportunity to subject to
detailed examination all of the policy criteria, information, and
economic analysis relied on.” Para. 127, id. We pointed out that these
“regulations cannot stand unless the need therefore has been docu-
mented” and, accordingly, we urged that interested persons “address
themselves to supplying the evidence on which an informed decision
can be made” particularly “with respect to those issues where the
relevant information is uniquely in the possession of the commenting
parties.” Id.
Response to Notice of Proposed Rulemaking
35. Approximately 90 parties filed formal responses to our Notice
of Proposed Rule Making. For purposes of responding to these
comments we have divided our discussion roughly into three parts. The
first relates to the question of the impact of cable television distant
signal carriage on television broadcast service to the public. The second
relates to the syndicated program exclusivity rules, a matter that in
part relates to distant signal impact on broadcast service, in part to the
impact of distant signal carriage on the supply of television broadcast
programming, and in part to other concerns relating to property rights
in television programming and the functioning of the copyright laws.
The third involves the retransmission consent proposal, copyright
concerns, and the functioning of markets for television programming.
These issues are, we recognize, intertwined both in the comments of
various parties as well as in actual substance. This division, however,
72 FCC.
CATV Syndicated Program Exclus. Rules 677
provides a useful format for discussing the extensive comments
received.
Preliminary Procedural Issues
36. BURY EN OF PROOF. Before proceeding to discuss ‘he
substantive aspects of our proposed action and the comments received
in response to it, a number of the commenting parties raise a general
issue which warrants consideration. These parties urge that the
Commission has in this proceeding improperly or unfairly placed or
shifted the burden of proof to those persons who seek retention of
distant signal carriage restrictions on cable systems. WTVC et al., for
example, state that we have unreasonably or unlawfully imposed a
substantially higher burden of proof of persuasion on those favoring a
retention of the rules which the Commission cannot cure by declaring
that these interests “uniquely” possess relevant information which, if
not submitted, will be taken as effective default. In a similar vein,
Tribune Company says that we cannot avoid meeting the burden
normally placed on a proponent of a proposed action by placing the
burden on the proposal’s opponent if the studies have failed to support
our conclusions. KOB-TV et al., express the view that since neither of
the Reports contain an order or the equivalent of final action, any
alleged attempt to treat the “injury” question as resolved or to shift
the burden of proof is meaningless.
37. In Home Bor Office v. FCC, supra, at 36, the Court stated that
a “ ‘regulation perfectly reasonable and appropriate in the face of a
given problem may be highly capricious if that problem does not exist,’
” quoting City of Chicago v. F PC, 458 F. 2d 731, 742 (D.C. 1971), cert
denied 405 U.S. 1074 (1972).
38. In International Harvester Co. v. Ruckelshaus, 478 F. 2d 615,
642-643 (D.C. Cir. 1973), the Court said:
Seed cece Geo toe OF cates Ge nae tae he is
ordinarily assigned the burden of adducing the pertinent information. This
assignment of burden to a party is fully appropriate when the other party is
confronted with the often-formidable task of establishing a “negative averment.”
United States v. Denver & R. G. R. Co., 191 U.S. 84, 92 (1903).
39. In the Economic Inquiry Report, the Syndicated Exclusivity
Report, and the Notice of Proposed Rule Making in this proceeding we
have set forth in considerable detail the foundation for the rule change
proposal. We recognize that the responsibility for making a reasoned
decision rests with us and that our role is not to be that of a simple
referee between the contesting interests. We have met our responsibil-
ity for adducing the evidence aggressively and, we believe, fairly. But
it must be recognized that our resources are limited, especially in
relation to the commercial parties involved in this proceeding. If
publicly available information suggests certain facts and private
parties contest these facts rhetorically but fail to provide data to
support their argument, we believe we are justified in concluding that
FCC. 2d
678 Federal Communications Commission Reports
the absent information would not have furthered these parties
position. In our Notice of Proposed Rule Making we sought, with a full
awareness of our responsibilities under 5 U.S.C. §553 of the Adminis-
trative Procedure Act and applicable case law, to indicate that parties
ought to assist us in meeting our burden if they expected us to reach a
conclusion that would be sustainable under judicial scrutiny.
40. Recently, the level of specificity of record evidence to support
agency rulemaking has been heightened through case law. The
Supreme Court many years ago in Pacific States Bor & Basket Co. v.
White, 296 U.S. 176, 186 (1935) enunciated the principle that:
re
tion of the existence of facts justifying its specific exercise attaches alike to
statutes, to municipal ordinances, and to orders of administrative bodies.
The Attorney General’s Manual on the Administrative Procedure Act
(1947) stated, in describing the rulemaking process, that:
[Findings of fact and conclusions of law are not necessary. Nor is there required an
elaborate analysis of the rules or of the consideration upon which the rules were
issued. Jd. at 32.
41. The trend now, however, seems to be toward the requirement
of a far more elaborate specification of the evidence:
Once it was the general judicial practice to treat rules much like legislation. Once
the question of the agency's statutory authority was settled, the main question was
the traditional Brandeisian one: whether any set of facts could be imagined to
— 444 * —— tae bre eget big .
Court's scrupulous review of the materials amassed by the ICC in the
ä — — suggest to me that agencies are properly being
held to a higher burden of justification. (footnote omitted)
This is especially the case when, as here, First Amendment and
national policies favoring competition coicide.?*
42. Our intention in suggesting that parties wishing us to change
27 Wright, “Court of Appeals Review of Federal Regulatory Agency Rulemaking,” 26
Ad.Law Review 199, 207-208 (1974).
% Home Bor Office v. FCC, supra, at n. 67. This is not to suggest that the burden of
justification is unreasonably high, for as the same Court in a succeeding case of the
same name stated “we may not demand complete factual support in the record for
the Commission's judgment insofar as it restis] upon factual determinations that
lare] primarily of a judgmental or predictive nature’; for ‘a forecast of the direction
in which future public interest lies necessarily involves deductions based on the
expert knowledge of the agency.’ ” (citations omitted). Home Boz Office v. FCC, 190
U.S. App. D.C. 351 (1978). As recognized by the Supreme Court, the strength of the
record evidence to support an informal rulemaking action should not be confused
with the statutory requirement of “burden of proof” under f SC. §556(d) of the
Administrative Procedure Act. American Trucking Ass'n v. ., 344 U.S. 298, 320
(1953): See also U.S. v. Allegheny-Ludlum Steel Corp., 406 U.S. 742, 756-757 (1972).
As te the soundness of the record evidence supporting the Notice of Proposed Rule
Making in this proceeding, we believe that its evidential foundation was more than
adequately detailed in the Economic Inquiry Report, the Syndicated Exclusivity
Report, and the Notice of Proposed Rule Making itself.
79 FCC. 2d
CATV Syndicated Program Exclus. Rules 679
our course and retain regulations or adopt alternative regulations
ide us with evidence was simply to put them on notice that we
would be unable to comply with our responsibilities under the law if we
lacked evidence to support our conclusions, and that parties should
assist us in obtaining that information if they were to obtain a positive
response to their arguments. We do not believe that in doing this we
have in any way improperly altered the burden of proof.
43. PREJUDGMENT. In a somewhat related argument some
parties have suggested that the outcome of this proceeding has been
prejudged. They complain that the consultants used by the Commission
had fixed views on the subject matter which were well known before
they were hired, that Chairman Ferris in a speech indicated his
predisposition, and that the very content of the Notice suggested
prejudgment by its certitude. We reject categorically all of these
arguments. The consultants we hired have well established reputations
in the field, have a broad knowledge of it, and appeared to us to be
virtually the only individuals with the required knowledge and with
national reputations who were not already under contract to one of the
interested parties and were available to us. No specific improper
conduct on the part of any of them is alleged. The full text of the
Chairman’s speech seems to us to make it absolutely clear that his mind
remained open for the objective consideration of the evidence. And the
material in the two Reports and the Notice of Proposed Rule Making
seems to us entirely in keeping with their intended function of placing
the public and interested parties on notice of the preliminary
judgments reached in this matter so that responsive comments could
be as focused and useful as possible.?°
44. DELAY. Another general procedural point raised in some of
the comments concerns requests that further action in this matter be
delayed pending the occurrence of various events. For example, the
Motion Picture Association of America in its comments in the
syndicated exclusivity inquiry urged the Commission to make no
modification in the exclusivity rules “until the Copyright Royalty
Tribunal is constituted and prepared to conduct the royalty rate review
that such modifications would require.“ Others have urged that, until
legislation is forthcoming, no further deregulatory action should be
taken and that “the Commission should defer all action in this
proceeding until such time as Congress has acted on the Broad-
cast/CATV provisions of the Communications Act Rewrite Bill
currently pending before it.. Fisher Broadcasting also asks that the
It should be noted that we have already issued a partial response to some of these
allegations. In the Matter of McKenna, Wilkinson & Kittner, FCC 79-717,—FCC
2d—(1979).
Motion Picture Association of America, comments in Docket 20988, April 13, 1977 at
p. 8.
3! Fisher Broadcasting Inc., comments in Dockets 20988 and 21284, March 17, 1979 at p.
2.
79 FCC. 2d
680 Federal Communications Commission Reports
Commission “defer all action in this proceeding until such time as it has
adopted and provided sufficient time to evaluate, inter alia, local
origination requirements for cable television systems (RM-3430),
recommendations of the UHF Comparability Task Force (Gen. Docket
No. 78-391), ities for minorities and women to become
television and owners and operators, etc. [sie] a2
45. In addition, we have been asked by Congressman Robert W.
Kastenmeier, Chairman of the House of Representatives Subcommit-
tee on Courts, Civil Liberties, and the Administration of Justice (the
House Subcommittee with responsibility for copyright matters) to
“delay taking any action which would disturb the delieate balance of
copyright and communications policy until the Copyright Royalty
Tribunal has been given an opportunity to carry out its 1980 review
and Congress is in a position to respond, if necessary. A number of
infer caqparts were 217
46. nn
problem of delay. Almost fifteen years ago it was proposed that new
cable systems be prohibited from carrying distant signals for a period
of five years “to allow time for UHF stations’ growth and, perhaps,
resolution of the copyright question.“ a When the cable television
copyright issue was first before the Supreme Court, eight years before
the Copyright Act was finally revised, the Solicitor General suggested
to the Court that it “defer judicial resolution of the . . . case in order
to allow a speedy completion of the pending legislative proceedings.
In 1972, the Commission was urged to delay implementing already
adopted cable television rules until Congressional enactment of
copyright legislation.*’
47. This historical experience suggests to us that delay is not likely
to either be as short as is initially anticipated or to improve the policy
making processes in this difficult area. All of the evidence in this
proceeding has been carefully accumulated and action seems to us
already overdue. This is especially the case with respect to the
Wie were also requested to hold further oral proceedings in this Docket, which would
in gur view also have resulted in a further lang delay in the resolution of this
proeeeding. That request has been the subject of a separate opinion. See Memoran-
dum Opinion and Order in Dockets 20988 and 21284, FCC 80-442, FCC 2d—( 1980).
Letter of March 13, 1980.
“Qe the other hand, Congressman Van Deerlin, Chairman of the House of
Representatives Subcommittee on Communications, wrote the Commission before
this proceeding was even commenced, stating “Now that the Copyright Revision Act
is law, I urge you not to delay in your reconsideration of the syndicated program
exclusivity rules.” Letter of October 21, 1976.
35 Statement of Comraissioner Kenneth A. Cox, concurring in part, and dissenting in
part to the Second Report and Order in Dockets 14895, 15233, and 15971, 2 FCC 2d
72S, 817 (1966).
% See Teleprompter Corp. v. CBS, 415 U.S. 394, n. 16 (1974).
* Reconsideration of Cable Television Report and Order, 36 FCC 2d 326, 328 (1972).
79 FCC. 2d
matter to be concluded by Janwary 1, 1978.38
48. We are also required by the decision in Geller v. FCC, supra, to
review those aspects of the rules that grew out of the 1972 “Consensus
Agreement.” And we have been reminded recently by the D.C. Circuit
Court of Appeals in another context that “delay in the resolution of
administrative proceedings can also deprive regulated entities, their
competitors or the public of rights and economic opportunities without
the due process the Constitution requires.” (footnote omitted). We
believe our obligation to proceed with the resolution of this matter is
clear. We would — however, that even proceeding as expeditiously
as we are able, the rule changes adopted will not become effective
much before the time when the Copyright Royalty Tribunal’s initial
II. The Effect of Distant Signals on Television Service to the
ic
49. There are in excess of 1000 television stations and 4000 cable
television systems in operation, serving together almost 74 million
television households in the United States. Every year financial and
programming data is filed with the Commission and audience survey
information is collected by commercial audience survey organizations.
This information provides the raw data from which judgments can be
made and estimates created as to the existing and potential impact of
cable television distant signal carriage on the television service
received by the public.
50. Our Report in Docket 21284 and our Report in Docket 20988
represented the culmination of years of intensive research on the
effect of distant signals on television service to the public. Estimates of
the future are, of course, inherently uncertain. But in our Inquiry
sought to reduce these uncertainties to a manageable level. Various
approaches to the question were used in order to increase the
certainty of our findings, including consideration of gross trends (TV
station r Venues and profits, television's share of total. advertising,
2
38 Notice of Inquiry in Docket 20988, supra, at para. 9.
3° MCI Telecommunications Corp. v. FCC, Case No. 79-1119, slip opinion at 43 (D.C.
Cir., April 2, 1980). See also Delay in the Regulatory Process, Senate Document No.
95-72: “Delay in the regulatory process is not merely an irritation. It can add
enormous expenses for business that are eventually reflected in higher prices and
increased unemployment.” (p. 176).
682 Federal Communications Commission Reports
growth in television homes and in UHF television homes), econometric
analyzes of audience data, and case studies of situations intended as
proxies of a potentially unregulated cable television future. We
examined the supply and demand for cable television, the amount of
audience that cable television diverts from local broadcast stations, and
the effect that this loss in audience has on both the viability of local
stations and the public service programming that they broadcast. To
completely appreciate the care with which we approached this task, the
two Inquiry Reports and the Notice of Proposed Rule Making must be
read in their entirety. In brief, however, our conclusion was that the
vast majority of television viewers either stand to benefit or will be
unaffected if the Commission’s regulations regarding distant signals
are relaxed.
51. As previously indicated, our discussion will be divided into
three parts relating to: impact on television service to the public, the
syndicated program exclusivity rules, and the retransmission consent
and associated proposals. In each section we will review the substance
of the findings from our Inquiry Reports, the comments received
addressed to these findings, our response to these comments and our
general conclusion with respect to each issue.
52. We turn first to the question of the impact of cable television
distant signal carriage on television service to the public. The general
proposition put forth in favor of distant signal regulation is that, in the
absence of regulation, cable operations carrying distant signals will
continue to grow, that local audiences will be attracted to cable
delivered distant signals reducing the audiences of local stations which
will in turn reduce the amount that advertisers are willing to pay to
local stations causing the overall revenues of stations to decline.
Stations will then, it is posited, reduce the amour.. of public service or
“merit” programming they broadcast, generally reduce the quality of
the service they provide, or, in the extreme, terminate operations and
go dark.
53. Our economic analysis set about to test the validity of this
model of what competition would be like in the absence of regulation.
We resorted first to econometric and mathematical modeling tech-
niques. That is we attempted to construct a rigorous model of the
interaction of the cable and broadcast industries and, making use of
many observations from the available evidence, construct, either
manually or using computers, statistical models into which various
assumptions could be placed for testing. The particular value of the
cconometric technique is that results are developed that have degrees
of certainty attached to them and which indicate the influence of
particular variables among many in contributing to the overall result.
While these econometric techniques can be highly sophisticated and
make it possible to account for a large number of variables at the same
time, they are only as good as the data and the assumptions from
which they are made up. As a cross-check for the econometric
79 FCC. 2d
CATV Syndicated Program Exclus. Rules 683
projections we also reviewed in detail actual case studies of markets or
stations in which cable had been permitted, for various historical
reasons, to grow without the limitations that are otherwise established
by our regulations. The degree of confidence placed in our conclusions
in making the proposals in this proceeding stems in large part from the
findings of these case studies which represent in many respect an
actual market test of the policies proposed in major aspect devoid of
the speculations that are otherwise part of the process of projecting
into the future.
54. Our Reports received extensive criticism from the television
broadcast and television program production industries. However,as
we believe our review of the evidence will demonstrate, no evidence
has been presented that shows consumers will be disserved by the
additional competition from cable television. Instead, the parties have
attempted to shroud our conclusions in doubt by criticizing some of the
analysis that we relied on. We have reviewed carefully all of the
comments in the record and believe the discussion in this section will
demonstrate that the criticisms are invalid or do not bear on our
ultimate conclusions.
Statistical Models
55. In considering the impact of distant signal carriage on
broadcast service to the public we turn first to the econometric and
statistical models relating to: 1) the supply and demand for cable
television service, 2) the audience impacts of distant signal carriage,
and 3) the impact of audience changes on public service programming
by television stations. This parallels the discussion which is found in
Sections II. III. and V of our Economic Inquiry Report. It is important,
Moreover, the evidence relied on most heavily in reaching our ultimate
conclusion is not at all refuted: local stations have prospered despite
the presence of high degrees of cable penetration and the carriage of
„ eee
in those markets where cable developed prior to our
rr
instead, focus their comments on evidence which has less importance
for our overall conclusion. Thus, the discussion in this section is
weighted toward topics which never cut to tne heart of the research
that is presented in the Inquiry Report. While this framework appears
to be unavoidable, we note again that this part of our discussion should
be kept in the proper perspective.
56. SUPPLY AND DEMAND FOR CABLE TELEVISION. To
judge potential cable television impact on broadcast service it is
necessary to have some estimate of the amount of cable television
service that is likely to develop. Moreover, the effect of limiting distant
7 FCC.
signal carriage on cable demand is of particular importance in
assessing the social costs that are imposed by our existing rules.
57. In order to obtain this information we undertook an analysis in
the Economic Inquiry Report o which consisted of five major parts: (1)
an historical analysis of the development of the cable television
industry by size of market, (2) a summary analysis of the economics of
the cable television industry, (3) a summary analysis of the demand for
cable television, (4) a discussion of the necessary conditions for the
viability of cable television in various kinds of markets, and (5)
conclusions regarding ultimate levels of cable penetration in individual
markets. A brief synopsis of our findings for each of these parts is
presented here.
58. Our Report showed that the growth of cable television has Leen
inversely related to market size. Cable television generally serves
communities with limited local television service or poor off-the-air
reception. We found that two-thirds of the approximately 50 million
households not now offered cable service are within the “metro” areas
of the top 100 markets and 60 percent are ir the metro areas of the top
50 markets alone. We concluded that for the cable television industry
to match its growth of the past ten years, service must be provided to
the large cities which have not yet attracted sufficient funds for
construction. Whether these large cities are provided cable television
service in the future will depend upon the economics of supply and
demand in the cable television industry, including the effects of
governmental regulation.
2 We studied the factors affecting cable system viability under
conditions because viability under various circum-
— — — future growth. The viability of
cable operation is determined by its costs, such as capital costs,
construction costs, and operating expenses (i.e., supply factors), and by
its revenues (i.e., demand factors).
60. The demand for cable television commonly is measured by the
penetration (or saturation) rate: the number of households that
subscribe to cable service as a percentage of those offered service. It is
important to note that the terms penetration rate, penetration level,
and cable penetration often are used interchangeably. For example, we
treat the penetration rate as equivalent to cable penetration, although
the term, “systemwide cable penetration,” actually may be the more
appropriate usage. This is true because the terms penetration level and
cable penetration also are used to denote the percentage of total
television homes in a county or telovision market that subscribe to
cable television (whether or not all of the television homes are offered
cable service). In these cases, the more appropriate usage, to avoid
confusion, may be countrywide or marketwide cable penetration.
Report in Docket 21284, supra, at paras. 74-96.
79 F. CC. 2d
CATV Syndicated Program Exclus. Rules 685
Nevertheless, we believe that the appropriate meaning of these terms
should be apparent from the context in which they appear.
61. A large number of factors affect cable demand—including
especially the number and type of signals available over-the-air versus
on cable, the reception quality of local signals, the subscription price,
r
service.“! The extent to which these factors affect the demand for
cable television has been analyzed in detail in five major econometric
studies.*? These studies find that the quantity and reception quality of
the signals available over-the-air are key determinants of cable
penetration. Additionally, the ultimate penetration rate for cable
systems in the urban areas of the top hundred markets generally has
been predicted to reach only 20 to 40 percent at the prevailing monthly
rates in these areas, even with the importation of a substantial number
of distant signals. These estimates are supported by current cable
penetration data that show, in urban areas with good signal reception
quality, systemwide cable penetration often is less than 35 percent. Or,
to be conservative, these results imply that if every household in the
urban areas of the top hundred markets had access to cable television,
less than forty-percent of all households in these areas would subscribe
to the service.
62. The effect of distant signals on cable demand is particularly
important in assessing the consumer welfare costs of our cable
regulations. If consumer demand for distant signals is significant, our
signal carriage restrictions result in large sacrifices of welfare for
subscribers and potential subscribers. Most of the studies of cable
demand estimate that the carriage of four distant independent signals
will increase system penetration rates by at least nine percentage
points on average. The effect of distant duplicating network stations
on cable demand has been estimated to be similar to that of distant
independents.
63. The supply of cable television also has received extensive
686 Federal Communications Commission Reports
analysis. Numerous m. dels have been developed to determine the level
of cable demand that would be required to generate enough revenues
to cover system costs. The conclusion from these models was that
breakeven system penetration rates were in the 30 percent to 40
percent range. These estimates were for prevailing prices and for
urban areas of the top hundred markets.
64. The final financial parameter for cable television operation
considered here is pay cable. The advent of pay television as a service
option for the cable television industry potentially can affect both the
supply and demand for cable television. Currently, pay cable generally
is offered as a pay channel (consisting primarily of movies) only to
subscribers of the basic cable service. Only about one-third of all basic
cable subscribers that have access to a pay channel subscribe to it.
However, the extent to which pay cable will affect the growth of cable
television cannot be precisely determined. The continued development
of competing services such as multi-point distribution systems, sub-
scription television stations, and video cassettes should have an effect
on the growth of both pay cable and the cable television industry.“
65. The ultimate cable penetration in an individual market will
depend upon the availability of cable television service and the number
of households that will subscribe when offered service. Due to the
complexity of and the large variation in the factors involved, it is
difficult to assess the extent to which cable television will grow to
serve new areas. One factor is apparent, however: even if the demand
for cable television increases to the point of surpassing the breakeven
penetration rate required for new system growth, the demand for basic
cable television service in the urban areas of the larger markets is
generally such that not more than forty percent of the total number of
households offered the service would subseribe.“ Using this estimate,
combined with the higher estimated penetration levels in other areas
we concluded that the total number of cable subscribers in all markets
will not be greater than about forty-eight percent of the total number
W. S. Comanor and B. M. Mitchell, “Cable Television and the Impact of Regulation,”
2 Bell Journal of Econ. and Management Sci. 154 (1971); B. Mitchell and R. Smiley
“Cable, Cities and Copyrights,” 5 Bell Jour. of Econ and Management Sci. 264 (1974);
R. Crandall and L. Fray, “A Reexamination of the Prophecy of Doom for Cable
Television,” Id., Noll, Peck and McGowan, Economic Aspects of Television Regulation
(1978); Mitre Corporation, Urban Cable Systems (1971); Rand Corp., L. Johnson, et
Cable Communications in the Dayton Miami Valley Area: Basic Report (1972);
John Hopkins University Center for Metropolitan Planning and Research,
Economics of Cable Television in Urban Areas: Baltimore City (1975); The John
Hopkins University Center for Metropolitan Planning and Research, Economic
Feasibility of a Cable System for Cleveland (1976); and Cable Television Information
Center, Cable Television Options for Jacksonville (1973).
Compare the comments of Tribune Company in Dockets 20988 and 21284, September
17, 1979 where reference is made to the service MATV subscribers in
buildings receive from MDS and STV stations as placing “Another damper on
demand for cable service. . . p. 21.
„ See our discussion in the Report in Docket 21284 at para. 89-92
ec. 2d
CATV Syndicated Program Exclus. Rules 687
of television households within the foreseeable future, even with
unlimited distant signal importation.*
66. The Commission’s analysis of the supply of and demand for
cable television has not received extensive criticism. Only a handful of
parties have taken exception to various parts of this section of the
Report. We believe these comments, when properly analyzed, do not
weaken our conclusions from this section that 1) the future growth of
cable will be very dependent upon the ability of cable operators to
offer consumers additional program choices and innovative services at
attractive prices and 2) that no more than about 48 percent of the
nation’s television households will subscribe to cable television within
the foreseeable future. In fact, the comments if anything tend to
confirm our belief that the estimates arrived at were reasonable. Some
of the commenting parties, in an effort to suggest that cable’s impact
on television broadcast service will be greater than our estimates, have
suggested that we underestimated the likely growth of cable. Others,
in an attempt to suggest that cable will never make a major
contribution to the television service received by the public, have
attempted to suggest that our estimates were too high. When the
details of these comments are considered, the net result either reveals
misunderstanding on the part of the commenting parties or tends to
confirm the results of our earlier study.
67. For example, our prediction of an ultimate nationwide cable
penetration of no more than about 48 percent is criticized as being too
low by Boston Broadcasters, Inc.*’ because the top 50 cable television
operators currently have a 56 percent penetration. National Broadcast-
ing Company, Inc.** argues similarly that cable penetration presently
is 50 percent where pay cable is available and, as a result, seriously
questions the reliability of the Commission’s prediction. Despite our
clasification of this point at n. 31 of the Report in Docket 21284, these
criticisms demonstrate a failure to recognize the difference between
systemwide cable penetration and marketwide cable penetration.
Systemwide cable penetration is defined as the number of cable
subscribers to a sysiem, as a fraction of the number of homes passed by
cable by that system. Marketwide cable penetration is defined as the
number of cable subscribers, as a fraction of the total number of
television households in the entire market. The statistics furnished by
the commenting parties refer to systemwide cable penetration. Our
For the complete derivation of this conclusion, see the Report in Docket 21284 at n.
106.
S Wr
Comments of National Broadcasting Company, Inc., Dockets 20088 and 21284,
September 17, 1979.
Boston Broadcasters, Inc. filed supplemental comments on October 11, 1979 dealing
specifically with this point. However, these comments fail to correct their previous
error.
7 FCC. ad
688 Federal Communications Commission Reports
estimates pertain to marketwide cable penetration. For example, cable
systems currently attract an average of about 53 percent of the homes
they pass with cable.“ But this figure cannot be extrapolated to the
entire nation, even if every home in the nation were passed by cable,
because two-thirds of the households currently without access to cable
television are located in the “metro” areas of the top 100 television
markets. The demand for cable television in these areas is significantly
lower than in areas currently served by cable due to the large number
of signals that is readily available without cable. Or, in other words,
the aggregate systemwide cable penetration currently is as high as 53
percent only because cable television has grown to serve first the areas
which have the greatest demand for its service. Therefore, if cable
grows to serve the large urban areas that have not yet attracted the
funds necessary for construction, the aggregate systemwide cable
penetration will decrease. Thus, we find this criticism is without merit
when the economic evidence is interpreted correctly.
68. The Association of Independent Television Stations, Inc.,
(INTV)! suggests that the estimate of 48 percent nationwide cable
penetration must be re-evaluated in light of the cable industry’s own
predictions. INTS cites Cablevision and Cablecast to to say that “cable
industry leaders have predicted 50 percent cable penetration nationally
by 1990. The actual statement in Cablevision, however, is that
“within the next three to five years, it is forecast that cable will serve
30 percent of all households in the United States and an estimated 50
percent of all homes will have cable service available to them.”
(Emphasis added).5* The 50 percent figure refers to homes passed by
cable, not subscribers to the systems. (That is, these households will
have access to cable television, but will not necessarily subscribe to the
service.) Similarly, not only is the citation to Cablecast incorrect, oe but
neither of the two issues which INTV may have been referring to can
be used to validate their claim of a 50 percent nationwide penetration
by 1990. The closest reference to this prediction in the two issues is that
“cable operators are now beginning to realize that if they can sell
additional services to, say 70 percent of their subscribers [in urban
areas}, and if basics are only 40 percent of homes passed, they really
have 68 percent penetration. For this they will build.”55 This quotation
suggests that a (basic) cable penetration of only 40 percent (of the
homes passed by the system) is expected in urban areas. This
0 See the Report in Docket 21284 at para. 78.
51 Comments of the Association of Independent Television Stations, Inc., Dockets 20988
and 21284, September 17, 1979.
82 Jd. at 22.
53 Cablevision, “Advertising on Cable: From Madison Ave. to Main St.,“ October 23,
1978 at 22.
“INTV cites Cablecast, No. 188, December 18, 1978. The December 18, 1978 issue of
Cablecast is No. 218. The issue numbered 188 is dated September 12, 1977.
58 Cablecast, Paul Kagan Associates, Inc. No. 218, December 18, 1978.
79 FCC. 2d
CATV Syndicated Program Exclus. Rules 689
suggestion corresponds with our estimate of cable demand, and
contradicts INTV’s claim for 50 percent nationwide cable penetration.
69. INTYV also refers to the assumption by Paul Kagan Associates,
Inc. that an additional 2.5 million households will subscribe to cable
television every year until 1985. INTV then applies the assumption
well beyond the range intended and concludes that “the national cable
penetration would exceed 55 percent in less than 15 years. However,
the validity of assuming a constant increase in the number of cable
subscribers is highly questionable. Growth curves rarely follow this
pattern over an extended time period. Instead, a logistic growth curve
frequently is used to represent growth processes.5’ This reflects the
fact that the most economically desirable locations for cable systems
are constructed first and the fact that television viewers most desiring
cable service become subscribers first.
70. Boston Broadcasters, Inc. proposes an additional argument for
our 48 percent nationwide cable penetration estimate being too low in
that it states, “when local stations are deprived of the best in
professional sports, the more popular syndicated programming, and
popular movies, more and more people will subscribe to cable in order
to receive pay cable. We note that the assumption guiding this
argument is strikingly similar to that which the Commission relied
upon in promulgating its former pay cable rules. In reviewing these
rules, the Court found that “if there is any evidentiary support at all
{that siphoning is real, not imagined], it is indeed scanty”®® and as a
consequence these rules were eliminated. No evidence has accumulated
since the Court’s statement and the elimination of the rules, nor has
any such evidence been submitted in this record which suggests that
such program siphoning will occur.
71. Boston Broadcasters, Inc. also claims that the estimate of 40
percent cable penetration in the metro areas of the top 100 markets is
too low because recent surveys in Boston suggest that as many as 40 to
55 percent of the households offered service would subscribe. It seems
to us, however, that reliance on surveys such as these should be kept to
a minimum given the experience of existing cable systems. Surveys of
this type often are unreliable because of the inflated expectation that
people have of cable television before receiving the service, especially
when pay cable television is included in the marketing package.
5% Supra, n. 51 at p. 22.
51 See, ., Rolla Edward Park, Potential Impact of Cable Growth on Television
Broadcasting, the Rand Corp. R-587-FF, October 1970.
58 Supra, n. 47 at 9.
% Home Box Office, Inc. v. FCC, supra at 42.
© See, eg., Walter S. Baer, Cable Television: A Handbook for Decision-making, the.
Rand Corp., R-1133-NSF at 44, February 1973.
79 FCC. ai
690 Federal Communications Commission Reports
Actual experience and existing research, indeed, do suggest other-
wise.®!
72. In contrast to the above comments which suggest that cable
penetration will be higher than our estimate, others say our estimate is
already too high. American Broadcasting Companies, Inc. (ABC) says
that “the enormous cost of wiring the nation . . . casts doubt upon
achievement of even the 48 percent penetration level projected in the
Economic Inquiry Report.” ® It should be noted, however, that the
ultimate nationwide cable penetration was estimated by the Commis-
sion to be no more than about 48 percent, even assuming that all
households would have access to cable television. The possibility that
all households would have access to cable television is extremely
unlikely. Hence, the 48 percent figure represents an upper limit on
nationwide cable penetration. We believe this estimate provides a
sufficiently conservative™ basis from which to predict tne future long-
run impact of eliminating our distant signal carriage and syndicated
exclusivity rules on local station audiences.
73. ABC also cites a report from the Commission’s Broadcast
Bureau on the information developed under the cable economic inquiry
which said that “in our review of the demand for cable discussion, we
find no indication that the staff performed a critical evaluation of any
of the five studies. 8 Similarly, reference is made to the Broadcast
Bureau’s belief that the “assessment of the future of cable lacks
analytical depth. However, as noted in n. 80 of the Report in Docket
21284, a comprehensive summary and evaluation of the five studies on
the demand for cable television was prepared for the Office of
Telecommunications Policy (OTP), Executive Office of the President
by six leading scholars in the communications field.“ We felt this
analysis was adequate, and thus determined that an additional detailed
review of these studies was unnecessary.® Similarly, the assessment of
This is not to suggest that we would find higher penetration levels undesirable for
this would suggest that cable was contributing even more than anticipated to the
welfare of subscribers.
* Comments of American Broadcasting Companies, Inc., Docket 21284, at 37, August
8, 1979. The ABC comments in this proceeding and those of Bahia De San Francisco
et al., are substantially duplicative. Therefore comments attributed to ABC may also
generally be attributed to Bahia De San Francisco et al., throughout this discussion.
For further clarification of this point, see n. 86 in the Report in Docket 21284.
By conservative we mean a figure which tends to exaggerate the effect of cable
television and thus makes any resulting imp:ict estimate an upper bound one.
* Broadcast Bureau, Report on Information Developed Under the Cable Economic
Inquiry, April 18, 1979 at 29.
Id. at 32.
* See 8. M. Besen, B. M. Mitchell, R G. Noll, B. M. Owen, R E Park and J. N. Rosse,
Economic Policy Research on Cable Television, Assessing the Costs and Benefits of
Cable Deregulation (1976).
S ane See
summary of cable demand on factors that are relevant to this proceeding. For
example, while ABC seems to believe the sensitivity of demand to price is worthy of
79 F.C.C. 2d
CATV Syndicated Program Exclus. Rules 691
the future growth of cable television relies heavily upon this analysis,
with the very conservative assumption that all househoids
will be passed by cable in the future. We believe this approach provides
a sufficient basis upon which to ascertain future potential levels of
cable penetration for ralemaking purposes.
74. Some parties also have alleged a failure on the Commission's
part to estimate the effect of pay cable on the growth of cable
television. For example, Boston Broadcasters, Inc. finds that “amaz-
ingly, no consideration has been given by the Commission to the
substantial effect that pay cable would clearly exert on the number of
cable subscribers. Similarly, INTV notes the inability of the
Commission to estimate the effect of pay cable on the supply of cable
television and concludes that the “estimate of 48 percent penetration in
the foreseeable future appears to be nothing more than a guess. o To
place the above criticisms into proper perspective, the Commission has
found that sufficient data to determine the extent to which pay cable
channels will increase the basic penetration rate are not yet available.
Thus, the extent to which pay cable will affect the supply of cable
television is not fully known at this time. However, no evidence
concerning the effects of pay cable on the growth of cable television
exists or has been presented which suggests our findings are incorrect.
— cable, along with competitive services such as multipoint distribu-
tion systems, subscription television stations, video cassettes, low
power television, and direct satellite to home broadcasting, are in the
developmental stage. Any positive effect that pay cable is having on
the growth of cable television in the short run is likely to be offset to
some extent by competing services in the long run as these services
begin to ee ee ene) Sevens Sinem, See Ses.
available only from cable. This marketplace response also applies to
eee
significant consumer demand for other non-broadcast services offered
on cable, we expect that these services also will be offered by
competing distribution technologies. Most importantly, however, we
believe we have adequately dealt with the uncertainties created by
these new developments by estimating the effect of pay cable on the
growth of cable television using the extremely conservative assump-
tion that cable television will grow to pass every home in the nation.
This approach provides an estimate of nationwide cable penetration
that has an extremely small probability of being underestimated.”'
review, we do not believe this factor 1s critical for determining the impact of cable
television on local station audiences given that cable system operators set prices to
maximize profits and not subscribers.
© Supra, n. 47.
7 Comments of Association of Independent Television Stations, September 17, 1979 at
21.
™ ABC in its comments has set forth some estimates of the cost of wiring the nation
with two-way cable service. According to ABC “even assuming a very conservative
FCC. a
692 Federal Communications Commission Reports
75. The final area of criticism of this section of the Report in
Docket 23284 concerns the effect of additional distant independent
signals on the demand for cable television. We found that distant
independent signals increase the demand for cable television. While the
extent of this increase is unclear, most studies estimate that the
carriage of four distant independent signals will increase system
penetration rates by at least nine percentage points on average. It is
important to note that this increase is for system penetrat rates and
not county or market cable penetration. If some households in a
television market do not have access to cable television, the effect of
distant signals on marketwide cable penetration will be less than that
on system penetration rates.
76. The National Association of Broadcasters (NAB)’? performs its
own analysis of the studies on cable demand and argues that our
finding of the consensus of the effect of distant independent signals on
cable demand is too high. On the other hand, Boston Broadcasters, Inc.
expects that “the increase would be even greater [than the Commission
estimates] in areas where the quality of television reception off-the-air
is reasonably good. 7 INTV seems to believe that the extent of the
increase in cable demand from additional independent signals is
unclear.“
77. The only discussion in the comment at evaluates the
findings of the studies on the demand for cable ‘Jevision is provided
by NAB. NAB addresses five studies on cable de and, including that
by Wharton Econometric Forecasting Associates which was undertak-
en as part of their audience model developed for this proceeding. For
background in evaluating NAB’s discussion, it should be noted that
wiring assumption is extremely conservative.
„„ ee Se Seen Cyn ele an
17, .
13 Supra, n. 47 at 6.
™ Although these parties differ on the facts, each uses its version to argue against
changes in the rules. Thus, Boston Broadcasters, Inc. argues that the estimated
effect of distant signals on cable penetration too o because cable penetration is
correlated positively with audience diversion. Hence, if the predicted cable penetra-
tion was higher, the predicted audience losses due to cable also would be higher. On
the other hand, NAB argues that the effect of distant signals on cable demand is not
CATV Syndicated Program Exclus. Rules 693
Noll, Peck, and McGowan present two studies of cable demand in their
book by collecting data for two distinct samples.“ One sample was
chosen specifically to estimate the demand for cable television in the
100 largest markets. However, the authors found that “when this is
done there is very little intersystem variation in the cable viewing
options relative to over-the-air options so that the impact of added
viewing options cannot be reliably estimated. 7 That is to say that in
their sample of systems in the larger markets, most systems carry
roughly the same number of distant signals and are faced with similar
competition from local over-the-air television signals. Since there is
little variation in the signals available to cable and non-cable
households among large markets, it is difficult to estimate systemati-
cally the effect of additional signals. As a result, Noll, Peck and
McGowan report that the overall explanatory power of this study is
very low, and characterize it as having “highly inconclusive resulta.“
In fact, when estimating the value that consumers derive from “free”
television, an extremely important measure for tne conclusions
reached in their book, the authors do not rely upon this study, but
rather rely upon their second study of cable demand. Resultantly, we
did not include the study with highly inconclusive resuits among the
five studies of cable demand reviewed in the Report in Docket 21284.
Instead, we relied upon the second study performed and favored by the
authors in their own work.
78. With this background, we find that in NAB’s discussion of the
studies of cable demand, reference is made to the study by Noll, Peck
and McGowan that is not included in our review. We do not believe
that any reliance can be put on this study. Hence, we find any
conclusions that NAB attempts to draw from it unacceptable. Similar-
ly NAB also criticizes our reliance on the study by Park, “Prospect for
Cable in the 100 Largest Markets“ Ds because “Park’s results, by his
own admission, were not directly applicable to major television
markets because most systems existing in 1970 were located in areas
where off-the-air service was poor, due to lack of stations or bad
ion. This criticism also is without merit. Park characterizes his
sample by saying the “model is developed using a sample of 68 cable
systems located where several signals can be received over-the-air with
no particular reception problem”® Additionally, Park says that the
“levels of [off-the-air] service [in the communities served by these
„ Ur em
at
* Id. at 298.
7 Rolla Edward Park, “Prospects for Cable in the 100 Largest Television Markets,” 3
Bell Jour. of Econ. and Management Sci. 130 (1972).
7° Supra, n. 72 at 79-80.
0 Supra, n. 78 at 130.
7 FCC.
694 Federal Communications Commission Reports
systems] are roughly the same as those found in most of the top 100
me kets.”*! Hence, NAB’s review of the Park study is in error.
79. Taking the above criticisms of NAB’s review of the udies on
cable demand into account, we believe that our finding of the effect of
additional distant independent signals on the demand for cable
television remains sound. Most studies estimate that the carriage of
four distant independent signals will increase system penetration rates
by at least nine percentage points on average. However, NAB contends
that the Wharton study submitted with NAB’s comments in response
to the Commission’s original Notice of Inquiry in Docket 21284 is
worthy of far more confidence than previous efforts to estimate the
significance of the various factors which influence demand for cable
television. For example, NAB druws upon the Wharton study to
conclude that in a market with three local independent stations in
addition to three network affiliates, increasing the number of imported
distant independents from 1 to 6 leads to an increase in cable
penetration of 3.1 percent. NAB proceeds to conclude that “rarely will
the projected increase of 3 or 4 percent fall at the critical margin of
deciding whether cz not to construct a cable system in a particular
television market. * However, NAB has erroneously interpreted
Wharton's treatment of cable penetration. Wharton defines cable
penetration as the number of cable subscribers in a county as a fraction
of the number of television households in that county. This is not
equivalent to systemwide cable penetration as NAB infers. Thus, NAB
has made an error similar to that of INTV and other commenting
parties in this proceeding as to the appropriate use of cable penetra-
tion. In this case, NAB mistakes countywide cable penetration for
systemwide cable penetration. Since some homes will not have access
to cable television, the effect of distant signals on countywide cable
penetration will be less than that on systemwide cable penetration.
Hence, Wharton’s results are not necessarily inconsistent from those of
the other studies of cable demand.
80. In summary, the criticisms leveled at the Report in Docket
21284 have not persuaded us that our analysis of the supply and
demand of cable television is incorrect. We continue to believe that the
future growth of cable television will be dependent upon the ability of
cable system operators to offer consumers additional program choices
and innovative services at attractive prices. We also believe that no
more than about 48 percent of the nation’s television households will
subscribe to cable television within the foreseeable future. We regard
this estimate as sufficiently conservative to account for the possible
effects of pay cable on system growth.
Ad. at 136.
% Supra, n. 72 at 84.
Wharton treats each county as representative of a market. Hence countywide cable
penetration is treated as analogous to market wide cable penetration.
7) FCC. 2d
CATV Syndicated Program Exclus. Rules 695
81. THE IMPACT OF DISTANT SIGNALS ON LOCAL
STATION AUDIENCES. Having developed some understanding of
likely cable television growth patterns, the next step in our analysis in
the Economic Inquiry Report was to obtain information on the
audience behavior of cable television subscribers with access to distant
signals. From this, estimates of the total local station audience impact
likely to result from elimination of the distant signal carriage rules
could be developed. In the Inquiry stage of this proceeding we were
fortunate to have available a wealth of new information made
available in iarge part due to new audience data from the audience
rating services on the viewing habits of both cable and non-cable
households in individual counties. Four major studies that made use of
these new data were relied on heavily by the Commission. These
studies were prepared by the National Cable Television Association
(NCTA),®* the Motion Picture Association of America (MPAA),
Wharton Econometric Forecasting Associates (WEF A) for the Nation-
al Association of Broadcasters, and Dr. Rolla Edward Park of the
Rand Corporation under contract to the Commission.
82. The NCTA, in a study of 109 stations operating in television
markets with greater than 33 percent cable penetration, reported that
the average audience diversion due to cable for the entire day is 8
percent, and is greatest in smaller markets. For instance, in one- and
two-station markets cable diverts an average of 10 percent of
audience, while in markets with three or more network stations, cable
diverts an average of only 4 percent of potential audience. This
difference is attributable to, in large part, the importation of the
second and/or third network signal into the smaller markets. The
diversion from UHF licensees was found to be one-third of that from
VHF licensees because of che greater improvement in reception that
cable television provides UHF stations. Additionally, since no market
with greater than 33 percent cable penetration contains a local
independent station, NCTA also analyzed the effect of cable on the
audiences of mature UHF independents. Of the fifteen mature UHF
ts for which the necessary viewing data were available,
NCTA reported that cable augments the viewing of thirteen of these
stations. Two UHF independents experienced an audience loss averag-
ing 1.5 percent. We noted that the studies by NCTA do not adjust for
National Cable Television Association, comments in Docket 21284, March 15, 1978.
2 Picture Association of America, rep'y comments in Docket 21284, June 20,
National Association of Broadcasters, comments, “The Impact of Cable TV on Local
Station Audience” prepared by Wharton Econometric Forecasting Associates,
Docket 21284, March 15, 1978.
* R. E. Park, “Audience Diversion Due to Cale Television: A Statistical Anslysis of
New Data,” the Rand Corporation, prepared for the Federal Communications
Commission, January 1979. Attache as Appendix A to the Report in Docket 21284.
7 FCC. 2d
696 Federal Communications Commission Reports
the greater amount of television viewing by cable subscribers, nor do
they estimate the effect of alternative signal carriage rules.
83. The MPAA study focused on individual counties rather than on
an entire market and found that local stations lost more audience as
the proportion of television houseticlds in a county subscribing to cable
television increased. The audience diversion attributable to cable at a
12.5 percent cable penetration was reported to be 2.4 percent. At 50
percent cable penetration, audience diversion due to cable increased to
about 15 percent.
84. The applicability of the results of the MPAA study are limited
somewhat due to the aggregation of county data. MPAA aggregates
all of the counties in its sample by the level of cable penetration and
disregards the complement of local signals in the counties. However,
the audience diversion for the local stations due to cable television is
likely to differ substantially depending upon the number of local
signals, even if the level of cable penetration is identical. For example,
holding other factors constant, cable television diverts more audience
where there is only one local signal because of the importation of a
second and third network signal. Thus the applicability of the general
results presented by MPAA is inadequate for assessing the effect of
cable on local stations for any specific case.
85. While the above studies provided a “snap shot” view of the
impact of cable television on local station audiences, the NAB-WEFA
and Park :.udies, which were also relied on, attempted to estimate by
econometric methods the effect of a change in the number of imported
distant signals on local station audiences.
86. The NAB-WEFA study is an ambitious and comprehensive
undertaking that compiles data for all counties for which viewing data
are available for both cable and non-cable households. The model,
however, employs a highly complex structure which increases the
difficulty of analyzing simulations of the model. While we found
certain flaws in the model which were reviewed in the Economic
Inquiry Report and which we believed biased the finding that small
independent stations suffer most from additional distant signals on
cable, we were able to use it in terms of marketwide impacts by
aggregating the predicted impacts to both independent stations and
network affiliates, thereby providing one estimate for the entire
market. For example, our summary of the NAB-WEFA results for
large markets containing independent stations was that increasing the
number of distant independent stations from 1 to 6 would reduce local
station audiences by 10 to 13 percent at a 50 percent marketwide cable
penetration.
87. In small markets, where no adjustments to the NAB-WEFA
model were made, NAB-WEFA found that increasing the number of
distant signals from 1 to 6 would reduce local station audiences by 8.7
to 12.7 percent at a 52 percent marketwide cable penetration,
depending upon the number of local signals. Finally, in medium-sized
79 FCC. 24
CATV Syndicated Program Exclus. Rules 697
markets with three local stations, increasing the number of distant
independent signals from 2 to 5 was predicted to decrease local station
audiences only by 6.5 percent, even at the unreasonably high market-
wide cable penetration of 68%. In neither case were the findings
inconsistent with the results of the other studies in this proceeding.
88. Park, in a study done under contract to the Commission,
estimated the effect of additional distant signals on local station
audiences by using a simpler model based on a sample of 121 counties.
He provides estimates of audience diversion due to cable under both
the current signal complement permitted by the FCC rules and under
relaxed signal carriage rules. The estimates for each are provided at
both current and projected ultimate cable penetration levels. At
current cable penetration, the incremental audience diversion from
eliminating the signal carriage rules is estimated by Park to be 14
percent or less for all cases. At the projected ultimate marketwide
cable penetration levels, the incremental audience diversion is estimat-
ed to be less than 20 percent in all but the smallest markets. However,
we characterized Park’s long-term results as being overstated, espe-
cially in small markets, because the projected ultimate cable penetra-
tions are too high.“ Hence, we interpreted Park’s results for the long
term as predicting virtually no scenario where the relaxation of the
signal carriage rules will generate more than a 20 percent audience
diversion. It should also be noted that we had numerous other problems
with the Park model, aside from the projected levels of cable
penetration, that led us to conclude that Park overestimated the effect
of eliminating the signal carriage rules. These problems are important
to note in assessing our conclusion of the general consensus of the
impact of cable television on local station audiences. They will be
discussed in detail below.
89. In conjunction with these four studies as well as the other
comments received, we also analyzed the current impact of cable on
local station audiences for six grandfathered markets, seven indepen-
dent stations, and nineteen “worst case” broadcast stations or markets
ing harm due to cable. Audience diversion due to cable was found
to be less than 10 percent in more than two-thirds of the cases
analyzed. The specific findings of this study are discussed in detail
below. For present purposes it is sufficient to note that the findings
from the grandfathered markets contributed to our assessment of the
more general statistical studies. The results of the analysis of these
markets contributed heavily to our conclusions because they provide an
excellent picture of the marketplace working essentially without signal
carriage restrictions.
In particular, Park's estimates for ultimate cable penetration are based on the
assumption that every home will be passed by cable. We found this to be an unlikely
possibility, especially in areas of low population density.
79 FCC. N
698 Federal Communications Commission Reports
90. The consensus on the audience diversion due to cable television
that was reached in the Report in Docket 21284 was that:
(a) The impact of cable television on local station audiences under current market
conditions generally is less than 10 percent. This finding includes cases with
the foreseeable future for all but a few cases.
91. Our analysis of the impact of distant signals on local station
audiences has received extensive criticism from the television broad-
cast and television program production industries. These range from
specific criticisms of the Park study to the allegation that the
Commission was highly selective in its use of the available research
material. Each of these criticisms will be addressed separately below.
Our discussion should demonstrate that the incremental audience
diversion from eliminating the signal carriage rules will be less than 10
percent in the foreseeable future except for a very few cases. The fact
that the data tell the same story in almost all cases shows the validity
and robustness of the consensus that we have drawn from them.
92. Our goal throughout this proceeding has been to insure that we
would have available the most accurate evidence possible from which
to make a public interest determination. We considered this to be of
i importance in view of the fact that the stakes to consumers
from the final outcome of this proceeding ar so high. Many of the
commenting parties devoted a large amount of their energies toward
criticizing the Park study. As a preliminary matter, we must empha-
size that we did not place our sole reliance, or, indeed, any overbearing
emphasis on the Park study in reaching our conclusions on the impact
of cable on local stations’ audiences in the Report in Docket 21284, since
it was only one of several studies that addressed this relationship.
However, to alleviate any justifiable concern that might have a
reasonable bearing upon the accuracy of the Commission’s determina-
tion, we contracted with Dr. Park to address the criticisms of his initial
study and to make certain modifications to improve it and test the
validity of certain criticisms. (See Appendix B) As it turns out, our
analysis shows that the additional work performed by Park acts to
strengthen our previous conclusion concerning audience diversion due
to cable television. Therefore, we rely, in part, upon the additional
work undertaken by Park in addressing the criticisms of the television
broadcasters and program producers that are relevant to this section.
It should also be noted that at an earlier juncture in this proceeding we
made numerous attempts to obtain modifications of the NAB-WEFA
79 FCC. 2d
CATV Syndicated Program Exclus. Rules 699
model so that it too could be relied on with greater confidence.
However, the requested information was never received.
93. The Consensus Effect. Parties critical of our proposal, and the
Economic Inquiry Report generally, have argued that the consensus of
the studies reported was arrived at only through a misuse or
misreading of the studies relied on. Thus, for example, ABC claims
that “the Commission unfairly and improperly failed to give sufficient
weight to studies submitted by NAB, MPAA, INTV and ABC, each of
which predicted adverse impact on television broadcasting in more
significant measure than the studies upon which the Commission
relied.”®® The ABC Television Affiliates Association points out that
Park’s results “vary tremendously from the Economic Inquiry Report's
conclusion that ‘in all but the most extreme cases, the additional
audience loss will be less than 10 percent in the foreseeable future“
Upon reviewing the Commission’s summary of the Park study, Capital
City Television et al., finds “the Commission’s conclusion that there is
virtually no scenario which generates a 20 percent audience loss within
the foreseeable future from relaxed signal carriage rules,’ is clearly
misleading.”®' The Joint Motion of the Association of Independent
Television Stations et al., alleges that “whereas the staff either ignored
or went to great length to include material critical of NAB, MPAA,
and INTV, it included virtually no criticism of either the NCTA or
Park audience loss siudies.”®? The National Association of Broadcast-
ers complains of our treatment of its study, stating the we “
ly chose to ignore critical findings of the Wharton study. INT
states that “since part of the Cooper study [commissioned by INTV]
relied on data from the Wharton study, it too was discounted by the
Commission without any discussion.” Further, “there is no indication in
any of the documents in this proceeding that the Commission even
considered those portions of the Cooper study not relying on the
Wharton data.
94. As explained in the Report in Docket 21284, notable examples
American Broadcasting Companies, Inc., comments in Dockets 20988 and 21234,
August 3, 1979 at 6.
* ABC Television Affiliates Association, comments in Dockets 20988 and 21234,
September 17, 1979 at 14.
n Capital City Television et al., comments in Dockets 20988 and 21284, September 17,
1979 at 5.
* Association of Independent Television Inc.; Caucus for Producers, Writers and
Directors; Metromedia, Inc.; Motion Picture Association of America, Inc.; National
Association of Broadcasters; National UHF Broadcasting Association; and Screen
Actors Guild; Joint Motion for Revision of Procedures, Dockets 21284 and 20988, June
22, 1979. The discussion provided therein has been incorporated into the comments of
this proceeding by the Motion Picture Association of America.
* National Association of Broadcasters, comments in Docket 20988 and 21284,
September 17, 1979 at 111.
* Association of Independent Television Stations, comments in Dockets 20988 and
21284, September 17, 1979 at 28.
7 FCC. 2d
700 Federal Communications Commission Reports
of audience studies submitted as comments in this proceeding that
provided information which we consider very valuable in reassessing
our cable policies and rules include those by NAB-WEFA, NCTA, and
MPAA. Other comments, including those of ABC, we noted as
submitting data that attempted to display the impact of cable
television on local station audiences. The data provided by these
comments, however, were not considered valuable for policy purposes
because of the inadequacy of the analysis provided therein. The study
by ABC, for example, focused primarily on the disparity in the share of
viewing of local stations between cable and non-cable households. This
analysis gives an entirely incomplete picture of the effect of cable on
local stations because it fails to account for the relative of the
cable and non-cable populations.“ Other studies, such as those of the
Rocky Mountain Broadcasters Association, also appeared to us not to
be usable in isolation for predictive purposes. Rather, to address the
concerns in these comments, we analyzed, using a standard procedure,
key economic factors of each station and/or market that was identified
as being harmed by cable. Careful attention was given to the viability
of these stations and, in cases of financial hardship, the extent to which
cable was responsible for their financial distress. (See para. 174 below.)
A similar procedure has been implemented for the comments in this
round of the ing.
95. Additionally, while noting their limitations, the results of the
studies of audience diversion by NCTA and MPAA were accepted by
the Commission in toto. These studies generally are carefully done.
And, despite ABC’s claim, the results of the MPAA study are well
within the bounds of audience diversion established as the consensus
opinion the Commission. For example, MPAA finds audience
diversion from local stations attributable to cable television to be about
8 percent in counties with 30 percent cable penetration. Our conclusion
in the Report in Docket 21284 was that the ir paet of cable television on
local station audiences at the present time generally is below 10
percent.
96. On the other hand, the specific results of audience diversion for
local independent stations predicted by the NAB-WEFA were rejected
because of the inherent bias attributable to the model specification.“
Where estimates were provided specifically for independent stations,
we chose instead to employ the NAB-WEFA model to provide one
estimate of audience diversion for the entire market.
97. The results of the NAB-WEFA model as to the incremental
% See also our discussion on the appropriateness of using “share data” in the Case
Study Section of the Report in Docket 21284.
For a comparison of the results of the major studies submitted in this proceeding on
audience diversion, see the Report in Docket 21284, para. 116(a). See also Park,
Appendix A, Report in Docket 21284 at 38-48.
* For a detailed analysis of the NAB-WEFA predictions, see the Report in Docket
21284 at para. 107 and n. 116.
FCC. 24
CATV Syndicated Program Exclus. Rules 701
effect of additional distant signals on local independent stations were
unacceptable because of: 1) the use of the “logit” equation specifica-
tion, 2) estimation of the effect of increasing the number of distant
independent signals from 1 to 6, instead of from a base of 2 signals as
our rules currently permit for the markets analyzed, and 3) the use of
unrealistically high marketwide cable penetrations.
98. To actually demonstrate the shortcomings of the NAB-WEFA
study, we would have liked to compare its results to the detailed case
study analysis that we performed for grandfathered markets (as we
did with the Park study). We believe this comparison particularly
would be enlightening if it could be undertaken for small UHF
independent stations. Unfortunately, NAB-WEFA has not answered
our requests for additional information. Furthermore, we have been
unable to duplicate the reported results of the NAB-WEFA study. In
these circumstances we do not think it would be appropriate for us to
employ the NAB-WEFA model to make predictions of audience
diversion due to cable for the small independent stations that we
analyzed in the case studies.
99. The main problem identified with the NAB-WEFA study was
that it employed a “logit” equation specification for predicting
audience shares under various signal complements. Our Report showed
that employment of this equation specification resulted necessarily in a
proportionately greater impact on local independent stations than
network affiliates, regardless of what the actual data may have
indicated. Hence, we rejected the “finding” that small, independent
stations suffer most of the audience losses from additional imported
signals. Instead, as indicated previously, we summarized the results of
the NAB-WEFA model by providing its prediction of the impact of
cable on local station audiences for an entire television market, and not
for its predictions of the impact on individual stations.
100. In its reply to the Commission’s critique, WEFA finds that
“the derivation of derivatives shown in footnote 116 (page 61) of the
FCC document is correct,” but “the mathematics in footnote 116
support a conclusion exactly opposite to that given in the text of
paragraph 107(i).”"°° WEF A’s reasoning in reaching this conclusion is
flawed. In fact, its own analysis confirms our findings. WEFA finds
that “what the FCC has shown is that the percentage change in the
R oe en ne Oe een ae
individual shares predicted for each station in a market varies greatly from 100
percent. In contrast, NAB-WEFA, without explanation, reports that the predicted
shares of the individual stations in a market sum to 100
% See the Report in Docket 21284 at para. 107 and n. 116 for a more detailed
demonstration of the correctness of this statement and the nature of a “logit”
equation.
10° Supra, n. 98, Exhibit H, at 1. 2
79 FCC. 2d
702 Federal Communications Commission Reports
market share (which is like a percentage change in a percentage share)
increases as the market share decreases.” 101 This is precisely the reason
for which we reject WEFA’s findings for independent stations (i.e.,
those stations with smal] market shares). Thus, the validity of our
reasoning is not rejected, but agreed upon by WEFA. Furthermore,
WEFA proceeds to provide numerical examples to demonstrate the
validity of our criticism of the WEFA model. WEFA’s error in its
reply is attributable to considering the absolute change in a local
station’s viewing share from additional distant signals rather than the
— change. We are interested in and the NAB-WEFA model
provides predictions for the latter. We find, and WEFA agrees, that
this loss must necessarily be estimated to be greater for small
independent stations when the logit equation specification is em-
ployed. io Hence, WEFA’s criticism of our analysis of the NAB-
WEF A’s study is flawed. N
101. Our Report also found that providing projeetions of audience
diversion in larger markets when the number of imported signals is
increased from 1 to 6 is not very helpful for policy purposes because
two signals can be imported in these markets under existing FCC
policies. Without explanation, WEF A contends that “the logic of [this]
argument seems to be missing. 0 We feel, however, the logic of our
argument is clear. The effect of relaxing the signal carriage rules in
the larger markets is not equivalent to the effect of increasing the
number of imported signals from a base of one. The appropriate
incremental effect should be calculated from a base of two distant
independent signals because we currently permit this many signals to
be imported into all of the larger markets. 05
102. WEFA also disagrees with our categorization of the market in
their study with 3 network affiliates and 1 independent as a large
market and therefore claims our criticisms of this simulation are not
relevant. 10s However, in their original study, WEFA says that “we
have considered two different local signal offerings for the larger
market: three local network stations and one local independent. 07
(Emphasis added.) Hence, in its report, WEFA categorizes its set of
results for the market with 4 local stations as a larger market.
101 Id. at 4.
108 Jd. at 7. As documented in n. 116 of our Report, we believe the column entitled
“ds/dx/S—logit” is the appropriate focus.
103 It should be noted that WEFA also mistakes the Park audience model undertaken
for the proceeding as a linear one, and proceeds to demonstrate that the same result
holds for linear models. However, the Park model is not a linear one. For further
discussion, see Park, Appendix A.
1% Supra, n. 98, at 8.
108 See 47 C. F. R. Part 76, Subpart D.
18 This categorization is provided in the Report in Docket 21284, Section III. Table 2.
107 Supra, n. 86 at 97.
FCC. 2d
CATV Syndicated Program Exclus. Rules 708
Therefore, WEF A’s claim in its reply is negated by its own discussion
in the original study, and our criticisms of its procedure remain. 100
108. Additionally, because it relies on the NAB-WEFA findings for
the impact of cable television on local station audiences, Roger Cooper
and Associates submitted an additional analysis which attempts to
justify the NAB-WEFA findings. 10% For example, since our interpreta-
tion of the NAB-WEFA model is that smaller stations must necessarily
be estimated to suffer greater audience losses (in percentage terms)
from additional distant signals, Roger Cooper and Associates requested
NAB-WEFA to run an additional simulation for a market containing
an independent station with a much smaller audience share than
specified previously. In comparing the results for these two cases,
Roger Cooper and Associates conclude that “cable affects the local
independent station in almost exactly the same way.”!!° Roger Cooper
and Associates bases this conclusion on the results presented in Table
III of its analysis. In this table, importation of one distant independent
signal on cable is calculated by Roger Cooper and Associates from
NAB-WEFA’s predictions to divert 38 percent of the audience from
both the smaller and larger local independent stations. However, one
of these calculations is arithmetically in error. The audience diversion
to the stronger independent station, from a share in cable homes of
16.8 percent to a share of 12.1 percent, is 28 percent, and not 38 percent
as Roger Cooper and Associates calculate. Therefore, instead of
104. Due to the fact that both of the Cooper studies iii submitted in
INTV’s comments relied exclusively upon the NAB-WEFA results for
independent stations for their estimates of audience diversion, we also
rejected this analysis. 112
problem with the model. If one distant signal is imported by cable,
WEFA predicts that local households view the local percent
more often than the distant However, if six distant
Carriage of Distant Signals on the Audience and Revenue of Loca) 'ndependent
Television Stations, dated May 15, 1978; and 2) Part 2 of: The Efiect of Cable
Carriage of Distant Signals on the Audience and Revenue of Local Independent
Television Stations and on Their Ability to Provide Service to the Public, dated
January 31, 1979.
112 The results of the Cooper studies are premised on the audience diversion estimates
provided by NAB-WEFA. The other relationship which the Cooper results depend
704 Federal Communications Commission Reports
105. INTV also has submitted a new study by Roger Cooper and
Associates since the issuance of our Report that attempts to validate
the results of the NAB-WEFA model. 11 Data on the shares of viewing
of local independent stations in cab le and non-cable households are
provided for a few selected counties within the stations’ service area
(abstracting from
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