Appendix — Media General, Inc. v. Federal Communications Commission
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 03-3388, 03-3577, 03-3578, 03-3579, 03-3580,
03-3581, 03-3582, 03-3651, 03-3665, 03-3675, 03-3708,
03-3894, 03-3950, 03-3951, 03-4072, 03-4073 & 04-1956
PROMETHEUS RADIO PROJECT
vs.
FEDERAL COMMUNICATIONS COMMISSION;
UNITED STATES OF AMERICA
Prometheus Radio Project, Petitioner in No. 03-3388,
Media General, Inc., Petitioner in No. 03-3577,
National Association of Broadcasters, Petitioner in No. 03-
3578, Network Affiliated Stations Alliance, ABC Television
Affiliates Association, CBS Television Affiliates Association
and NBC Television Affiliates, Petitioners in No. 03-3579,
Fox Entertainment Group, Inc. and Fox Television Stations,
Inc., Petitioners in No. 03-3580, Viacom Inc., Petitioner in
No. 03-3581, National Broadcasting Company, Inc., and
Telemundo Communications Group, Inc., Petitioners in No.
03-3582, Sinclair Broadcast Group, Inc., Petitioner in No.
03-3651, Media Alliance, Petitioner in No. 03-3665
Paxson Communications Corporation, Petitioner in No. 03-
3675, National Council of the Churches of Christ in the
United States, Petitioner in No. 03-3708, Tribune Company,
Petitioner in No. 03-3894, Paxson Communications
Corporation, Petitioner in No. 03-3950, Emmis
Communications Corporation, Petitioner in No. 03-3951,
Center for Digital Democracy and Fairness & Accuracy in
Reporting, Petitioners in No. 03-4072, Clear Channel
Communications, Petitioner in No. 03-4073, American
Hispanic Owned Radio Association, Civil Rights Forum on
Communications Policy, League of United Latin American
2a
Citizens, Minority Business Enterprise Legal Defense and
Education Fund, Minority Media and Telecommunications
Council, National Asian American Telecommunications
Association, National Association of Latino Independent
Producers, National Coalition of Hispanic Organizations,
National Council of La Raza, National Hispanic Media
Coalition, National Indian Telecommunications Institute,
National Urban League, Native American Public
Telecommunications, Inc., PRLDEF-Institute for Puerto
Rican Policy, UNITY: Journalists of Color, Inc. and
Women’s Institute for Freedom of the Press, Petitioners in
No. 04-1956
On Petition for Review of An Order of
the Federal Communications Commission
(FCC No. 03-127)
Argued February 11, 2004
Before: SCIRICA, Chief Judge, AMBRO and FUENTES,
Circuit Judges
(Filed June 24, 2004)
OPINION OF THE COURT
3a
Table of Contents
Background
A.
The 1934 Communications Act and Early
Broadcast Ownership Regulation
. Deregulation Initiatives
. The Commission’s 2003 Report and Order
. The Order’s Modification of Broadcast Media
G.
H.
A.
Ownership Rules
|. Local Television Ownership
2, Local Radio Ownership
5. National Television Ownership
6. Dual Network Rule
Procedural History of the Current Appeals......... [23a]
Subsequent Legislation
Standard of Review Under the Administrative
Procedure Act
. Standard of Review Considerations Under
Section 202(h)
II.
IV.
4a
1. “Determine whether any such rules are
necessary in the public interest.” ..............006 [28a]
2. “Repeal or modify any regulations it
determines to be no longer in the public
I cosinsiicseiasccepietiiisiabiducueignlanshdaimaaianain [33a]
Os: RII: sicsssecsesicannsescvanshapnienamensanenseiabanaaudbineiniied [35a]
Mootness and the National Television
COW MATES PRIME ccerececrcensssssnrssesiccrcsesssccasoncesennassennesene [36a]
Cres -CeveeT ie PRIMES oncccscceonssssnesacesaisnccnsesescenscencns [38a]
A. Regulatory Background and the 2002 Biennial
ID wisccisesticiscceveiicsisiniaiileineiiaindiinipinstinletbenianaddgiataannil [39a]
B. The Commission’s decision not to retain a ban on
newspaper/broadcast cross-ownership is justified
under § 202(h) and is supported by record
UIE, di cictscnencicicinalliaatineaninniabintatiementictenns [40a]
1. Newspaper/broadcast combinations can
EORAIRS TOCHIIIUI. .ncarccnsmsccsnsncasonsenvecnnssanionsees [40a]
2. A blanket prohibition on newspaper/broadcast
combinations is not necessary to protect
GCS cc nsicnsnninmnnnanininniinnnannieniensanimamnnnciannsin [42a]
C. The Commission’s decision to retain some limits
on common ownership of different-type media
outlets was constitutional and did not violate §
(2) ERC Rm Oe [44a]
1. Continuing to regulate cross-media ownership
OB Ott TRG DUDES MMDBPOEE, ...ccccscsrccnscnecssnnsscscocccs [44a]
Sa
2. Continuing to regulate cross-media ownership
does not violate the Fifth Amendment.......... [45a]
3. Continuing to regulate cross-media Ownership
does not violate the First Amendment. ......... [46a]
D. The Commission did not provide reasoned
analysis to support the specific Cross-Media
RMN CN CINE ican sisiscisaicisdcssccassnsiscec ss) [48a]
I. Overview of the Commission’s Diversity Index
POY ssc ciciicsistinecannig i tna Vek [49a]
2. The Commission did not justify its choice and
weight of specific media outlets. .................. [52a]
3. The Commission did not justify its assumption
of equal market shares. 0.........ccecsccssesoseoss.... [58a]
4. The Commission did not rationally derive its
Cross-Media Limits from the Diversity Index
ONIN vinssisssisiensehnesinashiiinsstiniekpsesiinitel sts a [6la]
5. The Commission should provide better notice
OR FI cnessnsisiitiniiienininpciiinibis siete aca A [64a]
A. Regulatory Background and the 2002 Biennial
TROVE ssnsssinensaisisistisiininiiestliibaliacede cane Se ae [66a]
B. We uphold several threshold challenges to the
Commission’s overall regulatory approach. ....... [68a]
1. Limiting local television station ownership is
not duplicative of antitrust regulation. .......... [68a]
6a
Nm
Media other than broadcast television may
contribute to viewpoint diversity in local
MORTTOON, cncccrsccsnssenensnsiguccianmaniniatmaaniaiaaiaaa [70a]
3. Consolidation can improve local programming.{7 la]
4. The Commission adequately noticed its
decision to allow triopolies., ..........ccccceeeeeeeeees [72a]
C. We uphold the Commission’s decision to retain
TNS 0O-TOUT SOURTICTIOR. cccsccnsccrcncecsenssenensenesstiediines [72a]
D. We remand the specific numerical limits for the
Commission’s further consideration. .................. [76a]
E. We remand the Commission's repeal of the Failed
Station Solicitation Rule. .................cccccccsssssseesees [80a]
VI. Local Radio Ownership Rulle...............ccccccceesesseeeees [82a]
A. Regulatory Background and the 2002 Biennial
TUBVEOW socosscsutscetnsmantibimeianimsamaanemane [82a]
B. We uphold the Commission’s new definition of
DOCH GRRIIIODD. cncrccocinisssepenstemniiaaniadimmemamads [85a]
1. The Commission justified using Arbitron Metro
SERRTTIDOR,, 2nsnescicncviassachenmeseiamdésimmaaiaiaimaneealal [85a]
2. The Commission justified including
noncommercial Stations. ...............ecceseeeeeeeeees [90a]
C. We uphold the Commission’s transfer restriction.[9 1a]
|. Transfer restriction is “in the public interest.”[92a]
2. Transfer restriction is reasoned decisionmaking.[93a]
7a
3. Transfer restriction is constitutional. ............ [94a]
D. We affirm the attribution of Joint Sales
PQPOONIIIIB, ssacscnssossecansansesssssrasesoasonessssesecsa.... [96a]
|. Attribution of JSAs is “necessary in the public
PN sciitsiciecsiteientsitpnassinsinaniriaaisecs nk [97a]
Attribution of JSAs is reasoned
ecisionMaking, .0............ccsccecseccesesseoseessees.... [97a]
3. Attribution of JSAs is constitutional............. [98a]
E. We remand the numerical limits to the
Commission for further justification
|. The Commission’s numerical limits approach is
rational and in the public interest................ [10la]
The Commission did not support its decision to
retain the existing numerical limits with
reasoned analySis. .............cccccecescseseseseseesss., [102a]
a. The Commission did not sufficiently
justified “five equal-sized competitors”
as the right benchmark. ....................... [102a]
The Commission did not sufficiently
justified that the existing numerical limits
actually ensure that markets will have
five equal-sized competitors
The Commission did not support its
decision to retain the AM/FM subcaps.[106a]
VII. Conclusion
8a
SCIRICA, dissenting in part
5, i cena [108a]
Te, eh vi cetenicsesincetichiaitan [1 16a]
Fa. crccessnscecnonsuvensneninensinatniindinteniuinihinisinledaiaaanbimnaian [1 16a]
i. cupssnessinenonssséasitiptiihiakieniisaiiaidanisediniiuaiabadantsibaninaaioantt [118a]
III. Rules at Issue in this Appeal and Agency
A TE TID scccsccccuintiatacthdealbbcasinisnnisdcnitinanas [125a]
A. Policy Goals and Media Landscape.................. [126a]
1. Policy Goals of the Present Order............... [127a]
2. New Media Landscape and the Growth of the
IIR stciccpnncsthcisciaiaicaaisipitbiteniinnbstissiniiasinnsintditiiant [130a]
TD. COUUROTIRD TRUIIID ccensensecccnnscscsnnsannascntnecsenananedinst [132a]
1. Cross-Ownership Rules ..............ccccccecsseseees [132a]
a. History of Cross-Ownership Regulation[132a]
b. Repeal of Newspaper Broadcast Cross-
Ownership Prohibition .............0ssee0 [135a]
C. CRO-ROEEG EATS nnccccccccccccccccscssesceces [137a]
2. Local Television Ownership Rule .............. [144a]
3. Local Radio Ownership Rule.................000 [148a]
IV. Engaging Flaws Found by the Majority ................. [159a]
A. Cross-Ownership Rule and the Diversity Index[159a]
9a
1. Weight Attributed to the Internet................ [160a]
2. Equal Market Shares Within Media Type in the
PONY DIK ac isncansnerinsinnsosisascc.. [169a]
3. Deriving the Cross Media Limits from the
stn aa, [173a]
RON nsbielintictinietistectnsisipuinciccc 3 [177a]
B. Local Television Ownership Rule ................... [179a]
C. Local Radio Ownership Rule.........ccccscsccce..... [184a]
ee
<a
10a
AMBRO, Circuit Judge
In these consolidated appeals we consider revisions by the
Federal Communications Commission to its regulations
governing broadcast media ownership that the Commission
promulgated following its 2002 biennial review. On July 2,
2002, the Commission announced a comprehensive overhaul
of its broadcast media ownership rules. It increased the
number of television stations a single entity may own, both
locally and nationally; revised various provisions of the
regulations governing common ownership of radio stations in
the same community; and replaced two existing rules
limiting common ownership among newspapers and
broadcast stations (the newspaper/broadcast cross-ownership
rule and the radio/television cross-ownership rule) with a
single set of “Cross-Media Limits.” See Report and Order
and Notice of Proposed Rulemaking, 18 F.C.C.R. 13,620
(2003) (the “Order’’).
Several public interest and consumer advocacy groups
(collectively, the “Citizen Petitioners”)! petitioned for
judicial review of the Order in various courts of appeals,
! For convenience we will use this designation throughout our opinion to
refer, jointly or severally, to the petitioners and intervenor who raise anti-
deregulatory challenges to the Order, including Prometheus Radio
Project, Media Alliance, National Council of the Churches of Christ in
the United States, Fairness and Accuracy in Reporting, Center for Digital
Democracy, Consumer Union and Consumer Federation of America,
Minority Media and Telecommunications Council (representing
numerous trade, consumer, professional, and civic organizations
concerned with telecommunications policy as it relates to racial
minorities and women), and Office of Communication of the United
Church of Christ (“*“UCC’’) (intervenor).
The Network Affiliated Stations Alliance, representing the CBS
Television Network Affiliates Association, the NBC Television
Affiliates, and the ABC Television Affiliates, and Capitol Broadcasting
Company, Inc. (intervenor) also raised anti-deregulatory challenges to the
iiational television ownership rule (see infra Parts I.F.5, Ill).
lla
contending that its deregulatory provisions contravened the
Commission’s Statutory mandates as well as the
Administrative Procedure Act, 5 U.S.C. §§ 551 et seq. (the
“APA”). Associations of networks, broadcasters, and
newspaper owners? also challenged the Order, arguing that
pro-regulatory revisions as well as the absence of further
deregulation violate the Telecommunications Act of 1996,
Pub. L. No. 104-104, 110 Stat. 56 (1996) (the “1996 Act”),
the APA, and the United States Constitution. The Judicial
Panel on Multidistrict Litigation, acting pursuant to the
random selection procedures of 28 U.S.C. § 2112(a),
consolidated the petitions in this Court. On September 3,
2003, we stayed implementation of the rules pending our
review.
For the reasons stated below, we affirm the power of the
Commission to regulate media ownership. In doing so, we
reject the contention that the Constitution or § 202(h) of the
1996 Act somehow provides rigid limits on the
Commission’s ability to regulate in the public interest. But
we must remand certain aspects of the Commission’s Order
that are not adequately supported by the record. Most
importantly, the Commission has not sufficiently justified its
particular chosen numerical limits for local television
2 Rather than identifying these petitioners and intervenors individually
when discussing their Positions throughout this opinion, we refer to them
collectively as the “Deregulatory Petitioners.” They include: Clear
Channel Communications, Inc.; Emmis Communications Corporation;
Fox Entertainment Group, Inc.; Fox Television Stations, Inc.; Media
General Inc.; National Association of Broadcasters; National
Broadcasting Company, Inc.; Paxson Communications Corporation;
Sinclair Broadcast Group; Telemundo Communications Group, Inc.;
Tribune Company; Viacom Inc.; Belo Corporation (intervenor); Gannett
Corporation (intervenor); Morris Communications Company (intervenor);
Millcreek Broadcasting LLC (intervenor); Nassau Broadcasting Holdings
(intervenor); Nassau Broadcasting II, LLC (intervenor); Newspaper
Association of America (intervenor); and Univision Communications,
Inc. (intervenor).
12a
ownership, local radio ownership, and cross-ownership of
media within local markets. Accordingly, we partially
remand the Order for the Commission’s additional
justification or modification, and we partially affirm the
Order. The stay will continue pending our review of the
Commission’s action on remand.
I. Background
A. The 1934 Communications Act and_ Early
Broadcast Ownership Regulation
In 1934 Congress authorized the Commission to grant
licenses for private parties’ exclusive use of broadcast
frequencies. Recognizing that the finite radiofrequency
spectrum inherently limits the number of broadcast stations
that can operate without interfering with one another,
Congress required that broadcast licensees serve the public
* Our dissenting colleague asserts several times (indeed it is a principal
theme) that we somehow substitute our own policy judgment for that of
the Commission. Our response is simple. It is impossible to substitute our
policy judgment for that of the Commission when we have no view on its
policies save that it act with reason. The proof for this statement is that
we do not reverse, but remand (and only in part).
Differences with our dissenting colleague touch only some of the many
issues presented on appeal. He believes that the Commission’s work,
while in part flawed, comes close enough to merit our approval. Our
response: not yet. He believes that any imperfections and failings by the
Commission can be rectified at the next quadrennial review without the
need for a court-ordered remand. Our response: to do so is to abdicate the
role assigned to us (see our standard of review discussion at Part II infra),
a role, incidentally, our colleague does not deny. What we do is not
novel, as it reprises many of the same reasoned analysis concerns
expressed by the D.C. Circuit Court of Appeals in Fox Television Stations
v. FCC, 280 F.3d 1027 (D.C. Cir. 2002), modified on reh’g, 293 F.3d 537
(D.C. Cir. 2003), and Sinclair Broadcast Group Inc. v. FCC, 284 F.3d
148 (D.C. Cir. 2002).
The bottom line: the Commission gets another chance to justify its
actions. Once that occurs and the case returns to us, we may yet close the
loop of agreement with our colleague.
13a
interest, convenience, and necessity. Communications Act of
1934, 47 U.S.C. § 309(a); see also id. §§ 307(a), 310(d), 312.
“In setting its licensing policies, the Commission has long
acted on the theory that diversification of mass media
ownership serves the public interest by promoting diversity
of program and service viewpoints, as well as by preventing
undue concentration of economic power.” FCC v. Nat'l
Citizens Comm. for Broad., 436 US. 775, 780 (1978)
(“NCCB”). The Commission’s early regulations reflected its
presumption that a single entity holding more than one
broadcast license in the same community contravened public
interest. See Genesee Radio Corp., 5 F.C.C. 183, 186-87
(1938). In 1941, the Commission announced that it would
not license more than one station in the same area to a single
network organization. See Nat’! Broad. Co. v. United States,
319 U.S. 190, 206-08, 224-27 (1943) (upholding the rule).
At the same time, the Commission prohibited common
ownership of stations within the same broadcast service (AM
radio, FM radio, and television) in the same community. See
Rules Governing Standard and High Frequency Broadcast
Stations, 5 Fed. Reg. 2382, 2384 (June 26, 1940) (FM radio);
Rules Governing Standard and High Frequency Broadcast
Stations, 6 Fed. Reg. 2282, 2284-85 (May 6, 1941)
(television); Rules Governing Standard and High Frequency
Broadcast Stations, 8 Fed. Reg. 16065 (Nov. 27, 1943) (AM
radio). Regulations limiting an entity to the common
Ownership of seven AM radio stations, seven FM radio
Stations, and seven television stations survived judicial
scrutiny in 1956. See United States v. Storer Broad. Co., 351
U.S. 192 (1956). In the 1970s the Commission adopted its
first cross-ownership bans, which prohibited, on a
prospective basis, the common ownership of television and
radio stations serving the same market, as well as
combinations of radio or broadcast stations with a daily
newspaper in the same community. Amendment of Sections
73.35, 73.240 and 73.636 of the Commission Rules Relating
l4a
to Multiple Ownership of Standard, FM and Television
Broadcast Stations, 22 F.C.C.2d 306, § 5 (1970); Amendment
of Sections 73.34, 73.240 and 73.636 of the Commission’ s
Rules Relating to Multiple Ownership of Standard, FM, and
Television Broadcast Stations, 50 F.C.C.2d 1046 (1975).
The Supreme Court upheld the newspaper/broadcast cross-
ownership ban as a “reasonable means of promoting the
public interest in diversified mass communications.” NCCB,
436 U.S. at 802.
B. Deregulation Initiatives
The 1980s saw a deregulatory trend for media ownership.
The Commission raised its national ownership limits to
permit common ownership of 12 stations in each broadcast
service (though still prohibiting station combinations that
would reach more than 25% of the national audience). —
Amendment of Section 73.3555 (formerly 73.35, 73.240, and
73.636) of the Commission’s Rules Relating to Multiple
Ownership of AM, FM, and Television Broadcast Stations,
100 F.C.C.2d 74 9§ 38, 39 (1985). The Commission also
determined that UHF television stations should not be
deemed to have the same audience reach as VHF stations,4
due to “the inherent physical limitations of [the UHF]
medium,” and therefore applied a 50% “discount” to UHF
audiences as counted under the national audience limitation.
Id. J§ 42-44. In other words, UHF stations count only half of
their audiences in determining compliance with the national
television ownership rule.
In 1989 the Commission eased its “one to a market”
radio/television cross-ownership rules by allowing waiver
4 VHF (Very High Frequency) stations (channels 2 to 13), which
broadcast on frequencies between 30 and 300 MHz, can reach households
up to 76 miles away. UHF (Ultra High Frequency) stations (channels
higher than 13), which broadcast between 300 and 3000 MHz—reach
only 44 miles, and, consequently, far fewer non-cable households than
VHF stations. Order 4 586.
15a
requests for radio/television cross-ownership-in the 25 largest
television markets. The Commission Stated that it would
look favorably upon requests for waivers where there would
be 30 independently owned broadcast “voices” remaining in
the market after consolidation. Amendment of Section
73.3555 of the Commission’ s Rules, the Broadcast Multiple
Ownership Rules, 4 F.C.C.R. 1741, 4 1 (1989). In 1992, the
Commission relaxed local and national radio Ownership
restrictions and adopted a_ tiered approach to radio
concentration that allowed a single entity to own more radio
Stations in the largest markets (up to three AM and three FM
Stations, subject to a local audience reach limitation of 25%
and a national cap of 30 AM stations and 30 FM stations)
and fewer in the smallest markets. Revision of Radio Rules
and Policies, 7 F.C.C.R. 6387, q 27 (1992)..
C. The Telecommunications Act of 1996
In 1996 Congress overhauled the Communications Act by
enacting the Telecommunications Act of 1996. The 1996
Act contemplated a ““pro-competitive, de-regulatory national
policy framework designed to accelerate rapidly private
sector development of advanced telecommunications and
information technologies and services to all Americans by
opening all telecommunications markets to competition.” S.
Rep. No. 104—230, at 1-2 (1996). The 1996 Act eliminated
all limits on national radio ownership and raised the national
television audience reach cap from 25% to 35%. 1996 Act §§
202(a), (c)(1)(B), 110 Stat. at 110-11. Congress also eased
local radio Ownership limits, establishing a four-tier sliding
scale limit of numerical caps that allowed for as many as
eight co-owned radio stations in the largest markets. Jd. §
202(b)(1), 110 Stat. at 110.
The 1996 Act did not contain a new local television rule,
but it directed the Commission to “conduct a rulemaking
proceeding to determine whether to retain, modify, or
eliminate” its existing local television ownership limitations.
Id. § 202(c)(2), 110 Stat. at 111. It also expanded the
16a
applicability of the one-to-a-market radio/television cross-
ownership restriction waiver to the fifty largest markets. /d. §
202(d), 110 Stat. at 111.
Finally, the 1996 Act instructed the Commission to review
biennially its broadcast ownership rules “to determine
whether any of such rules are necessary in the public interest
as the result of competition.” /d. § 202(h), 110 Stat. at 111-
12. Section 202(h) also required the Commission to “repeal
or modify any regulation it determines to be no longer in the
public interest.” /d.
D. Regulatory Review Since 1996
In 1999 the Commission responded to Congress’s
directive under § 202(c) of the 1996 Act to review its local
television rule and announced that it would relax its .
prohibition on the common ownership of television stations
with overlapping signals. The Commission’s new rule would
allow two commonly owned television stations (a television
station “duopoly”) in the same Designated Market Area
(“DMA” or “market’”) as long as (1) neither station was
ranked among the four largest (“top-four’’) stations in the
market and (2) eight independently owned stations remained
in the market post-merger. Review of the Commission's
Regulations Governing Television Broadcasting, 14 F.C.C.R.
12,903, | 8 (1999) (“1999 Television Rule Review”). In the
same rulemaking, the Commission also relaxed the one-to-a-
market radio/television cross-ownership restriction and
allowed radio/television station combinations to exist within
three-tiered limits that depend on the size of the market. /d.
q 9.
5 These limits allowed an entity to own one television station (or two if
permitted under the new local television rule) and (1) up to six radio
stations in markets where at least 20 independent voices would remain
post-merger, (2) up to four radio stations in markets where at least 10
(Continued...)
17a
Meanwhile, in 1998 the Commission began the first
biennial review of its broadcast Ownership regulations as
required under § 202(h). In 2000 it announced that it would
retain the national television ownership rule (the 35% limit
provided in the 1996 Act) and its cable/broadcast cross-
ownership rule after determining that both rules remained
“necessary in the public interest.” 1998 Biennial Regulatory
Review-Review of the Commission's Broadcast Ownership
Rules and Other Rules Adopted Pursuant to Section 202 of
the Telecommunications Act of 1996, 15 F.C.C.R. | 1,058, | 4
(2000) (“/998 Biennial Regulatory Review”).6 On appeal,
however, the United States Court of Appeals for the D.C.
Circuit held that the Commission had not sufficiently
explained its reasons for retaining either of these rules. Fox
Television Stations v. FCC, 280 F.3d 1027, 1043-44, 1051-
52 (D.C. Cir. 2002) (“Fox 1”), modified on reh’g, 293 F.3d
537 (D.C. Cir. 2002) (“Fox IT”). As for the national television
ownership rule, the Court determined that the agency had
taken a “wait and see” approach in evaluating its competition
and diversity effects, which was impermissible in light of §
202(h)’s mandate to repeal or modify rules found no longer
necessary in the public interest. /d. at 1042. It remanded the
rule to the Commission for additional justification. Jd. at
1049. The Court vacated the cable/broadcast cross-
ownership rule, however, finding that the Commission’s
independent voices would remain post-merger, or (3) one radio station
notwithstanding the number of independent voices in the market. Id.
© The Commission also announced that it would propose modification of
the newspaper/broadcast cross-ownership rule and the dual network rule
(which allows a broadcast station to affiliate with more than one network
except that stations may not affiliate with more than one of the four
largest networks: ABC, CBS, Fox, and NBC, see 47 C.F.R. § 73.658(g)).
The Commission also found that the local radio rule was necessary in the
public interest, but announced that it would seek further comments on
alternative methods for defining radio station markets. 1998 Biennial
Regulatory Review | 4.
18a
decision to retain it was arbitrary and capricious and contrary
to § 202(h). Jd. at 1053.
A few months later, the same Court reviewed the local
television multiple-ownership rule. Sinclair Broad. Group,
Inc. v. FCC, 284 F.3d 148 (D.C. Cir. 2002). The petitioner
challenged the “eight independent voices” exception,
contending that it lacked foundation or connection to the
Commission’s goal of promoting diversity in local markets.
Id. at 152. The Court determined that the Commission had
adequately justified its decision to retain the local television
rule under the APA and § 202(h), but that it had not provided
a rational basis for the exclusion of non-broadcast media
from the eight voices exception. /d. at 165. It remanded the
rule for the Commission’s further justification. /d. at 169.
E. The Commission’s 2003 Report and Order
In September 2002 a Notice of Proposed Rulemaking (the
“Notice’”’) announced that the Commission would review four
of its broadcast ownership rules pursuant to § 202(h): the
35% national audience reach limit remanded in Fox; the local
television rule remanded in Sinclair; the radio/television
cross-ownership rule; and the dual network rule. 2002
Biennial Regulatory Review Notice of Proposed Rulemaking,
17 F.C.C.R. 18,503, § 6 (2002). The Notice also advised that
the Commission was incorporating into its biennial review
pending proceedings on two additional rules: its rule limiting
radio station ownership in local markets and its rule
prohibiting newspaper/broadcast cross-ownership. /d. 4 7.
The Commission established a Media Ownership Working
Group (“MOWG”), which commissioned twelve studies
ranging from consumer surveys to economic analyses of
media markets. These reports were released for public
comment in October 2002. Interested parties filed thousands
of pages of comments, consisting of legal, social, and
economic analyses, empirical and anecdotal evidence, and
industry and consumer data to respond to the issues identified
in the Commission’s Notice. Notably, nearly two million
19a
people weighed in by letters, postcards, e-mails, and petitions
to oppose further relaxation of the rules. Statement of
Commissioner Jonathan §S. Adelstein, Dissenting, 18
F.C.C.R. 13,974, 13,977 (July 2, 2003). The Commission
also heard public comment at a February 2003 “field
hearing” in Richmond, Virginia.’
On June 2, 2003, the Commission adopted the Order
modifying its ownership rules to provide a “new,
comprehensive framework for broadcast ownership
regulation” by a vote of 3-2.8 Order 93. The Order was
released on July 2, 2003.
F. The Order’s Modification of Broadcast Media
Ownership Rules
After reaffirming the Commission’s three’ traditional
policy objectives in promoting the public interest—
competition, diversity, and localism - Order 4 8, the
Commission considered whether each of the six rules
remained in the public interest and proposed modifications
where it believed necessary. With respect to each of the
rules, the Commission determined as follows.
1. Local Television Ownership
The existing local television ownership rule allowed
television station duopolies, so long as at least one of the
Stations was not ranked among the market’s four largest
Stations and so long as at least eight independently owned
and operated full-power television stations would remain in
the market post-merger. 47 C.F.R. § 73.3555(b). The Order
modified this rule to permit television station triopolies in
markets with 18 or more television stations and television
7 Two Commissioners (Jonathan S. Adelstein and Michael J. Copps) held
and attended, between them, thirteen additional public forums, using their
own office resources. Statement of Commissioner Michael J. Copps,
Dissenting, 18 F.C.C.R. 13,951, 13,956 (July 2, 2003).
8 Commissioners Copps and Adelstein dissented.
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station duopolies in markets with 17 or fewer television
stations. Order 4 134. These limits are subject to the
restriction (effectively a ban subject to a waiver provision)
that a single firm may not own more than one top-four station
in a market. This restriction forecloses common station
ownership in markets with fewer than five television stations.
Id. ¥ 186. The existing rule effectively precludes duopolies in
most markets; only the largest 70 markets of the nation’s 210
DMAs could comply with the “eight voices” test. Ade/stein
Dissent, 18 F.C.C.R. at 13,998. The new rule would allow
triopolies in the nine largest DMAs, which represent 25.2%
of the population. Duopolies could exist under the new rule
in the largest 162 markets, representing 95.4% of the nation’s
population. /d. at 13,997-98.
2. Local Radio Ownership
Although the Order retained the existing numerical limits
on radio ownership that Congress established in § 202(b) of
the 1996 Act,’ it modified other aspects of the rule. First, it
changed the method for determining radio markets by
replacing the “contour-overlap” method (described in detail
in Part VI.B infra) with the geography-based market
delineations created by Arbitron, a company that generates
? In the 1996 Act, Congress directed the Commission to revise the local
radio ownership limits to provide that: (1) in a radio market with 45 or
more commercial radio stations, a party may own up to 8 commercial
radio stations, not more than 5 of which are in the same service (AM or
FM); (2) in a radio market with between 30 and 44 commercial radio
stations, a party may own up to 7 commercial radio stations, not more
than 4 of which are in the same service; (3) in a radio market with
between 15 and 29 commercial radio stations, a party may own up to 6
commercial stations, not more than 4 of which are in the same service;
and (4) in a market with 14 or fewer commercial radio stations, a party
may own up to 5 commercial radio stations, not more than 3 of which are
in the same service, except that a party may not own more than 50
percent of the stations in that market. 1996 Act, § 202(b)(1), 110 Stat. at
110.
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market data for radio advertisers. Order ¥ 239. Additionally,
the Commission would now include noncommercial stations
in the station count for each market. Jd. The Commission
grandfathered any existing radio station combinations
rendered noncompliant under the newly defined markets, /d.
{ 484, but generally restricted transfer of these combinations,
Id. 4 487. The Commission also changed the local radio
ownership rule by deciding to attribute “Joint Sales
Agreements” (agreements under which a licensee sells
advertising time on its station to a broker station for a fee)
toward the brokering entity’s numerical limit. Jd. q 239.
3&4. Newspaper/Broadcast and Radio/Television
Cross-Ownership
The Commission has prohibited common Ownership of a
full-service television broadcast station and a daily public
newspaper in the same community since 1975. Amendment
of Sections 73.35, 73.240, and 73.636 of the Commission’ s
Rules Relating to Multiple Ownership of Standard, FM, and
Television Broadcast Stations, 50 F.C.C.2d 1046 (1975).
Additionally, the Commission regulates the number of
television and radio stations that may be commonly owned
with limits that vary with the size of the market. 47 C.F.R. §
73.3555(c).
The Order announced the Commission’s decision to repeal
both — cross-ownership _rules (television/newspaper,
radio/television) and replace them with a single set of Cross-
Media Limits. The Commission determined that neither
cross-ownership prohibition remained necessary in the public
interest to ensure competition, diversity, or localism. Order
{7 330, 371. The new Cross-Media Limits prohibit
newspaper/broadcast combinations and radio/television
combinations in the smallest DMAs, i.e., those with three or
fewer full-power commercial or noncommercial television
Stations. Jd. | 454. In contrast, in the largest markets—those
with more than eight television stations—common ownership
among newspapers and broadcast stations is unrestricted. Jd.
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§ 473. In medium-sized markets—those with between four
and eight television stations—one entity may own a
newspaper and either (a) one television station and up to 50%
of the radio stations that may be commonly owned in that
market under the local radio rule or (b) up to 100% of the
radio stations allowed under the local radio rule. /d. | 466.
In structuring its Cross-Media Limits, the Commission
drew upon a methodological tool named the “Diversity
Index,” which the Commission developed as a measure of
viewpoint diversity in local markets to identify those “at-
risk” markets where consolidation would have a deleterious
effect. Jd. 9§ 391, 442. The Diversity Index, explained
more fully in Part 1V.D.1 below, is a highly modified version
of the formula for measuring market concentration—the
Herfindahl-Hirschman Index—applied by the Department of
Justice and Federal Trade Commission to analyze mergers.
Id. 4 428.
5. National Television Ownership
The national television ownership rule prohibits entities
from owning television stations that in the aggregate reach a
certain percentage of our country’s households. 47 C.F.R. §
73.3555(e)(1). Section 202(c) of the 1996 Act directed the
Commission to delete the then-existing twelve-station cap
and raise the audience reach limit from 25% to 35%. After
the D.C. Circuit Court remanded the Commission’s decision
in the 1998 biennial review to retain the limit at 35%, Fox I,
280 F.3d at 1049, the Commission decided to increase the
audience reach limit to 45%. Order 4 499. The Commission
also declined to repeal or modify its existing 50% discount
for UHF stations’ audiences as counted toward the audience
reach limit. /d. | 500.
6. Dual Network Rule
Under the dual network rule, a television station may
affiliate with more than one network except that it may not
affiliate with more than one of the four largest networks,
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ABC, CBS, Fox, and NBC. 47 C.F.R. § 73.658(g). The rule
effectively permits common Ownership of networks to the
exclusion of the top four. Order 9592. The Commission
determined that the dual network rule remained necessary in
the public interest, and thus did not repeal or modify it. /d.!0
G. Procedural History of the Current Appeals
Within days of the publication of the Order, several
organizations filed petitions for review of the Commission’s
revised rules in various courts of appeals, some contending
that the Commission had gone too far in revising the rules,
and others asserting that the Commission had not gone far
enough. Some of these organizations, including the
Prometheus Radio Project, filed their petitions in this Court.
Under 28 U.S.C. § 2112(a), petitions to review
administrative orders filed in different circuit courts within
the first ten days of the appeal period trigger a lottery
conducted by the Judicial Panel on Multidistrict Litigation.
On August 19, 2003, the Panel announced that our Court had
been selected in the lottery and consolidated the appeals here.
We entered a stay of the effective date of the proposed rules
after a hearing on September 3, 2003. Prometheus Radio
Project v. FCC, No. 03-3388, 2003 WL 22052896 (3d Cir.
Sept. 3, 2003). We then denied the Deregulatory Petitioners’
motion, joined by the Commission, to transfer venue to the
D.C. Circuit Court on September 16, 2003. Prometheus
Radio Project v. FCC, No. 03-3388 (3d Cir. Sept. 16, 2003)
(order denying motion to transfer). After pushing back
briefing and oral argument at the request of the parties, on
February 11, 2004, we heard approximately eight hours of
oral argument addressing the merits of Petitioners’ claims.
H. Subsequent Legislation
In January 2004, while the petitions to review the Order
were pending in this Court, Congress amended the 1996 Act
'0 No party to this case challenges the retention of this rule.
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by increasing from 35% to 39% the national television
ownership rule’s audience reach cap in § 202(c).
Consolidated Appropriations Act, 2004, Pub. L. No. 108-
199, § 629, 118 Stat. 3, 99 (2004). The legislation also
amended § 202(h) in two ways: (1) making the
Commission’s biennial review obligation quadrennial; and
(2) insulating from § 202(h) review “rules relating to the 39
percent national audience reach limitation.” 118 Stat. at 100.
Prior to oral argument, Petitioners filed letter briefs
addressing the effect of these amendments on_ their
challenges to the Order.
II. Jurisdiction and Standard of Review
This is an appeal of an agency decision under the
Communications Act of 1934, 47 U.S.C. §§ 151 et seg. Our
jurisdiction is based on 47 U.S.C. § 402(a) and 28 U.S.C. §
2342(1). Our standard of review is governed by the APA and
the 1996 Act provision authorizing the Commission’s
periodic regulatory review. !!
A. Standard of Review Under the Administrative
Procedure Act
Our standard of review in the agency rulemaking context
is governed first by the judicial review provision of the APA,
5 U.S.C. § 706. Under it, we “hold unlawful or set aside
'! The Deregulatory Petitioners raise an additional threshold argument
that Fox and Sinclair provide the “law of the case” because the Order
results in part from the D.C. Circuit Court’s remand in those two
decisions. Though we recognize that the Order must be consistent with
these remand directives, the decisions themselves do not fit within the
law of the case doctrine, under which a prior decision binds only future
proceedings in the “same litigation.” See, e.g., Hamilton v. Leavy, 322
F.3d 776, 786—87 (3d Cir. 2003). This case involves petitions for
review of the Commission’s comprehensive reexamination of a larger set
of its broadcast ownership rules, in which a different set of parties
participated, a different record was compiled, and different results were
reached. So understood, the law of the case doctrine does not constrain
our review here.
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agency action, findings, and conclusions” that are found to be
“arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with the law - . . [Or] unsupported by
substantial evidence.” Jd. § 706(2)(a), (e); NJ. Coalition for
Fair Broad. v. FCC, 574 F.2d || 19, 1125 (3d Cir. 1978),
The scope of review under the “arbitrary and capricious”
Standard is “narrow, and a court is not to substitute its
judgment for that of the agency.” Motor Vehicle Mfrs. Ass’n
v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)
(“State Farm’’), Nevertheless, we must ensure that, in
reaching its decision, the agency examined the relevant data
and articulated a Satisfactory explanation for its action,
including a “rational connection between the facts found and
the choice made.” /d. (quoting Burlington Truck Lines, Inc. v.
United States, 371 U.S. 156, 168 (1962)). Normally, we may
find an agency rule is arbitrary and capricious where
the agency has relied on factors which Congress
has not intended it to consider, entirely failed to
consider an important aspect of the problem,
offered an explanation for its decision that runs
counter to the evidence before the agency, or is
So implausible that it could not be ascribed to a
difference in view or the Product of agency
expertise. The reviewing court should not
attempt itself to make up for such deficiencies;
we may not supply a reasoned basis for the
agency’s action that the agency itself has not
given.
Id. (citing SEC vy. Chenery Corp., 332 U.S. 194, 196 (1947)):
see also Robert Wood Johnson Univ. Hosp. v. Thompson,
297 F.3d 273, 280 (3d Cir. 2002). Put another way, we
reverse an agency’s decision when it “is not supported by
substantial evidence, or the agency has made a clear error in
judgment.” AT&T Corp. v. FCC, 220 F.3d 607, 616 (D.C.
Cir. 2000) (citing Kisser v. Cisneros, 14 F.3d 615, 619 (D.C.
Cir. 1994)),
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We will, however, “uphold a decision of less than ideal
clarity if the agency’s path may reasonably be discerned.”
State Farm, 463 U.S. at 43 (quoting Bowman Transp., Inc. v.
Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 286 (1974)).
But an agency that departs from its “former views’ is
“obligated to supply a reasoned analysis for the change
beyond that which may be required when an agency does not
act in the first instance” in order to survive judicial scrutiny
for compliance with the APA. State Farm, 463 U.S. at 41-
42.
Finally, the traditional APA standard of review is even
more deferential “where the issues involve ‘elusive’ and ‘not
easily defined’ areas such as programming diversity in
broadcasting.” Sinclair, 284 F.3d at 159. Yet even when an
administrative order involves policy determinations on such
elusive goals, a “rationality” standard is appropriate. See
NCCB, 436 U.S. at 796-97 (finding that the Commission
acted rationally in determining that diversification of
ownership would enhance the possibility of increasing
diverse viewpoints). Additionally, when an agency has
engaged in line-drawing determinations and our review is
necessarily deferential to agency expertise, see AT&T Corp.,
220 F.3d at 627, its decisions may not be “patently
unreasonable” or run counter to the evidence before the
agency. Sinclair, 284 F.3d at 162.
B. Standard of Review Considerations Under Section
202(h)
The Order was promulgated as part of the periodic review
requirements of § 202(h) of the 1996 Act. Consequently, our
review standard is informed by that provision, which, at the
time of the Order’s release, reac:
(_h) Further Commission’ Review. The
Commission shall review its rules adopted
pursuant to this section and all of its ownership
27a
rules biennially['2] as part of its regulatory
reform review under section 11 of the
Communications Act of 1934 and _ shall
determine whether any of such rules are
necessary in the public interest as the result of
competition. The Commission shall repeal or
modify any regulation it determines to be no
longer in the public interest.
110 Stat. 111-12. Section 11 of the Communications Act, to
which § 202(h) refe> was also added by the 1996 Act to
ensure that the \ vmmission review periodically its
regulations governing telecommunications services to
“determine whether any such regulation is no longer
necessary in the public interest as a result of meaningful
economic competition between providers of such service”
and “repeal or modify any regulation it determines to be no
longer necessary in the public interest.” 47 U.S.C. § 161.
The text and legislative history of the 1996 Act indicate
that Congress intended periodic reviews to operate as an
“ongoing mechanism to ensure that the Commission’s
regulatory framework would keep pace with the competitive
changes in the marketplace” resulting from that Act’s
relaxation of the Commission’s regulations, including the
broadcast media Ownership regulations. 2002 Biennial
Regulatory Review, 18 F.C.C.R. 4726, 99 16, 17 (2003)
(citing preamble to the 1996 Act: H.R. Conf. Rep. No. 104-
458 (1996)). Put another way, the periodic review provisions
require the Commission to “monitor the effect of ca
competition . . . and make appropriate adjustments” to its
regulations. Jd. ¥ 5.
As noted, the first sentence of § 202(h) requires the
Commission to “determine” whether media concentration
'2 As noted in Part LH above, Congress has since replaced “biennially”
with “quadrennially” in this provision.
28a
rules are “necessary in the public interest as the result of
competition.” The second sentence contains a_ separate
instruction to the Commission: to “repeal or modify” those
rules “no longer in the public interest.” 110 Stat. 111-12. We
analyze each of these instructions in turn.
1. “Determine whet!er any such rules are
necessary in the public interest.”
Recognizing that competitive changes in the media
marketplace could obviate the public necessity for some of
the Commission’s ownership rules, the first instruction
requires the Commission to take a fresh look at its
regulations periodically in order to ensure that they remain
“necessary in the public interest.” This raises the question of
what is “necessary.”
In the context of § 11 of the Communications Act, 47
U.S.C. § 161-which, like § 202(h), requires the Commission
periodically to review its telecommunications regulations and
determine whether they “remain necessary in the public
‘nterest’—the Commission has interpreted “necessary” to
mean “useful,” “convenient” or “appropriate” rather than
“required” or “indispensable.” Setting out its rationale for
this interpretation in the 2002 Biennial Regulatory Review,
18 F.C.C.R. 4726, 99 14-22 (2003), the Commission
determined that the 1996 Act’s legislative history indicated
that Congress meant “no longer necessary” to mean “no
longer in the public interest” and “no longer meaningful.” 18
F.C.C.R. 4726, 9 17 (citing H.R. Conf. Rep. No. 104-458, at
185 (1996)).
Next, the Commission found that an “indispensable”
construction of “necessary” as to § 11 would be unreasonably
inconsistent with the Communications Act’s grant of general
rulemaking authority to the Commission. /d. | 18 n.31.
Under 47 U.S.C. § 201(b) the Commission is authorized to
“prescribe such rules and regulations [regarding services and
charges of communications common carriers] as may be
necessary in the public interest to carry out the provisions of
29a
this Act.” In AT&T Corp. v. lowa Utilities Board, the
Supreme Court interpreted this provision as a grant of
“general rulemaking authority.” 525 U.S. 366, 374 (1999),
Characterizing this interpretation “not as a limitation on the
Commission’s authority, but a confirmation of it,” the
Commission concluded that the standard of review applicable
to its rulemaking authority under § 201 is a “plain public
interest” standard. 18 F.C.C.R. 4276, {7 18 n.31, 22 (citing
525 U.S. at 374, 378). The Commission reasoned that the
same standard must also apply to the review process required
under § 11 in order to avoid absurd results. If the rulemaking
and review standards were different, the Commission could
promulgate any rule that is useful, but then, at the next
periodic review, would have to revoke any of those rules that
do not also meet a higher standard of “indispensable.” /d.
{ 18 & n.33. Under such a System, periodic review would
either be inefficient or irrelevant, as the Commission could
effectively sidestep the more stringent review standard by
subsequently reissuing any “useful” rule that it had to repeal
for failing to be “indispensable.” /d. q 18.
Lastly, the Commission rejected arguments that there is
controlling judicial precedent for an “indispensable”
construction of “necessary.” It acknowledged that the
Supreme Court and the D.C. Circuit Court of Appeals have
upheld such constructions, see id. q 19 (citing Jowa Utils.
Bd., 525 U.S. at 374, 378; GTE Serv. Corp. v. FCC, 205 F.3d
416 (D.C. Cir. 2000)), but countered that these cases “simply
demonstrate that terms such as ‘necessary’ . . . must be read
in their statutory context.” Jd. Furthermore, the Commission
found judicial support for its interpretation of “necessary” in
the D.C. Circuit Court’s decision in Sinclair, 284 F.3d at 159,
regarding the Commission’s periodic review of its local
television ownership rule under § 202(h). The Commission
noted that the Sinclair Court did not expressly adopt any
particular definition of “necessary,” but, in affirming the
Commission’s § 202(h) finding that the rule furthers
30a
diversity and is thus necessary in the public interest, id. at
160, it “did not articulate a new or higher public interest
yardstick.” 18 F.C.C.R. 4726, § 20.'3 Nor did the D.C.
Circuit Court’s decision in Fox foreclose its interpretation of
“necessary,” the Commission determined, because on
rehearing the Court deleted language in its initial decision
that the Commission had applied too lax a standard in
reviewing its broadcast media ownership rules under §
202(h).!4 Id. § 14 (citing Fox II, 293 F.3d at 540).
For these reasons, the Commission determined that § 11’s
requirement that it review its telecommunications regulations
to determine whether they remain “necessary in the public
interest” does not require it to employ a more stringent
standard than “plain public interest” found in other parts of
the Communications Act. /d. 9§ 18, 22 (citing 47 U.S.C. §
201(b) as an example).
Recently, the D.C. Circuit Court upheld, in the context of
§ 11, the Commission’s interpretation of “necessary”
contained in the 2002 Biennial Regulatory Review. Cellco
P’ ship v. FCC, 357 F.3d 88 (D.C. Cir. 2004). Recognizing
that “necessary” is a “chameleon-like” word whose “meaning
. may be influenced by its context,” the Cellco Court
determined that it would uphold any reasonable interpretation
that did not contravene the express provisions of the
13 More genera ,, the Commission cited several Supreme Court
decisions interpreting “necessary” to mean “useful” or “convenient” or
“appropriate.” Jd. 4 15 n.24 (citing, inter alia, McCulloch v. Maryland,
17 U.S. (4 Wheat.) 316, 413 (1819) (under the Constitution’s Necessary
and Proper Clause, U.S. Const. Art. I, § 8, cl. 18, “necessary” means
“convenient” or “useful’”’)).
14 In addressing available remedies, the Fox / Court interpreted
“necessary” to mean that “a regulation should be retained only insofar as
it is necessary in, not merely consonant with, the public interest.” 280
F.2d at 1050. This language was expressly excised in Fox //, 293 F.3d at
540.
ere I, ea ee ee
3la
Communications Act. /d. at 94, 96 (citing Chevron U.S.A.,
Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-43
(1984)). It went on to determine that the Commission’s
interpretation is both reasonable and consistent with the
Communications Act, endorsing the Commission’s view that
“necessary” must mean the same thing in the periodic review
context as in the rulemaking context in order to avoid absurd
results. /d. at 98.
Cellco also acknowledged that the Commission’s
interpretation of “necessary” is consistent with the many
courts that have endorsed a “useful” or “appropriate”
interpretation over an “essential” or “indispensable” one. /d.
at 97 (citing, inter alia, NCCB, 436 US. at 795—96;
McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316, 413 (1819):
Cellular Telecomm. & Internet Ass ‘n v. FCC , 330 F.3d 502,
510 (D.C. Cir. 2003) (specifically rejecting an
“indispensable” connotation of “necessary” as used in the
Communications Act’s enforcement forbearance provision, §
10(a))).
Finally, the Cellco Court rejected suggestions that the
Commission’s interpretation was inconsistent with its prior
decisions in Sinclair and Fox. As noted above, Sinclair did
not expressly adopt any particular definition of “necessary”
and Fox I’s suggestion of a heightened standard was
expressly retracted by Fox I, 293 F.3d at 540. Cellco limited
Fox I’s statement that “necessary” implied a presumption in
favor of modification or elimination of existing regulations,
see 280 F.3d at 1048, to the context in which it was made:
discussing whether vacating or remanding the national
television ownership rule was the appropriate remedy.
Cellco, 357 F.3d at 98. And while Sinclair apparently
endorsed this language from Fox I, see 284 F.3d at 159, the
Cellco Court’ characterized Sinclair as merely
“piggyback[ing]” on Fox J without “adopt[ing] a general
presumption in favor of modification or elimination of
regulations when considering a substantive challenge to the
32a
adequacy of the Commission’s determinations.” Cellco, 357
F.3d at 98. In sum, the D.C. Circuit Court determined that
the definition of “necessary” was not constrained by either its
Fox or Sinclair decision. It remained an open issue for the
Commission to decide in the first instance, as it did when it
released the 2002 Biennial! Regulatory Review. Id.
For the same reasons proffered by the Commission and
endorsed by the D.C. Circuit Court to reject the
“indispensable” definition of “necessary” under § 11, we do
so under § 202(h). Though § 11 and § 202(h) are separate
statutory provisions, they are both periodic review provisions
from the same statute. As evidence of their relatedness, §
202(h) imposes periodic review obligations “as part of its
regulatory reform review under section 11 of this
Communications Act of 1934,” 110 Stat. at 111.'° We see no
reason to adopt a different definition of “necessary” under §
202(h) than under § 11. Moreover, interpreting § 202(h)’s
first sentence to require the Commission to review its rules to
determine whether they are indispensable in the public
interest would lead to incongruous results when compared to
the instruction in § 202(h)’s second sentence, which requires
the Commission to “repeal or modify any regulation it
determines to be no longer in the public interest.'© For the
“deterniiae” instruction to be meaningful, “necessary” must
embody the same “plain public interest” standard that
1S Additionally, the Commission itself impliedly incorporated the 2002
Biennial Regulatory Review’s interpretation of “necessary” under § 11
when citing it in the “legal framework” section of the Order. Order { 11
n.15.
16 Because § 202(h) omits the word “necessary” in the “repeal or modify”
instruction, it is arguably even more amenable to the “appropriate” or
“useful” connotation of “necessary” than § 11. But like the Commission,
“we do not think that difference [between § 11 and § 202(h)] is
significant given what we believe “necessary in the public interest’
means.” 18 F.C.C.R. 4726, ¥ 14 n.20.
‘ iat
33a
Congress set out in the “repeal or modify” instruction.”!7
Lastly, as explained by the Cellco Court, the “convenient,”
“useful,” or “helpful” definition of “necessary” is not
foreclosed to the Commission by any judicial precedent,
including Fox and Sinclair. So in interpreting the
Commission’s obligation under § 202(h) to review its
broadcast media ownership rules to determine whether they
are “necessary in the public interest,” we adopt what the
Commission termed “the plain public interest” standard
under which “necessary” means “convenient,” “useful,” or
“helpful,” not “essential” or “indispensable.”
2. “Repeal or modify any regulations _ it
determines to be no longer in the public
interest.”
Turning to the second instruction of § 202(h), the
Commission is required to “repeal or modify” rules that are
“no longer in the public interest.” Having concluded that the
first instruction requires the Commission to determine
whether any existing rule fails to satisfy the “plain public
interest” standard, the relationship between the first and
second instruction is evident. Under the second instruction,
the Commission must repeal or modify the regulations that it
'7 Anticipating the argument that consistency between the first and
second sentences could still be achieved using the “indisvensable”
interpretation of “necessary” for both, we respond that requiring the
Commission to repeal or modify any regulations it determined were not
essential to the public interest would lead to incongruous results when
compared to the plain public interest standard that governs the
Commission’s authority to regulate the broadcast industry. See NCCB,
436 U.S. at 796 (“{S]o long as the regulations are not an unreasonable
means for seeking to achieve the [Commission’s public interest] goals,
they fall within [its] general rulemaking authority” under the
Communications Act.). Just as the Commission and Cellco observed in
the § 11 context, the “repeal or modify” instruction would be meaningless
because the Commission could repromulgate (in its rulemaking
functions) under the lower “useful” standard any regulation it was forced
to repeal or modify for nct being “indispensable” under § 202(h).
34a
has determined under the first instruction do not satisfy that
same standard.
While we acknowledge that § 202(h) was enacted in the
context of deregulatory amendments (the 1996 Act) to the
Communications Act, see Fox 1, 280 F.3d at 1033; Sinclair,
284 F.3d at 159, we do not accept that the “repeal or modify
in the public interest” instruction must therefore operate only
as a one-way ratchet, i.e., the Commission can use the review
process only to eliminate then-extant regulations. For
starters, this ignores both “modify” and the requirement that
the Commission act “in the public interest.” What if the
Commission reasonably determines that the public interest
calis for a more stringent regulation? Did Congress strip it of
the power to implement that determination? The obvious
answer is no, and it will continue to be so absent clear
congressional direction otherwise.'*
What, then, makes § 202(h) “deregulatory”? It is this:
Section 202(h) requires the Commission periodically to
justify its existing regulations, an obligation it would not
otherwise have. A_ regulation deemed useful when
promulgated must remain so. If not, it must be vacated or
modified.
Misguided by the Fox and Sinclair Courts’ “deregulatory
presumption” characterization and lacking the benefit of
Cellco’s subsequent clarification, the Commission concluded
that § 202(h) “appears to upend traditional administrative law
principles” by not requiring it to justify affirmatively a rule’s
'S For example, in enacting a periodic review requirement for the
Commission’s broadcast media ownership regulations, Congress gave no
express indication that it intended to restrict the Commission's
rulemaking authority. See, e.g., Am. Hosp. Ass ‘n v. NLRB, 499 U.S. 606,
613 (1991) (stating that “if Congress had intended to curtail in a
particular area the broad rulemaking authority [it has] granted[,] . . . we
would have suspected it to do so in language expressly describing an
exception [to that authority]”’)
35a
repeal or modification. Order 4 11. This overstates the case.
Rather than “upending” the reasoned analysis requirement
that under the APA ordinarily applies to an agency’s decision
to promulgate new regulations (or modify or repeal existing
regulations), see State Farm, 463 U.S. at 43, § 202(h) extends
this requirement to the Commission’s decision to retain its
existing regulations. This interpretation avoids a crabbed
reading of the statute under which we would have to infer,
without express language, that Congress intended to curtail
the Commission’s rulemaking authority and to contravene
“traditional administrative law principles.”
C. Conclusion
Though our standard of review analysis is lengthy, it is in
the end amenable to a straightforward summing-up: In a
periodic review under § 202(h), the Commission is required
to determine whether its then-extant rules remain useful in
the public interest; if no longer useful, they must be repealed
or modified.2” Yet no matter what the Commission decides
'9 A purely textual inquiry is also of no avail to the Deregulatory
Petitioners. As we noted above, § 202(h) does not use the word
“necessary” in the second sentence to qualify the public interest standard
that governs the Commission’s “repeal or modify” instruction. Like the
Commission (as we point out in note 16 supra), “we do not think that
difference . . . is significant given what we believe “necessary in the
public interest’ means.” 18 F.C.C.R. 4726, 414 n.20. But even if
“necessary in the public interest” under the first sentence meant
“indispensable,” we still would not have to import that heightened
standard to the second. Textually it is not there. If “necessary” appears
twice in § 11 and in the first sentence of § 202(h), but is absent from its
second sentence, logic favors deliberate omission by Congress over
inadvertence.
20 Although our dissenting colleague states that he differs “from the
majority on the applicable standard of review,” we can discern no real
disagreement between his formulation of the standard of review and ours.
Rather, we see disagreement only over the question of whether the
Commission’s Order survives the standard of review as we both have
described it.
36a
to do to any particular rule—retain, repeal, or modify
(whether to make more or less stringent)—it must do so in
the public interest ahd support its decision with a reasoned
analysis. We shall evaluate each aspect of the Commission’s
Order accordingly.
III. Mootness and the National Television Ownership
Rule
The national television ownership rule caps the number of
television stations that a single entity may own on a national
basis. In the 1996 Act, Congress limited the number of
commonly owned stations to those reaching no more than
35% of the national audience. 1996 Act § 202(c)(1)(B), 110
Stat. 111. In its first biennial review, the Commission
retained the 35% cap as “necessary in the public interest,”
but the D.C. Circuit Court held that the Commission had not
adequately justified this decision. Fox /, 280 F.3d at 1048.
On remand and in connection with its 2002 biennial review
proceeding, the Commission increased the cap from 35% to
45%. Order § 583. The Commission also decided to retain
its method of discounting by 50% the audiences of UHF
stations toward the cap. /d. 4 586.
Subsequently, however, Congress enacted a new national
television ownership cap. In its 2004 Consolidated
Appropriations Act, it modified § 202(c)(1)(B) of the 1996
Act to provide that “[t]he Commission shall modify its rules
for multiple ownership . . . by increasing the national
audience reach limitation for television stations te 39%.” See
Pub. L. No. 108-199, § 629, 118 Stat. 3, 99 (2004). Because
the Commission is under a statutory directive to modify the
national television ownership cap to 39%, challenges to the
Commission’s decision to raise the cap to 45% cap are
moot.2!_ Cf. PLMRS Narrowband Corp. v. FCC, 182 F.3d
2! The Deregulatory Petitioners stated that the Commission’s rationale for
retaining a national television ownership limit “raises troubling First
(Continued...)
37a
995, 1002 (D.C. Cir. 1999) (challenges to Commission’s
later-modified order are moot).
Although the 2004 Consolidated Appropriations Act did
not expressly mention the UHF discount, challenges to the
Commission’s decision to retain it are likewise moot.
Congress instructed the Commission to “increase the national
audience reach limitation for television stations to 39%.”
118 Stat. at 99. Since 1985 the Commission has defined
“national audience reach” to mean “the total number of
television households” reached by an entity’s stations, except
that “UHF stations shall be attributed with 50 percent of the
television households” reached. 47 CFR. §
73.3555(e)(2)(i); Multiple Ownership of AM, FM and
Television Broadcast Stations, 50 Fed. Reg. 4666, 4676 (Feb.
1, 1985). We assume that when Congress uses an
administratively defined term, it intended its words to have
the defined meaning. See, e.g., Bragdon v. Abbott, 524 U.S.
624, 631 (1998). Furthermore, because reducing or
eliminating the discount for UHF station audiences would
effectively raise the audience reach limit, we cannot entertain
challenges to the Commission’s decision to retain the 50%
UHF discount. Any relief we granted on these claims would
undermine Congress’s specification of a precise 39% cap.
As additional evidence of the mootness of challenges to
the UHF discount, we note that the 2004 Consolidated
Appropriations Act also added a sentence to § 202(h): “This
Amendment questions.” Br. of Petitioners Fox, NBC, Telemundo, and
Viacom (“Network Petitioners”) at 31. We recognize that a constitutional
challenge would not necessarily be mooted by intervening legislation. But
even if we interpreted this “troubling . . . questions” language as raising a
constitutional challenge to the 45% national audience reach limit, we see
no reason to decide the constitutionality of Congress’s 39% limit, as these
same Petitioners subsequently argued that “any pending challenges to the
June order [regarding the national television ownership rule] will be
mooted” by the 2004 Consolidated Appropriations Act. Network
Petitioners’ Letter Br. at 2 (Feb. 2, 2004).
38a
subsection does not apply to any rules relating to the 39%
national audience limitation.” 118 Stat. at 100. The UHF
discount is a rule “relating to” the national audience
limitation. See 47 C.F.R. § 73.3555(e)(2) (providing for the
UHF discount in a section qualified “for the purposes of this
paragraph (e),” the national television ownership rule
paragraph). Congress apparently intended to insulate the
UHF discount from periodic review, a position that is
consistent with our reading of the legislation as endorsing the
almost 20-year-old regulatory definition of “national
audience reach” that provides for the UHF discount.
Although we find that the UHF discount is insulated from
this and future periodic review requirements, we do not
intend our decision to foreclose the Commission’s
consideration of its regulation defining the UHF discount in a
rulemaking outside the context of Section 202(h). The
Commission is now considering its authority going forward
to modify or eliminate the UHF discount and recently
accepted public comment on this issue. 69 Fed. Reg. 9216—
17 (Feb. 27, 2004). Barring congressional intervention, see,
e.g., S. 1264, 108th Cong. § 12 (2003) (proposing phase-out
and 2008 sunset of the UHF), the Commission may decide,
in the first instance, the scope of its authority to modify or
eliminate the UHF discount outside the context of § 202(h).
IV. Cross-Ownership Rules
The | Commission’s decision to _ repeal its
newspaper/broadcast cross-ownership rules”? in favor of new
Cross-Media Limits has been attacked on all fronts. Some
petitioners support the repeal but argue that the Cross-Media
Limits are too restrictive. Others chalienge the repeal
decision and argue that the new limits are too lenient. We
22 The Commission also repealed its radio/television cross-ownership
rule in favor of tlie Cross-Media Limits, but no petitioner challenges this
aspect of the Order.
39a
conclude that the Commission’s decision to replace its cross-
ownership rules with the Cross-Media Limits is not of itself
constitutionally flawed and does not violate § 202(h). But we
cannot uphold the Cross-Media Limits themselves because
the Commission does not provide a reasoned analysis to
support the limits that it chose.
A. Regulatory Background and the 2002 Biennial
Review
Since the 1970s, the Commission has enforced two
separate limits on the common ownership of different-type
media outlets in local markets. One cross-ownership rule
prohibits the common ewnership of a full-service television
broadcast station and a daily public newspaper in the same
community. 47 C.F.R. § -3.3555(d). The other limits the
number of television and radio stations to the following
combinations: (1) in markets where at least 20 independently
owned media voices would remain post-merger, two
television stations and six radio stations or one television
station and seven radio stations; (2) in markets where at least
10 independent voices would remain, two television stations
and four radio stations; and (3) in other markets, two
television stations (subject to the local television ownership
rule) and one radio station. Jd. § 73.3555(c).
The Commission considered both cross-ownership rules
during its 2002 biennial review under § 202(h). In the Order,
the Commission announced that because neither rule
remained necessary in the public interest. it was repealing
them and replacing them with a single set of Cross-Media
Limits. The three-tiered Cross-Media Limits regulate
common ownership depending on the size of the market:
small (those with three or fewer full-power commercial or
noncommercial television stations), mid-sized (between four
and eight television stations), and large (more than eight
television stations). In small markets, newspaper/broadcast
combinations and _ radio/television combinations are
prohibited. Order § 454. In medium-sized markets, an entity
40a
may own a newspaper and either (a) one television station
and up to 50% of the radio stations that may be commonly
owned in that market under the local radio rule or (b) up to
100% of the radio stations allowed under the local rule. /d.
4 466. In large markets, cross-ownership is unrestricted. /d.
q 473.
B. The Commission’s decision not to retain a ban on
newspaper/broadcast cross-ownership is justified
under § 202(h) and is supported by record
evidence.
The Commission determined that the rule prohibiting
newspaper/broadcast cross-ownership was no_ longer
necessary in the public interest for three primary reasons: (1)
the ban is not necessary to promote competition in local
markets because most advertisers do not view newspapers
and television stations as close substitutes, Order 4 332; (2)
the ban undermines localism by preventing efficient
combinations that would allow for the production of high-
quality local news, id. 4 343; and (3) there is not enough
evidence to conclude that ownership influences viewpoint to
warrant a blanket cross-ownership ban, thus making it
unjustifiable on diversity grounds, id. at 4364, (and
moreover, the presence of other media sources—such as the
Internet and cable—compensate for the viewpoint diversity
lost to consolidation, id. 365). The Citizen Petitioners object
to the localism and diversity components of the
Commission’s rationale. We conclude differently, as
reasoned analysis supports the Commission’s determination
that the blanket ban on newspaper/broadcast cross-ownership
was no longer in the public interest. Part II.C supra.
1. Newspaper/broadcast combinations can
promote localism.
The Commission measured the promotion of localism by
considering “the selection of programming responsive to
local needs and interests, and local news quantity and
quality.” Order § 78. Evidence that existing (grandfathered)
4la
newspaper-owned broadcast stations produced local news in
higher quantity with better quality than other stations
convinced the Commission that the ban on
newspaper/broadcast combinations undermined its localism
interest. The Commission principally relied on the findings
of its MOWG study that newspaper-owned television stations
provide almost 50% more local news and public affairs
programming than other stations, an average of 21.9 hours
per week. /d. § 344 (citing Thomas C. Spavins et al., The
Measurement of Local Television News and Public Affairs
Programs (MOWG Study No. 7) at 3 (Sept. 2002)). The
Commission also found corresponding advantages in quality
of local coverage provided by newspaper-owned stations, as
shown by ratings (measuring consumer approval) and
industry awards (measuring critical approval). /d. q 344-45
(citing, among other things, findings by the Project for
Excellence in Journalism that newspaper-owned stations
“were more likely to do stories focusing on important
community issues and to provide a wide mix of opinions, and
they were less likely to do celebrity and human interest
features’’).
The Citizen Petitioners argue that the MOWG study was
flawed because it examined all newspaper/broadcast station
combinations, including “intermarket” combinations (entities
that own a newspaper and broadcast stations in different
cities), as well as “intramarket” combinations (entities that
Own a newspaper and a broadcast station in the same city).
But the Citizens Petitioners do not Suggest that a study
entirely focused on intramarket combinations would have
different results. The six intramarket combinations that were
included in the study (grandfathered exceptions to the cross-
ownership ban) averaged more local news and public affairs
programming as compared to the overall average (26 weekly
hours compared to 21.9) and higher ratings ror their 5:30
p.m. and 6:00 p.m. news programs (9.8 and 11 compared to
7.8 and 8.2). MOWG Study No. 7 app. A; Comments of
42a
Newspaper Association of America, MB Docket No. 02-277
at 15 (Jan. 2, 2003).
The Citizen Petitioners also protest the Commission’s
reliance on anecdotal evidence of pro-localism combinations
and its disregard of anecdotal evidence to the contrary.
Significantly, however, the Commission used anecdotal
evidence?3 merely to illustrate its statistical findings—it did
not rely on anecdote as the sole basis for its conclusions
about localism. | Moreover, the Commission properly
discounted anecdotal evidence of a Canadian newspaper
conglomerate’s detrimental effect on localism. Can West,
which controls 30% of Canada’s daily newspaper circulation,
requires its newspaper editors to publish editorials from
headquarters, which it forbids local editorials to contradict.
But the Commission explained that the Can West example
shows the peril of national ownership and _ corporate
centralization of media services, which is not relevant to the
Commission’s regulations on local combinations. Order
q 352. In summary, the Citizen Petitioners’ arguments do not
unsettle the Commission’s conclusion’ that the
newspaper/broadcast cross-ownership ban undermined
localism.
2. A blanket prohibition on
newspaper/broadcast combinations is not
necessary to protect diversity.
The Commission offered two rationales for its conclusion
that a _ blanket f »shibition on jaewspaper/broadcast
combinations is no longer necessary to ensure diversity in
23 For example, Gannett Company reported that the “media integration”
resulting from its newspaper/broadcast combination in Phoenix
“improved efficiency, particularly in situations characterized by fast-
breaking news such as the massive wildfires near Phoenix last year.”
Both of Belo Corporation’s Dallas outlets “have been able to cover a
wider range of stories through information sharing between the separate
newspaper and television news staffs.” Order 4 348.
43a
local markets. First, it found that “[c]ommonly-owned
newspapers and broadcast stations do not necessarily speak
with a single, monolithic voice.” Jd. 4 361. Given
conflicting evidence in the record24 on whether ownership
influences viewpoint, the Commission reasonably concluded
that it did not have enough confidence in the proposition that
commonly owned outlets have a uniform bias to warrant
sustaining the cross-ownership ban. /d. J 364.
Second, the Commission found that diverse viewpoints
from other media sources in local markets (such as cable and
the Internet) compensate for viewpoints lost to
newspaper/broadcast consolidations. /d. {| 366. We agree
record evidence suggests that cable and the Internet
supplement th: viewpoint diversity provided by broadcast
and newspaper outlets in local markets.25 As discussed more
fully below, we believe that the Commission gave too much
weight to the Internet in deriving the Cross-Media Limits.
But separate from the question of degree, we conclude that it
24 On one hand, the record contained examples of a newspaper-owner’s
affiliations and biases influencing the news and editorial pages. But there
were also examples of commonly owned newspapers expressing different
viewpoints (such as that the Tribune Company’s newspapers did not
endorse the same candidate in the 2000 presidential election). The
MOWG submitted a. statistical Study of 10 newspaper-television
combinations; in half of them the newspaper’s overall “slant” was
noticeably different from the broadcast television’s “slant” on the news.
See David Pritchard, Viewpoint Diversity in Cross-Owned Newspapers
and Television Stations: A Study of News Coverage of the 2000
Presidential Campaign (MOWG Study No. 2) (Sept. 2002). But the
Pritchard Study was the Subject of much criticism for its flawed
methodology (no control group of independent media outlets for
comparison) and narrow Scope (it only looked at one factor in judging
“slant”). Order | 362.
25 See, e.g., Joel Waldfogel, Consumer Substitutability Among Media
(MOWG Study No. 3) (Sept. 2002) (suggesting that consumers view
Internet news sources as a substitute for daily newspapers and broadcast
news).
44a
was acceptable for the Commission to find that cable and the
Internet contribute to viewpoint diversity.
C. The Commission’s decision to retain some limits
on common ownership of different-type media
outlets was constitutional and did not violate §
202(h).
The Deregulatory Petitioners support the Commission’s
repeal of the newspaper/broadcast cross-ownership-ban but
object to its decision to retain any restriction on the common
ownership of newspaper and broadcast media outlets. First
they argue that any limits on newspaper/broadcast cross-
ownership violate § 202(h), because, as the Commission
acknowledges, the evidence suggests that the cross-
ownership restrictions are not in the public interest. They
also argue that the Cross-Media Limits violate the First and
Fifth Amendments of the United States Constitution. We
disagree on all counts.
1. Continuing to regulate cross-media
ownership is in the public interest.
The Commission’s finding that a blanket prohibition on
newspaper/broadcast cross-ownership is no longer in the
public interest does not compel the conclusion that no
regulation is necessary. See Order § 364. As described
above, the Commission found evidence to undermine the
premise that ownership always influences viewpoint,”® but it
26 Indeed, ample evidence supported its conclusion that ownership can
influence viewpoint. See Order 44 24-25; Comments of the UCC et al.,
MB Docket No. 02-277 at 4 (Jan. 2, 2003) (“UCC Comments’) (citing a
Pew Research Center study of television journalists and executives that
found nearly one quarter of journalists purposefully avoid newsworthy
stories and nearly as many soften the tone of stories to benefit the interest
of their news organizations); /d. at 5 (citing a 2002 study finding that
outlets included more references to their own products and services and
treated those items more favorably than others, thus exhibiting a “synergy
bias”); Comments of Consumer Federation of America, MB Docket 02-
277 at 41 (Jan. 2, 2003) (citing a 2002 study finding that election
(Continued...)
OO
45a
did not find the opposite to be true. And while the
Commission found that other media sources contributed to
viewpoint diversity in local markets, it could not have found
that the Internet and cable were complete substitutes for the
viewpoints provided by newspapers and broadcast stations.
See MOWG Study No. 3 (finding that the Internet and cable
rank as sources of local news, but they do not outrank
newspapers and _ broadcast television). Given the
Commission’s goal of balancing the public’s interests in
competition, localism, and diversity, it reasonably concluded
that repealing the cross-ownership ban was necessary to
promote competition and localism, while retaining some
limits was necessary to ensure diversity.27
2. Continuing to regulate cross-media
ownership does not violate the Fifth
Amendment.
The Deregulatory Petitioners argue that the Cross-Media
Limits violate the Equal Protection Clause of the Fifth
Amendment because they single out newspaper owners for
special restrictions that do not apply to other media outlets.
This argument is foreclosed, however, by the Supreme
Court’s decision in NCCB that endorsed the constitutionality
of the 1975 newspaper/television cross-ownership ban. 436
U.S. at 801-02. Rather tha» concluding that newspaper
Owners were singled out for uifferent treatment, the Court
determined that “the regulations treat newspaper owners in
essentially the same fashion as other owners of the major
information on news pages was slanted in favor of candidate endorsed on
the editorial page); /d. at 44 (citing a 2001 survey of news directors
finding that media owners and sponsors pressure reporters to slant the
news).
27 We also note that the Commission provided for a waiver of the Cross-
Media Limits upon a demonstration “that an otherwise prohibited
combination would, in fact, enhance the quality and quantity of broadcast
news available in the market.” Order 4 481.
46a
media of mass communication” by imposing limits on them
as well as owners of television and radio stations. /d. at 801.
We decline the Deregulatory Petitioners’ invitation to
disregard Supreme Court precedent because of changing
times. Surely there are more media outlets today (such as
cable, the Internet, and satellite broadcast) than there were in
1978 when NCCB was decided. But it cannot be assumed
that these media outlets contribute significantly to viewpoint
diversity as sources of local news and information. See Part
IV.D.2 infra. Even if it could, it is the Supreme Court’s
prerogative to change its own precedent. See State Oil Co. v.
Khan, 522 U.S. 3, 20 (1997) (stating that only the Supreme
Court can overrule its own precedent); Am. Civil Liberties
Union of N.J. v. Black Horse Pike Reg’l Bd. of Educ., 84
F.3d 1471, 1484 (3d Cir. 1996) (stating that we are obliged to
follow Supreme Court precedent “until instructed otherwise
by a majority of the Supreme Court’’).
3. Continuing to regulate cross-media
ownership does not violate the First
Amendment.
The Deregulatory Petitioners argue that the Commission’s
decision to retain restrictions on the common ownership of
newspapers and broadcast stations contravenes the First
Amendment because it limits the speech opportunities of
newspaper owners and broadcast station owners, and hence
limits the public’s access to information. Yet again their
challenge is foreclosed by NCCB, where the Supreme Court
affirmed the Commission’s authority, despite a _ First
Amendment challenge, to regulate broadcast/newspaper
cross-ownership in the public interest. Due to the “physical
scarcity” of the broadcast spectrum, the Court scrutinized the
regulation to discern a rational basis. 436 U.S. at 799. The
Commission’s action, it held, was “a reasonable means of
promoting the public interest in diversified mass
communications.” /d. at 802.
47a
The Deregulatory Petitioners suggest, as they did in
mounting their Fifth Amendment challenge, that the
expansion of media outlets since NCCB’s day requires a
rethinking of the scarcity rationale and the lower level of
constitutional review it entails. Again we decline their
invitation to disregard precedent, and we are not alone. See
FCC v. League of Women Voters of Cal., 468 U.S. 364, 376
& n.11 (1984) (upholding the scarcity rationale until
Congress speaks to the issue); Fox I, 289 F.3d at 1046
(“First, contrary to the implication of the networks’
argument, this court is not in a position to reject the scarcity
rationale even if we agree that it no longer makes sense. The
Supreme Court has already heard the empirical case against
that rationale and still ‘declined to question its continuing
validity.’” (citing Turner v. FCC, 512 U.S. 622, 638
(1994))).
Even were we not constrained by Supreme Court
precedent, we would not accept the Deregulatory Petitioners’
contention that the expansion of media outlets has rendered
the broadcast spectrum less scarce. In NCCB, the Court
referred to the “physical scarcity” of the spectrum—the fact
that many more people would like access to it than can be
accommodated. 436 U.S. at 799. The abundance of non-
broadcast media does not render the broadcast spectrum any
less scarce. See, e.g., Ruggiero v. FCC, 278 F.3d 1323, 1325
(D.C. Cir. 2002), rev'd en banc, 317 F.3d 239 (D.C. Cir
2003) (citing the Commission’s statement that “[njow...
radio service is widely available throughout the country and
very little spectrum remains available for new full-powered
Stations.’’).
In this context, we will apply a rational basis standard to
the Commission’s restrictions on the common ownership
between newspaper and broadcast stations, and uphold them
if they are rationally related to a substantial government
interest. See NCCB, 436 U.S. at 799-800: see also Am.
Family Ass ‘n v. FCC, 365 F.3d 1156, 1168 (D.C. Cir. 2004).
48a
In NCCB, the Supreme Court endorsed a_ substantial
government interest in promoting diversified mass
communications. /d. at 795, 802. The Supreme Court held
that the Commission had “acted rationally in finding that
diversification of ownership would enhance the possibility of
achieving greater diversity of viewpoints.” /d. at 796. Here,
as in NCCB, the Commission justified its continued
restrictions on common ownership of newspapers and
broadcast stations as promoting the public interest in
viewpoint diversity. Order 4 355. The Court has said that
limiting common ownership is a reasonable means of
promoting the public interest in viewpoint diversity. NCCB,
436 U.S. at 796. Therefore, applying NCCB, we hold that
the Commission’s continued regulation of the common
ownership of newspapers and broadcasters does not violate
the First Amendment rights of either.
D. The Commission did not provide reasoned
analysis to support the specific Cross-Media
Limits that it chose.
The Commission concluded that cross-ownership limits
were necessary in specific situations to guard against “an
elevated risk of harm to the range and breadth of viewpoints
that may be available to the public.” Order 4 442. But
recognizing that ownership limits impede the speech
opportunities for both broadcasters and newspapers, the
Commission endeavored to craft new limits “as narrowly as
possible.” /d. | 441. In that vein, the Commission sought to
identify “at risk” local markets—those with high levels of
viewpoint concentration—where continued regulation was
necessary. By focusing its regulation on those markets, the
Commission hoped to avoid needlessly overregulating
markets with already ample viewpoint diversity.
But for all of its efforts, the Commission’s Cross-Media
Limits employ several irrational assumptions and
inconsistencies. We do not object in principle to the
Commission’s reliance on the Department of Justice and
a i
49a
Federal Trade Commission's antitrust formula, the
Herfindahl-Hirschmann Index (“HHI”), as its Starting point
for measuring diversity in local markets. In converting the
HHI to a measure for diversity in local markets, however, the
Commission gave too much weight to the Internet as a media
outlet, irrationally assigned outlets of the same media type
equal market shares, and inconsistently derived the Cross-
Media Limits from its Diversity Index results. For these
reasc.s, detailed below, we remand for the Commission to
justify or modify further its Cross-Media Limits.
1. Overview of the Commission’s Diversity
Index Methodology
The Commission designed a methodology called the
Diversity Index to identify “at risk” markets where limits on
cross-media ownership should be retained. The Diversity
Index was “inspired by” the HHI, which the Department of
Justice and the Federal Trade Commission use to measure
proposed mergers’ effect on competition in local markets.
Id. § 394. A market’s HHI score is the sum of market shares
Squared. A highly competitive market will have a lower HHI
score than a concentrated one. For example, compare the
HHI score of a market with 10 equal-sized competitors (10
[competitors] x 10 [each competitor’s market share
percentage]’ = 1000) to the HHI score of a market with only
five equal-sized competitors (5 x 207 = 2000).28 The
Department of Justice and the Federal Trade Commission
categorize markets with HHI scores above 1800 as “highly
concentrated.” If a proposed merger would exceed that level
of concentration, the agencies believe that it would be
harmful to the competition in that market. At its core, the
28 Of course, the HHI formula also works where the components of a
market are not of equal size. In a market where one company controls
50% of the market share, two control 20%, and another controls 10%, the
HHI formula is 50° + 20 + 20? + 10 = 3400.
50a
Diversity Index here uses the same sum of market share-
squared formula.
First, the Commission selected which media outlets to
include in its analysis of viewpoint diversity in local markets
based on consumers’ reported preferences for sources of
local news and information. The Commission determined
that broadcast television, daily and weekly newspapers,
radio, and Internet (via cable connection and DSL, dial-up, or
other connections) are the relevant contributors to viewpoint
diversity in local markets. See Neilsen Media Research,
Consumer Survey on Media Usage (MOWG Study No. 8)
(Sept. 2002). Based on the popularity of each media source,
the Commission assigned each a relative weight: broadcast
TV 33.8%, daily newspapers 20.2%, weekly newspapers
8.6%, radio 24.9%, Internet (cable) 2.3% and Internet (DSL,
dial-up, or other connection) 10.2%. Order 4§ 412, 415, 427.
Next, the Commission selected many sample markets2? for
which it would determine a Diversity Index score. In each of
those markets, it counted the number of outlets within each
media type and assigned each outlet an equal market share.
(For example, the New York City market has 23 television
Stations, so each one was attributed an equal 4.3% market
share.) The Commission calculated the ownership share by
multiplying the number of outlets owned by an entity by the
29 The Commission calculated Diversity Index scores for all markets with
five or fewer television stations, all markets with 15 and 20 television
stations, and ten randomly selected markets with between six and ten
stations. For sample market Diversity Index calculations, see Order app.
C.
30 Throughout this discussion of the Diversity Index, we adopt the
Commission’s convention and report the decimals of intermediate
products and quotients (such as 4.3 here) rounded to the nearest tenth.
Final products (such as 13.0 reported in the next sentence) are derived ,
from the unrounded intermediate product and then rounded to the nearest
tenth.
Sla
market share. (Univision owns three television stations in
New York, so its Ownership share was 3 x 4.3% = 13.0%.)
Each ownership share was then given its relative weight by
media type. (Univision’s 13.0% share was thus subject to the
33.8% multiplier for television stations). The Commission
then squared all of the weighted ownership shares; their sum
was the market’s total Diversity Index score. But in markets
with cross-owned shares (outlets of different media types
owned by the same entity) the entity’s weighted ownership
shares were summed together before they were squared.
(ABC owned one television station and four radio stations in
New York, so the Commission added its weighted ownership
share for the television station (4.3% x 33.8% = 1.45%) to its
weighted ownership share for the radio Stations (6.7% x
24.9% = 1.67%) for a combined ABC Ownership share of
3.12%. The square of 3.12 was included in the summation).
See generally Order app. C.
After the Commission calculated Diversity Index scores
for markets of different sizes, it determined how those scores
would change in several different consolidation “scenarios.”
To illustrate, the Commission determined that markets with
five television stations had an average Diversity Index score
of 911. If a newspaper and television station combined in a
market of that size, that score would increase by 223, to
1134. The other combination scenarios were: (1) one
television station and all of the radio stations allowed to be
commonly owned under the local radio rule; (2) one
newspaper and all of the radio stations allowed to be
commonly owned under the local radio rule; (3) one
newspaper, one television station, and half of the number of
radio stations allowed to be commonly owned under the local
radio rule; (4) two television Stations; (5) one newspaper and
two television stations; and (6) one newspaper, two television
Stations, and all of the radio stations allowed under the local
radio rule. Order app. D.
52a
Finding that all of the consolidation scenarios resulted in
relatively high increases to the average Diversity Index
scores for the smallest markets (those with three or fewer
television stations), the © Commission __ prohibited
newspaper/television, newspaper/radio, and radio/television
combinations in those markets. Order 4 456, 459, 460. In
the large markets (nine or more stations), all of the
consolidation scenarios resulted in acceptable increases to the
average Diversity Index scores, so the Commission imposed
no limits on cross-media ownership in those markets. In the
mid-sized markets (between four and eight television
stations), the Commission found that all of the scenarios,
except the two involving a newspaper and _ television
duopoly, should be allowed, based on their modest increases
to the average Diversity Index scores for those markets. /d.
q 466.
2. The Commission did not justify its choice
and weight of specific media outlets.
Petitioners from both sides of the regulatory spectrum
attack the Commission’s selection of media outlets for
inclusion in the Diversity Index formula. The Citizen
Petitioners argue that the Commission gave too much weight
to the Internet at the expense of television and daily
newspapers, thereby understating the level of concentration
and overstating the level of diversity in a market. The
Deregulatory Petitioners, on the other hand, argue that the
Diversity Index understates the actual amount of diversity in
a market by ignoring important media outlets, primarily cable
television. As explained below, we affirm the Commission’s
reasoned decision to discount cable. But we think that the
same rationale also applies to the Internet. Therefore, its
decision to count the Intemet as a source of viewpoint
diversity, while discounting cable, was not rational.
Hl
The Commission properly excluded cable because of
serious doubts as to the extent that cable provided
independent local news—the Commission’s recognized
AEROS AIOE IRIE i od acacia cal oS Obed maa aah Set icra
53a
indicator of viewpoint diversity in local markets. Order
{ 394 (“News and public affairs programming is the clearest
example of programming that can provide viewpoint
diversity. . . . [and] the appropriate geographic market for
viewpoint diversity is local.”). While the responses to one
question in the Commission’s survey suggested that cable is
a significant source of local news, see MOWG Study No. 8
tbl. 8, the Commission did not find this credible because the
responses to other survey questions suggested that
respondents were counting broadcast signals that are
transmitted as cable channels as sources of local news on
cable. See Id. tbl. 18 (from a list of popular national cable
news channels and a choice for “local cable news channels,”
almost half of the respondents chose “other” as their source
for cable network news, indicating that cable news channels
were probably confused with broadcast networks’ news).
The survey’s indication that cable is an independent source
of local news was also undercut by external evidence,
including Neilsen ratings, that local cable channels are the
least watched of any broadcast or cable stations in the
market. Order 4 414. Furthermore, the Commission noted
that local cable channels are not available everywhere, but
only in select markets. /d. | 414 n.924; see also UCC
Comments at 30-31 (reporting that only 10 to 15% of cable
systems include channels that provide local and public affairs
programming—i.e., public, educational, and governmental
access channels—and that-there are only 22 local news cable
channels in the country, five of which serve the New York
City area). Thus, the Commission justifiably excluded cable
from its Diversity Index calculations.
Similarly, the responses to one of the Commission survey
questions suggested that the Internet is a source of local
news. See MOWG Study No. 8 ' tbl.1 (18.8% of respondents
31 The dissent suggests that the MOWG Studies, “although not perfect...
, are a significant improvement over the study in Sinclair’ that the D.C.
(Continued...)
54a
listed the Internet as a source of local news). But the survey
did not identify which websites respondents used as sources
of local news.32 There is a critical distinction between
websites that are independent sources of local news and
websites of local newspapers and broadcast stations that
merely republish the information already being reported by
the newspaper or uroadcast station counterpart. The latter do
not present an “independent” viewpoint and thus should not
be considered as contributing diversity to local markets.
Accordingly, the Commission should have discounted the
respondents who primarily rely on these websites from its
total number of respondents who indicated that they use the
Internet to access local news.*?
Circuit Court determined did not support the Commission’s decision to
limit the definition of “voices” in its local television rule. But this
comparison is not relevant because, as we point out, the Commission
inconsistently applied the results of its analysis.
32 The follow-up question for the respondents who reported using the
Internet as a news source asked which sites they had used in the past
seven days as a source of local or national current affairs, so their
responses to this question are not helpful in determining whether the
Internet is a source of independent local news. To the extent that we can
glean anything from this question—unlikely, as the predominant response
was “other’’ (34.9% )—the most popular websites identified were those of
national cable news channels, MSN.com (22.4%) and CNN.com (19.1%),
indicating that most people had those types of websites in mind when
they reported using the Internet for news. (The other responses were:
Yahoo.com (17.9%), MSNBC.com (5.9%), New YorkTimes.com (5.1%),
FoxNews.com (2.2%), USAToday.com (1.8%), ABCNews.com (1.8%),
CBSNews.com (1.7%), Netscape.com (1.7%), Excite.ccom (1.3%),
Iwon.com (1.2%), AT&T.net (1.1%), WallStreetJournal.com (1.0%),
none (7.3%), don’t know (3.5%), and refuse (0.5%)).
33 The dissent acknowledges the flaws in the MOWG Study No. 8 survey,
but suggests that because the survey “can be fine-tuned on the next round
of reviews” it should not be the basis for remand. But we decline to
abdicate our obligation to provide meaningful judicial review. Just as the
Commission may not rely on a “wait-and-see” approach to rulemaking,
Sinclair, 284 F.3d at 164, neither can we. We review an agency’s
(Continued...)
5Sa
Furthermore, just as the Commission discounted responses
indicating that cable was an independent source of local news
because this finding conflicted with other record evidence, it
should have discounted the Internet responses as well. The
- Commission does not cite, nor ae-cael contain,
persuasive evidence that there is a significant presence of
independent local news sites on the Internet. According to
the record, most sources of local news on the Internet are the
websites for newspapers and broadcast television stations.
See, e.g., UCC Comments at 33 (62% of Internet users get
local news from newspaper websites, 39% visit television
station websites). And the examples the Commission does
cite—the Drudge Report and Salon.com—have a national,
not local, news focus.*4 Order § 427.
The Commission suggests that “the virtual universe of
information sources” on the Internet qualifies it as a source of
viewpoint diversity. Order 9427. But to accept this
rationale we would have to distort the Commission’s own
premise that local news is an indicator of viewpoint diversity.
E.g., id. § 391 (Diversity Index measures “the relative
importance of these media as a source of local news’).*>
Search-engine sponsored pages such as Yahoo! Local and
decision for whether it is rationally derived from the record evidence—
not whether the agency may (or may not) “fine tune” the record at the
next mandated review. Furthermore, just as we may not supply a
reasoned basis for the agency’s action that the agency itself has not given,
State Farm, 463 U.S. at 43, we also do not supply evidence to an agency
in the hopes that the agency will include that evidence in a future study.
34 Moreover, the Drudge Report is an “aggregator” of news stories from
other news outlets’ websites and, as such, is not itself normally a “source”
of news, national or local.
35 The Order also speaks of “news and public affairs programming” or
“local news and current affairs information” when referring to measures
of viewpoint diversity. E.g., Order 44 394, 406, 409.
56a
about.com,*® which were suggested by commenters as
sources of local news and information, may be useful for
finding restaurant reviews and concert schedules, but this is
not the type of “news and public affairs programming” that
the Commission said was “the clearest example of
programming that can provide viewpoint diversity.” /d.
q 394.
To accept its “universe of information” characterization of
the Internet’s viewpoint diversity, we would also have to
disregard the Commission’s professed intent to focus its
consideration of viewpoint diversity on media outlets. /d.
qq 20, 391. In terms of content, “the media” provides (to
different degrees, depending on the outlet) accuracy and
depth in local news in a way that an individual posting in a
chat room on a particular issue of local concern does not. But
more importantly, media outlets have an entirely different
character from individual or organizations’ websites and thus
contribute to viewpoint diversity in an entirely different way.
They provide an aggregator function § (bringing
news/information to one place) as well as a distillation
function (making a judgment as to what is interesting,
important, entertaining, etc.).*’ Individuals (such as political
36 The dissent also takes notice of the Independent Media Center websites
such as phillyimc.com. We agree that this is a good example of
independent local news on the Internet. But the IMC provides local links
in only eight markets in the United States. The Commission does not
even mention these websites in its analysis of the Internet, let alone argue
that IMC websites in eight local markets will offset the viewpoint
diversity lost when newspapers and broadcast stations are allowed to
consolidate. And even if we believed that to be the case, it is not our role
to insert our own analysis to substitute for that which is missing from the
agency’s rationale. State Farm, 463 U.S. at 43 (“[W]Je may not supply a
reasoned basis for the agency’s action that the agency itself has not
given.”).
37 See Brief of Petitioner Media General, Inc., at 55 (noting “each media
outlet in a community is actually a platform for the expression of many
viewpoints”).
De a kee eS
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MEANS EATEN II ON ILE IEE
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S7a
candidates) and entities (such as local governments or
community organizations) may use the Internet to
disseminate information and opinions about matters of local
concern (such as the extension of a bike path on the
Schuylkill River in Center City Philadelphia, see dissent Part
IV.A.1), but these individuals and organizations are not,
themselves, media outlets. We agree that the Internet “helps
citizens discharge the obligations of citizenship in a
democracy,” Order 4393, when someone can go
cityofglenfalls.com to find the city council’s next agenda or
use sfgov.org to learn how to get a marriage license in San
Francisco. See Comments of the Hearst Corporation, MM
Docket No. 01-235 at 11 & n.36, apps. A & C (Dec. 3, 2001)
(“Hearst Comments’) (listing these website addresses,
among others, as examples of local government websites).
But local governments are not, themselves, “media outlets”
for viewpoint-diversity purposes. Like many entities, they
just happen to use a particular media outlet—the Internet—to
disseminate information.
Similarly, advertiser-driven websites such as hvnet.com
and sfadvertiser.com, see Hearst Comments at apps. A & C,
hardly contribute to viewpoint diversity. Like local
governments, the sponsors of these websites are not “media
outlets” just because they have “local information” that they
want the public to have—if they were, their advertisements in
telephone directories would also have to count toward
viewpoint diversity. Compare Order § 424 (explaining that
the Commission would not count toward viewpoint diversity
a local newspaper’s comics and classified ads because, while
the subscriber is “undoubtedly getting a valuable service, it is
not clear that the service has anything to do with news and
current affairs’).
The Commission attempts to justify different treatment for
cable and the Internet by suggesting that local cable news
channels are only available in select markets, while the
Internet is available everywhere. Not only is this distinction
58a
demonstrably false (as even the Commission acknowledged
that almost 30% of Americans do not have Internet access,
Order § 365), it is irrelevant. That the Internet is more
available than local cable .:>~ws channels does not mean that
it is providing independent local news. On remand the
Commission must either exclude the Internet from the media
selected for inclusion in the Diversity Index or provide a
better explanation for why it is included in light of the
exclusion of cable. See Sinclair, 284 F.3d at 163-65
(unexplained inconsistency was arbitrary and capricious).
3. The Commission did not justify _ its
assumption of equal market shares.
Both the Citizen Petitioners and the Deregulatory
Petitioners object to the Commission’s decision to assign all
Outlets within the same media type (that is, television
stations, daily papers, or radio stations) an equal market
share. The assumption of equal market shares is inconsistent
with the Commission’s overall approach to its Diversity
Index and also makes unrealistic assumptions about media
outlets’ relative contributions to viewpoint diversity in local
markets.*8
The Commission’s decision to assign equal market shares
to outlets within a media type does not jibe with the
Commission’s decision to assign relative weights to the
different media types themselves, about which it said “we
38 The dissent views these flaws, effectively, as “harmless error” because
the Commission called the Diversity Index a “useful tool” that “informs,
but does not replace, our judgment in establishing rules of general
applicability that determine where we should draw lines between diverse
and concentrated markets.”” Order § 391. But nowhere in the Order, in its
briefs, or in its oral argument did the Commission identify any
consideration other than the Diversity Index’ as having influenced the
formulation of the Cross-Media Limits. Rather, the Cross-Media Limits
prospectively ban certain combinations in specific markets, and allow
others, based on nothing but the relative increases those combinations
would have on the average Diversity Index scores of markets of that size.
ele ROG REN ey - &
Seely aca cia SaaS NY PMR AIRE ery Ore
59a
have no reason to believe that all media are of equal
importance.” Order § 409; see also id. 445 (“Not all voices,
however, speak with the same volume.”). It also negates the
Commission's proffered rationale for using the HHI formula
in the first place—to allow it to measure the actual loss of
diversity from consolidation by taking into account the actual
“diversity importance” of the merging parties, something it
could not do with a simple “voices” test. /d. | 396. Finally,
assigning equal market shares to outlets that provide no local
news almost certainly presents an understated view of
concentration in several markets, thus contravening the
Commission’s goal of making “the most conservative
assumption possible” about viewpoint diversity. /d. 4 400.
Additionally, there is no dispute that the assignment of
equal market shares generates absurd results. For example,
in New York City, the Dutchess Community College
television station and the stations owned by ABC each
receive an equal 4.3% market share. Or compare the
Dutchess Community College station’s weighted share of
1.5% (4.3% times the 33.8% multiplier for television) to a
mere 1.4% weighted, combined share assigned to the New
York Times Company’s co-owned daily newspaper and radio
station. Order app. C. A Diversity Index that requires us to
accept that a community college television station makes a
greater contribution to viewpoint diversity than a
conglomerate that includes the third-largest newspaper in
America’? also requires us to abandon both logic and reality.
The Commission’s attempt to justify its failure to consider
actual market share of outlets within a media type is not
persuasive. It suggests that actual-use data use data is not
relevant because “current behavior is not necessarily an
accurate predictor of future behavior.” Order 4 423. But this
truism did not prevent the Commission from preferring
39 Source: Audit Bureau of Circulations. See http://www.accessabc.com/.
60a
actual-use data in assigning relative weight to the different
media types. The Commission also suggests that, compared
to consumer preferences for a general media type (which are
generally stable), consumers’ preferences for particular
media outlets are fluid because they depend on the media
outlet’s chosen format or quantity or quality of content,
which are easily changed. /d. § 422. But while variance in
the local news content of individual media outlets is
conceivable—e.g., the home shopping television station
could start carrying local news—the Commission does not
provide any evidence that media outlets actually undergo any
such radical content change, let alone that they regularly do
so. Simply put, the Commission needs to undergird its
predictive judgment that stations can freely change the level
of their news content with some evidence for that judgment
to survive arbitrary and capricious review. Fox /, 280 F.3d at
1051.
Lastly, the Commission attempts to justify its refusal to
employ actual-use data by arguing that collecting
“information on viewing/listening/reading of local news and
current affairs material” would make it “necessary first to
determine which programming constituted news and current
affairs,’ which in turn “would present both
legal/Constitutional and data collection problems.” Order
4 424. With respect to “legal/Constitutional” problems, the
Commission is apparently concerned about categorizing
programming as news or “non-news.” But the Commission
obtained actual-use data in MOWG Study No. 8 without any
“legal/Constitutional problems.” There it avoided having to
make content-distinguishing judgments simply by asking
respondents where they got their local news. And the
Commission’s reference here to data collection problems is
vague and unexplained; there is no suggestion that obtaining
actual-use data for outlets within a media type would be
prohibitively more onerous than obtaining the same data for
the media types themselves, as it did in MOWG Study No. 8.
6la
Because the Commission’s reasons for eschewing actual-
use data in assigning market shares to outlets within a media
type and assuming equal market shares are unrealistic and
; inconsistent with the Commission’s overall approach to the
Diversity Index and its proffered rationale, we remand for the
£ Commission’s additional consideration of this aspect of the
i Order.
; 4. The Commission did not rationally derive its
Cross-Media Limits from the Diversity Index
results.
After the Commission calculated the average Diversity
Index scores for markets of various sizes, it set out to
determine whether the increase in those scores resulting from
different consolidation scenarios would have an acceptable or
unacceptable effect. The Commission’s results, contained in
appendix D of the Order, are replicated here for ease of
reference. (We have used boldface type to indicate those
increases in Diversity Index scores that the Commission
found acceptable in crafting the Cross-Media Limits.)
» Koy sagen
Base Case Average Change in Diversity Index, Resulting from Mergers
TV Average 100% News- News- News- 2TV News- News
stations Diversity | Radio paper paper paper stations paper+ paper +
in Index + + + +1 2TV 100%
market score 1TV ~ 100% 1TV TV stations Radio
station Radio _ station _ station +
+ 2TV
50% stations
Radio
1 1707 651 271 910 1321 _ — —
2 1316 301 335 731 1009 -- _
3 1027 190 242 331 515 - — —
4 928 138 236 242 408 _ — —
5 911 111 263 223 393 91 376 846
6 889 79 239 200 340 63 357 688
7 753 73 171 121 247 47 242 533
8 885 79 299 ~ 4§2 314 36 308 734
9 705 64 198 86 207 28 172 473
10 635 56 107 51 119 23 101 292
15 595 43 149 48 145 10 97 302
20 612 49 222 40 128 6 80 350
62a
As illustrated by the chart’s figures that are not in boldface
type, the Commission prohibited all cross-media
consolidation in the smallest markets where, under any of
their sample consolidation scenarios,” the increase in
Diversity Index would be excessive. The Commission
decided to permit all of the scenarios in the largest markets,
finding the Diversity Index increases to be acceptable. In the
mid-sized markets, the Commission allowed most of the
consolidation scenarios but prohibited consolidations
involving a newspaper and a television duopoly.
The Deregulatory Petitioners suggest that the Commission
should. have prohibited only cross-ownership mergers that
would lead to an increase of more than 400 points, consistent
with the practice of the Department of Justice to block
mergers that would increase the local market's HHI score by
over 400 points. As illustrated by the chart above, this
approach would have generated far more permissive Cross-
Media Limits. The Citizen Petitioners argue, on the other
hand, that the Commission should have prohibited cross-
ownership mergers that lead to an increase of more than 100
points, the increase that triggers the Department of Justice's
“further review.” But the decision of where to draw the line
between acceptable increases and unacceptable increases is
almost always the Commission’s to make. Deference to the
Commission's judgment is highest when assessing the
rationality of the agency’s line-drawing endeavors. See
NCCB, 436 U.S. at 814-15; AT&T Corp., 220 F.3d at 627.
The Commission rationalized its decision to make
conservative assumptions in order to “protect[ its] core policy
objective of viewpoint diversity.” Order 4 399; see also
Sinclair, 284 F.3d at 153 (Commission determined that
*” The Commission did not report a Diversity Index increase for those
scenarios that would be precluded by the modified local television
ownership rule, see generally Part V infra, which would prohibit
television station duopolies in markets with fewer than five stations.
ie i
63a
antitrust merger guidelines “might be too low as their
purpose lay in defining the point at which antitrust scrutiny is
required, and not in encouraging a wide array of voices and
viewpoints’).
Although the Commission is entitled to deference in
deciding where to draw the line between acceptable and
unacceptable increases in markets’ Diversity Index scores,
we do not affirm the seemingly inconsistent manner in which
the line was drawn. As the chart above illustrates, the Cross-
Media Limits allow some combinations where the increases
in Diversity Index scores were generally higher than for other
combinations that were not allowed. Consider the mid-sized
markets (four to eight stations), where the Commission found
that a combination of a newspaper, a television station, and
half the radio stations allowed under the local radio rule
would increase the average Diversity Index scores in those
markets by 408 (four stations), 393 (five), 440 (six), 247
(seven), and 314 (eight) points respectively. These permitted
increases seem to belong on the other side of the
Commission's line. They are considerably higher than the
Diversity Index score increases resulting from other
combinations that the Commission permitted, such as the
newspaper and television combination, 242 (four stations),
223 (five), 200 (six), 121 (seven), and 152 (eight). They are
even higher than those resulting from the combination of a
newspaper and television duopoly—376 (five stations), 357
(six), 242 (seven), and 308 (eight)—which the Commission
did not permit. The Commission's failure to provide any
explanation for this glaring inconsistency is without doubt
arbitrary and capricious, and so provides further basis for
remand of the Cross-Media Limits.*!
4! The dissent suggests that the Commission provides sufficient
justification in the Order when it explains why the newspaper + 2 TV
Stations combination is not allowed in midsized markets but the
newspaper + | TV station + 50% of allowed radio stations combination is
(Continued...)
64a
5. The Commission should provide better
notice on remand.
Our decision to remand the Cross-Media Limits also gives
the Commission an opportunity to cure its questionable
notice. Under the APA, an agency must publish notice of
either the terms or substance of the proposed rule or a
description of the subjects and issues involved. 5 U.S.C. §
553(b)(3). We have held that “the adequacy of the notice
must be tested by determining whether it would fairly apprise
interested persons of the “subjects and issues’ before the
agency.” Am. Iron & Steel Inst. v. EPA, 568 F.2d 284, 293
(3d Cir. 1977). The Citizen Petitioners argue that, in order to
“fairly apprise” the public, the Commission is also obligated
to provide notice of its underlying methodology, the
reasoning from which it derived the proposed rule. The
Commission’s notice only indicated that it was considering
“creating a new metric” to “reformulate [its] mechanism for
measuring diversity and competition in a market,” and that it
was contemplating “design[ing] a test that accords different
weights to different outlet types.” Notice, 17 F.C.C.R.
18,503, 94 113-15. The Citizen Petitioners argue that the
Commission should have publically noticed the Diversity
Index once it determined that was the methodology on which
it would rely to derive the Cross-Media Limits. See McLouth
Steel Prods. Corp. v. Thomas, 838 F.2d 1317 (D.C. Cir.
1988) (failure to describe a particular “model” for computing
allowed. Order 4 467 (suggesting that a newspaper will benefit more
from the consolidation with its first-acquired TV station than with
subsequently acquired stations). But this does not address why the
newspaper + | TV station + 50% allowed radio stations combination was
permitted when its Diversity Index score increases were overall much
greater than the Diversity Index score increases for other allowed
combinations. In other words, the Commission may have proffered an
explanation for why “F” should be treated differently from seemingly
similar “D,” but it does not explain why “D” should be treated similarly
from seemingly different “A,” “B,” and “C.”
65a
contamination levels was not adequate notice); United States
v. Nova Scotia Food Prods. Corp., 568 F.2d 240, 251 (D.C.
Cir. 1977) (agency’s failure to provide notice of the data
from which it derived regulation foreclosed “criticism of the
methodology used or the meaning to be inferred from the
data”’).
The Commission argues that the Diversity Index was
formulated as a response to comments, and it need not seek
additional public comment on data formulated as a response
to earlier comments.4?, We are mindful that the APA’s notice
obligations are not supposed to result in a notice-and-
comment “revolving door.” “Rulemaking proceedings would
never end if an agency’s response to comments must always
be made the subject of additional comments.” Cmty.
Nutrition Inst. v. Block, 749 F.2d 50, 58 (D.C. Cir. 1984).
But courts have also suggested that an agency may withhold
notice of its comment-derived data only in the absence of
prejudice. /d. (“The response may, moreover, take the form
of new scientific studies without entailing the procedural
consequences appellants would impose, unless prejudice is
shown.”); see also Solite Corp. v. EPA, 952 F.2d 473, 484
(D.C. Cir. 1991) (allowing agency to use ““supplementary’
data, unavailable during the notice and comment period, that
‘expand[s] on and confirm[s]’ information contained in the
proposed rulemaking and addresses ‘alleged deficiencies’ in
the pre-existing data, so long as no prejudice is shown”
(citing Cmty. Nutrition Inst., 749 F.2d at 57-58) (alteration in
original)). As the Diversity Index’s numerous flaws make
apparent, the Commission’s decision to withhold it from
public scrutiny was not without prejudice. As_ the
42 The Commission also argues that the Diversity Index was “simply an
analytical tool” for measuring diversity. Resp’t Br. at 90-91. But as we
noted before, see supra note 38, it offers no suggestion that anything
other than the Diversity Index was used to formulate the Cross-Media
Limits.
66a
Commission reconsiders its Cross-Media Limits on remand,
it is advisable that any new “metric” for measuring diversity
and competition in a market be made subject to public notice
and comment before it is incorporated into a final rule.
V. Local Television Ownership Rule
Both the Citizen Petitioners and the Deregulatory
Petitioners challenge the Commission’s modification to the
local television ownership rule, which would allow triopolies
in markets of 18 stations or more and duopolies in other
markets, subject to a restriction on combinations of the four
largest stations in any market. We uphold the top-four
restriction but remand the numerical limits for the
Commission to harmonize certain inconsistencies and better
support its assumptions and rationale. We also remand for
the Commission to reconsider or justify its decision to
expand the rule’s waiver provision—applicable to sales of
failed, failing, or unbuilt television stations—by eliminating
the requirement that waiver applicants notice the station’s
availability to out-of-market buyers. .
A. Regulatory Background and the 2002 Biennial
Review
As part of the 1996 Act, Congress directed the
Commission to conduct a rulemaking to determine whether
to “retain, modify, or eliminate” its local television
ownership rule, which at the time prohibited the common
ownership of two television stations with overlapping Grade
B signal contours.*? § 202(c)(2), 110 Stat. 111; Amendment
of Sections 73.35, 73.240, and 73.636 of the Commission’ s
Rules Relating to Multiple Ownership of Standard, FM and
43 The Commission considers two field-strength contours, Grade A and
Grade B, as indicators of a station’s approximate extent of coverage over
average terrain in the absence of interference. Grade B contours measure
a weaker signal than Grade A, and thus have a wider coverage area. 47
C.F.R. § 73.683.
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Television Broadcast Stations, 45 F.C.C. 1476, § 3 (1964)
(establishing the restriction on the common ownership of
televisions stations).
In response to Congress’s directive, the Commission
promulgated a rule allowing an entity to own two television
stations in the same DMA, provided that: (1) the Grade B
_ field-strength contours of the stations do not overlap; and (2)
(a) at least one of the stations is not ranked among the four
highest-ranked stations in the DMA, and (b) at least eight
“voices’—that is, independently owned, operational,
commercial or noncommercial full-power broadcast
television stations—would remain in the DMA after the
proposed combination. 1999 Television Rule Review, 14
F.C.C.R. 12,903, 9 8; 47 C.F.R. § 73.3555(b). The D.C.
Circuit Court reviewed this so-called “duopoly rule,” and in
2002 remanded it for the Commission to justify its decision
to count only broadcast television stations as voices to the
exclusion of other non-broadcast media. Sinclair, 284 F.3d
at 162.
The Commission consolidated Sinclair’s remand order
with its 2002 biennial review under § 202(h). The Order
announced the Commission’s decision to abandon the
duopoly rule in favor of a rule that would permit common
ownership of two commercial stations in markets that have
17 or fewer full-power commercial and noncommercial
Stations, and common ownership of three commercial
stations in markets that have 18 or more stations. Both limits
are subject to a restriction*4 on the common ownership of
44 Under the new rule, the top-four restriction may be waived on a case-
by-case basis. In deciding whether to grant a waiver, the Commission
may consider such factors as ratings information demonstrating the
competitive effect of the merger, the proposed merger’s effect on the
stations’ ability to transition to a digital signal, and the proposed merger’s
effect on localism and viewpoint diversity. Order 94 227-30. The top-
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stations ranked among the market’s largest four based on
audience share. Order § 186. The Commission also decided
to expand its criteria for waiving the rule’s ownership
restrictions for proposed combinations that involve failed,
failing, or unbuilt stations by eliminating the requirement that
waiver applicants provide notice of the sale to out-of-market
buyers. Id. § 225.
B. We uphold several threshold challenges to the
Commission’s overall regulatory approach.
Before we consider the specific modifications to the local
television rule, we address some threshold challenges to the
Commission’s regulatory approach.
1. Limiting local television station ownership is
not duplicative of antitrust regulation.
We reject the Deregulatory Petitioners’ contention that the
Commission’s local television rule is duplicative of antitrust
enforcement (by the Department of Justice and the Federal
Trade Commission) and, thus, not in the public interest. The
Commission ensures that license transfers serve public goals
of diversity, competition, and localism, while the antitrust
authorities have a different purpose: ensuring that merging
companies do not raise prices above competitive levels. See,
e.g., Clayton Act, § 7, 15 U.S.C. § 18 (restraining mergers
that would lessen competition in a market); Dep’t of Justice
and Federal Trade Comm’n, Horizontal Merger Guidelines §
0.1 (1997 rev. ed.) (“Merger Guidelines’) (seeking to protect
consumers by ensuring mergers do not result in
anticompetitive prices).
The Deregulatory Petitioners contend that the
Commission’s new regulations are not derived from its
professed reliance on audience preference, which the
Commission suggests distinguishes its regulatory approach
four restriction waiver, however, is only available in markets of 11 or
fewer stations.
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from that of the antitrust authorities. Order § 65 (pointing
out that it considers audience preferences plus advertising
data as indicators of competition, while the antitrust
authorities focus on prices). But the Commission’s local
television ownership rule does reflect audience preferences in
at least three ways. First, the Commission decided to focus
its competition analysis on the delivered program market (as
opposed to the video programming market or the video
advertising market) because that is the market that “directly
affects viewers.” /d. § 141. Second, as discussed in Part V.0
below, the Commission used audience preference data to
support its conclusion that common ownership of local
television stations can improve program quality. /d. § 150.
Third, as also discussed in Part V.C, the Commission
justified the top-four restriction on evidence of an audience
share “cushion” between the top-four stations and the fifth-
ranked station in most markets. /d. J 195. Thus, we reject
the Deregulatory Petitioners’ suggestion that the local
television ownership rule does not reflect the Commission’s
concern for audience preferences.
Finally, we note that the Commission reviews all license
transfers, 47 U.S.C. § 310(d), while the antitrust agencies
typically review only large mergers. See 15 U.S.C. § 18a(a)
(a merger must only be reported to the FTC and DOJ if the
size of the transaction exceeds $200 million or if the assets of
one party exceed $10 million and the assets of the other party
exceed $100 million). Eighty-five percent of station mergers
that have taken place since 2000 would not have been subject
to antitrust review because the parties’ assets fell below these
thresholds. Br. of Intervenor UCC at 37 (citing BIA
Financial Network, Television Market Report (2d ed. 2003)).
In this context, it hardly seems that the Commission’s local
television station ownership rule is duplicative of other
agencies’ antitrust enforcement.
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2. Media other than broadcast television may
contribute to viewpoint diversity in local
markets. )
Recognizing that allowing more television concentration
in local markets could detract from viewpoint diversity, the
Commission rationalized its decision to deregulate with its
finding that media other than broadcast television contribute
to viewpoint diversity. Order 9171. This is a departure
from the Commission’s rationale for the existing rule—the
issue remanded by the Sinclair Court—that only television
stations are relevant to its diversity analysis.
We agree with the Commission’s conclusion that
broadcast media are not the only media outlets contributing
to viewpoint diversity in local markets. Yet because we
remand the Commission’s numerical limits, as explained in
Part V.D below, we need not decide the degree to which non-
broadcast media compensate for lost viewpoint diversity to
justify the modified rule. Rather, we leave it for the
Commission to demonstrate that there is ample
substitutability from non-broadcast media to warrant the
particular numerical limits that it chooses on remand.
We note that the record contains only weak evidence that
cable can substitute for broadcast television as a source of
viewpoint diversity. For example, the Commission found that
among cable subscribers (a class that already omits one-third
of American households) only 30% have access to local
cable news channels. See Order J 414 n.924; see also supra
Part IV.D.2 (describing why the Commission concluded that
a majority of survey respondents’ purported reliance on cable
as a source of local news was probably based on confusion
with broadcast news); Reply Comments of the UCC, MM
Docket No. 01-235 at 5 (Feb. 15, 2002), UCC Comments at
30-31. With respect to the Internet, while record evidence
indicates a negative correlation between respondents’
reliance on broadcast television and the Internet as news
sources (suggesting that people who use the Internet for local
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news do so at the expense of television), the Internet is also
limited in its availability and as a source of local news.
Compare MOWG Study No. 3 at 3, 34; with UCC Reply
Comments at 10 and MOWG;Study No. 8 tbl. 097. Therefore,
it seems that the degree to which the Commission can rely on
cable or the Internet to mitigate the threat that local station
consolidations pose to viewpoint diversity is limited.
3. Consolidation can improve local
programming.
The Commission supported its decision to relax the
existing “eight voices” rule with findings that common
ownership of television stations in local markets can result in
“consumer welfare enhancing efficiencies” by eliminating
redundant expenses and increasing opportunities for cross-
promotion and related programming. Order 9147. To
promote localism, the Commission found that these
efficiencies translated into improved local news and public
interest programming.*> Id. | 164. Evidence supporting this
conclusion included findings that commonly owned
television stations are more likely to carry local news than
other stations and air a similar quality and quantity of local
news as other stations. See Bruce M. Owen et al., Effect of
Common Ownership or Operation on Television News
Carriage, Quantity and Quality, in Comments of Fox
Entertainment Group, Inc. et al., MB Docket 02-277 (Jan. 2,
2003). And a study of seven commonly owned broadcast
television stations indicates that consolidation generally
improved audience ratings—the studied stations increased
their audience shares by an average of 3.2% over the share
45 This finding is consistent with the Commission’s 1999 decision to
relax the local television ownership rule because local ownership
combinations were likely to yield efficiencies that “can in turn lead to
cost savings, which can lead to programming and other service benefits
that enhance the public interest.” Order 4 155 (citing 1999 Television
Rule Review, 14 F.C.C.R. 12,903, 4 34).
72a
they enjoyed prior to entering into co-ownership with another
station. Order 4150 & n.295 (citing Mark R. Fratrik,
Television Local Marketing Agreement and Local Duopolies:
Do They Generate New Competition and Diversity? (Jan.
2003), appendix to Comments of Coalition Broadcasters et
al., MM Docket 02-277 (Jan. 2, 2003)). In light of this
evidence, we reject the Citizen Petitioners’ contention that
the Commission’s finding of localism benefits from
consolidation was unsupported.
4. The Commission adequately noticed its
decision to allow triopolies.
We also reject the Citizen Petitioners’ contention that the
Commission failed to provide adequate notice that it was
considering a rule that would allow triopolies. The APA
requires agencies to publish a notice of proposed rulemaking
that contains “either the terms or substance of the proposed
rule or a description of the subjects and issues involved.” 5
U.S.C. § 553(b). The Notice advised parties that any
reevaluation of the television ownership rule would take
account of the remand ordered by Sinclair, which left it to the
Commission to reexamine its “voices” test as well as “the
numerical limit, given that there is a relationship between the
definition of voices and the choice of a numerical limit.”
Notice, 17 F.C.C.R. 18,503, | 76 (citing Sinclair, 284 F.3d at
162). Specifically, the Commission asked for comment on
“different economic incentives” relating to diverse
viewpoints in newscasting that might exist “among stand-
alone stations, duopolies, or triopolies.” /d. | 80. This
leaves little doubt that the Notice provided a sufficient
“description of the subjects and issues involved” in the
Commission’s decision to allow triopolies.
C. We uphold the Commission’s decision to retain the
top-four restriction.
Though the Commission recognized that the combination
of television stations within the same market could yield
efficiencies that benefit consumers, the Commission also
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recognized that station combinations only have an overall
public “welfare-enhancing” effect when the consolidation
does not create a “new largest” entity. Order § 194 (citing,
inter alia, R. Preston McAfee & Michael Williams,
Horizontal Mergers and Antitrust Policy, 40 J. Indus. Econ.
181-87 (June 1992)). Thus, the Commission determined that
it had to limit allowable station combinations to those that
would not create excessive market power in a “new largest”
entity. Finding that a significant “cushion” of audience share
percentage points generally separates top-four stations from
the fifth-ranked stations, the Commission decided that a top-
four restriction would ensure that station consolidations did
not lead to excessive market power. /d. 9§ 195-96. The
Commission also recognized that efficiencies are less
prevalent when financially strong stations merge with each
other. /d. § 197. For example, top-four stations are already
more likely to be originating local news* and to have made
the transition to digital television. /d. ¥§ 198-99.
The Deregulatory Petitioners assert that the top-four
restriction prevents small-market stations from yielding any
of the benefits of consolidation. They argue that by
effectively precluding any consolidation in markets with
fewer than five stations, the Commission deprives the benefit
of consolidation from stations—those in small markets—who
need it most. But the Commission’s local television rule is
protective of small-market stations. The numerical limits
already allowed, in effect, extra*’ concentration to ensure that
46 The Commission found that 85% of top-four stations offer local news
programs, as compared to 19% of stations outside the top four. Order
198 (citing Bruce M. Owen et al., News and Public Affairs Programming
Offered by the Four Top-Ranked Versus Lower-Ranked Television
Stations, included in Comments of Fox Entertainment Group, Inc., et al.,
MB Docket 02-277 (Jan. 2, 2003)).
47 As explained more fully in the next subpart, the Commission justified
its numerical limits on the belief that they would ensure six equal-sized
competitors in most markets. But the Commission departed from this
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74a
small-market stations would realize the efficiency benefits of
consolidation. As for the smallest markets with fewer than
five stations—where the top-four restriction operates to
preclude any consolidation—it was not unreasonable for the
Commission to conclude, as it did, that the detriment of
concentrated market power—e.g., reduced incentive to
improve programming of mass appeal—outweighed the
efficiency benefits. /d. ¥§ 197, 200. And, while we recognize
that the Commission “cannot save an irrational rule by
tacking on a waiver procedure,” ALL TEL Corp. v. FCC, 838
F.2d 551, 561 (D.C. Cir. 1988), we note that the modified
rule allows the Commission to waive the top-four restriction
in small markets where those consolidations would be
beneficial overall.
rationale when it allowed duopolies in markets with five to eleven
stations. Order 4 201. The Commission explained that stations in those
small and mid-sized markets are experiencing greater competitive
difficulty than stations in large markets. /d. (citing data on the
comparative profitability of stations in markets of various sizes). Thus,
the Commission determined, it was necessary to allow some additional
concentration in those markets (relative to that allowed in the larger
markets) so that small and mid-sized market stations would realize the
efficiency benefits of consolidation.
48 The Deregulatory Petitioners challenge the waiver provision as well,
suggesting that the Commission’s decision to limit its availability to
markets with fewer than 12 stations is an arbitrary and capricious number
“plucked out of thin air.” See Sinclair, 284 F.3d at 162. But the
Commission explained that its decision to draw the line at markets with
fewer than 12 stations was based on its determination that it was in those
markets that “the economics of broadcast television justify relatively
greater levels of station consolidation.” Order 4 227. Moreover, it is
consistent with the Commission’s overall approach of maintaining a
balance between ensuring that small-market stations can reap the benefits
of consolidation while protecting the public’s interest in viewpoint
diversity. Thus we defer to the Commission’s expertise and affirm this
particular line-drawing.
We also note that the modified rule does not preclude a top-four
restriction waiver in a market with more than 12 stations, as the
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The Deregulatory Petitioners also object to the top-four
restriction because, they argue, it unjustifiably treats all top-
four ranked stations the same. The essence of their objection
is the Commission’s finding of a “general separation”
between the top-four stations and other stations. They point
out that in many markets, especially small- and medium-
sized ones,*? the third- and fourth-ranked stations could
combine without exceeding the audience share of the first- or
second-ranked stations. Thus, they contend, there is a more
substantial “separation” between the third- and fourth-ranked
stations than between the fourth- and fifth-ranked stations.*°
But we must uphold an agency’s line-drawing decision
when it is supported by the evidence in the record. Sinclair,
284 F.3d at 162; AT&T Corp., 220 F.3d at 627. Here there is
ample evidence in the record to support the Commission’s
restriction on combinations among the top-four stations as
opposed to the top-three or some other number. The
Commission found a “cushion” of audience share percentage
points between the fourth- and fifth-ranked stations in most
markets. Order 4195. Networks’ national audience
Statistics, which are generally reflected in local market
rankings of affiliated stations, also show a substantial 60%
drop in audience share between the fourth-and fifth-ranked
networks. In the ten largest markets, the top-four stations
combined control at least 69% (and an average of 83%) of
Commission expressly acknowledged its duty to give a “hard look . . . to
waiver requests.” Jd. 85; see also 47 C.F.R. § 1.3 (authorizing waiver of
Commission rules “for good cause shown”).
49 In all but 18 of the markets ranked 76 to 201, the combined market
share of the third-and fourth- ranked station is less than that of the top-
ranked station. Ex Parte Communication of National Association of
Broaacasters, MB Docket No. 02-277 at 4 (May 22, 2003).
50 In the largest 150 markets, the fourth-ranked station trailed the third-
ranked station by 34% in audience share and 26% in revenue share. Bear,
Stearns & Co., Inc., Duopoly Relief Needed—4th Ranked Stations
Significantly Trail 3rd Ranked Stations (May 29, 2003).
76a
the local commercial share in their respective markets, and in
all of the ten largest markets a combination between the
third-and fourth-ranked stations would produce a new largest
station. Local Television Ownership and Market
Concentration Study, in UCC Reply Comments at attachment
5.5! Furthermore, the Commission found that permitting
mergers among top-four ranked stations generally leads to
large HHI increases.
Thus we conclude that the Commission’s decision to
retain the top-four restriction is supported by record
evidence. Accordingly, we extend deference. See Sinclair,
284 F.3d at 162.
D. We remand the specific numerical limits for the
Commission’s further consideration.
The Commission decided to construct its numerical limits
to ensure that most markets would have six equal-sized
competitors because the HHI score of a six-member
market—1667 (6 x (100 + 6)*)—is below the Department of
Justice and Federal Trade Commission’s 1800 threshold for
highly concentrated markets for antitrust purposes. Order
q4 192-93 (citing Merger Guidelines § 1.51(c)). Thus the
Commission decided to allow triopolies in markets of 18
stations or more (18 + 3 = 6 equal-sized competitors) and
duopolies in markets of 17 or fewer (both limits subject to
the restriction on a combination of top-four stations). /d.
q 193.
5! While the likelihood that a third- and fourth-ranked station
combination would produce a new largest station was lower in the mid-
and small-sized markets, the market share of those markets’ top-four
stations combined was much higher than in the large markets. /d. So
while the top-four restriction does not operate to protect the small and
mid-sized markets from as many “new largest station” mergers, it furthers
diversity by ensuring there are at least four independent voices in those
markets.
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The Commission's assumption of equal market shares
received flak from both ends of the objecting spectrum. The
Citizen Petitioners point out that television stations’ market
shares vary widely and argue that it is arbitrary for the
Commission to base its numerical limits on a rudimentary
station “head count” of outlets. The Commission's rationale
for its triopoly rule requires that we accept a combination of
the first-, fifth-, and sixth-ranked stations as the competitive
equal of a combination of the 16th-, 17th-, and 18th-ranked
Stations, just because each combination consists of the same
number of stations. While the Citizen Petitioners
demonstrate the Commission’s flawed rationale with
examples of what the modified rule allows, the Deregulatory
Petitioners demonstrate the same flaw by pointing out what
the modified rule forbids. There is no logical reason, they
argue, why it should be impermissible to have five duopolies
and one triopoly (a total of six competitors)*? in a market
with 13 stations when it is possible that the triopoly could
have a lower combined market share than any or all of the
duopolies.
The Commission defends its equal market shares approach
with the suggestion that market share, which varies with each
season’s new programs, is too “fluid” to be the basis for its
regulations. /d. § 193. But elsewhere in the local television
ownership rule the Commission found that the market share
was stable enough to rely on for support of its top-four
52 The Deregulatory Petitioners also challenge the Commission’s six
equal-sized competitor benchmark as inconsistent with its five equal-
sized competitor benchmark in the local radio rule. Order 4 289. No
reason exists, however, for the Commission’s local television ownership
limits to mirror precisely its local radio ownership limits, particularly
given that there are generally more radio stations than television stations
in a given market.
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restriction.5> Jd. § 195. And not only is the Commission’s
“market share is too fluid” rationale inconsistent with other
aspects of the rule, it is unsupported. The Order cites no
evidence to support its assumption that market share
fluctuates more in television broadcasting than in other
industries. Nor does it refute the Citizen Petitioners’
suggestion that this is unlikely to be the case because, unlike
most other industries, television station owners face a barrier
to market entry (requirement of a license) and the number of
market participants (television station owners) is in decline.
The Citizen Petitioners also object to the numerical limits
because they allow markets that are already highly
concentrated to become even more concentrated. For
example, Philadelphia is a market with more than 18 stations,
so the modified rule would allow the duopolist Viacom to
acquire a third station and potentially increase its audience
share from 25% to 34%. Philadelphia’s HHI score is already
2037, well above the Commission’s 1800 target, and a
Viacom triopoly would raise the score to 2487. We
acknowledge that the Commission never intended the
numerical limits to represent a “mechanical application of the
DOJ/FTC Merger Guidelines.” /d. 4197. But it expressly
chose its six equal-sized competitor benchmark to ensure that
markets would not exceed the Merger Guidelines’ 1800
threshold for highly competitive markets.*4 /d. 4 192. After
53 The Commission also defends its rule against charges that it is
duplicative of antitrust authority by pointing out that it takes audience
preferences into account, unlike antitrust regulators who focus on prices.
54 The Commission deliberately did not select the Merger Guidelines’
1000 threshold for moderately concentrated markets out of recognition
that television stations receive competitive pressure not only from each
other but from cable networks as well.
We reject the Deregulatory Petitioners’ contention that the
Commission’s consideration of the competitive effect of cable for this
purpose is inconsistent with its refusal to define the relevant competitive
market to include cable networks. The Commission explained that cable
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justifying 1800 as the target, the Commission relaxed the
local television ownership rule to allow more concentration
in markets that already exceed the target—which is not just
some markets, but most. UCC Reply Comments attachment 5
(28 out of 33 markets studied had HHIs that exceeded 1800,
based on 2001 data).>5
The deference with which we review the Commission’s
line-drawing decisions extends only so far as the line-
drawing is consistent with the evidence or is not “patently
unreasonable.” Sinclair, 284 F.3d at 162. The
Commission’s numerical limits are neither. No evidence
supports the Commission’s equal market share assumption,
and no reasonable explanation underlies its decision to
disregard actual market share. The modified rule is similarly
unreasonable in allowing levels of concentration to exceed
further its own benchmark for competition (1800)—a glaring
inconsistency between rationale and result. We remand the
numerical limits for the Commission to support and
harmonize its rationale.
networks offer “almost exclusively . . . national or broadly defined
regional programming,” and thus profit-maximizing decisions reflect
national, rather than local, markets. Order 4 191. On this ground, the
Commission justified its decision not to accept that television and cable
compete in the same market. As a matter of degree, however, the
Commission recognized that cable networks exerted some competitive
pressure on local networks, and thus selected a higher benchmark (1800)
than it otherwise might have.
55 The dissent says that the Commission selected the HHI score of 1800
as a mere “starting point” for its analysis. Dissent Part [V.B. Indeed, the
Commission cautioned against “strict, overly simplistic application of the
DOJ/FTC Merger Guidelines.” Order 4 192. But the triopoly rule was
justified by the six equal-sized competitor rationale, which was in turn
derived from the Merger Guidelines’ 1800 benchmark. No other
rationale was provided. Surely, then, it is proper judicial review to call
the Commission on its failure to adhere to the 1800 benchmark it
selected.
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E. We remand the Commission’s repeal of the Failed
Station Solicitation Rule.
The Citizen Petitioners also challenge the Commission’s
repeal of the Failed Station Solicitation Rule (“FSSR”), 47
C.F.R. 73.3555 n.7, which required a waiver applicant to
provide notice of the sale to potential out-of-market buyers
before it could sell the failed, failing, or unbuilt television
Station to an in-market buyer.°° Order 4 225.
The Commission promulgated the FSSR in its review of
the local television rule that Congress had required under §
202(c) of the 1996 Act. To alleviate concerns that its
decision to allow duopolies would undermine television
station ownership by minorities, the Commission created the
FSSR to ensure that qualified minority broadcasters had a
fair chance to learn that certain financially troubled—and
consequently more affordable—stations were for sale. /999
Television Rule Review, 14 F.C.C.R. 12,903, JG 13-14, 74. In
the current Order, however, the Commission does not explain
that preserving minority ownership was the purpose of the
FSSR, nor does it argue that the FSSR was harmful or
ineffective toward this purpose. The only support for its
decision to eliminate the FSSR is its prediction that “the
efficiencies associated with operation of two same-market
56 The proponent of this argument is the Minority Media and
Telecommunications Council (““MMTC”), which had participated in the
briefing as an intervenor party. On April 7, 2004, MMTC withdrew its
petition to the Commission for reconsideration on the same grounds, thus
eliminating the jurisdictional bar that otherwise would have precluded our
review. See West Penn Power Co. v. EPA, 860 F.2d 581, 587 (3d Cir.
1989). We then accepted MMTC’s petition for review because its
pending reconsideration petition tolled the time for filing a petition for
judicial review. See L.A. SMSA Ltd. P’ ship v. FCC, 70 F.3d 1358, 1359
(D.C. Cir. 1995). MMTC’s new status as a petitioner rather than an
intervenor negates the Commission’s initial concern that MMTC had
impermissibly expanded the scope of issues on review by raising an
argument that was not addressed in any of the petitioners’ briefs.
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stations, absent unusual circumstances, will always result in
the buyer being the owner of another station in that
market.”>’? Order § 225.
By failing to mention anything about the effect this change
would have on potential minority station owners, the
Commission has not provided “a reasoned analysis indicating
that prior policies and standards are being deliberately
changed, not casually ignored.” Greater Boston TV Corp. v.
FCC, 444 F.2d 841, 852 (D.C. Cir. 1970).
Furthermore, while the Commission had promised in 1999
to “expand opportunities for minorities and women to enter
the broadcast industry,” 1999 Television Rule Review, 14
F.C.C.R. 12,903, 94, the FSSR remained its only policy
specifically aimed at fostering minority television station
ownership. In repealing the FSSR without any discussion of
the effect of its decision on minority television station
ownership (and without ever acknowledging the decline in
minority station ownership notwithstanding the FSSR), the
Commission “entirely failed to consider an important aspect
of the problem,” and this amounts to arbitrary and capricious
rulemaking.°* State Farm, 463 U.S. at 43; see also Copps
Dissent, 18 F.C.C.R. at 13,970-71 (chastising the
Commission for “fail[ing] to conduct rigorous analysis of
today’s rules on minorities and women); Adelstein Dissent,
57 We fail to see the logic in this proffered rationale. Even if it were true
that same-market efficiencies will always lead to a duopoly absent
unusual circumstances, it does not follow, without additional proof or
explanation, that (1) marketing the station outside the market is a
meaningless burden or that (2) the Commission should not retain the
FSSR to make that “circumstance” less “unusual.”
58 Repealing its only regulatory provision that promoted minority
television station ownership without considering the repeal’s effect on
minority ownership is also inconsistent with the Commission’s obligation
to make the broadcast spectrum available to all people “without
discrimination on the basis of race.”” 47 U.S.C. § 151.
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18 F.C.C.R. at 13,997 (same). For correction of this
omission, we remand.°?
VI. Local Radio Ownership Rule
Petitioners challenge the Commission’s decision to modify
its local radio ownership rule, which limits the number of
commercial radio stations that a party may own in local
markets of different sizes, 47 C.F.R. § 73.3555(a), by, among
other changes, adopting a new method for determining the
size of local markets. They also argue that the Commission
failed to justify its decision to retain the rule’s specific
numerical limits. We affirm the Commission’s decision to
modify the rule (including modifying its method for
determining local market size), but we agree that its decision
to retain the numerical limits was arbitrary and capricious,
and hence remand for the Commission’s _ further
consideration.
A. Regulatory Background and the 2002 Biennial
Review
In 1992 the Commission abandoned its one-to-a-market
limit on radio station ownership and implemented tiered
numerical limits that allowed for common ownership of as
many as six (three AM and three FM) stations—but no more
than a combined 25% of the market’s total audience share—
in the largest markets of 40 or more commercial stations.
59 We also note that the Commission deferred consideration of the
MMTC’s other proposals for advancing minority and disadvantaged
businesses and for promoting divers
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