FCC Media Ownership Rules: Current Status and Issues for Congress

Congressional research reportDec 26, 2007

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Text

Order Code RL31925

FCC Media Ownership Rules:

Current Status and Issues for Congress

Updated December 26, 2007

Charles B. Goldfarb

Specialist in Telecommunications Policy

Resources, Science, and Industry Division

FCC Media Ownership Rules:

Current Status and Issues for Congress

Summary

On June 2, 2003, the Federal Communications Commission (FCC) modified

five of its media ownership rules, easing restrictions on the ownership of multiple

television stations (nationally and in local markets) and on local media cross

ownership, and tightening restrictions on the ownership of multiple radio stations in

local markets. Those rules have never gone into effect. Sec. 629 of the FY2004

Consolidated Appropriations Act (P.L. 108-199) instructed the FCC to modify its

new National Television Ownership rule to allow a broadcast network to own and

operate local broadcast stations that reach, in total, at most 39% of U.S. television

households. On June 24, 2004, the United States Court of Appeals for the Third

Circuit (“Third Circuit”), in Prometheus Radio Project vs. Federal Communications

Commission, found that the FCC did not provide reasoned analysis to support its

specific local ownership limits, and also that the FCC failed to address the impact of

it new rules on minority ownership of broadcast stations, and therefore remanded

portions of the new local ownership rules back to the FCC and extended its stay of

those rules.

In June 2006, the FCC adopted a Rulemaking seeking comment on how to

address the issues raised by the Third Circuit and initiating a statutorily required

quadrennial review of all of its media ownership rules. On December 18, 2007, the

FCC adopted an order that modified only one of its media ownership rules — the

newspaper-broadcast cross-ownership rule. Under the new rule, it would be

presumptively in the public interest, in the 20 largest markets, for a major daily

newspaper to own a single television or radio station, so long as the television station

is not among the four highest-rated stations in the market and after the transaction

there are at least eight independently owned and operating major media voices. A

bipartisan group of 25 senators informed the FCC of its intention to pass a joint

resolution of disapproval to revoke the rule. S. 2332 and H.R. 4835 would require

the FCC, before adopting any new broadcast ownership rule after October 1, 2007,

to give 90 days notice for public comment, and to initiate, conduct, and complete a

separate rulemaking to promote the broadcast of local programming and content.

They also would require the FCC to establish an independent Panel on Women and

Minority Ownership of Broadcast Media and to conduct a full and accurate census

of the race and gender of broadcast owners. H.R. 4167 would eliminate the

newspaper-broadcast radio cross-ownership prohibition.

In the summer of 2007, the FCC adopted a Second Further Notice of Proposed

Rulemaking seeking comment on 34 proposals for increasing minority ownership of

broadcast stations. On December 18, 2007, the FCC adopted an order that

implemented 12 of those proposals, although eligibility was not limited to minority

or socially and economically disadvantaged businesses, but rather was available to

all small businesses. A companion Notice of Proposed Rulemaking sought comment

on eligibility criteria and on how best to improve FCC collection of data regarding

the gender, race, and ethnicity of broadcast licensees. This report will not be updated.

For activities after 2007 relating to media ownership, see CRS Report RL34416, The

FCC's Broadcast Media Ownership Rules.

Contents

Overview of Current Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Underlying Issues: Standard of Review and Bright Line Tests . . . . . . . . . . . . . . 15

Standard of Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Bright Line Tests and the Diversity Index . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Specific Media Ownership Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

National Television Ownership (% Cap) . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Current Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Recent History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Dual Network Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Local Television Multiple Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Current Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

Recent History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Local Radio Multiple Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Current Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Recent History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Cross-Media Limits: Newspaper-Broadcast and Television-Radio . . . . . . . 37

Current Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Recent History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Transferability of Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Legislative Policy Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

FCC Media Ownership Rules:

Current Status and Issues for Congress

Overview of Current Status

The Federal Communications Commission (FCC or Commission) adopted an

order on June 2, 2003 that modified five of its media ownership rules and retained

two others.1 Those rules have never gone into effect. Sec. 629 of the FY2004

Consolidated Appropriations Act (P.L. 108-199) instructed the FCC to modify one

of the rules — the National Television Ownership rule. On June 24, 2004, the

United States Court of Appeals for the Third Circuit (Third Circuit), in Prometheus

Radio Project vs. Federal Communications Commission, found:

The Commission’s derivation of new Cross-Media Limits, and its modification

of the numerical limits on both television and radio station ownership in local

markets, all have the same essential flaw: an unjustified assumption that media

outlets of the same type make an equal contribution to diversity and competition

in local markets. We thus remand for the Commission to justify or modify its

approach to setting numerical limits.... The stay currently in effect will continue

pending our review of the Commission’s action on remand, over which this panel

retains jurisdiction.2

On December 18, 2007, the FCC adopted an order that modified the broadcast

cross-ownership rule,3 making it presumptively in the public interest, in the 20 largest

Report and Order and Notice of Proposed Rulemaking, 2002 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, MB Docket 02-277; CrossOwnership of Broadcast Stations and Newspapers, MM Docket 01-235; Rules and Policies

Concerning Multiple Ownership of Radio Broadcast Stations in Local Markets, MM Docket

01-317; Definition of Radio Markets, MM Docket 00-244; Definition of Radio Markets for

Areas Not Located in an Arbitron Survey Area, MB Docket 03-130, adopted June 2, 2003

and released July 2, 2003 (“Report and Order” or “June 2, 2003 Order”). The Report and

Order was adopted in a three to two vote. All five commissioners released statements on

June 2, 2003, the day that the commission voted to adopt the item, and also released

statements that accompanied the July 2, 2003 release of the Report and Order. The Report

and Order was published in the Federal Register on September 5, 2003, at 68 FR 46285.

Prometheus Radio Project v. Federal Communications Commission, 373 F.3d 372, 435 (3rd

Circuit 2004) (Prometheus). The decision also is available at [http://www.ca3.uscourts.gov/

opinarch/033388p.pdf], viewed on November 16, 2007. For a legal perspective on the

Prometheus decision, see CRS Report RL32460, Legal Challenge to the FCC’s Media

Ownership Rules: An Overview of Prometheus Radio v. FCC, by Kathleen Ann Ruane.

“FCC Adopts Revision to Newspaper/Broadcast Cross-Ownership Rule,” FCC News

(continued...)

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local markets (DMAs), for a major daily newspaper to own a single television or

radio station, so long as the television station is not among the four highest-rated

stations in the market, and after the transaction there are at least eight independently

owned and operating major media voices. With several exceptions, in all other

situations any newspaper-broadcast cross-ownership would be presumptively not in

the public interest. That negative presumption would be reversed, however, if

the applicant can qualify for a “failed station” waiver by showing

that the newspaper or broadcast station had ceased publication or

gone dark at least four months before the filing or an application, or

was in bankruptcy proceedings; or

the applicant can qualify for a “failing station” waiver by showing

that (a) the broadcast station has had an all-day audience share of 4%

or lower; (b) the newspaper or broadcast station has had a negative

cash flow for the previous three years; (c) the combination will

produce public interest benefits; and (d) the in-market buyer is the

only reasonably available candidate willing and able to acquire and

operate the newspaper or station; or

a proposed transaction would result in a new source of local news in

a market, specifically when a combination would initiate at least

seven hours of new local news programming per week on a

broadcast station that previously has not aired local news.

In any situation, the commission would be required to make a public interest finding

and, in so doing, consider, among other factors, whether the cross-ownership will

increase the amount of local news disseminated through the affected media outlets

in the combination; whether each affected media outlet in the combination will

exercise its own independent news judgment; the level of concentration in the DMA;

and the financial condition of the newspaper, and if the newspaper is in distress, the

owner’s commitment to invest significantly in newsroom operations. Thus, under

the proposed rule, a newspaper-broadcast combination in a top-20 market could be

rejected by the commission, and a newspaper-broadcast combination in a smaller

market could be approved.

The new rule, which is likely to be appealed both by parties opposing any

loosening of the FCC’s newspaper-broadcast cross-ownership rule and parties

seeking greater loosening of the rule, cannot take effect until approved by the Third

Circuit. It is likely that an affected party that favors the rule change will petition the

court to end the stay and allow the rule to go in effect pending court review.

The current status of the FCC’s broadcast media ownership rules is as follows:

(...continued)

Release, December 18, 2007, available at [http://hraunfoss.fcc.gov/edocs_public/

attachmatch/DOC-278932A1.pdf], viewed on December 20, 2007. The text of the order has

not yet been released.

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National Television Ownership: a broadcast network may own and

operate local broadcast stations that reach, in total, up to 39% of

U.S. television households; entities that exceed the 39% cap must

divest as needed to come into compliance within two years; the FCC

may not forbear on applying the 39% cap; and the FCC is prohibited

from performing the quadrennial review of the 39% cap.4 In

calculating a network’s reach, UHF stations continue to be treated

as if they reach only 50% of the households in the market.5

Until the FCC crafts new rules approved by the Third Circuit, the

ownership rules in effect prior to June 2, 2003 remain in effect:6

Local Television Multiple Ownership: a company can own

two television stations in the same Designated Market Area

(“DMA”)7 if the stations’ Grade B contours8 do not overlap or

if only one is among the four highest-ranked (in terms of

audience) in the market and at least eight independent

television stations would remain in the market after the

proposed combination.9 An existing licensee of a failed,

failing, or unbuilt television station can seek a waiver of the

rule if it can demonstrate that the “in-market” buyer is the only

reasonably available entity willing and able to operate the

subject station, and that selling the station to an out-of-market

This is required by the FY2004 Consolidated Appropriations Act (P.L. 108-109, 118 Stat.

3 et seq.), Section 629. The relevant FCC rule is 47 C.F.R. 73.3555(d)(1).

The Third Circuit concluded that challenges to the FCC’s decision to retain the 50% UHF

“discount” were moot “because reducing or eliminating the discount for UHF station

audiences would effectively raise the audience reach limit ... [which] would undermine

Congress’s specification of a precise 39% cap.” (Prometheus, 373 F.3d at 396). The

relevant FCC rule is 47 C.F.R. 73.3555(d)(2)(i).

“The stay currently in effect will continue pending our review of the Commission’s action

on remand, over which the panel retains jurisdiction.” (Prometheus, 373 F.3d at 435)

Designated Market Areas are geographic designations developed by Nielsen Media

Research. A DMA is made up of all the counties that get the preponderance of their

broadcast programming from a given television market. The Nielsen DMAs are both

complete (all counties in the United States are in a DMA) and exclusive (DMAs do not

overlap).

Grade B is a measure of signal intensity associated with acceptable reception. The FCC’s

rules define this contour, often a circle drawn around the transmitter site of a television

station, in such a way that 50 percent of the locations on that circle are statistically predicted

to receive a signal of Grade B intensity at least 90 per cent of the time. Although a station’s

predicted signal strength increases as one gets closer to the transmitter, there will still be

some locations within the predicted Grade B contour that do not receive a signal of Grade

B intensity.

47 C.F.R. 73.3555(b).

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buyer would result in an artificially depressed price for the

station.10

Local Radio Multiple Ownership: the number of radio

stations that a company can own in a local market varies

according to the total number of stations in the market, as

follows: in a radio market with 45 or more full power

commercial and noncommercial radio stations, a party may

own, operate or control up to eight commercial radio stations,

not more than five of which are in the same service (AM or

FM); in a market with between 30 and 44 (inclusive) full

power commercial and noncommercial stations, a party may

own, operate, or control up to seven commercial radio

stations, not more than four of which are in the same service;

in a market with between 15 and 29 (inclusive) full power

commercial and noncommercial radio stations, a party may

own, operate, or control up to six commercial radio stations,

not more than four of which are in the same service; and in a

radio market with 14 or fewer full power commercial and

noncommercial radio stations, a party may own, operate, or

control up to five commercial radio stations, not more than

three of which are in the same service, except that a party may

not own, operate, or control more than 50% of the stations in

any market.11

Broadcast-Newspaper Cross-Ownership: pending court

approval of the new rule adopted by the FCC on December 18,

2007, common ownership of a full-service broadcast station

and a daily newspaper is prohibited when the broadcast

station’s service contour encompasses the newspaper’s city of

publication. Combinations that pre-date 1975 are

grandfathered,12 and companies may seek waiver of the rule.

Television-Radio Cross-Ownership: An entity may own up

to 2 television stations (provided it is permitted under the

Local Television Multiple Ownership rule) and up to 6 radio

stations (provided it is permitted under the Local Radio

Multiple Ownership rule) in a market where at least 20

independently owned media voices would remain post-merger.

47 C.F.R. 73.3555 n. 7.

As explained below, the Third Circuit, in rehearing, lifted its stay of the portion of the

FCC rules that modified the methodology used to define local radio markets, and thus the

current rule language, 47 C.F.R. 73,3555(a), is as it appears in Appendix H of the Report

and Order. The statutory language and FCC rule also provide an exception to these

ownership limits whereby the FCC may permit a person or entity to own, operate, or control,

or have a cognizable interest in radio broadcast stations that exceed the limit if that will

result in an increase in the number of radio broadcast stations in operation.

47 C.F.R. 73.3555(d) as it existed prior to the FCC’s June 2, 2003 Order.

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Where entities may own a combination of 2 television stations

and 6 radio stations, the rule allows an entity alternatively to

own 1 television station and 7 radio stations. An entity may

own up to 2 television stations (as permitted under the Local

Television Multiple Ownership rule) and up to 4 radio stations

(as permitted under the Local Radio Multiple Ownership rule)

in markets where, post-merger, at least 10 independently

owned media voices would remain. A combination of 1

television station and 1 radio station is allowed regardless of

the number of voices remaining in the market.13

Although the Third Circuit remanded the FCC’s specific cross-media

ownership, local television multiple ownership, and local radio multiple ownership

rules, and extended the stay, it upheld many of the FCC’s findings, including

not to retain a ban on newspaper-broadcast cross-ownership;14

to retain some limits on common ownership of different-type media

outlets;15

to retain the restriction on owning more than one top-four television

station in a market;16

the commission’s new definition of local radio markets;17

to include non-commercial stations in determining the size of local

radio markets;18

the commission’s restriction on the transfer of radio stations;19

47 C.F.R. 73.3555(c) as it existed prior to the FCC’s June 2, 2003 Order. For this rule,

media “voices” include independently owned and operating full-power broadcast

television stations, broadcast radio stations, English-language newspapers (published

at least four times a week), one cable system located in the market under scrutiny,

plus any independently owned out-of-market broadcast radio stations with a

minimum share as reported by Arbitron.

Prometheus, 373 F.3d at 397-399.

Ibid., at 399-401.

Ibid., at 418.

Ibid., at 425.

Ibid., at 426.

Ibid., at 426-428.

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to count radio stations brokered under a Joint Sales Agreement

toward the brokering station’s permissible ownership totals;20 and

to use numerical limits in its ownership rules (though not the

specific numerical limits adopted by the commission).21

Since the Third Circuit had upheld the FCC’s findings as they applied to the

methodology underlying the revised local radio ownership rules, the FCC filed a

narrowly focused petition for panel rehearing, asking the Third Circuit to reconsider

its extension of the stay of the revised Local Radio Multiple Ownership rule, arguing

that the “stay prevents the Commission from implementing regulatory changes that

this Court has upheld as a reasonable exercise of the Commission’s public interest

authority.”22 The Third Circuit approved a partial lifting of the stay:

Inasmuch as we held in our Opinion and Judgment of June 24, 2004, that certain

changes to the local radio ownership rule proposed by the Federal

Communications Commission (the “Commission”) in its Report and Order and

Notice of Proposed Rulemaking, 18 F.C.C.R. 13,620 (2003) — specifically,

using Arbitron Metro markets to define local markets, including noncommercial

stations in determining the size of a market, attributing stations whose

advertising is brokered under a Joint Sales Agreement to a brokering station’s

permissible ownership totals, and imposing a transfer restriction (collectively, the

“Approved Changes”) — are constitutional and/or consistent with the

Administrative Procedure Act, 5 U.S.C. Section 706(2), and Section 202(h) of

the Telecommunications Act of 1996, the foregoing motion by the Commission

is granted to the extent that it requests a partial lifting of the stay to allow the

Approved Changes to go into effect. All other aspects of the Commission’s

motion, including matters pertaining to numerical limits on local radio ownership

and AM “subcap” are hereby denied.23

Several media companies and media associations (The Tribune Company, Fox,

NBC Universal, Viacom, the National Association of Broadcasters, and the

Newspaper Association of America) formally sought appeals of the Third Circuit

decision at the Supreme Court.24 As part of their legal challenge to the Prometheus

decision, they challenged the continued viability of the spectrum scarcity rationale

that the Supreme Court relied upon in its 1969 Red Lion decision25 permitting

government regulation of broadcasters. (That Supreme Court decision permits

regulations that impose minimally intrusive restrictions on broadcasters’ First

Amendment rights on the grounds that the airwaves, which are public assets, are

Ibid., at 429-430.

Ibid., at 426-433.

Prometheus Radio Project v. Federal Communications Commission, Petition of the FCC

and the United States for Panel Rehearing, August 6, 2004.

USCA3 Docket Sheet for 03-3388, Prometheus Radio v. FCC, 9/3/04.

See Tania Panczyk-Collins, “Media Group Asks Supreme Court to Hear Ownership

Case,” Communications Daily, January 31, 2005, at pp. 4-5, and also Communications

Daily, February 2, 2005, at p. 8.

Red Lion Broadcasting Co, Inc. v. Federal Communications Commission, Supreme Court

of the United States, 395 U.S. 367, decided June 9, 1969.

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scarce and thus licensees can be subject to requirements to serve in “the public

interest.”) The media companies claimed that the FCC acknowledges that the prior

cross-ownership rule and local ownership restrictions inhibit diversity of viewpoints,

that the FCC’s order confirms that broadcast channels are no longer uniquely

important sources of information, and that actions of Congress and the FCC signal

that industry conditions have changed sufficiently to justify reconsideration of

whether broadcast speech deserves lesser First Amendment protection.26 On June 13,

2005, the Supreme Court declined to consider the appeals.

The FCC adopted on June 21, 2006, and released on July 24, 2006, a Further

Notice of Proposed Rulemaking that sought comment on how to address the issues

raised by the Third Circuit’s Prometheus decision.27 The Further Notice also initiated

a comprehensive quadrennial review of all of its media ownership rules, as required

by statute.28 The Further Notice did not propose any specific rules; rather, the FCC

sought comment on the following rules: the local television ownership limit, the local

radio ownership limit, the newspaper-broadcast cross-ownership ban, the radiotelevision cross-ownership limit, the dual network ban, and the UHF discount on the

national television ownership limit. Two of the commissioners dissented in part

from the order adopting the Further Notice,29 criticizing the absence of specific

proposed rules and the lack of discussion of proposals to foster minority ownership.30

On November 22, 2006, the FCC announced that it had commissioned (or had

begun conducting internally) 10 economic studies as part of its review of the media

Tania Panczyk-Collins, “Media Group Asks Supreme Court to Hear Ownership Case,”

Communications Daily, January 31, 2005, at p. 4.

In the Matter of 2006 Quadrennial Review — Review of the Commission’s Broadcast

Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the

Telecommunications Act of 1996; 2002 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; Cross-Ownership of Broadcast Stations and

Newspapers; Rules and Policies Concerning Multiple Ownership of Radio Broadcast

Stations in Local Markets; Definition of Radio Markets, MB Dockets No. 06-121 and 02277 and MM Dockets No. 01-235, 01-317, and 00-244, Further Notice of Proposed

Rulemaking, adopted June 21, 2006, and released July 24, 2006.

Section 629 of the FY2004 Consolidated Appropriations Act, P.L. 108-199, modifies the

Communications Act to instruct the FCC to perform a quadrennial review of all of its media

ownership rules, except the National Television Ownership rule.

“Statement of Commissioner Michael J. Copps, Concurring in Part, Dissenting in Part,”

June 21, 2006, available at [http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC266033A3.pdf], viewed on November 6, 27, 2007, and “Statement of Commissioner

Jonathan S. Adelstein, Concurring in Part, Dissenting in Part,” June 21, 2006, available at

[http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-266033A4.pdf], viewed on

November 6, 2007.

In footnote 59 of the Prometheus decision, the Third Circuit had instructed the FCC to

address in its rulemaking process proposals for advancing minority and disadvantaged

businesses and for promoting diversity in broadcasting that the Minority Media and

Telecommunications Council (MMTC) had submitted in the proceeding in 2003.

(Prometheus, 373 F.3d at 421.)

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ownership rules.31 The two commissioners who had dissented in part from the order

adopting the Further Notice each issued statements raising questions about the

transparency of the process by which the contractors were selected and the peer

review process that would be used.32 On July 31, 2007, the FCC released the 10

studies, making them available on its website, and giving the public 60 days to

submit comments (and then 15 additional days to submit reply comments).33 These

studies consist of hundred of pages of text and very large data sets. The studies then

underwent a peer review process that is required by the Office of Management and

Budget (OMB) of all influential scientific information on which a federal agency

relies in a rulemaking proceeding.34 The two dissenting commissioners issued a joint

“FCC Names Economic Studies to be Conducted as Part of Media Ownership Rules

Review,” FCC Public Notice, November 22, 2006, available at [http://hraunfoss.fcc.gov/

edocs_public/attachmatch/DOC-268606A1.pdf], viewed on November 6, 2007. The ten

studies are: (1) “How People Get News and Information,” by Nielsen Research; (2)

“Ownership Structure and Robustness of Media,” by C. Anthony Bush, Kiran Duwadi, Scott

Roberts, and Andrew Wise, of the FCC; (3) “Effects of Ownership Structure and Robustness

on the Quantity and Quality of TV Programming,” by Gregory Crawford of the University

of Arizona; (4) “News Operations,” by Kenneth Lynch, Daniel Shiman, and Craig Stroup

of the FCC; (5) “Station Ownership and Programming in Radio,” by Tasneem Chipty of

CRAI; (6) “News Coverage of Cross-Owned Newspapers and Television Stations,” by

Jeffrey Milyo of the University of Missouri; (7) “Minority Ownership,” by Arie Bersteanu

and Paul Ellickson of Duke University; (8) “Minority Ownership,” by Allen Hammond of

Santa Clara University and Barbara O’Connor of the California State University at

Sacramento; (9) “Vertical Integration,” by Austin Goolsbee of the University of Chicago;

and (10) “Radio Industry Review: Trends in Ownership, Format, and Finance,” by George

Williams of the FCC.

“Commissioner Michael J. Copps Comments on the FCC’s Media Ownership Studies,”

FCC News, November 22, 2006, available at [http://hraunfoss.fcc.gov/edocs_public/

attachmatch/DOC-268611A1.pdf], viewed on November 6, 2007, and “Commissioner

Jonathan S. Adelstein Says Public Notice on Media Ownership Economic Studies is ‘Scant’

and ‘Undermines Public Confidence’,” FCC News, November 22, 2006, available at

[http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-268616A1.pdf], viewed on

November 7, 2007.

“FCC Seeks Comment on Research Studies on Media Ownership,” MB Docket No. 06121, FCC Public Notice, DA-07-3470, released July 31, 2007, available at [http://fjallfoss.

fcc.gov/edocs_public/attachmatch/DA-07-3470A1.pdf], viewed on November 6, 2007. The

studies were made available at [http://www.fcc.gov/ownership/studies.html]. Subsequently,

the FCC released a public notice extending the comment period to October 22, 2007, and

the reply comment period to November 1, 2007. See, “Media Bureau Extends Filing

Deadlines for Comments on Media Ownership Studies,” MB Docket No. 06-121, FCC

Public Notice, DA-07-4097, released September 28, 2007, available at

[http://fjallfoss.fcc.gov/edocs_public/attachmatch/DA-07-4097A1.pdf], viewed on

November 6, 2007.

The OMB requirement appears in the OMB Peer Review Bulletin, 70 Fed. Reg. 2664.

In these peer reviews, the reviewer is instructed to evaluate and comment on the theoretical

and empirical merit of the information, by considering, among other things: (1) whether the

methodology and assumptions employed are reasonable and technically correct; (2) whether

the methodology and assumptions are consistent with accepted economic theory and

econometric practices; (3) whether the data used are reasonable and of sufficient quality for

(continued...)

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statement criticizing the shortness of the public comment period and raising

questions about the peer review process.35 On September 5, 2007, the FCC released

the peer reviews of these studies.36

On August 1, 2007, the FCC adopted and released a Second Further Notice of

Proposed Rulemaking in its media ownership proceeding,37 setting forth in detail and

seeking public comment on 34 proposals for increasing minority ownership of

broadcast stations. The Commission took this action in response to a motion filed

on August 23, 2006 by the Diversity and Competition Supporters (a coalition of

organizations representing minority and women’s communities that is often referred

to in short-hand as MMTC, for one of the member organizations, the Minority Media

and Telecommunications Council) to withdraw the commission’s initial Further

Notice of Proposed Rulemaking. The MMTC motion claimed the Further Notice did

not meet one of the requirements of the Prometheus decision because it failed to

identify and describe minority ownership proposals that MMTC had submitted in the

proceeding in 2003.38 Footnote 59 of the Prometheus decision stated:

We also note that the Commission deferred consideration of the MMTC’s other

proposals for advancing minority and disadvantaged businesses and for

(...continued)

purposes of the analysis; and (4) whether the conclusions, if any, follow from the analysis.

The reviewer is instructed not to provide advice on policy or to evaluate the policy

implications of the study. The peer review is not anonymous; the reviewer will be identified

and the review will be placed in the public record. Also, the federal agency must assess

whether potential peer reviewers have any potential conflicts of interest.

“Joint Statement by FCC Commissioners Michael J. Copps and Jonathan S. Adelstein on

Release of Media Ownership Studies,” FCC News, released July 31, 2007, available at

[http://fjallfoss.fcc.gov/edocs_public/attachmatch/DOC-275674A1.pdf], viewed on

November 6, 2007.

The peer reviews are available at [http://www.fcc.gov/mb/peer_review/peerreview.html],

viewed on November 6, 2007.

In the Matter of 2006 Quadrennial Regulatory Review — Review of the Commission’s

Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the

Telecommunications Act of 1996; 2002 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; Cross-Ownership of Broadcast Stations and

Newspapers; Rules and Policies Concerning Multiple Ownership of Radio Broadcast

Stations in Local Markets; Definition of Radio Markets; Ways to Further Section 257

Mandate and to Build on Earlier Studies, MB Dockets Nos. 06-121, 02-277, and 04-228 and

MM Docket Nos. 01-235, 01-317, and 00-244, Second Further Notice of Proposed Rule

Making, adopted and released August 1, 2007.

As part of its review of the local television rule, in its 2003 order the FCC had repealed

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. In its

Prometheus decision, the Third Circuit found that the FCC’s repeal of the FSSR without any

discussion of the effect of its decision on minority television station ownership, “amounts

to arbitrary and capricious rulemaking,” and remanded the decision. (Prometheus, 373 F.3d

at 421.)

CRS-10

promoting diversity in broadcasting.... The Commission’s rulemaking process in

response to our remand order should address these proposals at the same time.

The two commissioners who had earlier dissented in part once again dissented in

part, claiming that the 60 day comment period was too short.39

On October 22, 2007, Consumers Union, Consumer Federation of America, and

Free Press (Consumer Commenters) submitted to the FCC very detailed comments

on the 10 FCC-commissioned media ownership studies.40 The Consumer

Commenters identify a number of alleged specification errors — some raised by the

peer reviewers, some by the Consumer Commenters themselves — in the major

statistical studies commissioned by the FCC, and then present statistical results from

re-running the models in those studies, applying the same empirical data to models

revised to correct for the specification errors. These revised models yield very

different statistical results that, according to the Consumer Commenters, demonstrate

that loosening the media ownership rules would not be in the public interest.41 The

10 FCC-commissioned studies, the peer reviews, and the studies submitted by the

Consumer Commenters are discussed in detail in CRS Report RL34271, The FCC’s

“Joint Statement of Commissioner Michael J. Copps and Commissioner Jonathan A.

Adelstein Approving in Part, Dissenting in Part,” FCC-07-136, released August 1, 2007,

available at [http://fjallfoss.fcc.gov/edocs_public/attachmatch/FCC-07-136A2.pdf], viewed

on November 6, 2007.

In the Matter of 2006 Quadrennial Regulatory Review — Review of the Commission’s

Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the

Telecommunications Act of 1996; 2002 Biennial Regulatory Review; Cross-Ownership of

Broadcast Stations and Newspapers; Rules and Policies Concerning Multiple Ownership

of Radio Broadcast Stations in Local Markets; Definition of Radio Markets; Ways to

Further Section 257 Mandate and to Build on Earlier Studies, MB Docket Nos. 06-121, 02277, and 04-228 and MM Docket Nos. 01-235, 01-317, and 00-244, Further Comments of

Consumers Union, Consumer Federation of America, and Free Press, October 22, 2007.

The Consumer Commenters’ submission also includes a weblink [http://www.fcc.gov/

ownership/materials/newly-released/newspaperbroadcast061506.pdf] to a 27-page internal

FCC memorandum by then-FCC chief economist Leslie M. Marx, dated June 15, 2006 and

entitled “Summary of Ideas on Newspaper-Broadcast Cross-Ownership,” which they

obtained through a freedom of information act request and which they allege demonstrates

that the FCC’s process for commissioning media ownership studies was biased. The

opening sentence of the memorandum states: “This document is an attempt to share some

thoughts and ideas I have about how the FCC can approach relaxing newspaper-broadcast

cross-ownership restrictions.” At p. 14, the memorandum states: “In this section I discuss

some studies that might provide valuable inputs to support a relaxation of newspaperbroadcast cross-ownership limits.” (footnote omitted). Although Ms. Marx was no longer

the chief economist when the FCC announced that it had commissioned the 10 media

ownership studies (an August 21, 2006 FCC News Release announced that Michelle P.

Connolly had been named FCC chief economist), several of the studies suggested in Ms.

Marx’s memorandum were among those later commissioned by the FCC. The memorandum

lists a number of media ownership-related hypotheses that are of interest to policy makers

and thus might merit analysis, but it also lists for each a finding that would support

loosening the cross-ownership limits, thus suggesting a preferred outcome. The

memorandum also provides a list of possible authors for the studies.

CRS-11

10 Commissioned Economic Research Studies on Media Ownership: Policy

Implications, by Charles B. Goldfarb.

As explained earlier, on December 18, 2007, the FCC adopted an order, with

Commissioners Copps and Adelstein dissenting, that modified the broadcast crossownership rule,42 making it presumptively in the public interest, in the 20 largest

local markets (DMAs), for a major daily newspaper to own a single television or

radio station, so long as the television station is not among the four highest rated

stations in the market and after the transaction there are at least eight independently

owned and operating major media voices. With several exceptions, in all other

situations any newspaper-broadcast cross-ownership would be presumptively not in

the public interest. The new rule, which is likely to be appealed both by parties

opposing any loosening of the FCC’s newspaper-broadcast cross-ownership rule and

parties seeking greater loosening of the rule, cannot take effect until approved by the

Third Circuit. It is likely that an affected party that favors the rule change will

petition the court to end the stay and allow the rule to go in effect pending court

review.

On December 17, 2007, a bipartisan group of 25 senators had sent a letter to

FCC Chairman Martin indicating that if he proceeded with the December 18, 2007,

vote on the new newspaper-broadcast cross-ownership rule, they would introduce a

Joint Resolution of Disapproval to revoke the rule.43 It is expected that a similar

resolution will be introduced in the House.

On November 13, 2007, Representative Stearns had introduced H.R. 4167,

which would instruct the FCC to eliminate the newspaper-broadcast radio crossownership restriction.

On December 4, 2007, the Senate Commerce, Science, and Transportation

Committee had approved by unanimous consent S. 2332 (which had been introduced

by Senator Dorgan on November 8, 2007), which would modify Section 202 of the

1996 Telecommunications Act by adding three provisions that would (1) require the

FCC to publish in the Federal Register any proposal to modify, revise, or amend any

of its regulations related to broadcast ownership at least 90 days before voting to add

the proposal, providing at least 60 days for public comment and 30 days for reply

comments; (2) require the FCC to initiate, conduct, and complete a separate

rulemaking proceeding to promote the broadcast of local programming and content

by broadcasters, including radio and television broadcast stations, and newspapers,

“FCC Adopts Revision to Newspaper/Broadcast Cross-Ownership Rule,” FCC News

Release, December 18, 2007, available at [http://hraunfoss.fcc.gov/edocs_public/

attachmatch/DOC-278932A1.pdf], viewed on December 20, 2007. The text of the order has

not yet been released. “Statement of Commissioner Michael J. Copps, Dissenting,”

December 18, 2007, is available at [http://hraunfoss.fcc.gov/docs_public/attachmatch/DOC278932A3.pdf], viewed on December 20, 2007. “Statement of Commissioner Jonathan S.

Adelstein, Dissenting,” December 18, 2007, is available at [http://hraunfoss.fcc.gov/

docs_public/attachmatch/DOC-278932A3.pdf], viewed on December 20, 2007.

See, for example, Cheryl Bolen, “Quarter of Senate Writes FCC Threatening to Revoke

Media Rule,” BNA, Inc. Daily Report for Executives, December 18, 2007.

CRS-12

before voting on any change in the broadcast and newspaper ownership rules, and

require the FCC to conduct a study to determine the overall impact of television

station duopolies and newspaper-broadcast cross-ownership on the quantity and

quality of local news, public affairs, local news media jobs, and local cultural

programming at the market level; and (3) establish an independent Panel on Women

and Minority Ownership of Broadcast Media to make recommendations to the FCC

for specific Commission rules to increase the representation of women and minorities

in the ownership of broadcast media, and require the FCC to conduct a full and

accurate census of the race and gender of individuals holding a controlling interest

in broadcast station licenses, provide the results of the census to the Panel, study the

impact of media market concentration on the representation of women and minorities

in the ownership of broadcast media, and act on the Panel’s recommendations before

voting on any changes in its broadcast and newspaper ownership rules. The first

provision would apply to any rule modification, revision, or amendment made after

October 1, 2007. On December 18, 2007, Representative Inslee introduced H.R.

4835, which has the same provisions as S. 2332.

On December 18, 2007, the FCC adopted a Report on Broadcast Localism and

Notice of Proposed Rulemaking44 that reached tentative conclusions regarding three

proposals for which it sought comment:

Qualified low-power television stations should be granted Class A

status, which requires them to provide three hours per week of

locally produced programming;

Licensees should establish permanent advisory boards (including

representatives of underserved community segments) in each station

community of license with which to consult periodically on

community needs and issues; and

The Commission should adopt renewal application processing

guidelines that will ensure that all broadcasters provide some locally

oriented programming.

Commissioners Copps and Adelstein dissented in part, criticizing the Commission

for failing to adopt final rules to foster localism.45

“FCC Adopts Localism Proposals to Ensure Programming is Responsive to Needs of

Local Communities,” FCC News Release, December 18, 2007, available at [http://hraunfoss.

fcc.gov/edocs_public/attachmatch/DOC-279043A1.pdf], viewed on December 20, 2007.

The text of the Report and the Notice of Proposed Rulemaking are not yet available.

See “Statement of Commissioner Michael J. Copps, Concur in Part, Dissent in Part,”

December 18, 2007, available at [http://hraunfoss. fcc.gov/edocs_public/attachmatch/DOC279043A3.pdf], viewed on December 20, 2007 and “Statement of Commissioner Jonathan

S. Adelstein, Concur in Part, Dissent in Part,” December 18, 2007, available at

[http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-279043A4.pdf], viewed on

December 20, 2007.

CRS-13

On December 18, 2007, the FCC also adopted an order that implemented 12 of

the 34 proposals to foster minority ownership of broadcast stations that the

Commission had put out for comment in its August 1, 2007, Second Further Notice

of Proposed Rulemaking,46 although eligibility for these programs was not limited

to minority or socially and economically disadvantaged businesses, but rather was

available to all small businesses.47 A companion Notice of Proposed Rulemaking

sought comment on eligibility criteria and on how best to improve FCC collection

of data regarding the gender, race, and ethnicity of broadcast licensees.

In the interim, the commission continues to consider waiver requests from

media companies that wish to do transactions that do not meet the rules currently in

place48 and to make determinations on requests for the extension of temporary

waivers that have expired.

On November 30, 2007, the FCC issued a Memorandum Opinion and Order,

with two commissioners dissenting,49 granting the applications to transfer control of

Tribune Company and its licensee subsidiaries from the existing shareholders to Sam

Zell, the Tribune Employee Stock Ownership Plan, and EGI-TRB, LLC. The

transferees had requested temporary, but indefinite, waiver of the newspaperbroadcast cross-ownership rule to permit common ownership pending the outcome

of the Media Ownership proceeding of: KTLA(TV), Los Angeles, and the Los

Angeles Times; WPIX(TV), New York, and Newsday; WGN-TV and WGN(AM),

Chicago, and the Chicago Tribune; WSFL(TV), Miami, and the Ft. Lauderdale South

Florida Sun-Sentinel; and WTIC(TV), Hartford, WTTX(Waterbury), and the

Hartford Courier. The FCC denied the requested waivers in all the markets except

Chicago, requiring the Transferees to come into compliance with newspaper46

“FCC Adopts Rules to Promote Diversification of Broadcast Ownership,” FCC News

Release, December 18, 2007, available at [http://hraunfoss.fcc.gov/edocs_public/

attachmatch/DOC-279035A1.pdf], viewed on December 18, 2007. The text of the order and

accompanying Notice of Proposed Rulemaking is not yet available.

Commissioners Copps and Adelstein dissented in part from the order because they were

concerned that people of color and women would not benefit appreciably from, and might

be harmed by, these programs if eligibility is not specifically targeted to socially and

economically disadvantaged businesses. See “Statement of Commissioner Michael J.

Copps, Concur in Part, Dissent in Part,” December 18, 2007, available at

[http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-279035A3.pdf], viewed on

December 20, 2007, and “Statement of Commissioner Jonathan S. Adelstein, Concur in Part,

Dissent in Part,” December 18, 2007, available at [http://hraunfoss.fcc.gov/edocs_public/

attachmatch/DOC-279035A4.pdf], viewed on December 18, 2007.

See, for example, Brigitte Greenberg and Tania Panczyk-Collins, “Ferree Sees Issues That

Could Interest the Supreme Court,” Communications Daily, July 1, 2004, at pp. 1-4.

In the Matter of Shareholders of Tribune Company, Transferors and Sam Zell, et al.,

Transferees, for Consent to the Transfer of Control of the Tribune Company and

Applications for the Renewal of License of KTLA(TV), Los Angeles, California, et al., MB

Docket No. 07-119 and File Nos. BRCT-20060811ASH, et al., Memorandum Opinion and

Order, adopted and released November 30, 2007. The Memorandum Opinion and Order and

the statements of four commissioners, including the two dissenting commissioners, is

available at [http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-07-211A1.pdf], viewed

on December 10, 2007.

CRS-14

broadcast cross-ownership rule in all the markets except Chicago within six months.

However, the order noted that the commission was scheduled to vote on a revised

newspaper-broadcast cross-ownership rule at its December 18, 2007, meeting, and

therefore took the following three steps:

The six-month clock for coming into compliance with the

newspaper-broadcast cross-ownership rule in New York, Los

Angeles, Miami, and Hartford will not begin running until January

1, 2008.

Should the FCC adopt a revised newspaper-broadcast crossownership rule before January 1, 2008, that six-month clock will not

begin to run. Rather, the applicants will receive a two-year waiver

of the rule for the New York, Los Angeles, Miami, and Hartford

markets.

Should the applicants choose to challenge the denial of waivers in

court, they are granted a temporary waiver of the newspaperbroadcast cross-ownership rule for the New York, Los Angeles,

Miami, and Hartford markets that will last either for two years or

until six months after the conclusion of the litigation, whichever is

longer.

The applicants did file an appeal on December 3, 2007, of the denial of its request for

indefinite waivers in the U.S. Court of Appeals court.50

In dissenting from the FCC decision, Commissioner Michael Copps stated:

If the majority simply granted a two-year waiver to Tribune — which would have

been the straightforward thing to do — Tribune would have been unable to go

to court because a party cannot file an appeal if their waiver request is granted.

So what this Order do? It denies the waiver request but offers an automatic (and

unprecedented) waiver extension as soon as Tribune runs to the courthouse door,

lasting for two years or until the litigation concludes — whichever is longer.

Presto! Tribune gets at least a two-year waiver plus the ability to go to court

immediately and see if they can get the entire rule thrown out. And most

important, Tribune is not required to seek a hearing before the very court which

expressly retained jurisdiction when it remanded the general newspaperbroadcast cross-ownership ban. Instead, Tribune can end run the Third Circuit

and petition for review before what it may hope is a more sympathetic court.

(emphasis in original.)51

Although the commission continues to consider waiver applications and extend

existing permanent or temporary waivers, the Third Circuit’s remand and extended

See, for example, “Tribune appeals FCC ruling,” Hollywood Reporter, December 7,

2007.

Ibid., Dissenting Statement of Commissioner Michael J. Copps.

CRS-15

stay of the FCC rules nonetheless appear to have retarded merger activity in the

media sector until final rules are approved by the courts.52

To date, H.R. 4167, S. 2332, and H.R. 4835, discussed earlier, have been the

only legislation introduced in the 110th Congress that directly address the FCC’s

media ownership rules. But the three major policy goals of competition, diversity,

and localism that the media ownership rules are intended to foster might be affected

by other legislative proposals. For example, H.R. 600 and H.R. 3003 each would

amend the Internal Revenue Code of 1986 to provide for a deferral of tax on capital

gains from the sale of telecommunications businesses in specific circumstances or

to create a tax credit and other incentives with the goal of promoting diversity of

ownership in telecommunications businesses. Also, S. 1675 and H.R. 2802 would

eliminate existing statutory minimum distance separation requirements for low power

FM radio stations, thereby significantly increasing the number of such stations that

could broadcast programming. H.R. 983 would prohibit satellite radio providers

from providing services that are locally differentiated or that result in programming

being delivered to consumers in one geographic market that is different from the

programming that is delivered to consumers in any other geographic market.

Underlying Issues:

Standard of Review and Bright Line Tests

In 2001-2003, the commission had to revisit several of its broadcast ownership

rules as a result of rulings by the U.S. Court of Appeals for the District of Columbia

Circuit (“D.C. Circuit”) that the commission had failed to provide sufficient

justification for specific thresholds incorporated into its National Television

Ownership and Local Television Multiple Ownership rules.53 In addition, pursuant

to Section 202(h) of the 1996 Act, the FCC had to conduct a biennial review of all

of its broadcast ownership rules and repeal or modify any regulation it determined

to be no longer in the public interest.54

For example, Mark Fratrik, vice president of BIA Financial Network, reportedly stated

that “Until the ownership rules are finally resolved, television station sales activity will

continue to be weak.” See Communications Daily, August 18, 2004, at pp. 10-11. More

recently, an analyst for Deutsche Bank reportedly has claimed that the Hearst Corp.’s recent

decision to take Hearst-Argyle private may have been motivated by uncertainty about its

ability to obtain regulatory approval for the purchase of broadcast stations that would create

duopolies in local markets. See Josh Wein, “Ownership Rules May Have Spurred Hearst

Bid for TV Group,” Communications Daily, August 29, 2007, at pp. 5-6.

Fox Television Stations, Inc. v. Federal Communications Commission, 280 F.3d 1027,

1044 (D.C. Cir. 2002) (“Fox Television”), rehearing granted, 293 F.3d (D.C. Cir. 2002)

(“Fox Television Re-Hearing”) (addressing the National Television Ownership rule) and

Sinclair Broadcast Group, Inc. v. Federal Communications Commission, 284 F.3d 148

(D.C. Circuit) (“Sinclair”) (addressing the Local Television Ownership rule).

The 1996 Act, § 202(h), as in effect at the time the FCC undertook its rulemaking, stated:

“The Commission shall review its rules adopted pursuant to this section and all of its

ownership rules biennially as part of its regulatory reform review under section 11 of the

(continued...)

CRS-16

The FCC’s 2002 Biennial Review was initiated on September 12, 2002;55 review

of the commission’s broadcast-newspaper cross-ownership rule and waiver policy

was initiated on September 13, 2001;56 and review of the commission’s local radio

ownership rule and radio market definition rule was initiated on November 8, 2001.57

The FCC sought comment on whether each specific rule continued to serve the

commission’s goals of diversity, competition, and localism — and if the rule served

some purposes while disserving others, whether the balance of the effects argued for

maintaining, modifying, or eliminating the rule.58

In its rulemaking, the commission raised two fundamental administrative issues

that have potentially significant policy implications. First, what is the relevant

standard for reviewing existing ownership rules? And second, what are the

advantages and disadvantages of using bright line tests vs. case-by-case evaluations

when reviewing proposed ownership transactions that would increase media

concentration?

Standard of Review

There has been some controversy surrounding the standard to be used in

reaching a public interest determination about the existing rules. The D.C. Circuit,

in Fox Television, stated “Section 202(h) carries with it a presumption in favor of

repealing or modifying the ownership rules.”59 Further, in response to petitions for

rehearing, the D.C. Circuit stated “[T]he statute is clear that a regulation should be

retained only insofar as it is necessary in, not merely consonant with, the public

interest.”60 But in the same decision, the D.C. Circuit stated that “[t]he Court’s

decision did not turn at all upon interpreting ‘necessary in the public interest’ to mean

more than ‘in the public interest’” and added “we think it better to leave unresolved

(...continued)

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.” Subsequently, Congress

passed the FY2004 Consolidated Appropriations Act (P.L. 108-199), Sec. 29 of which

changes the biennial review to a quadrennial review.

Notice of Proposed Rule Making, 2002 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, MB Docket No. 02-277, released September

23, 2002.

Order and Notice of Proposed Rule Making, Cross-Ownership of Broadcast Stations and

Newspapers, MM Docket No. 01-235 and Newspaper/Radio Cross-Ownership Waiver

Policy, MB Docket No. 96-197, released September 20, 2001.

Notice of Proposed Rule Making and Further Notice of Proposed Rule Making, Rules and

Policies Concerning Multiple Ownership of Radio Broadcast Stations in Local Market, MM

Docket No. 01-317 and Definition of Radio Markets, MM Docket No. 00-244, released

November 9, 2001.

See, e.g., 67 FR 65751, ¶ 75.

280 F.3d at 1048.

293 F.3d 539.

CRS-17

precisely what § 202(h) means when it instructs the Commission first to determine

whether a rule is ‘necessary in the public interest’ but then to ‘repeal or modify’ the

rule if it is simply ‘no longer in the public interest.’”61

In its June 2, 2003 Order, the commission majority took this language to mean

that the commission must overcome a high burden to retain any ownership rule.

Responding to a question from Senator McCain in the June 4, 2003 Senate

Commerce Committee hearing, then-chairman Powell stated that the D.C. Circuit

interprets the act to be “biased toward deregulation” and added that for the

commission to be in concert with that interpretation it “cannot re-regulate.” In

response to a question from Senator Dorgan, Commissioner Abernathy stated that the

D.C. Circuit’s interpretation directs the commission to minimize regulation as

competition develops, not to regulate to maximize the number of voices.

At that same hearing, all five commissioners and several Senators agreed that

it would be useful for Congress to provide both the Court and the commission

guidance on the standard to use for reviewing ownership rules and on whether the act

allows the commission to re-regulate broadcast ownership.62

Subsequently, in its Prometheus decision, the Third Circuit found:

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

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

1033; Sinclair, 284 F.3d at 159, we do not accept that the “repeal or modify in

the public interest” instruction must therefore operate only as a one-way ratchet,

i.e., the Commission can use the review process only to eliminate then-extant

regulations. For starters, this ignores both “modify” and the requirement that the

Commission act “in the public interest.” ...

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 to contravene “traditional

administrative law principles.”63

Bright Line Tests and the Diversity Index

In its June 2, 2003 Order, the FCC reviewed the advantages and disadvantages

of implementing bright line rules that incorporate specific limits on the number of

media outlets a company can own in a local market, without regard to the marketspecific share of the post-merger company vs. implementing flexible, yet quantifiable

293 F.3d 540.

In markup of two bills introduced during the 108th Congress, amendments were added

that would have clarified that in its periodic review of ownership rules, the FCC is

authorized to re-regulate as well as deregulate. But neither of those bills was enacted.

Prometheus, 373 F.3d at 394 (emphasis in original).

CRS-18

rules that would allow for case-by-case reviews that more readily take into account

market-specific or company-specific market shares and characteristics.

The Commission chose the bright line approach, in large part because it

identified regulatory certainty as an important policy goal in addition to the three

traditional goals of diversity, competition, and localism.64 The Commission stated:

Any benefit to precision of a case-by-case review is outweighed, in our view, by

the harm caused by a lack of regulatory certainty to the affected firms and to the

capital markets that fund the growth and innovation in the media industry.

Companies seeking to enter or exit the media market or seeking to grow larger

or smaller will all benefit from clear rules in making business plans and

investment decisions. Clear structural rules permit planning of financial

transactions, ease application processing, and minimize regulatory costs.65

It concluded that the adoption of bright line rules rather than case-by-case analysis

provides certainty to outcomes, conserves resources, reduces administrative delays,

lowers transactions costs, increases transparency of process, and ensures consistency

in decisions, all of which foster capital investment in broadcasting. The Commission

conceded that bright line rules preclude a certain amount of flexibility.

It is not clear how the commission would weigh the goal of regulatory certainty

vis-à-vis the traditional goals of diversity, competition, and localism, if the former

were to be in conflict with one or more of the latter. On one hand, the commission

stated that it would continue to have discretion to review particular cases, and would

have an obligation to take a hard look both at waiver requests (where a bright line

ownership limit would proscribe a particular transaction) and at petitions to deny a

license transfer (where a bright line ownership limit would allow a particular

transaction). At the same time, however, it suggested it would not look favorably

upon some petitions:

Bright lines provide the certainty and predictability needed for companies to

make business plans and for capital markets to make investments in the growth

and innovation in media markets. Conversely, case-by-case review of even

below-cap mergers on diversity grounds would lead to uncertainty and

undermine our efforts to encourage growth in broadcast services. Accordingly,

petitioners should not use the petition to deny process to relitigate the issues

resolved in this proceeding.66

Once it determined that a bright line test is preferable to case-by-case review,

the commission created bright line tests for its media cross-ownership and local

ownership rules by constructing a “Diversity Index” that it used as the basis for

Report and Order at ¶ 80-85. In the section on Policy Goals, there are four subsections

— Diversity, Competition, Localism, and Regulatory Certainty.

Ibid., at ¶ 83, footnote omitted.

Ibid., at ¶ 453, fn. 980.

CRS-19

setting the threshold ownership limits in its new rules.67 The Diversity Index is

intended to measure “viewpoint concentration” and thereby identify “at risk” markets

where limits on media ownership should be retained. It is constructed by

identifying all the local media voices in a market.

assigning a diversity “market share” to each of those voices by first

assigning different weights to each of the media categories based on

an Arbitron study of the sources consumers use for local news and

information — television, 33.8%; radio, 24.9%; newspapers, 28.8%,

and Internet, 12.5% — and then assigning each media outlet within

a media category the same weight (so that, for example, if there were

three radio stations in a market each one would be assigned a market

share of 8.3%). If a single entity owns more than one media outlet

in a market, for example if it owns both a television station and a

radio station, then its diversity market share would be the sum of the

two individual market shares.

adding up the sum of the squares of each of the diversity market

shares to yield a Diversity Index value.

A larger Diversity Index value denotes greater viewpoint concentration (less diversity

of viewpoints). The Commission calculated the Diversity Index for a sample of

large, medium, and small markets, as well as the Diversity Index for those markets

if certain mergers were allowed to occur (for example, a television station purchasing

a newspaper or a television station purchasing a radio station) to determine which

markets were “at risk” for significant loss of diversity if particular ownership

combinations were allowed. It concluded that in markets with three or fewer

television stations there was significant danger of loss of viewpoint diversity if a

television station were allowed to combine with a newspaper or a radio station and

therefore maintained the cross-ownership ban in those markets. It also concluded

that certain combinations would unduly harm viewpoint diversity in markets with

four to eight television stations and therefore set certain cross-ownership restrictions

in those markets as well.68 The Commission also used the Diversity Index as the

basis for setting its limits on local television multiple ownership.69

The Commission stated that its Diversity Index was “inspired by” the

Herfindahl-Hirschmann Index (HHI)70 used by the Department of Justice and Federal

Trade Commission to identify those proposed mergers that, based on historical

merger experience, might have a deleterious effect on competition in the affected

markets and therefore merit additional scrutiny. (Proposed mergers that would result

in markets exceeding the HHI threshold levels automatically trigger further review.)

Analogously, the Diversity Index is intended to identify those markets in which

Ibid., at ¶¶ 391-481.

These limits are discussed in the sections on the specific rules below.

See Report and Order at ¶¶ 192 ff.

Ibid., at ¶ 396.

CRS-20

additional concentration in media ownership might have a deleterious effect on

viewpoint diversity in the affected market. The Diversity Index, like the HHI, is

calculated by squaring the market shares of each market participant. But there are

three significant differences between these two indices and how they are applied.

First, the HHI is calculated using the actual market shares of the providers in the

market under consideration. If one or more providers have large market shares, the

HHI is very large because that market share figure is squared. In contrast, the

Diversity Index is calculated using the assumption that every provider within a media

category (for example, newspapers or television stations) has equal diversity market

share. Thus, in the New York City market the New York Times and the Nowy

Dziennik-Polish Daily News are accorded the same weight; the local CBS television

station and the Dutchess Community College television station (in suburban New

York) are accorded the same weight. On a purely mathematical basis, the assumption

of equal diversity impact minimizes the sum of the squared market shares, thus

minimizing the size of the Diversity Index and providing the lowest possible estimate

of viewpoint concentration.

Second, the antitrust agencies apply the HHI directly to the proposed merger,

on a case-by-case basis, to determine if further scrutiny is merited. The actual market

shares of each of the market participants are calculated — and squared — and the

resulting HHI is compared to threshold levels to determine if additional scrutiny is

required. In contrast, the FCC does not intend to apply the Diversity Index to any

specific proposed change in media ownership. Rather, it used the Diversity Index

(calculated for sample markets by assuming that each media outlet within the same

media category, for example, television stations, has the same “diversity market

share”) as the basis for setting the maximum number (or combination) of media

outlets that any provider could own in a market. A proposed media merger then

would be approved or disapproved based on the number (or combination) of media

outlets the post-merger company would have in the market, regardless of its actual

post-merger diversity market share.71

Third, the threshold levels of the HHI that trigger antitrust agency scrutiny were

based on many years of Department of Justice and Federal Trade Commission

experience reviewing mergers and a body of economic literature about the

relationship between market structure and market conduct. The FCC used those HHI

trigger points as the starting point for scrutinizing viewpoint concentration, but

without a historical record or body of literature demonstrating that the same trigger

points for economic concentration are applicable to viewpoint concentration.

In Prometheus, the Third Circuit did not question the concept of a Diversity

Index or of bright line rules. It did

As indicated earlier, although the commission maintained processes for firms that would

not meet a bright line test to seek a waiver and for interested parties that wanted to challenge

a merger that met a bright line test to file a petition to deny a license transfer, it stated that

it would not look favorably upon some petitions.

CRS-21

not object in principle to the Commission’s reliance on the Department of Justice

and Federal Trade Commission’s antitrust formula, the Herfindahl-Hirschmann

Index (“HHI”), as its starting point for measuring diversity in local markets.72

Moreover, the Third Circuit found that the commission’s decision to retain a

numerical limits approach to radio station ownership regulation is “rational and in

the public interest.”73 (In the case of the commission’s Local Cross-Ownership and

Local Television Multiple Ownership rules, it did not explicitly conclude that the

numerical limits approach was rational and in the public interest, but did frame its

remand of the numerical limits adopted in terms of the specific limits chosen, not of

the concept of numerical limits.)

However, the Third Circuit found that the FCC’s methodology for converting

the HHI to a measure for diversity in local markets was irrational and inconsistent.

Specifically, the Third Circuit found

[the Commission’s] decision to count the Internet as a source of viewpoint

diversity, while discounting cable, was not rational.74

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 type themselves, about which it said “we have no

reason to believe that all media are of equal importance.” Order ¶ 409; see also

Id. ¶ 445. (“Not all voices, however, speak with the same volume.”) It also

negates the Commission’s proffered rationale for using the HHI formula in the

first place — to allow it to measure the actual loss of diversity from

consolidation by taking into account the actual “diversity importance” of the

merging parties, something it could not do with a simple “voices” test. Id. ¶

396.75

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.... [T]he Cross-Media Limits allow some combinations where the

increases in Diversity Index scores were generally higher than for other

combinations that were not allowed.76

Prometheus, 373 F.3d at 402-403.

Ibid., at 431.

Ibid., at 405. The Court found it inconsistent that the FCC chose not to include cable

television as an alternative local news and information voice because most of that news was

actually provided by the local television broadcast stations carried on the cable systems and

yet chose to include the Internet as a significant alternative local news and information voice

despite the fact that most local news and information found on the Internet is on the websites

of the local television stations and newspapers. (Ibid., at 406.)

Ibid., at 408.

Ibid., at 411.

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In remanding the rules, the Court has given the commission the opportunity “to

justify or modify its approach to setting numerical limits.”77

Then-chairman Powell reportedly stated in an interview after the Court decision

was released,

It may not be possible to line-draw. Part of me says maybe the best answer is to

evaluate on a case-by-case basis. The commission may end up getting more

pushed in that direction.78

Given that the Third Circuit did not challenge the concept of using a Diversity Index

to set specific numerical limits, however, it is not apparent that the Third Circuit has

indicated any preference for a case-by-case approach rather than a bright line rule.

The task of implementing bright line rules that can withstand court review may

be challenging, but that may have more to do with the inherent complexity and

ambiguity of measuring viewpoint diversity consistently across heterogeneous

geographic markets than in constraints placed by the courts. As indicated above, the

Third Circuit identified three problems with the existing rules: (1) the inconsistent

treatment of cable television and the Internet; (2) the assignment of equal weight to

all media outlets within a media category rather than actual market shares; and (3)

allowing some combinations where the increases in Diversity Index scores were

generally higher than for other combinations that were not allowed. In remand, the

commission should be able to modify its Diversity Index to treat cable television and

the Internet the same or to provide empirical evidence for why they should be treated

differently. Similarly, the commission should be able to construct a Diversity Index

using actual market share data (though admittedly that would be a more difficult task

and might generate challenges to the market share figures). It may prove to be

difficult, however, to construct bright line media ownership limits — in terms of the

specific number of media outlets that a single entity could own in a market — that

all are based on a consistent application of the Diversity Index (the Third Circuit’s

third concern).

The Commission potentially could get around this problem in several ways,

though these might be construed as case-by-case solutions. For example, the

commission could set its bright line rules in terms of specific Diversity Index levels

(prohibiting any consolidation that would result in a Diversity Index that exceeded

a particular level) rather than using the Diversity Index to identify media ownership

levels that are bright lines. Alternatively, the commission could use the Diversity

Index to identify media ownership limits that are bright lines in the sense that they

trigger further scrutiny, but also explicitly identify further criteria that would be used

to evaluate proposed consolidations that yield Diversity Index levels within a range

of “potential concern.” For example, it might construct a multi-part rule that would

allow all proposed license transfers that would result in a market-wide Diversity

Index below 1000 and an increase in the Diversity Index of less than 200; trigger

Ibid., at 435.

Frank Ahrens, “Powell Calls Rejection of Media Rules a Disappointment,” Washington

Post, June 29, 2004, at pp. E1 and E5.

CRS-23

further scrutiny (of explicitly identified diversity criteria) for any proposed license

transfer that would result in a Diversity Index between 1000 and 1800 or result in an

increase in the Diversity Index of between 200 and 400; and prohibit any proposed

license transfer that would result in a Diversity Index that exceeded 1800 or that

increased by more than 400.79

Some aspects of the data collected and analyzed in the FCC’s 10 commissioned

media ownership studies suggest that it might be difficult to construct bright-line

numerical limits or that such numerical limits might not always be effective in

fostering diversity, localism, and competition.80

Specific Media Ownership Rules

National Television Ownership (% Cap)

Current Status.

In practice, the National Television Ownership rule applies to the major

broadcast networks, limiting them to ownership and operation of local broadcast

stations that reach, in total, the prescribed percentage of U.S. television households.

Section 629 of the FY2004 Consolidated Appropriations Act (P.L. 108-199, 118 Stat.

3 et seq.) instructs the FCC to modify its National Television Ownership rule by

setting a 39% cap,81 requires entities that exceed the 39% cap to divest as needed to

come into compliance within two years, prohibits the FCC from forbearing on

application of the 39% cap,82 requires the FCC to review its rules every four years

instead of two years, and excludes the 39% cap from that periodic review.

When calculating the total audience reached by an entity’s stations, the socalled “UHF discount” is applied — audiences of UHF stations are given only halfweight. For example, if an entity owns a UHF station in a market with an audience

The Diversity Index levels used in this example are intended to be descriptive only and

should not be construed as endorsement by CRS of any particular approach. If it were to

choose to construct a rule of this sort, the FCC would have to provide an empirical basis for

the threshold levels in its rules.

These are discussed in the section entitled “Public Policy Implications” in CRS Report

RL34271, The FCC’s 10 Commissioned Economic Research Studies on Media Ownership:

Policy Implications, by Charles B. Goldfarb.

By setting the cap at 39%, two entities — Viacom (CBS) and News Corp. (Fox) — that

had recently acquired stations that gave them total national audience reach of approximately

39% and 38% respectively did not have to divest themselves of any of their stations.

Section 10 of the Communication Act of 1934 (47 U.S.C. 160) allows the FCC to forbear

from applying some regulations and provisions to a telecommunications carrier,

telecommunications service, or class of telecommunications services under certain

conditions. It is unlikely that this section of the act would apply to broadcast stations, in any

case, because broadcasters are not telecommunications carriers and broadcasting is not a

telecommunications service.

CRS-24

of two million households, that audience would only be counted as one million

households when calculating the entity’s market reach.

The National Television Ownership rule and the UHF discount were not

immediately affected by the appeal of the FCC’s June 2, 2003 Order. In deciding that

appeal in Prometheus, the Third Circuit found that

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% are moot.83

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.84

But the UHF discount portion of the FCC’s June 2, 2003 National Television

Ownership rule included a section stating that when the transition to digital television

is complete, the UHF discount would be eliminated for those stations owned by the

four largest broadcast networks.85 This section presumably would be moot, based on

the following language in the Prometheus decision requiring the rules adopted in the

FCC’s biennial review proceeding to adhere to the 39% cap mandated by Congress:

because reducing or eliminating the discount for UHF station audiences would

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

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.86

At the same time, the Third Circuit, aware that the FCC has sought public comment

on its authority going forward to modify or eliminate the UHF discount through a

proceeding that is outside the proscribed quadrennial review,87 stated that

we do not intend our decision to foreclose the Commission’s consideration of its

regulation defining the UHF discount outside the context of Section 202(h) [the

mandatory quadrennial review of ownership rules that Congress has prohibited

the FCC from performing on the National Television Ownership rule].88

Prometheus, 373 F.3d at 396.

Ibid., at 396.

Report and Order at ¶ 591.

Prometheus, 373 F.3d at 396.

“Media Bureau Seeks Additional Comment on UHF Discount in Light of Recent

Legislation Affecting National Television Ownership Cap,” FCC Media Bureau Public

Notice, DA 04-320, MB Docket No. 02-277, February 19, 2004. The deadline for receipt

of reply comments was March 29, 2004; the commission has not yet taken any action

relating to issues for which comment was sought in the Public Notice.

Prometheus, 373 F.3d at 397.

CRS-25

Recent History.

The FCC has limited the national ownership reach of television broadcast

stations since 1941, modifying its rules several times since then. In 1984, the

commission repealed its rule, and instituted a six-year transitional ownership limit

of 12 television stations nationwide. In 1985, on reconsideration, the commission

affirmed its conclusion, but eliminated the sunset provision, retaining the 12-station

limit and, in addition, prohibiting an entity from reaching more than 25% of the

country’s television households through the stations it owned.89

In 1996, the commission adopted a 35% cap in response to the directive in the

1996 Telecommunications Act to raise the cap from 25% to 35% and to eliminate the

rule that any entity could not own more than 12 stations nationwide.90 The

Commission subsequently affirmed the 35% cap as part of the 1998 biennial review

of media ownership rules.91 This decision was challenged by several broadcast

networks and in 2002 the D.C. Circuit, in Fox Stations, remanded the rule to the

commission on the grounds that the commission had failed to provide a justification

for the 35% level.92

In its June 2, 2003 Order, the commission modified its National Television

Ownership rule93 by increasing the maximum aggregate national audience reach of

an entity owning multiple television stations from 35% to 45%. In addition to

increasing the cap, the commission retained the UHF discount. This discount

initially was implemented because UHF signals tend to have a smaller geographic

reach than, and are of inferior quality to, VHF signals. The Commission explicitly

retained the UHF discount, finding that UHF stations continue to face a technical and

market disadvantage.94

In the Report and Order, the commission determined that a national television

ownership rule is not relevant to its competition goal in the three relevant economic

markets it investigated: the national television advertising market, the national

program acquisition market, and the local video delivery market.95 But it determined

that a national television ownership rule is needed to protect localism by allowing a

body of network affiliates to negotiate collectively with the broadcast networks on

Report and Order at ¶ 502.

Implementation of Sections 202(c)(1) and 202(e) of the Telecommunications Act of 1996

(National Broadcast Television Ownership and Dual Network Operations), 11 FCC Rcd

12374 (1996).

1998 Biennial Review Report, 15 FCC Rcd 11072-75 ¶¶ 25-30.

See Fox Television Stations, Inc. v. Federal Communications Commission, 280 F.3rd

1027 (DC Cir. 2002).

47 C.F.R. 73.3555(d)(1), previously 47 C.F.R. 73.3555(e)(1).

Report and Order at ¶ 586.

Report and Order at ¶ 508-509.

CRS-26

network programming decisions.96 It found that the 35% level did not strike the right

balance of promoting localism and preserving free over-the-air television for several

reasons:

the 35% cap did not have any meaningful effect on the negotiating

power between individual networks and their affiliates with respect

to program-by-program preemption levels;97

the broadcast network owned-and-operated stations served their

local communities better with respect to local news production.

Network-owned stations aired more local news programming, and

higher quality local news programming, than did affiliates.98

the public interest is served by regulations that encourage the

networks to keep expensive programming, such as sports, on free,

over-the-air television.99

Opponents of increasing the cap from 35% to 45% had argued that:

locally owned and operated stations are more likely to be responsive

to local needs and interests than network owned and operated

stations (for example, they are more likely to preempt network

programming when non-network programming of special local

interest, such as a local sports event, is available or when network

programming does not meet community standards);

if there are fewer independently owned and operated affiliates, they

will be under much greater pressure from the networks not to preempt network programming even if programming of special local

interest is available;

Ibid., at ¶ 501.

One measure of the relative balance of negotiating strength between networks and

affiliates is the rate at which affiliates preempt network programming to show alternative

programming. The Commission found that there was no difference in the preemption rates

among those network affiliates affiliated to networks whose audience reach was less than

the 35 percent cap and those network affiliates affiliated to the two networks whose

audience reach exceeded the 35 percent cap. Report and Order at ¶ 558.

Report and Order at ¶ 575-576.

The broadcast networks had claimed in their comments that broadcast networks are less

profitable than local broadcast stations, so to help broadcast networks compete against cable

networks for rights to expensive sports programming (and keep such programming free to

the public), the networks must be able to own and operate more local broadcast stations.

The dissenting FCC commissioners questioned broadcast network needs given the record

$9.4 billion in advertising revenues for the 2003-2004 season, an increase of 13%, they

contracted for in the four-day “up-front” market in May of this year. (See Steve McClellan,

“Extraordinary: Fast and furious, network advertisers spend record $9.4B,” Broadcasting

& Cable, May 26, 2003.)

CRS-27

some broadcast networks that also own cable networks have refused

to give local cable systems permission to retransmit their local

broadcast stations’ signals unless they also carried the integrated

company’s cable networks; if these broadcast networks could own

and operate additional local broadcast stations, they could extend

this practice to those stations.

In its Report and Order, the commission did not provide quantitative analysis

in support of adoption of the 45% cap. It explained that the available data

demonstrated no difference in behavior between the two networks that reach just

under 40% of national television households and the other networks that reach fewer

than 35% of national television households. At the same time, the commission found

that preserving a balance of power between the broadcast television networks and

their affiliates serves local needs by ensuring that affiliates can play a meaningful role

in selecting programming suitable for their communities. The 45% cap thus

represented the balancing of competing interests.100 At the June 4, 2003 Senate

Commerce Committee hearing, Chairman Powell reflected that while the

commission believes its order provides a justification for the 45% cap, given the very

high standard set by the Court he could not have total confidence the commission’s

rule would survive judicial review and that if Congress believed a specific percentage

cap is “inviolate,” it should codify that percentage in the act.

Some parties have called for elimination of the UHF discount. They claim that

the UHF discount in effect raises the current cap to as high as 70% and if retained

while the cap was increased to 45% would raise the effective cap to as high as

90%.101 The provision in the Balanced Budget Act of 1997 relating to digital

television requires all analog television stations, both those on the VHF band and

those on the UHF band, to convert to digital transmission by December 31, 2006

unless certain conditions are not met. When the digital transition is complete, both

VHF and UHF stations will have the same transmission capabilities and therefore

UHF stations will no longer be at a disadvantage with respect to audience reach. The

Commission’s decision took this into account by ruling that when the transition to

digital television is complete, the UHF discount would be eliminated for the stations

owned by the four largest broadcast networks.102 It chose to retain the UHF discount

in other situations because it believes the discount could foster creation of additional

broadcast networks. But as mentioned above, although the Third Circuit’s

Prometheus decision maintained the UHF discount, it also did not foreclose the

commission from reviewing that discount outside the scope of the biennial review

of ownership rules.

100

Report and Order at ¶ 501.

101

The dissenting FCC commissioners stated that the commission’s new cross-ownership

and television ownership rules do not provide a 50% discount for UHF stations and that this

inconsistent weighting of UHF in different rules cannot be justified.

102

Report and Order at ¶ 591.

CRS-28

Dual Network Ownership

In its June 2, 2003 Order, the FCC retained the existing Dual Network

Ownership rule, which prohibits the four major networks — ABC, CBS, Fox, and

NBC — from merging with one another.103 The Commission found that the rule

continues to be necessary to promote competition in the national television

advertising and program acquisition markets, and that the rule promotes localism by

preserving the balance of negotiating power between networks and affiliates.

In 2001, as part of its previous biennial review of media ownership rules, the

FCC had modified this rule to allow the four major networks to own, operate,

maintain, or control broadcast networks other than the four majors. With this change,

Viacom, the owner of CBS, was allowed to purchase UPN, and NBC was able to

purchase Telemundo, the second largest Spanish-language network in the U.S.

At the June 4, 2003 Senate Commerce Committee hearing, Commissioner

Adelstein stated that while he supported retention of the prohibition on mergers

among the four major broadcast networks, he dissented from the rule because the

commission should have expanded it to provide a similar merger prohibition on

Spanish language broadcast networks, which are currently experiencing

consolidation.

Local Television Multiple Ownership

Current Status.

As a result of the Third Circuit’s Prometheus decision remanding and extending

its stay of the Local Television Multiple Ownership rule that the FCC adopted on

June 2, 2003, the rule currently in place is the one the FCC adopted in 1999,

sometimes referred to as the “TV duopoly” rule. Under this rule, an entity can own

two television stations in the same Designated Market Area (DMA) only if the

following requirements are met:

either the Grade B contours of the stations do not overlap,

or (a) at least one of the stations is not ranked among the four

highest-ranked stations in the DMA, and (b) at least eight

independently owned and operating commercial or non-commercial

full-power broadcast television stations would remain in the DMA

after the proposed combination were consummated.104 This second

option is sometimes referred to as the “top four ranked/eight voices

test.”

103

The rule “permits broadcast networks to provide multiple program streams (program

networks) simultaneously within local markets, and prohibits only a merger between or

among [the four major networks].” 67 FR 65751 at ¶ 156.

104

47 C.F.R. 73.3555(b); Local TV Ownership Report and Order, 14 FCC Rcd at 1290708, ¶ 8.

CRS-29

The rule also includes a standard for approving a waiver of the ownership limits

where a proposed combination involves at least one station that is failed, failing, or

unbuilt.105 For each type of waiver, the waiver applicant must demonstrate that the

“in-market” buyer is the only reasonably available entity willing and able to operate

the subject station, and that selling the station to an out-of-market buyer would result

in an artificially depressed price for the station.106 Any combination formed as a

result of a failed, failing, or unbuilt station waiver may be transferred together only

if the combination meets the Local Television Multiple Ownership rule or one of the

three waiver standards at the time of transfer.107

Recent History.

The FCC adopted a rule prohibiting common ownership of two television

stations with intersecting Grade B contours in 1964.

In the 1996

Telecommunications Act, Congress directed the commission to “conduct a

rulemaking proceeding to determine whether to retain, modify, or eliminate its

limitations on the number of television stations that a person or entity may own,

operate, or control, or have a cognizable interest in, within the same television

market.”108 In 1999, the commission performed a review and modified the rule,

creating the television duopoly rule that is in effect today. In 2002, that local

ownership rule was remanded to the commission by the D.C. Circuit,109 which ruled

that the commission failed to justify why it only included TV stations among the

voices in the voice test, excluding other media.

The FCC modified the rule in its June 2, 2003 Order, to set the following

ownership limits:110

In markets with five or more TV stations, a company may own two

TV stations, but only one of these stations can be among the top four

in ratings;

105

A “failed” station is one that has been dark for at least four months or is involved in

court-supervised involuntary bankruptcy or involuntary insolvency proceedings. Under the

standard for “failing” stations, a waiver is presumed to be in the public interest if the

applicant satisfies each of the following criteria: (1) one of the merging stations has had allday audience share of 4% or lower; (2) the financial condition of one of the merging stations

is poor; (3) and the merger will produce public interest benefits. Under the standard for

“unbuilt” stations, a waiver is presumed to be in the public interest if an applicant meets

each of the following criteria: (1) the combination will result in the construction of an

authorized but as yet unbuilt station; and (2) the permittee has made reasonable efforts to

construct, and has been unable to do so. (47 C.F.R. 73.3555, Note 7 (1) and Local Television

Ownership Report, 14 FCC Rcd at 12941 ¶ 86.

106

47 C.F.R. 73.3555, Note 7.

107

Local TV Ownership Report and Order, 14 FCC Rcd at 12938-41 ¶¶ 77, 81, 86.

108

1996 Act, § 202(c)(2).

109

See Sinclair Broadcast Group, Inc. v. Federal Communications Commission, 284 F.3rd

148 (DC Cir. 2002)

110

47 C.F.R. 73.3555(b).

CRS-30

In markets with 18 or more stations, a company may own three TV

stations, but only one of these stations can be among the top four in

ratings;

In deciding how many stations are in the market, both commercial

and non-commercial TV stations are counted;

There is an eased waiver process for markets with 11 or fewer TV

stations in which two top-four stations seek to merge.111 The FCC

will evaluate on a case-by-case basis whether such stations would

better serve their local communities together rather than separately.

Under the waiver standard that applies for all markets, the FCC will

consider permitting otherwise banned two-station combinations or

three-station combinations if one station is “failed, failing, or

unbuilt.” The standard is liberalized by removing the requirement

that an applicant for such a waiver “demonstrate that it has tried and

failed to secure an out-of-market buyer for the failed station.”

In its June 2, 2003 Order, the commission determined that the 1999 Television

Duopoly rule could not be justified based on diversity or competition grounds.112 It

found that Americans rely on a variety of media outlets, not just broadcast television,

for news and information. In addition, it determined that the prior rule could not be

justified as necessary to promote competition because it failed to reflect the

significant competition now faced by local broadcasters from cable and satellite TV

services.

The Commission concluded that the new rule permits television combinations

that are proven to enhance competition in local markets113 and to facilitate the

transition to digital television114 through economic efficiencies. It determined that

the new rule’s continued ban on mergers among the top-four stations will have the

111

In markets with 11 or fewer stations, the FCC will consider waivers of the “top-four”

restriction if the proposed combination meets one or more of the following criteria: reduces

a “significant competitive disparity between the merging stations and the dominant station”

in the market; facilitates the stations’ transition from analog to digital broadcasting;

produces such public interest benefits as more news and local programming; involves a UHF

station or two; or the stations’ outer, or “grade B,” signals do not overlap and have not been

carried, via direct broadcast satellite or cable, to any of the same geographic areas within

the past year. See Report and Order at ¶ 221-232. Combinations achieved by waiver of the

“top-four” restriction, however, could not be transferred or assigned to another party without

obtaining another waiver. LIN Television lobbyist Greg Schmidt reportedly criticizes this

requirement for a second waiver, claiming that television owners will lose one of the major

justifications for expending capital to buy and improve a second station if the return on that

investment cannot be recouped by selling the stations as a pair. See Bill McConnell, “FCC

Does the Waive,” Broadcasting & Cable, July 7, 2003, at p. 1.

112

Report and Order at ¶ 133.

113

Ibid., at ¶ 147.

114

Ibid., at ¶ 148.

CRS-31

effect of preserving viewpoint diversity in local markets.115 The record showed that

the top four stations each typically produce an independent local newscast. The

Commission also concluded that because viewpoint diversity is fostered when there

are multiple independently owned media outlets, the rules also advance the goal of

promoting the widest dissemination of viewpoints.

The proponents of retaining the old rule argued that the rule safeguarded the

number of independent local news voices in the market, given that broadcast

television is the primary source of local news for Americans; that cable and satellite

companies provide virtually no local news; and that radio news is not a substitute for

television news. They also claimed that the rule protected against a combination

attaining market power in the local television advertising market.

Proponents of replacing the old rule with a rule requiring a case-by-case review

of proposed mergers claimed that only such an approach could accurately weigh the

diversity impact of the individual television stations in a specific market to make

informed case-by-case public interest determinations about a proposed merger. But

opponents of a case-by-case approach claimed it would not allow firms to plan

mergers with regulatory certainty.

Many aspects of the FCC’s 2003 Local Television Multiple Ownership rule

were appealed. In its Prometheus decision, the Third Circuit found:

limiting local television station ownership is not duplicative of

antitrust regulation;116

media other than broadcast television may contribute to viewpoint

diversity in local markets;117

consolidation can improve local programming;118 and

the commission’s decision to retain the restriction on owning more

than one of the top-four television stations in a market is supported

by record evidence.119

But the Third Circuit remanded:

the specific numerical limits on television station ownership in local

markets, because the record evidence does not support reliance on

an assumption of all stations having an equal market share and the

115

Ibid., at ¶ 196-200.

116

Prometheus, 373 F.3d at 413.

117

Ibid., at 414.

118

Ibid., at 415.

119

Ibid., at 416.

CRS-32

commission provided no reasonable explanation for its decision to

disregard actual market shares;120 and

the repeal of the requirement in its waiver standard that the applicant

demonstrate that the “in-market” buyer is the only reasonably

available entity willing and able to operate the subject station,

because the commission failed to address the original purpose of the

requirement — to ensure that qualified minority broadcasters had a

fair chance to learn that certain financially troubled, and

consequently more affordable, stations were for sale.121

Local Radio Multiple Ownership

Current Status.

The ownership limits currently in place are those that the commission adopted

in 1996 to codify the language in Section 202(b)(1) of the 1996 Act, but, as a result

of the Third Circuit agreeing in rehearing to lift the portion of its stay relating to the

FCC’s new methodology for defining local radio markets, those markets are defined

using that new methodology. Specifically, the current rules provide that:

in a radio market with 45 or more full power commercial and

noncommercial radio stations, a party may own, operate, or control

up to eight commercial radio stations, not more than five of which

are in the same service (AM or FM);

in a radio market with between 30 and 44 (inclusive) full power

commercial and noncommercial radio stations, a party may own,

operate, or control up to seven commercial radio stations, not more

than four of which are in the same service (AM or FM);

in a radio market with between 15 and 29 (inclusive) full power

commercial and noncommercial radio stations, a party may own,

operate, or control up to six commercial radio stations, not more

than four of which are in the same service (AM or FM);

in a radio market with 14 or fewer full power commercial and

noncommercial radio stations, a party may own, operate, or control

up to five commercial radio stations, not more than three of which

are in the same service (AM or FM), except that a party may not

own, operate, or control more than 50 percent of the stations in such

market.122

120

Ibid., at 418-419.

121

Ibid., at 420-421.

122

Section 202(b) also provides that the commission may permit a party to exceed these

limits “if the Commission determines that [it] will result in an increase in the number of

radio broadcast stations in operation.” 1996 Act, § 202(b)(2), 110 Stat. at 10-11.

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These numerical limits are applied to geographic markets that are defined

according to Arbitron rating boundaries, which are based on market factors rather

than on the signal transmission contours that previously were used to define

markets.123 Since Arbitron boundaries do not cover small radio markets, the FCC

adopted a notice of proposed rule making to determine how to define geographic

markets in those small markets for which there are no Arbitron market definitions

and adopted procedures (involving a modified version of the FCC’s historic signal

transmission contour rule) to follow during the interim.124

Also, under current rules, when a “brokering” station has a Joint Sales

Agreement (JSA) with a “brokered” station — typically this authorizes one station

acting as a broker to sell advertising time for the brokered station in return for a fee

— the brokered stations counts toward the number of stations the brokering licensee

may own in a local market.125

The FCC, however, has discontinued following its old policy of “flagging”

public notices of proposed radio station transactions that, based on an initial analysis

by the staff, would result in one entity controlling 50% or more of the advertising

revenues in the relevant Arbitron radio market or two entities controlling 70% or

more of the advertising revenues in the market.126 Previously, those flagged

transactions were subject to further competitive analysis.127

Most observers believe that the overall effect of these changes will be to reduce

radio merger opportunities.128

Recent History.

Until 1992, entities were prohibited from owning two same-service (AM or FM)

radio stations whose signal contours overlapped. In 1992, the FCC relaxed the Local

Radio Multiple Ownership rule by establishing numerical limits on radio station

ownership based on the total number of commercial radio stations in a market.

123

Report and Order at ¶ 239.

124

Ibid., at ¶ 239.

125

Ibid., at ¶ 239.

126

See Application of Shareholders of AMFM, Inc. (Transferor) and Clear Channel

Communication, Inc. (Transferee), 15 FCC Rcd 16062, 16066 ¶ 7 n. 10 (2000).

127

The scope of that analysis is embodied in the interim policy set forth in the FCC’s Local

Radio Ownership Notice of Proposed Rulemaking, 16 FCC Rcd at 19894-97 ¶¶ 84-89.

128

At the July 8, 2003 Senate Commerce Committee hearing on radio consolidation, Lewis

Dickey, Jr., Chairman, President, and CEO of Cumulus Broadcasting, Inc., and Alex

Kolobielski, President and CEO of First Media Radio, testified that the new methodology

for defining radio markets would restrict opportunities for acquisitions and therefore harm

competition. Mr. Dickey claimed that it would restrict radio groups from growing as large

as market leader Clear Channel was able to grow under the old methodology and thus would

deny competitors the opportunity to compete on an equal footing. Mr. Kolobielski claimed

that it would not allow small companies to put together clusters of stations in small markets

to exploit economies of scale.

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Under the 1992 rules, an entity could own 2 AM and 2 FM radio stations in markets

with 15 or more commercial radio stations, and three radio stations (of which no

more than 2 could be AM or FM stations) in smaller markets. The 1992 rule also

imposed an audience share limit on radio station combinations in the larger market.129

In the 1996 Telecommunications Act, Congress directed the commission to

revise those numerical limits to provide the limits that are in place today.130 The act

also repealed national limits on radio station ownership.131

In its June 2, 2003 Order, the commission retained the numerical limits in the

1996 Act, finding that those numerical ownership limits continue to be needed to

promote competition among local radio stations;132 that competitive radio markets

ensure that local stations are responsive to local listener needs and tastes; and that the

rule, by guaranteeing a substantial number of independent radio voices, also will

promote viewpoint diversity among local radio owners.

The commission did, however, make several changes to the then-current rules:

It replaced its complex signal contour methodology for defining

local radio geographic markets with a market-based approach using

Arbitron rating boundaries.133

It modified its market definition methodology to include noncommercial as well as commercial radio stations in its count of

stations in a market.134

It counted stations brokered under a Joint Sales Agreement toward

the brokering station’s permissible ownership totals as long as (1)

the brokering entity owns or has an attributable interest in one or

more stations in the local market, and (2) the joint advertising sales

amount to more than 15% of the brokered station’s advertising time

per week.

It grandfathered existing radio combinations that would not meet the

limits under the new market definitions, but prohibited the future

transfer or sale of these grandfathered combinations except to certain

“eligible entities” that qualify as small businesses.

129

See 47 C.F.R. 73.3555(a)(1) (1995).

130

1996 Act, § 202(b).

131

Ibid., § 202(a).

132

Report and Order at ¶ 239.

133

Report and Order at ¶ 239. It also adopted a notice of proposed rule making to determine

how to define geographic markets in those small markets for which there are no Arbitron

market definitions and adopted procedures to follow during the interim.

134

Ibid., at ¶ 239.

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It eliminated its policy of (a) “flagging” those radio station

transactions that, based on an initial analysis by the staff, would

result in one entity controlling 50% or more of the radio advertising

revenues in the relevant Arbitron radio market or two entities

controlling 70% or more of such advertising revenues; (b)

conducting further competitive review of the flagged transaction;

and (c) inviting interested parties to file comments addressing the

competitive impact of the proposed merger.135

In the FCC’s rulemaking proceeding, the proponents of retaining the old

ownership limits as is or eliminating them entirely argued that the rule — and the

resultant consolidation in the industry — had turned around the industry financially,

from one in which more than half the radio stations were losing money to one that

is very profitable and attracting an increasing share of the total advertising market.

They also claimed that the number of program formats has increased.

The proponents of modifying the rule to tighten ownership limits claimed that

the rule had led to both horizontal and vertical consolidation (for example, ownership

of concert promotion companies, concert venues) that has resulted in anticompetitive

behavior by the large vertically integrated companies that has reduced competition

in the radio, advertising, music, and concert markets, reduced program format

diversity, and reduced local programming. The dissenting FCC commissioners

claimed that elimination of the “50/70 screen” takes away the opportunity for the

commission to undertake case-by-case reviews of mergers that, though they meet the

bright line test, do not meet a market screen that is a good predictor of potential

market power in the advertising market.

In its rulemaking proceeding, the commission found the overlapping signal

contour methodology used to define radio markets had yielded several anomalous

situations with very expansive geographic market definitions that included distant

stations and therefore allowed concentration to occur in more narrowly — but also

more accurately — defined markets. For example, under the market definition

methodology, a single entity was able to own all 6 of the commercial radio stations

in Fargo, North Dakota because a long chain of rural stations with overlapping signal

contours were included in the geographic market definition.136 The FCC therefore

135

136

Ibid., at ¶ 300-301.

Jennifer Lee, “On Minot, N.D., Radio, a Single Corporate Voice,” New York Times,

March 29, 2003. To understand how this occurred, it may be simplest to think of a station’s

principal community contours as being, as an approximation, a circle around the station’s

transmitter. Radio stations’ transmitters and principal community contours, though

concentrated to some extent in urbanized areas, are geographically dispersed. A geographic

market defined by overlapping contours can result in a series of contours overlapping one

another to create a very extended market — sort of a daisy chain effect. Thus, the contours

of stations in Fargo overlapped with stations in several directions outside Fargo, all in an

extended chain, resulting in a such a large number of stations being included in the market

that a single entity was allowed to own 6 of them, all located in close proximity to one

another rather than being spread across the large geographic market created by the

overlapping contour methodology.

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chose to replace the overlapping contour methodology with a methodology based on

market-driven factors identified by Arbitron.

Many aspects of the FCC’s 2003 Local Radio Multiple Ownership rule were

appealed, and most were upheld by the Third Circuit. In its Prometheus decision, the

Third Circuit:

upheld the commission’s use of market-based Arbitron Metro

markets instead of the contour-overlap methodology to define local

radio markets;137

upheld the inclusion of noncommercial radio stations when

performing the station count in a market;138

found the FCC’s transfer restriction is in the public interest;139

affirmed the attribution of Joint Sales Agreements, counting stations

brokered under a JSA toward the brokering station’s permissible

ownership totals; 140 and

found the FCC’s numerical limits approach rational and in the public

interest.141

But, the Third Circuit

remanded the specific numerical limits in the rule to the commission

for further justification;142 and

found the commission did not justify its decision to retain “subcaps” on the number of AM and number of FM stations an entity

could own in a local market .143

In particular, the Third Circuit found that the commission failed to provide a

justification for basing its bright line numerical benchmark on the use of a Diversity

Index based on the assumption of five equal-sized competitors, rather than on actual

market shares.144

137

Prometheus, 373 F.3d at 423-426.

138

Ibid., at 426-427.

139

Ibid., at 427-428.

140

Ibid., at 429-430.

141

Ibid., at 431-432.

142

Ibid., at 432-435.

143

Id., at 434-435.

144

Id., at 432.

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Since the Third Circuit had upheld the FCC’s findings as they applied to the

methodology underlying the revised local radio ownership rules, the FCC filed a

narrowly focused petition for panel rehearing, asking the Third Circuit to reconsider

its extension of the stay of the revised Local Radio Multiple Ownership rule, arguing

that the “stay prevents the Commission from implementing regulatory changes that

this Court has upheld as a reasonable exercise of the Commission’s public interest

authority.”145 The Third Circuit approved a partial lifting of the stay: