The FCC’s 10 Commissioned Economic Research Studies on Media Ownership: Policy Implications

Congressional research reportDec 5, 2007

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The FCC’s 10 Commissioned Economic

Research Studies on Media Ownership:

Policy Implications

-name redactedSpecialist in Telecommunications Policy

December 5, 2007

Congressional Research Service

7-....

www.crs.gov

RL34271

CRS Report for Congress

Prepared for Members and Committees of Congress

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

Summary

The Federal Communications Commission (FCC or Commission) has released for public

comment 10 economic research studies on media ownership that it had commissioned to provide

data and analysis to support the policy debate on what ownership limitations are in the public

interest. These studies also provide data and analysis useful to the on-going policy debates on

how best to foster minority ownership of broadcast stations and on tiered vs. à la carte pricing of

multichannel video program distribution (MVPD) services, such as cable and satellite television.

The FCC also has released peer reviews of these studies that are required by the Office of

Management and Budget. In addition, Consumers Union, Consumer Federation of America, and

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

10 FCC-commissioned studies that included statistical results from re-running the models in those

studies, applying the same empirical data to models revised to correct for alleged specification

errors. Despite the lack of consensus on many issues, it appears that the following general

statements can be made about the status of the data collection and analysis available to policy

makers:

•

Large, systematic, detailed, and accurate data sets on media ownership

characteristics, viewer/listener preferences, and programming are now available

for analysts and policy makers.

•

Several gaps remain in data collection, however. Most significantly the databases

on minority and female ownership of broadcast and telecommunications

properties are incomplete and inaccurate, and statistical analysis based on those

data would not be reliable.

•

Although the 10 FCC-commissioned studies present a large number of statistical

findings, many of these relationships are not statistically significant across

alternative model specifications. This has led the researchers and peer reviewers

to offer disclaimers that the findings are not robust and where they find statistical

relationships they demonstrate correlation, not causality.

•

The peer reviewers and the Consumer Commenters identified a number of

possible technical problems in the econometric analyses performed in the 10

studies. The potentially most noteworthy criticism appears to be that all but one

of the studies addressed the impact of media ownership characteristics on the

programming provided by individual cross-owned stations, not on the total

programming available to consumers in the local market, which arguably is the

key public policy concern. It has not yet been determined whether the criticisms

are valid and/or whether the study results are reliable.

•

The Consumer Commenters claim that when they modified the FCCcommissioned studies to take into account these criticisms, they obtained robust

results demonstrating that loosening the media ownership limits harmed the

public interest, though their results were not always consistent across model

specifications. Their modified studies have not yet been subject to full review by

others.

Congressional Research Service

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

Contents

Introduction and Background ......................................................................................................1

The Studies and the Peer Reviews ............................................................................................... 5

Study 1: “How People Get News and Information,” by Nielsen Media Research, Inc.............7

Study 2: “Ownership Structure and Robustness of Media,” by Kiran Duwadi, Scott

Roberts, and Andrew Wise, with an appendix entitled “Minority and Women

Broadcast Ownership Data,” by C. Anthony Bush ............................................................ 10

Study 3: “Television Station Ownership Structure and the Quantity and Quality of TV

Programming,” by Gregory S. Crawford, Assistant Professor, Department of

Economics, University of Arizona .................................................................................... 12

Study 4: “News Operations,” a Study with Four Sections, by FCC Staff .............................. 14

Section I: “The Impact of Ownership Structure on Television Stations’ News and

Public Affairs Programming,” by Daniel Shiman........................................................ 14

Section II: “Ownership Structure, Market Characteristics and the Quantity of

News and Public Affairs Programming: An Empirical Analysis of Radio

Airplay,” by Kenneth Lynch....................................................................................... 15

Section III: “Factors that Affect a Radio Station’s Propensity to Adopt a News

Format,” by Craig Stroup ........................................................................................... 17

Section IV: “The Effect of Ownership and Market Structure on [Newspaper]

News Operations,” by Pedro Almoguera..................................................................... 18

Study 5: “Station Ownership and Programming in Radio,” by Tasneem Chipty, CRA

International, Inc.............................................................................................................. 19

Study 6: “The Effects of Cross-Ownership on the Local Content and Political Slant of

Local Television News,” by Jeffrey Milyo, Hanna Family Scholar, University of

Kansas School of Business, and Associate Professor, Department of Economics and

Truman School of Public Affairs, University of Missouri.................................................. 22

Study 7: “Minority and Female Ownership in Media Enterprises,” by Arie

Beresteanu, Assistant Professor, Duke University Department of Economics, and

Paul B. Ellickson, Assistant Professor, Duke University Department of Economics .......... 24

Study 8: “The Impact of the FCC’s TV Duopoly Rule Relaxation on Minority and

Women Owned Broadcast Stations 1999-2006,”............................................................... 27

by Allen S. Hammond, IV, Professor, Santa Clara University School of Law, with

Barbara O’Connor, Professor of Communications, California State University at

Sacramento, and Tracy Westin, Professor, University of Colorado .................................... 27

Study 9: “Vertical Integration and the Market for Broadcast and Cable Television

Programming,” by Austan Goolsbee, Robert P. Gwinn Professor of Economics,

University of Chicago Graduate School of Business, American Bar Foundation, and

National Bureau of Economic Research ........................................................................... 30

Study 10: “Review of the Radio Industry, 2007,” by George Williams, Senior

Economist, Media Bureau, Federal Communications Commission ................................... 34

The Filing by the Consumer Commenters.................................................................................. 38

The Consumer Commenters’ Criticisms of the FCC Studies ................................................ 39

Analysis should be performed at the market level, not at the level of individual

stations ...................................................................................................................... 39

Analysis of cross-ownership should distinguish between cross-owned television

stations that had been grandfathered in 1975 and those created subsequently by

waiver of the rules...................................................................................................... 39

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

One key study inappropriately addresses all news programming and all public

affairs programming rather than local news programming and local public

affairs programming................................................................................................... 40

Some of the FCC-commissioned models fail to account for key station and

market characteristics................................................................................................. 40

The FCC has failed to adequately account for the true level of female and

minority ownership or to analyze the impact of relaxing ownership limits on

minority ownership .................................................................................................... 41

The study on media ownership characteristics and media bias employs

“contentless content analysis” that is flawed, and has other methodological

problems .................................................................................................................... 42

The study on vertical integration ignores several fundamental characteristics of

the industry and uses biased data................................................................................ 43

Summary of Data Collection and Analysis................................................................................. 44

Public Policy Implications......................................................................................................... 45

The FCC Has Failed to Collect Data Needed to Address the Impact of the Media

Ownership Rules on Minority and Female Media Ownership ........................................... 46

The FCC May Not Have Data on Program Diversity That the Courts May Require.............. 47

The Data Collection and Analysis Performed to Date Suggest That There May Be

Public Interest Benefits to Employing Case-by-Case Reviews Rather than BrightLine Ownership Limitations ............................................................................................. 48

The Data Collected to Date Suggest That Additional Information on Intensity of

Demand May Be Needed to Analyze the Implications of Various À La Carte

Proposals ......................................................................................................................... 51

Tables

Table 1. Most Important and Second Most Important Media Sources Used by Households

for Various Types of News and Current Events Information......................................................9

Contacts

Author Contact Information ...................................................................................................... 54

Congressional Research Service

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

Introduction and Background

The Federal Communications Commission (FCC or Commission) has released for public

comment 10 economic research studies on media ownership that it had commissioned to provide

data and analysis to support the policy debate on what ownership limitations are in the public

interest. These studies also provide data and analysis useful to the on-going policy debates on

how best to foster minority ownership of broadcast stations and on tiered vs. à la carte pricing of

multichannel video program distribution (MVPD) services, such as cable and satellite television.

The FCC’s media ownership rules are intended to foster the three long-standing U.S. media

policy goals of diversity of voices, localism, and competition. The current rules place certain

limits on the number of media outlets that a single entity can own nationally and the number and

type of media outlets that a single entity can own locally.1

In Section 202 of the 1996 Telecommunications Act, Congress instructed the FCC to eliminate

several of its media ownership rules and to modify others, in some cases setting explicit

numerical limits itself, in other cases instructing the FCC to conduct a rulemaking proceeding to

determine whether to retain, modify, or eliminate existing limitations. 2 Congress also instructed

the FCC to perform periodic reviews of its media ownership rules to determine if they are

“necessary in the public interest as the result of competition,” and to modify or repeal any

regulation it determines to be no longer in the public interest. The loosening of the media

ownership restrictions has led to significant consolidation of ownership in the media sector.

As part of its periodic review and in response to rulings by the U.S. Court of Appeals for the

District of Columbia Circuit, the FCC adopted an order on June 2, 2003 that modified five of its

media ownership rules and retained two others.3 The new rules, most of which would have further

loosened ownership restrictions, proved to be controversial, were challenged in court, and have

never gone into effect. On June 24, 2004, the United States Court of Appeals for the Third Circuit

(Third Circuit), in Prometheus Radio Project vs. Federal Communications Commission, upheld

the FCC’s findings that it would be in the public interest to further loosen many of the media

ownership restrictions, but 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

For a detailed description and discussion of the FCC’s media ownership rules, see CRS Report RL31925, FCC Media

Ownership Rules: Current Status and Issues for Congress, by (name redacted).

P.L. 104-104, § 202.

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; Cross-Ownership 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

Congressional Research Service

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

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.4

The Third Circuit also found:

In repealing the FSSR [Failed Station Solicitation Rule] without any discussion of the effect

of its decision on minority station ownership (and without ever acknowledging the decline in

minority ownership notwithstanding the FSSR), the Commission “entirely failed to consider

an important aspect of the problem,” and this amounts to arbitrary and capricious

rulemaking.... For correction of this omission, we remand.5

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 opinion of the U.S.

Court of Appeals for the Third Circuit in Prometheus v. FCC and on whether the media

ownership rules are necessary in the public interest as the result of competition.”6 The Further

Notice also initiated a comprehensive quadrennial review of all of its media ownership rules, as

required by statute.7

The Further Notice did not present specific new rules for public comment. Rather, it discussed

each rule that was remanded (the local television ownership limit, the local radio ownership limit,

the newspaper-broadcast cross-ownership ban, and the radio-television cross-ownership limit)

plus two additional rules (the dual network ban and the UHF discount on the national television

ownership limit), and then invited comment on how to address the issues remanded by the court.

It also asked commenters to address “whether our goals would be better addressed by employing

an alternative regulatory scheme or set of rules.”8 In addition, the Further Notice sought comment

on, but did not discuss, the proposals to foster minority ownership that had been submitted by the

Minority Media and Telecommunications Council (MMTC) in the 2002 biennial review

proceeding that the Third Circuit had taken the Commission to task for failing to address in its

June 2, 2003 Order.9 Two of the commissioners dissented in part from the order adopting the

Further Notice, 10 criticizing the lack of discussion of proposals to foster minority ownership, 11

and the absence of specific proposed rules.12

Prometheus Radio Project v. Federal Communications Commission, 373 F.3d 372, 435 (3rd Circuit 2004),

(Prometheus). This decision also is available at http://www.ca3.uscourts.gov/opinarch/033388p.pdf, viewed on

November 6, 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 (name redacted).

Ibid., at 421.

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 02-277 and MM Dockets No. 01-235, 01-317, and 00-244, Further Notice of Proposed

Rulemaking (Further Notice), adopted June 21, 2006, and released July 24, 2006, at para. 1 (footnote omitted).

Section 629 of the FY2004 Consolidated Appropriations Act, P.L. 108-199, modifies Section 202 of the 1996

Telecommunications Act, instructing the FCC to perform a quadrennial review of all of its media ownership rules,

except the National Television Ownership rule.

Further Notice at para. 4.

Ibid., at para. 5.

“Statement of Commissioner Michael J. Copps, Concurring in Part, Dissenting in Part,” June 21, 2006, available at

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

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 ownership rules.13 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.14 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).15 These studies consist of

(...continued)

http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-266033A3.pdf, viewed on November 6, 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 5, 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.)

Language in S. 2332, a bill approved by the Senate Commerce, Science, and Transportation Committee by

unanimous consent on December 4, 2007, would direct the FCC to address these criticisms. The bill 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, 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 crossownership 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.

“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 Austan 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 6, 2007.

“FCC Seeks Comment on Research Studies on Media Ownership,” MB Docket No. 06-121, FCC Public Notice, DA07-3470, released July 31, 2007, available at http://hraunfoss.fcc.gov/edocs_public/attachmatch/DA-07-3470A1.pdf,

viewed on November 6, 2007. The studies are available at http://www.fcc.gov/ownership/studies.html (viewed on

November 6, 2007). 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

(continued...)

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

hundreds of pages of text and very large data sets. Concurrent with the public comment period,

the studies 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.16 The two dissenting commissioners issued a joint statement criticizing

the shortness of the public comment period and raising questions about the peer review process. 17

On September 5, 2007, the FCC released the peer reviews of these studies.18

On August 1, 2007, the FCC adopted a Second Further Notice of Proposed Rule Making19 that

briefly described, and sought comment on, the proposals of the MMTC submitted in the 2002

biennial review proceedings, several additional informal MMTC suggestions, and the proposals

by the Advisory Committee on Diversity for Communications in the Digital Age to foster

minority and female ownership.

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 FCCcommissioned media ownership studies. 20 The Consumer Commenters identify a number of

(...continued)

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 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. The OMB requirement does not provide guidance on how the

peer reviewers should be selected.

“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 addition, the FCC identified approximately 20 other submissions filed by commenting parties in the Media

Ownership proceeding as containing scientific information on which it might rely in its rulemaking proceeding, and

implemented a peer review process for these. Those peer reviews are available to the public at http://www.fcc.gov/mb/

peer_review/reviews.html, viewed on November 26, 2007. I was asked by Jonathan Levy, Deputy Chief Economist of

the FCC, to perform a peer review of one of those submissions, “Big Media, Little Kids: Media Consolidation &

Children’s Programming,” a report by Children Now dated May 21, 2003, that was submitted to the FCC in 2006. My

peer review is available at http://www.fcc.gov/mb/peer_review/ docs/prtpgoldfarb.pdf, viewed on November 26, 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 and Local Markets; Definition of Radio Markets; Ways to

Further Section 257 Mandate and to Build on Earlier Studies, MB Docket 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 (Second Further Notice).

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, 02-277, and 04-228 and MM Docket Nos. 01-235, 01-317, and

(continued...)

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

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 alleged 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.21

The Studies and the Peer Reviews

In aggregate, the ten economic studies relating to media ownership commissioned by the FCC22

perform two functions—data collection and data analysis.

Systematic data collection is needed because the Third Circuit decision requires “the Commission

to justify or modify its approach to setting numerical limits”23 but there has been a dearth of

systematic data available on which to base a justification of any specific proposed rule. The 10

FCC-commissioned studies, their peer reviews, and the critiques and revised models submitted by

the Consumer Commenters, in aggregate provide a significant body of data and analysis on

ownership characteristics and programming needed to perform the analysis required by the Third

Circuit. Unfortunately, the databases on minority ownership and programming remain far less

complete and clean, despite a heroic effort by an FCC staffer to construct a time series database

for 2001-2005 from existing sources.

The data analyses performed in the ten studies tend not to reach strong policy conclusions.

Typically, the analyses attempt to determine whether there is a statistical relationship between

particular aspects of media ownership in a market (such as newspaper-broadcast cross-ownership)

and particular market outcomes (such as the quantity of local news or local public affairs

programming), holding other variables that might affect the market outcomes constant. Often, a

statistically significant relationship between two variables is found with one particular model

specification, but if a small change is made in the way the model is specified the relationship is

(...continued)

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/newlyreleased/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 newspaper-broadcast 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.

The FCC identified and referred to these studies as Study 1, Study 2, etc. For ease of presentation, in this report the

studies will be referred to by their study number rather than by their title.

See footnote 4 above.

Congressional Research Service

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

no longer found to be statistically significant. This led many of the researchers and peer reviewers

to emphasize that the statistical findings were not robust.24 Where relationships are identified, the

researchers tend to emphasize that these demonstrate correlation, not causality. A few of the

studies seek to test for such statistical relationships without holding other variables constant, thus

overstating the magnitude of any relationships they find.

Three of the studies had findings suggesting that non-ownership variables, such as the

demographics or commute time in a market, were better predictors of the amount or type of

programming aired than were ownership characteristics. This led some researchers to suggest that

media ownership characteristics may not be significant determinants of programming.

None of the studies presents statistical analysis of the relationship between ownership

characteristics and minority programming. Although Study 2 collected data on many types of

programming, including minority programming, and those data were used in Study 3 to analyze

the relationships between various ownership characteristics and different types of programming,

no results are shown for minority programming—though results are shown for Spanish language

programming. The two studies directly addressing minority ownership—Study 7 and Study 8—

do not address minority programming at all.

Perhaps what is most noteworthy about these 10 studies is that they highlight the large number of

variables that may be relevant to a full analysis of media ownership issues. The following is a

partial list of variables that the researchers identified as relevant to their analyses:

•

station ownership and affiliation characteristics, such as whether the station is

owned by or affiliated with a major broadcast network, owned by a large station

group that does not also own a network, affiliated with a non-major broadcast

network, co-owned with one or more broadcast stations in its local market, crossowned with a newspaper in its local market, cross-owned with a cable system in

its local market, owned by a provider of a cable program network, locally owned,

owned by a minority, or owned by a female.

•

local market characteristics, such as the number of broadcast stations (television

or radio) in the market, the size of the market in terms of population or

advertising revenues generated, market concentration, the number of co-owned

stations in the market, the number of cross-owned media entities in the market,

demographic factors (such as age, race, ethnicity, English as a second language,

income, and education levels), or the average commute time (for radio).

•

quantitative measures of programming, at both the station and the market level,

such as the amount of prime-time and non-prime-time local news programming

(including and excluding sports and weather), local public affairs programming,

national news programming, national public affairs programming, minority

Often, it is not possible a priori to predict the likely relationship between a specific ownership variable and

programming market outcome. For example, on one hand one might expect the owner of multiple stations in a market

to have diverse programming on those stations to attract as many total viewers/listeners as possible. On the other hand,

one might expect the owner of those stations to offer the same type of programming on all the stations in order to take

advantage of cost savings from economies of scale or scope. Given such potentially conflicting market incentives, it is

not surprising that, in most cases, tests for a relationship between an ownership variable and a programming market

outcome were not statistically significant. Still, a number of statistically significant relationships were identified,

though different studies sometimes had different findings or, within a single study, a slight difference in how a model

was specified yielded a different result, suggesting that the results were not very robust.

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programming, female programming, children’s programming, violent

programming, adult programming, general interest programming, or Spanish

language programming.

•

measures of program quality, such as program ratings and the amount of

advertising shown on the programming (which one researcher identified as a

negative measure of quality).

•

broadcast network programming sources, such as whether the programming was

produced by an affiliate of the broadcast network, by an affiliate of a competing

broadcast network, or by an independent studio.

•

cable network programming sources, such as whether the programming was

produced by an affiliate of the cable or satellite operator, by an affiliate of a

major media company that does not have cable or satellite systems, or by an

independent program producer.

•

the cable tiers on which program networks are placed.

•

regulatory variables, such as whether a particular network is covered by mustcarry and retransmission consent requirements.

The studies showed that not all of these variables can be unambiguously defined and that, at

times, data are not available to directly measure these variables, so proxy measures must be used.

The following is a brief snapshot of each study and its peer review.25

Study 1: “How People Get News and Information,” by Nielsen

Media Research, Inc.

This study consists of a telephone survey that provides estimates of Internet and media usage

patterns, opinions, and attitudes among adults in the United States. A sample of 141,324 phone

numbers was selected, with survey data collection conducted from May 7-27, May 29-31, and

June 1-3, 2007. There were 3,101 completed interviews, or 2.2% of the total sample; each of

those completed interviews elicited responses to 43 questions. The questions included:

•

In an average week, how much time do you spend, in total, watching or listening

to broadcast television channels?

•

In an average week, how much time do you spend, in total, watching or listening

to broadcast television channels to get information on news, current affairs, and

local happenings?

•

Which of the following types of information do you get from broadcast television

channels—emergencies, classified ads or economic opportunities, local cultural

events, local news or local current affairs, national or international news, opinion

or commentary on news and current affairs, sports, weather and traffic?

This report presents, in summary fashion, the findings of a large number of data-intensive studies. In order to keep it

from being encumbered by hundreds of footnotes, specific page citations are not provided for each finding.

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The same or similar questions were asked with respect to cable or satellite television channels, the

Internet, daily local newspapers, weekly local newspapers, daily national newspapers, and

broadcast radio. In addition, respondents were asked which one source they considered the most

important, and which source they considered the second most important, for breaking news, for

more in-depth information on specific news and current affairs topics, for local news and current

affairs, and for national news and current affairs. Respondents also were asked for information on

their highest level of schooling completed, household income, urban/suburban/rural location,

race, age, and gender.

In addition, respondents were asked, “If you would be reimbursed, are there any channels you

would be interested in dropping from your [cable] service? If yes, which channels would you be

interested in dropping from your service if you could receive a reduction in the cost of your

service?” and “Are there any channels that you would like to receive, but do not currently

subscribe to because you would have to subscribe to a larger package of channels? If yes, which

channels would you like to receive, but do not currently subscribe to because you would have to

subscribe to a larger package of channels?” These questions do not relate to the media ownership

proceeding, but could generate information that would be relevant to proposals by FCC Chairman

Kevin Martin to allow cable television subscribers to selectively drop channels from tiered cable

packages and have their bills reduced by the per-subscriber fees that the cable operator pays for

those channels or to allow subscribers to purchase all cable channels on an à la carte basis.

Nielsen presents the data collected in the survey, but does not attempt to analyze the data or reach

conclusions. Rather, it provides a very large data set that is available for researchers in and

outside the Commission to use in their own analyses. Some of the findings are presented in Table

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Table 1. Most Important and Second Most Important Media Sources Used by Households for Various Types of News and

Current Events Information

(% of households)

Media Source

Most

important

source of

Breaking

News

Second most

important

source of

Breaking

News

Most

important

source for

more in-depth

information

Most

important

source of

local news

and current

affairs

Second most

important

source of local

news and

current affairs

Most

important

source of

national news

and current

affairs

Second most

important

source of

national news

and current

affairs

Cable News

Channels

35.1

18.9

30.1

19.5

11.2

12.6

38.5

19.5

Broadcast

Television Stations

28.9

26.3

20.1

22.7

38.2

20.2

23.3

19.4

Internet/Websites

16.4

15.4

23.5

13.5

6.7

14.0

16.8

18.1

Radio stations

8.2

16.3

5.5

10.5

7.2

18.6

5.7

10.0

Local Newspapers

5.1

9.3

9.8

14.1

30.1

21.3

4.8

14.0

National

Newspapers

1.5

3.9

4.7

8.0

1.7

3.0

5.9

9.3

Other

1.8

4.2

3.2

4.3

1.8

4.4

1.8

4.2

None

1.8

3.1

1.7

3.5

2.6

3.1

2.4

3.0

Don’t Know

1.0

2.4

1.3

3.8

0.5

2.6

0.6

2.5

Refuse

0.3

O.3

0.1

0.2

0.0

0.2

0.1

Source: Nielsen Media Research, Inc., “Federal Communications Commission Telephone Study” (Study 1), at pp. 87-94.

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The peer reviewer, John B. Horrigan, Associate Director for Research at the Pew Internet &

American Life Project, concludes that the Nielsen study represents a credible effort, but raises

“two significant issues worthy of note.” First, the low response rate to the survey as well as

certain survey design concerns may have generated a sample that is more reflective of the

behaviors and attitudes of well-educated and higher-income Americans than of the public at large.

“Because high levels of income and education are positively correlated with interest in news and

current affairs, this may have substantive consequences on the survey’s result.”26 Second,

according to Horrigan, inclusion in the questionnaire of a question eliciting the specific Internet

news sites watched, but not of analogous questions eliciting information on the specific

broadcast, cable, or satellite news channels watched or the specific local or national newspapers

read, may constrain the usefulness of the survey data to address questions that may be relevant for

the media ownership proceeding. For example, he claims the survey design may limit the ability

of analysts to explore whether the Internet is a substitute or complement to traditional media.

Study 2: “Ownership Structure and Robustness of Media,” by

Kiran Duwadi, Scott Roberts, and Andrew Wise, with an appendix

entitled “Minority and Women Broadcast Ownership Data,” by C.

Anthony Bush

The main purpose of this study, which was performed by members of the FCC staff, was to

assemble the most comprehensive possible data set concerning media ownership. These data were

used by researchers to perform some of the other studies. The data cover the period 2002-2005,

and update a 2002 Commission study that examined media ownership of various types (cable,

satellite, newspaper, radio, and television) for 10 radio markets in 1960, 1980, and 2000, and

expands upon that study by adding data on the availability and penetration of Internet access and

by examining all designated market areas (DMAs), not just 10 markets. The focus of the study is

data collection, not data analysis, although the effort generated many data tables that can provide

the empirical basis for analysis.

The researchers’ primary task was to combine multiple data sets and then consolidate these

“metadatasets” to the DMA level. Data were collected on more than 1,700 television stations,

13,500 radio stations, 7,800 cable systems, and 1,400 newspapers across four years, for a total of

more than 100,000 observations and more than 13 million data points. The authors provide the

caveats that they were unable to know with certainty the accuracy of every observation and that

the final results could only be as accurate as the underlying data sets that they combined. They

believe the collected data give an accurate description of the various media for the four-year

period.

The authors list five findings:

•

Media ownership was fairly stable over the 2002-2005 period, in contrast to

earlier periods, which were characterized by substantial consolidation across

most forms of media, especially following enactment of the 1996

Telecommunications Act.

Also, high levels of income and education are correlated with Internet access.

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•

Multichannel video (cable and satellite) penetration has continued to grow since

the previous report; in 2005, cable and satellite operators combined served 83.5%

of television households, up from 80.3% in 2002.

•

For broadcast television, the data reveal a slight increase in the number of

stations and a slight decrease in the number of owners. The number of locally

owned stations remained fairly constant. The number of co-owned television and

radio stations increased by more than 20%. Minority-owned television stations

fell by three stations, from 20 in 2002 to 17 in 2005 (out of more than 1,700

television stations). Female-owned television stations fluctuated slightly but

ended in 2005 with the same number, 26, as in 2002.

•

For broadcast radio, the number of stations increased moderately. The number of

owners decreased about 5%, and the number of locally owned stations fell 3.7%.

Co-owned radio/television combinations increased 19%. Minority-owned radio

stations increased less than 1%, while female-owned stations fell 6.9%.

•

The number of daily newspapers decreased slightly, the number of newspaper

owners decreased by about 8%, and locally owned newspapers decreased by

about 5%. The number of same-city newspaper-broadcast combinations stayed

the same.

The appendix uses aggregate data from the FCC Form 323 on broadcast ownership to construct a

time series for 2001 through 2005. The data show that for that period:

•

There was no substantial growth or decline in minority ownership of commercial

radio stations (increasing from 376 to 390, then falling to 371, and finally

increasing to 378 over those years).

•

There was a decline in minority ownership of commercial television stations

(from 20 to16 and then increasing to 17).

But the author of the appendix raises concerns about the reliability of the minority ownership

data, which were constructed from “noisy” or incomplete data bases. In 2003, the biennial filing

deadlines became staggered, tied to the anniversary date of each station’s renewal application

filing date, so the data no longer contain a single “snapshot” of minority and female ownership

for all stations in the industry that could be used a benchmark for measuring industry ownership

trends. In addition, stations whose licensees are sole proprietorships or partnerships comprised

entirely of natural persons (rather than corporate or business entities) are exempt from the

biennial filing requirement and need only submit such information voluntarily if they choose.

Moreover, in the initial years of filing the new biennial forms, many stations failed to complete

their forms correctly, resulting in their responses to a relevant question being omitted from an

electronic ownership database. Review of station filings for 2001 suggests that the filings are not

complete with respect to ownership information. Furthermore, review of the ownership report

data from all periods and the literature suggests that these data contain significant errors. There is

no verification of Form 323 data or quality control over the data.

The author concludes that Form 323 data are inadequate for the purpose at hand, but these data

could be used to augment more reliable data. “At best, we have extensive samples or a virtual

census of minority and female broadcast ownership data. We do not have an actual census,

although perfect information on transactions and a perfect base year ... would result in a census.

We do not have statistical random samples. In summary, the data contain noise due to errors in the

databases that were used to construct the data.”

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Nonetheless, he compares the Form 323 data to data collected in the Census Bureau’s Survey of

Business Owners (SBO) for 2002. In doing so, he finds “that, for 2002, 95% confidence intervals

contain our estimate of 184 Black owned commercial radio stations, our estimate of 36 Asian

owned commercial radio stations, our estimate of 145 Hispanic owned commercial radio stations,

our estimate of 6 Native American owned commercial radio stations, and our estimate of 5 Native

Hawaiian owned commercial radio stations.... In light of the SBO data our estimate of the number

of Minority owned TV stations is reasonable.”

The peer reviewer, Robert Kieschnick, Associate Professor and Finance and Managerial

Economics Area Coordinator at the University of Texas at Dallas, commends the authors “for the

work that they expended in putting these data together as the source data are diverse and in some

cases incomplete or subject to error.” He finds the methodology and assumptions employed are

reasonable and technically appropriate, the data used are reasonable, and the conclusions about

the pattern of changes in media ownership appear to follow from the data.

Study 3: “Television Station Ownership Structure and the Quantity

and Quality of TV Programming,” by Gregory S. Crawford,

Assistant Professor, Department of Economics, University of

Arizona27

This study analyzes the relationship between the ownership structure of television stations and the

quantity and quality of certain television programming in the United States between 2003 and

2006. It focuses on seven types of programming—local news and public affairs, minority,

children’s, family, indecent, violent, and religious—identifying alternative definitions used for

each of these programming types. It also uses two definitions of programming quality: the

number of households who choose to watch a program as a share of households that have access

to that programming (a market rating definition) and the number and length (in minutes and

seconds) of advertisements included on the program, using the assumption that households do not

like advertising and that program quality therefore decreases as the amount of advertising

increases. The study uses the ownership data developed in Study 2. The major findings of the

study are:

•

Broadcast television provides more news, religious, and violent programming

than cable television.

•

Cable television provides more public affairs, children’s, and adult programming

than broadcast television.

•

Niche, or special interest, programming (minority, adult, religious) is less widely

available than general interest programming (news, children’s, family).

•

Program production and/or availability is falling across time for network news

(though not local news), public affairs, family, and religious programming, and

rising across time for Latino, children’s, adult, and more violent programming.

On September 11, 2007, Gregory Crawford was named chief economist of the FCC. See “Gregory Crawford Named

FCC Chief Economist,” FCC News, released September 11, 2007, available at http://hraunfoss.fcc.gov/edocs_public/

attachmatch/ DOC-276574A1.pdf, viewed on November 6, 2007.

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•

News and violent programming are the most highly rated programming types,

with Latino/Spanish-language, children’s, and family programming substantially

lower, and non-Latino minority and religious programming lower still.

•

The relative quality (in terms of ratings) of news programming is declining, as is

the relative quality of certain measures of children’s programming, but more

violent programming is gaining.

•

Affiliates of the four major broadcast television networks provide more

advertising minutes at higher prices than do other broadcast television stations

and this advantage appears to be increasing over time. From the perspective of

viewers, this represents a decline in program quality.

•

The strongest finding with respect to ownership structure relates to local news:

television stations owned by a parent that also owns a newspaper in the area offer

more local news programming. By some methods, television stations owned by

corporate parents with larger annual revenue also offer more local news, but by

other methods they offer less.

•

Local ownership is correlated with more public affairs and family programming.

•

Although there are differences in the amount of violent programming across

network affiliates, it does not appear to be correlated in an economically or

statistically significant way with ownership structure.

•

Effects of ownership structure on other programming types or on outcomes in the

advertising market are either economically insignificant, statistically

insignificant, or differ in their predicted effects according to the method of

analysis.

The peer reviewer, Lisa M. George, Assistant Professor of Economics at Hunter College of the

City University of New York, finds that, “Overall, the study considers an interesting question with

appropriate data and methods and should ultimately prove useful for policy purposes.” But she

has three general comments. With respect to the robustness of the analytical results, “While the

regressions in the analytic portion of the study are consistent with standard econometric methods,

the paper does not include specifications that would demonstrate the robustness, or reveal the

fragility, of regression results.” With respect to the relationship between the empirical estimates

and conclusions, “the empirical analysis does not include cable television, yet the paper discusses

cable television at great length. Similarly, the paper includes text and tables concerning

viewership and ratings, yet no ratings data are included in the regressions. The regressions also

consider only prime-time hours, yet this caveat is rarely mentioned.” With respect to the

theoretical assumptions about advertising, the peer reviewer claims “the assumption that

advertising is inversely related to quality cannot be justified in light of existing economic theory.

An important idea in the economics literature on two-sided markets is that advertising in media

markets functions like a price. In other words, viewers “pay” for broadcast television with

advertising minutes. Just as a better steak costs more than a lesser cut and thus commands a

higher price, a better television program typically costs more than a weaker program and would

be expected to command more not less advertising time.”

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Study 4: “News Operations,” a Study with Four Sections, by FCC

Staff

This study, which is divided into four sections, each of which was performed by a member of the

FCC staff, collects data on the size and scope of the news operations of radio and television

stations and newspapers. It also analyzes the relationship between the nature of news operations

and market characteristics, including ownership structure.

Section I: “The Impact of Ownership Structure on Television Stations’ News

and Public Affairs Programming,” by Daniel Shiman

This section of the study examines the relationship between the ownership characteristics of

broadcast television stations and the quantity of news and public affairs programming they

broadcast, based on the scheduled news and public affairs programming of almost all full-power

broadcast analog television stations in the U.S. for two weeks in each year, over the four-year

period 2002-2005. It uses modeling techniques to control for unobserved market-specific,

broadcast network-specific, and time-specific factors,28 and also to check for robustness of

statistical results.

This section finds that certain ownership characteristics have a statistically significant impact on

the quantity of news programming provided by stations, but most ownership characteristics do

not have a statistically significant impact on the provision of public affairs programming.

Specifically:

•

Television-newspaper cross-ownership is associated with 18 additional minutes

(11%) per day in news programming.

•

Television stations that are owned and operated by one of the four major

broadcast networks are associated with 22 additional minutes (13%) per day of

news programming.

•

Television stations that have a co-owned television station in a market are

associated with 24 additional minutes (15%) per day of news programming.

•

For stations that are owned by large stations groups, but not by the four major

networks, each additional co-owned station nationally tends to have a quarter

minute less of news programming per day.

•

Local ownership of a television station is associated with six minutes (4%) less

news programming per day.

•

Televison-radio cross-ownership does not have a statistically significant impact

on the amount of news programming provided, but is associated with an

additional 3 minutes (15%) of public affairs programming.

For example, it might be that news programming is especially popular in Washington, DC, where government is the

major industry, so that all DC stations tend to provide a lot of news programming. But Washington, DC has more

stations that are owned and operated by one of the four major broadcast networks than do other markets. Thus, if the

statistical analysis were not to account for the high level of demand for news in Washington, DC, the results might

overstate the relationship between network owned and operated stations and the amount of news programming

provided.

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•

Most of the ownership characteristics studied do not have a statistically

significant impact on the provision of public affairs programming. However,

higher parent revenues for a station are associated with the provision of less

public affairs programming.

The author provides several caveats about the analysis. First, despite the use of more than 6,700

observations for more than 1,700 stations, the effective sample sizes are rather small for some of

the variables of interest—for example, only 30 television stations are jointly owned with a

newspaper (for 120 observations). Second, the analysis does not include cable channels and

Internet news programming. The constant availability of news, weather, and sports programming

on such cable channels as CNN, Fox News, MSNBC, the Weather Channel, and ESPNews, as

well as Internet news programming, is likely to affect the audience interested in local broadcast

stations’ news shows, most likely reducing it. Third, the analysis does not distinguish between

local and non-local news programming, even though the supply and demand factors involved may

differ. Fourth, the analysis addresses the quantity of news programming, not its quality. Individual

stations might choose to respond to demand for news programming by increasing the quality of

programming provided, rather than the quantity.

The peer reviewer, Philip Leslie, associate professor of economics and strategic management,

Stanford Graduate School of Business, identifies some “noteworthy strengths” of the data—there

are a large number of observations, the panel structure allows for the use of various fixed effects

to control for other factors that affect programming, and there is a high level of detail on

programming and ownership. He also identifies “a few important limitations to the data,” most of

which are acknowledged in the study. He concludes that the data are valuable and should be taken

seriously, but that while the limitations do not undermine the analysis, “they do lead me to

question the broader relevance of the findings.” One limitation that he identifies is the data

include no information on the number of viewers for each station (or each television program),

and consequently each station is weighed equally in the analysis. “Since we ultimately care about

the impact on consumers, and some stations are more important to consumers than others, this

presents a limitation on the data.”

Section II: “Ownership Structure, Market Characteristics and the Quantity of

News and Public Affairs Programming: An Empirical Analysis of Radio

Airplay,” by Kenneth Lynch

This section of the study examines the extent to which there is a relationship between the

ownership characteristics of a radio station and the quantity of informational (news and public

affairs) programming it broadcasts, using data from a sample of more than 1,000 radio stations

and appropriate control variables. Airplay data were collected for six 20-minute segments for

each station. The econometric technique used produces two sets of results that must be considered

jointly: the change in the likelihood of airing news (or public affairs) programming, and the

change in the amount of news (or public affairs) programming that is aired if the station airs news

(or public affairs) programming at all. It is noteworthy that market characteristics, such as market

size, length of commute time, the audience share that is male, the audience share that is minority,

income levels, education levels, age distribution, etc. explain a greater amount of variation in the

quantity of news and (especially) public affairs programming aired than station ownership

variables. The findings related to station ownership include:

•

As owners expand their radio operations by acquiring more radio stations (either

in- or out-of-market), the stations they own are more likely to air at least some

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news programming, but the quantity of news aired on each station may fall such

that the overall quantity of news is not significantly affected. These relationships

hold whether looking at all news programming or only local news programming.

•

The geographic distance between the parent and the station does not significantly

affect the quantity of news aired by stations in the group that might air news, but

it has a negative and significant effect on the probability stations air any news at

all. These relationships hold whether looking at all news or only local news.

•

While it appears that stations that received a waiver of FCC rules covering radionewspaper combinations are significantly more likely to air news and public

affairs programming, only three of the 1,013 stations in the sample required such

a waiver and thus “any inferences drawn from the parameter estimates for this

covariate are essentially anecdotal.”

•

A radio station cross-owned with an in-market television station is less likely to

air news programming than are other radio stations, but if it does air news the

quantity aired will be relatively larger than that of stations that are not crossowned. The overall marginal effect is that in-market television cross-ownership

increases the expected quantity of news programming by about 110 seconds

(31%). These relationships are not statistically significant when looking only at

local news.

•

As owners expand their radio operations by acquiring more radio stations (either

in- or out-of-market), the stations they own are more likely to air at least some

public affairs programming, and the quantity of public affairs programming aired

on each station is likely to increase; although neither of these relationships are

statistically significant on their own, the combined effects are significant. Since

only 8% of the stations in the sample aired local public affairs programming

during the six 20-minute segments for which airplay data were collected, the

ability to draw meaningful inferences from those data is limited.

•

There are too few instances of radio cross-ownership with newspapers in the

sample to draw meaningful inferences.

The peer reviewer, Scott Savage, assistant professor of economics at the University of Colorado,

deems the methodology and assumptions reasonable and generally consistent with accepted

theory and econometric practices, but “would like to see a much stronger justification for the

important ownership variables of interest in the model and a clearer description of their expected

signs. This would also help make the results discussion clearer.” He finds “the dataset would have

to be augmented by other measures of market concentration if the study really wanted to make

concrete conclusions about economies of scope and market power effects. For example, does it

necessarily follow that a ‘large owner’ with many in-market stations has more market share and

market power than a ‘small owner’ with a single in-market station? More importantly, ‘number of

in-market stations’ and ‘total number of stations’ may be endogenous when they depend on the

unobserved preferences of radio listeners. Ultimately, more discussion and/or evidence is required

to make causal claims.”

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Section III: “Factors that Affect a Radio Station’s Propensity to Adopt a News

Format,” by Craig Stroup

This section examines whether ownership structure affects a radio station’s propensity toward

adopting a news format, using Arbitron data on the format choices of about 8,000 radio stations

between 2002 and 2005 and employing the fixed effects regression technique to take into account

non-observable factors that influence radio stations’ format choices. Instead of examining actual

radio broadcasts (as does section II of this study), this section considers a station’s format and

assumes that news format radio stations broadcast more news than stations with other formats.

This allows the researcher to collect data over time and to observe the format ramifications of

stations that undergo ownership changes. The format definitions used do not distinguish between

local news programming and other news programming. Some of the findings of this section are:

•

Although 65% of all full-power radio stations broadcast in FM, rather than AM,

only about 25% of news stations broadcast in FM. Holding other factors constant,

AM stations are six times more likely to be news stations than FM stations. This

is not surprising since AM service offers sound-quality that is inferior to that of

FM and therefore is more likely to be used for non-music formats.

•

A radio station that is cross-owned with a newspaper in the same market is four

to five times more likely to be a news station than a radio station that is not crossowned.

•

A radio station that is cross-owned with a television station in the same market is

about twice as likely to be a news station than a non-cross-owned station.

•

Commercial stations are only about 25% as likely to adopt a news format as

noncommercial stations.

•

Stations with a local marketing agreement (LMA)—the sale by the licensee of

discrete blocks of time to a “broker” who supplies the programming to fill that

time and sells the commercial spot announcements in it—may be less likely to be

news stations.29 A review of this relationship for stations that newly enter an

LMA, however, suggests that entering into an LMA may make a station more

likely to be a news station, but news stations may be less likely to enter into

LMAs.

•

Having a sibling news radio station in the market appears to increase a station’s

propensity to adopt a news format by about 50%.

•

Radio stations with owners in the same DMA appear to be no more likely to be

news stations than others. But radio stations with owners in the same state appear

to be significantly more likely to be news stations.

The peer reviewer, Scott Savage, assistant professor of economics at the University of Colorado,

finds the methodology and assumptions reasonable and generally consistent with accepted theory

and econometric practices and the data of sufficient quality for the econometric model employed.

But he finds that the study would benefit from a more explicit description of the model, more

economic discussion of the choice of independent variables and their a priori expectations, and a

This relationship was statistically insignificant for one definition of news format used by the researcher and

statistically significant for the other definition used by the researcher, but in both cases was negative.

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discussion of the potential economic mechanisms that underlie the relationships uncovered in the

data.

Section IV: “The Effect of Ownership and Market Structure on [Newspaper]

News Operations,” by Pedro Almoguera

This section studies the effect of ownership characteristics on the news operations of newspapers,

based on a sample of 134 newspapers in the largest 60 designated market areas (DMAs) for 14

randomly chosen days (with the constraint that each day of the week is included twice) in 2005.

The local market is defined as the Metropolitan Statistical Area (MSA), rather than DMA,

because the latter is geographically narrower and therefore more closely coincides with the

circulation area of newspapers. The absolute amount of space allocated for news in the “general

news” section of the newspaper is used as a quantity measure of news operations. Some of the

findings of this section are:

•

There is no observable relationship between a newspaper’s news operations and

cross-ownership with a television station or radio station in the same market.

•

Newspapers that are co-owned with other newspapers within the same

Metropolitan Statistical Areas are associated with a 5% decrease in the absolute

amount of news provided. But co-owned newspapers outside the market have no

effect on news operations.

•

The level of newspaper concentration in the market (as measured by the

Herfindahl-Hirshman Index) has no effect on news operations.

•

Belonging to a joint operating agreement with another newspaper in the market

has no effect on a newspaper’s news operations.

The peer reviewer, Philip Leslie, associate professor of economics and strategic management,

Stanford Graduate School of Business, finds that although the data come from multiple sources

they are “mainly well explained,” though focused on larger markets and thus not representative of

all newspapers in the United States. Professor Leslie finds it “unclear how exactly the identity of

which newspapers compete in which markets is assigned.” He indicates that although restricting

the definition of news operations to the quantity of news in the general news section of a

newspaper is “potentially troublesome ... since it can arbitrarily exclude valid news content in

other parts of the newspaper,” nonetheless “there is no obviously right approach.” He proposes

that there be “some robustness checks on this issue.” He also states that since the data do not

include a source of exogenous variation in ownership structure, “it is less clear whether the

analysis uncovers a causal effect or a mere correlation.” Finally, Professor Leslie indicates that

the data provided show a positive relationship between co-ownership of newspapers in the same

market and the percentage of total newspaper space (news plus advertising) taken up by news,

which he believes is “at odds with” the negative relationship between newspaper co-ownership

and the absolute amount of news. But he provides no explanation why, a priori, one should

consider these results at odds.

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Study 5: “Station Ownership and Programming in Radio,” by

Tasneem Chipty, CRA International, Inc.

This very large study evaluates the effects of ownership structure on numerous different measures

of program content, 30 advertising prices, and listenership for (non-satellite) broadcast radio, using

both descriptive and regression analyses. It relies on data from a number of different sources,

including the database on radio station programming that the FCC commissioned Edison Media

Research to construct in 2005 (Edison Database), station characteristic and demographic data

from BNA Financial Network (BNAfn), ratings data from Arbitron, advertising cost data from

SQAD, and additional demographic data from the U.S. Census Bureau. It performs analysis using

market-level averages, station-level averages, and station-pair analysis. As a result, it has literally

thousands of statistical results that researchers can cull through. Most of the regressions do not

show statistically significant relationships between the ownership variables and programming

variables being tested, which is not surprising given the breadth of variables covered.

Among the study findings are the following.

•

If market size is not taken into account, markets with greater ownership

concentration offer fewer formats and have more pile-up (multiple stations with

the same format). But smaller markets have (by definition) fewer stations and

have greater ownership concentration (because the FCC’s media ownership rules

permit owners to own a larger fraction of stations in smaller markets, relative to

bigger markets). Controlling for the number of stations and the interaction effects

between number of stations and concentration, concentration has no statistically

significant effect on the number of available formats. However, the results

suggest that stations are more spread out across existing formats in more

concentrated markets—concentrated markets have significantly less pile-up, as

measured by less format concentration. These results are robust. Also, markets

with more stations have more formats and less pile-up.

•

Cross-ownership of radio stations with local newspapers and/or local television

stations does not appear to have a noticeable effect on the number of formats or

on format pile-up.

•

Markets with a large number of radio stations owned by large national radio

companies appear to have more formats and less pile-up.

•

Commonly owned stations in the same market are 5% more likely to have the

same format than stations owned by different owners. However, this pattern is

reversed when looking only at pairs of FM stations. Station ownership

characteristics are less good predictors than market demographic factors of

whether stations in a market will offer the same format.

These measures include format counts, format concentration, percentage of station airplay devoted to music,

percentage of station airplay devoted to news, percentage of station airplay devoted to sports, percentage of station

airplay devoted to talk entertainment, percentage of station airplay devoted to advertising, advertisements by day part,

percentage of station programming that is live, percentage of station programming that is network/syndicated and

voice-tracked, number of syndicated programs, and number of on-air personalities. These various measures of

programming are intended to provide information relevant to the wide variety of programming issues that have been

raised by parties in the media ownership proceeding.

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•

Commonly owned stations in different markets are more likely than other stations

to have the same format.

•

In large markets, consolidation of ownership has no statistically significant effect

on any of the format measures. In small markets, consolidation is associated with

fewer formats.

•

Operating in a market with other commonly owned stations does not have a

statistically significant effect on how a station is programmed.

•

Newspaper-radio cross-ownership is associated with longer blocks of

uninterrupted talk in the morning drive time slot and longer blocks of

uninterrupted news programming in the evening.

•

Stations that have large national owners offer more syndicated programs and

spend a greater percentage of airtime on network/syndicated programming.

•

National ownership is associated with a statistically significant negative effect on

length of an uninterrupted block of music in the evening.

•

Commonly owned stations in different markets are programmed more similarly

than separately owned stations in different markets.

•

There appears to be minimal association between radio-newspaper or radiotelevision cross-ownership in a market and radio programming. Analysis of more

than 10 programming content variables yields only rare examples of statistically

significant relationships, and those are small in magnitude.

•

Local radio consolidation is associated with 4% less music, 3% less local

programming, 3% less live programming, and 18% less news programming in

the evening (though this last effect is estimated from a sample of only FM

stations).

•

All else equal, radio stations in concentrated markets offer substantially longer

segments of uninterrupted sports programming in the evening. The pattern of

results suggests that this expanded offering is offset with shorter segments of

news programming in the evening.

•

Commonly-owned news stations in the same market overlap in 14%-22%of their

programming and commonly-owned news stations in different markets overlap in

8%-14% of their programming, depending on the measure of overlap.

Commonly-owned sports stations in the same market have no overlap in their

programming, and commonly-owned sports stations in different markets have

overlap in 5%-9% of their programming. The overlap in programming across

commonly-owned news stations is statistically significant and there may be more

overlap within markets than across markets. There is no statistically significant

overlap in sports programming for commonly-owned stations, either within or

across markets. This result likely reflects practices in the underlying sports

broadcast rights market, where a live (often local) sporting event typically is

broadcast by a single radio station within a radio market.

•

Consolidation in local radio markets has no statistically significant effect on

advertising prices.

•

Advertising prices decrease as the number of stations in the market increases.

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•

National ownership of radio stations has a statistically significant negative effect

on advertising prices.

•

Radio cross-ownership with television in a market has a statistically significant

positive effect on advertising prices in large markets across a number of

specifications, but not in small markets.

•

Consolidation in local radio markets has no statistically significant effect on

average listening to radio.

•

Listeners served by large radio groups, as measured by the number of

commercial stations owned nationally by in-market owners, listen more.

•

All else equal, concentration in large markets is associated with lower average

station ratings, suggesting that listeners in large markets are not tuning in as

much as listeners in small markets.

•

Stations operating in markets with other commonly owned stations achieve

higher ratings than independent stations.

•

Cross-ownership of radio stations with local newspapers has a statistically

significant positive effect on listenership. There are no other statistically

significant effects of ownership structure on listenership.

The peer reviewer, Andrew Sweeting, assistant professor of economics at Duke University, finds

the econometric analysis simple and the specifications explained in a transparent way that should

make the results straight-forward to replicate. He offers one general caveat—these results reflect

correlations in the data between ownership and programming and there is no direct evidence of

causal effects. Professor Sweeting also offers several specific caveats:

•

When a coefficient is identified as being statistically significant at the 5% level,

that means that if there was really no statistical correlation between the outcome

variable and the explanatory variable, one would nonetheless expect to see a “tstatistic” as large as the one reported less than 5% of the time. Thus when seeing

thousands of coefficients one should expect some of them to be statistically

significant even when there is no true correlation. Therefore, at a minimum,

reviewers of the data results should attach importance to patterns that are robust

across several specifications, as these are more likely to indicate true

correlations.

•

Although many of the regressions are repeated with and without controls for

market demographics, since those demographics may provide a reason for

differences in programming (for example, one would expect fewer urban and

gospel stations in markets with smaller African-American populations), the

results that do not take into account the demographics should be ignored.

•

For the analysis based on station-pairs, when creating pairs the number of

observations tends to increase dramatically, which tends to lead conventionallycalculated standard errors to fall and the coefficients to appear to be more

significant than they may actually be. Thus one has to be careful when discussing

statistical significance.

•

In the Edison data base, different stations were monitored on different days and

this could give misleading impressions of programming overlap. For example,

some common owners switch syndicated shows across stations in the same

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market, so that they might appear in the data base as being offered on both

stations even though they were never available on both stations on the same day

(which seems the more relevant criterion for overlap).

•

The study presents many different measures of programming, but some may be

more relevant for policy than others. For example, it may be important to know

how ownership affects the number of commercials played or the amount of local

news programming, but it is less clear that the balance of music and DJ banter or

whether the banter comes in long or short blocks matters.

Study 6: “The Effects of Cross-Ownership on the Local Content and

Political Slant of Local Television News,” by Jeffrey Milyo, Hanna

Family Scholar, University of Kansas School of Business, and

Associate Professor, Department of Economics and Truman School

of Public Affairs, University of Missouri

This study examines whether cross-ownership of a newspaper and television station influences

the content or slant of local television news broadcasts, by comparing the late evening local news

broadcasts of 29 cross-owned television stations located in 27 different markets with those of

their major network-affiliated competitors in the same market, for three evenings in the week

prior to the November 2006 election. In total, 312 late evening local newscasts were recorded for

a total of 104 stations, and these recordings were coded and analyzed for local news content and

political slant.

The study findings include:

•

Local television stations broadcast approximately 26 minutes of total news

coverage, 31 with about 80% of this time devoted to local stories. However, a fair

amount of local news is devoted to sports and weather. Local news excluding

sports and weather accounts for less than half of total broadcast news time. State

and local political coverage averages just less than three minutes per newscast

during the week under study.

•

The newscasts of television stations that are cross-owned with newspapers are

associated with one or two more minutes of total news coverage (4%-7%) than

those of non-cross-owned stations. But radio cross-ownership and other

ownership and network characteristics (such as network affiliation or parent

company household coverage) are not significant determinants of total news

coverage.

•

The newscasts of television stations that are cross-owned with newspapers are

associated with 80 to100 seconds (6%-8%) more local news coverage (including

sports and weather) than those of non-cross-owned stations. After accounting for

time-slot effects, none of the other ownership variables are significant, although

the affiliates of old-line networks (NBC, CBS, and ABC) offer several minutes

Although most stations broadcast a 30 minute news program, some broadcast a one-hour news program, so the sum

of total news and non-news content exceeded 30 minutes.

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more of local news than the affiliates of newer networks (Fox, CW, and

MyNetwork). The pattern of results is very similar for local news coverage

excluding sports and weather, except that the positive association between

television-newspaper cross-ownership and the amount of local content is largely

mitigated. These results suggest that television stations cross-owned with

newspapers offer significantly more sports and weather coverage than their noncross-owned counterparts, but no less of other local news.

•

Television-newspaper cross-ownership is positively, but not significantly,

associated with the amount of state and local political coverage in newscasts. But

television-radio cross-ownership is significantly associated with an 80 to 100

second reduction—about a 50% reduction—in the amount of state and local

political coverage in newscasts. Parent companies with greater household

coverage also provide significantly more state and local political news, as do Fox

network affiliates.

•

The amount of time allotted to state and local political candidates speaking for

themselves is about 10 seconds (40%) greater on the newscasts of television

stations that are cross-owned with newspapers than on the newscasts of noncross-owned stations. Similarly, cross-owned television stations offer about 20

seconds (30%) more coverage of state and local political candidates than noncross-owned stations, while Fox affiliates show between 30 to 45 seconds more

candidate coverage. Other ownership or network controls are not significantly

associated with these measures of political coverage.

•

The amount of time allotted to the coverage of partisan issues (the author

identifies 12 issues that he categorizes as Democratic issues and 10 issues that he

categorizes as Republican issues, based on examining party and candidate

websites in the week before the general election) does not vary by crossownership status, nor does the amount of time allotted to covering the results of

political opinion polls, however both CBS and NBC affiliates devote

substantially less time to opinion polls compared to other networks.

•

Based on four measures of partisan slant—differences in speaking time allowed

to candidates of each party, differences in time spent covering the candidates of

each party, differences in time spent covering issues identified as Republican or

Democratic, and differences in time spent on opinion polls favoring one party or

the other—it appears that both cross-owned and non-cross-owned stations

allocate political coverage fairly evenly. On every measure though, the crossowned stations exhibit a slight and insignificant Republican-leaning slant.

However, Professor Milyo provides the caveat that there is no baseline for

determining whether coverage is appropriately balanced or not and therefore no

inferences about balance should be made based upon the absolute value of any of

these measures.

•

For three of the four measures of partisan slant, there appears to be a significant

positive association between the Democratic voting preferences in the local

electorate in 2004 (as measured by the vote percentage in the 2004 presidential

election for John Kerry) and Democratic slant in the 2006 newscasts of the local

stations. This result implies that partisan slant is determined at least in part by

demand market forces—stations catering to the voting preference of viewers in

their newscasts.

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•

The study cannot identify market-wide effects, for example, whether crossowned stations have some impact on their market as a whole.

The peer reviewer, Matthew Gentzkow, assistant professor of economics at the University of

Chicago Graduate School of Business, finds the author’s multiple regression analysis

methodology reasonable, but initially was unable to replicate the results because of what was

determined, after discussion with the author, to be two errors in the coding of the data set used to

produce the original results. After correcting for these errors, the peer reviewer still could not

replicate some of the results. He nonetheless concludes that “my impression from having worked

with the data is that the corrections are unlikely to change either the direction or the statistical

significance of the coefficients of primary interest.”

Professor Gentzkow states “the data collected for this study represent a significant advance. The

data give a rich, fine-grained picture of the news coverage of local television stations unlike

anything that was available before. The sample selection criteria make sense, and maximize the

power of the within-market comparisons the author makes. An obvious caveat is that the data

cover only three days in November 2006. The differences found may or may not be similar to

differences that would be found in other periods. The author acknowledges this issue clearly....”

Professor Gentzkow explains that coding the content of a news broadcast is challenging and

inherently subjective, but states that the author focused primarily on measures such as minutes of

news in particular categories that are well-defined, easy to interpret, and potentially replicable,

though the procedure for identifying the partisan issues used to measure political slant was more

subjective than some of the other measures.32

Professor Gentzkow raises one concern with the results as reported. All of the specifications of

primary interest include both a main effect of the newspaper-cross-ownership variable and an

interaction between this variable and the radio-cross-ownership variable. The conclusions as

reported are based on the main effect coefficients without taking account of the interaction. This

means that the reported differences apply only to the subset of stations that are not cross-owned

with radio rather than to the sample as a whole.

Study 7: “Minority and Female Ownership in Media Enterprises,”

by Arie Beresteanu, Assistant Professor, Duke University

Department of Economics, and Paul B. Ellickson, Assistant

Professor, Duke University Department of Economics

This study examines the data collected in the 2002 Survey of Business Owners (SBO) to identify

the extent of female and minority ownership in the radio, television, and newspaper industries in

the United States, and to provide a direct comparison with the broader universe of U.S.

It should be noted that the choice of a measure for political slant is the most controversial aspect of this study and

that Professor Gentzkow has performed several studies of political slant in the media using the types of measures of

political slant used by Professor Milyo. In the study, Professor Milyo states, “I follow Gentzkow and Shapiro in using

speaking time of candidates as one metric for partisan slant. I also use several measures that are very similar in spirit to

those employed by Gentzkow and Shapiro; in particular, time devoted to all candidate coverage, time devoted to issues

favored by one party or the other, and time devoted to polls favoring one party or the other.” Thus, some critics have

claimed that Professor Gentzkow cannot provide an objective peer review.

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businesses. It also makes a few recommendations regarding how the FCC should proceed in

analyzing minority and female ownership of media enterprises. The authors emphasize that, due

to the nature and quality of the available data, they are not able to reach strong conclusions, so

their recommendations should be viewed more as points of discussion than prescriptive for

policy.

The study finds:

•

Based on the most complete data source available (the 2002 SBO), minorities

and females are under-represented in the three industries relative to their

proportion of the U.S. population, though these patterns hold across the broad run

of industries, as well.

•

Approximately 51.1% of the U.S. population is female, but women own only

14.01% of radio stations, 13.68% of television stations, 20.25% of newspapers,

and 17.74% of all non-farm businesses.

•

Approximately 13.40% of the U.S. population is Hispanic, but Hispanics own

only 3.71% of radio stations, 6.04% of television stations, 1.58% of newspapers,

and 3.85% of all non-farm businesses.

•

Approximately 12.68% of the U.S. population is Black, but Blacks own only

4.35% of radio stations, 4.89% of television stations, 2.44% of newspapers, and

1.82% of all non-farm businesses.

•

Approximately 1.22% of the U.S. population is American Indian, but American

Indians own only 0.17% of radio stations, no television stations, 1.00% of

newspapers, and 0.47% of all non-farm businesses.

•

Approximately 4.41% of the U.S. population is Asian, but Asians own only

2.27% of radio stations and 3.24% of newspapers. Asians own 6.03% of

television stations and 6.21% of all non-farm businesses.

•

The figures listed above are for non-publicly-traded enterprises. If publiclytraded companies were included, the ownership shares of women, Hispanics,

Blacks, American Indians, and Asians would be slightly lower.

•

Since the observed ownership asymmetries are economy-wide, they are

undoubtedly linked to broad systematic factors not specific to these particular

industries. While a full accounting of the causes of these systematic trends is

beyond the scope of this analysis, it appears that access to capital is a primary

cause of under-representation for minorities. This is suggested by a review of the

market shares of the top 4, top 8, top 20, and top 50 firms in a full set of

industries for which data are available. The concentration ratios in the

information category, and specifically in radio and television broadcasting, are

very high, which is indicative of high barriers to entry, most likely in the form of

capital requirements. A review of the Survey of Consumer Finances, conducted

every three years by the U.S. Federal Reserve, shows that the ratio of median net

worth between whites and nonwhites was about 6.6, and the average ratio of

mean net worth between whites and nonwhites was 3.5. Thus, minorities on

average have significantly less personal capital at their command to meet the

capital requirements of a media enterprise. Deeper analysis with more data would

be needed to address the position of females.

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•

The data currently being collected by the FCC is extremely crude and subject to a

large enough degree of measurement error to render it essentially useless for any

serious analysis.

The author makes the following recommendations:

•

The FCC should take steps to improve its data collection process. Strong effort

should be made to ensure a full, consistent, and accurate reporting of ownership

status and its composition, as a long run endeavor.

•

Information on minority and female ownership should be carefully tracked and

integrated into the main firm database in a coherent fashion. Currently, the FCC

simply flags as minority- or female-owned any firm with greater than 50%

female or minority ownership. This information is maintained as a separate and

incomplete spreadsheet that is not linked to the broad census of firms.

•

Firms should be classified not only by race and gender, but also by whether the

company is publicly traded or privately owned. Efforts also should be made to

track the demographics of minority as well as majority stakeholders.

•

More broadly, the FCC should further examine the rationale behind this exercise.

The Commission should ask whether there are quantifiable benefits to increasing

minority and female ownership and how ownership policies affect change; to

what extent media content is driven by demand (that is, consumer preferences for

certain types of programming or for slanted news coverage) rather than supply

(that is, owner preferences); whether owner preference can only be imposed

through a controlling interest rather than a minority interest; whether publiclytraded firms feel pressure to be broadly representative in their programming; how

non-traditional media, such as the Internet, change the debate.

The peer reviewer, B.D. McCullough, Professor of Decision Sciences at Drexel University, states

that “The FCC should have contracted with the authors to do a full-blown study of the problem

rather than simply conduct a small and perfunctory analysis.” He states this issue requires

sophisticated analysis that might show the extent to which the ownership disparity is explained by

such relevant variables as education and industry experience. In the absence of such analysis, all

the disparity is incorrectly attributed to the single factor of race or gender. Moreover, the minority

categories are too aggregated—for example, Hispanics “lumps together Puerto Ricans, Mexicans,

and Cubans, despite overwhelming evidence that these groups are remarkably dissimilar in terms

of mean education, income, health, etc.”

Professor McCullough questions the authors’ claim that lack of access to capital is a primary

cause of under-representation for minorities, since the analysis “does not include education, work

experience, or any of a host of other variables.” The actual assertion of “a link between race and

access to capital would require a great deal of [additional] work.”

With respect to the authors’ recommendation that the FCC track and integrate information on

minority and female into the main firm database, Professor McCullough states the authors

“should have offered their considered opinion on how to define the variables they want

collected.”

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Study 8: “The Impact of the FCC’s TV Duopoly Rule Relaxation on

Minority and Women Owned Broadcast Stations 1999-2006,”

by Allen S. Hammond, IV, Professor, Santa Clara University School

of Law, with Barbara O’Connor, Professor of Communications,

California State University at Sacramento, and Tracy Westin,

Professor, University of Colorado

The purpose of this study is to ascertain the impact of the relaxation of the television duopoly rule

on minority and female ownership of television broadcast stations. In 1996, that rule was

amended to allow the ownership of two television stations in certain markets, provided only one

of the two was a VHF station, the overlapping signals of the co-owned stations originated from

separate (though contiguous) markets, and the acquired station was economically “failing” or

“failed” or not yet built. Because the FCC did not begin collecting data on the race and gender of

broadcast station owners until 1998, the period studied was 1999 to 2006.

The study does not provide econometric analysis. Rather, it (1) identifies the transactions

resulting in television duopolies that could not have occurred before the rule change and (2)

determines the number of commercial broadcast television stations that were purchased or sold by

minority or women owners in markets in which a television duopoly was introduced that could

not have existed before the rule change.

The study finds:

•

From 1999 to 2006, the relaxation of the duopoly rule did not appear to have a

positive impact on minority and female ownership of television stations; instead,

the major beneficiaries were the largest 25 television broadcast station owners.

•

The relaxation of the duopoly rule codified the existing contractual relationship

(local management agreements or LMAs) between group station owners and the

stations they managed. LMAs allowed television broadcasters (that were not

allowed to be jointly owned) to combine their operations to reduce their costs by

sharing staff and/or programming, to expand their market reach by combining

signal coverage, to increase their advertising revenue shares by controlling access

to a larger percentage of a desirable market segment and/or providing more

opportunities to air programming.

•

Some group station owners leveraged their control of LMAs into control of

access to attractive syndicated programming as well as access to programming

affiliated with emerging networks.

•

The broadcast group owners that benefitted from the relaxation of the duopoly

rule were primarily the largest broadcast group owners (those in the top 25 based

on revenue, national market reach, and/or number of stations owned). As of 2005,

they accounted for 83 of the 109 (76%) duopolies identified.

•

Many of the group owners that managed “sister” (LMA) stations acquired those

stations outright once the duopoly rule was relaxed.

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•

Only one minority-owned duopoly was created. It has since been dissolved.

Since there were no preexisting minority-owned duopolies, there were no

surviving minority-owned duopolies.

•

Across all markets in which minority-owned television stations operated between

1999 and 2006, the number of minority-owned television stations dropped by

27%.

•

Within markets entered and/or occupied by television duopolies, the number of

minority-owned stations dropped by more than 39%. By contrast, in non-duopoly

markets the number of minority-owned stations dropped by 10%.

•

The duopolies created in markets in which female-owned television stations

operated were non-female owned. Since there were no pre-existing femaleowned duopolies, there were no female-owned television duopolies.

•

36% of the female-owned stations operating in duopoly markets were sold. All of

the stations were sold to non-female, non-minority owners.

•

Female-owned stations were more likely to be found in non-duopoly markets.

In addition, the study presents, but does not analyze, a number of hypotheses about the

relationship between the revised duopoly rule and minority/female ownership that have some

logical appeal but remain untested and unproven. For example, it presents an argument made in

1992 by a minority broadcaster who was concerned that increasing ownership caps or loosening

duopoly rules would reduce opportunities for minority ownership.33 That broadcaster claimed that

relaxation of ownership rules in 1985 caused an increased demand for stations that were attractive

as second television properties in a market, and the resulting sharp increase in station prices

placed minority-owned stations in “double jeopardy”—they couldn’t afford to trade up to the

better facilities and the stations against which they were competing were rapidly becoming parts

of large broadcast groups capable of bringing significant economies of scale to the market.

This argument, on its face, appears reasonable, but on its own does not demonstrate how

significant the relationship is between the dual ownership rule and minority ownership. During

the time period cited by the minority broadcaster, the FCC’s old minority tax certificate program34

was in place and appeared to be successfully fostering the sale of broadcast properties to minority

owners.35 The dual ownership rule was loosened in 1996, just one year after Congress eliminated

the tax certificate program. The authors found that minority ownership has fallen significantly

since 1999 (the first year that data on minority- and women-ownership were available). But they

do not perform analysis that helps determine how much of that decline is attributable to the

See Study 8 at p. 29 and also the source cited in that study, Harry A. Jessell, “Sikes Ready to Move on TV

Ownership: Chairman Wants to Expand Number of Stations a Licensee May Own Both Locally and Nationally,

Broadcasting, April 20, 1992, at p. 10.

The FCC’s minority tax certificate program used the market-based incentive of deferral of payment of capital gains

taxes to encourage the owners of broadcast and cable properties to sell their properties to minorities. Tax certificates

also were issued to investors who provided start-up capital to minority-controlled companies.

See Statement of William E. Kennard, General Counsel, Federal Communications Commission, Before the United

States House of Representatives Committee on Ways and Means, Subcommittee on Oversight, on FCC Administration

of Internal Revenue Code Section 1071, January 27, 1995, at p. 10, indicating that between 1978 and 1994 the FCC

granted approximately 390 tax certificates, of which approximately 330 involved sales to minority-owned entities—260

for radio station sales, 40 for television station sales, and 30 for cable television transactions.

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loosened dual ownership rule, how much to the elimination of the tax certificate program, and

how much to other factors.

The peer reviewer, B.D. McCullough, Professor of Decision Sciences at Drexel University, states

“This report is fatally flawed by a fundamental logical error that pervades every aspect of the

analysis.” Referring to a finding in the study that minority-owned stations were four times more

likely to be sold in duopoly markets than in non-duopoly market, Professor McCullough states

In the context of their report, their obvious implication is that the existence of duopoly is the

reason that minority stations were observed to be sold more frequently in duopoly markets

rather than in the non-duopoly markets. This could only be logically inferred if the duopoly

and non-duopoly markets were identical in all other respects, which the authors did not show

because they could not show this.

Since the markets are not identical, some effort must be made to control for the differences

between the duopoly and non-duopoly markets.... There exists a wide variety of statistical

and econometric techniques to control for these differences, yet the authors employ not a

single one.... The authors had access to the BIA database and could easily have made some

effort to control for confounding variables. That the authors did not bother to control for

confounding variables completely vitiates their analysis of minority-owned stations. The

same is true for the “women-owned” portion of their report.

The authors do document that the number of minority- and/or women-owned broadcast

stations changed during this time. Their error is to attribute this change solely to the

relaxation of the duopoly rule, without consideration of any simultaneously occurring

economic or demographic phenomena.

It may well be true that the Duopoly Rule relaxation was the cause of the decline in the

number of minority-owned and/or women-owned broadcast stations, but the authors have not

provided any evidence thereof.

There was another economic study addressing the television duopoly rule submitted in the

proceeding. In its reply comments, the National Association of Broadcasters (NAB) included a

December 2006 study entitled “The Declining Financial Position of Television Stations in

Medium and Small Markets,”36 which provides financial data to support its contention that “a

relaxation of this rule to permit co-ownership of television stations in smaller markets would

provide needed financial relief to television broadcasters, and allow television stations to compete

more effectively with cable operators and other multichannel video programming distributors.”

The study examines the profitability of television stations in markets 51-175 for the data years

1997, 2001, 2003, and 2005. It finds:

profit margins are already at risk today, especially for the lower rated affiliated stations. It is

clear that overall these stations show declining profitability in the years examined.

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 and Local Markets; Definition of Radio Markets, MB

Docket Nos. 06-121 and 02-277 and MM Docket Nos. 01-235, 01-317, and 00-244, Reply Comments of the National

Association of Broadcasters, Attachment entitled “The Declining Financial Position of Television Stations in Medium

and Small Markets,” January 16, 2007.

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Furthermore, those stations located in the smallest of markets are also now at a stage where

the average low rated station experienced actual losses. Declining network compensation

coupled with increasing news expenses adds to the tenuous financial situation of these small

market stations.

It concludes that: “As this study demonstrates, a relaxation of the television duopoly rule to

permit common ownership of two stations in smaller markets would provide needed relief for

these struggling stations, thereby increasing the strength of local television.”

The NAB study is based on a selective choice of data. It uses only the financial data for oddnumbered years, omitting the data for even-numbered years when political advertising generally

adds to the revenues of television stations without imposing comparable costs. Television station

profitability tends to be higher in even-numbered years. Given that station revenues and

profitability follow a relatively predictable cyclical pattern, it is appropriate to analyze data that

incorporates the entire cycle, not just the predictably lower performance period in the cycle, to

determine the real financial health of the industry. The NAB study therefore appears to be

biased. 37

Study 9: “Vertical Integration and the Market for Broadcast and

Cable Television Programming,” by Austan Goolsbee, Robert P.

Gwinn Professor of Economics, University of Chicago Graduate

School of Business, American Bar Foundation, and National

Bureau of Economic Research

This study examines the prevalence of vertical integration in television programming, presenting

findings relating to whether integrated producers systematically discriminate against independent

content in favor of their own content. It separately addresses prime-time broadcast programming

and cable network carriage. Its focus is on the impact of vertical integration on independent

programmers—whether broadcast networks discriminate against programming they do not have

an ownership stake in and whether cable and satellite operators discriminate against cable

networks they do not have an ownership stake in. It attempts to measure this by performing

regression analysis on the ratings of, and advertising revenues generated by, in-house and

independent programming carried by vertically integrated broadcast networks. If the ratings for

and/or advertising revenues generated by their in-house programming is consistently lower than

those of the independently produced programming that they carry, that would suggest that they

favor their own programming, even when it is less sought out by viewers. Similar analysis is

performed for cable networks, focusing on the number of subscribers and viewers of and on

subscriber fees and advertising revenues generated by the vertically integrated and independent

cable networks carried by MVPDs. This study does not address another issue related to vertically

The NAB study is one of submissions that the FCC had peer reviewed. The peer reviewer, Robert Kieschnick,

Associate Professor and the Finance and Managerial Economics Area Coordinator, University of Texas at Dallas,

identifies “a number of concerns with the data reported and statements made about the reported data,” and states “I do

not see that the report provides sufficient information to reach its conclusion....” The peer review is available at

http://www.fcc.gov/mb/peer_review/docs/prtpkieschnick.pdf, viewed on November 28, 2007.

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integrated cable or satellite providers—whether they use their position strategically by refusing to

make their in-house “must have” programming available to competing distributors.38

The principal findings of the study are:

•

Using four different measures of vertical integration, in each case the data

document that a large fraction—typically the majority—of the programming on

any broadcast network during prime-time was made “in-house.”

•

The distribution of independently produced programs—those with no affiliation

with a network company at all—is fairly evenly spread across the networks,

while the programs produced by production companies that have an ownership

tie with a network are “overwhelmingly more likely” to be broadcast on their

affiliated network.

•

From the perspective of how many people watch a particular program, on the

margin, there is little evidence that independently produced prime-time broadcast

programming differs from in-house programming in the same time slot. Just as

many people watch one as watch the other.

•

But from the perspective of a program’s total advertising revenue, vertically

integrated prime-time broadcast programs perform worse than independent ones.

Independent shows in the same time slot and the same season must have 16%

greater advertising revenues to get on the air. Even controlling for the

demographic characteristics of the audience, the advertising revenues on the

margin are significantly lower for the vertically integrated shows than for

independent programming, consistent with them being held to a lower standard

than the independents.

•

The non-in-house programming aired by a broadcast network can be produced by

an entirely independent program producer or by a program producer that has an

ownership affiliation with another broadcast network. When this distinction is

taken into account, on the margin the vertically integrated programs have 25%

less advertising revenues and the fully independent programs have 23% less than

programs made by production companies with ownership ties to rival broadcast

networks. This result suggests that a cost-based efficiency explanation for

vertical integration—that networks apply a lower standard to their own programs

because they can make them more cheaply—probably will not suffice. Those

efficiencies would not exist when the programming is truly independently

produced, and thus one would expect the networks to require independent

programming to generate more advertising revenues than in-house programming

to gain network carriage. That the networks appear to demand approximately the

same amount of advertising revenue generation suggests that efficiencies from

in-house production is small.

“Must have” programming refers to programming for which a significant number of MVPD subscribers have such a

strong intensity of demand that they would not subscribe to an MVPD service that does not carry that programming.

Although demand varies somewhat from geographic market to geographic market, examples of programming that often

is categorized as must have are major sports programming and the programming of local broadcast stations affiliated

with major networks.

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•

It is possible that the differential in advertising revenues generated by truly

independent programming and programming produced by companies with

ownership affiliations with rival networks may reflect that rival networks have

more bargaining power over syndication revenue (revenues generated by the

programming when it is no longer aired on prime-time network television). If a

broadcast network can’t get part of the syndication profits from the program’s

producer, it may require that show to generate higher advertising revenue to put it

on the air.

•

With respect to cable program networks, there are network-level data on the

performance of channels nationally and system-level information about what

networks a system carries, but there are not system-level data on network

performance, so the evidence is more suggestive than the evidence available on

the broadcast networks.

•

The concentration, on a national basis, of the largest MVPDs has grown over

time with the considerable consolidation of cable and the rapid growth of DBS.

•

On a market-by-market basis, however, the opposite has occurred. Each market

has gone from a virtual monopoly for the local cable franchise to a market where

the cable franchise shares the market with the two major DBS providers (and

now there is beginning to be entry in some markets from the two major telephone

companies, AT&T and Verizon).

•

Of the top 15 cable networks, as measured by the size of their prime-time

audience, the share of vertically integrated networks—defined as networks that

have an ownership affiliation with an MVPD (but excluding networks that have

an ownership affiliation with a major media company that does not own an

MVPD, such as Disney or Viacom)—has been falling over time, from eight in

1997 to four in 2005. The share of cable networks owned at least in part by an

MVPD fell from 40% in 1996 to 20% in 2005. But many of the cable networks

without any MVPD ownership are owned by giant media companies. “It is

difficult to find a single major cable network owned by someone other than a

major media conglomerate.”

•

There is a very small negative effect of vertical integration on the number of

subscribers a cable channel has. When a channel goes from being independent to

being owned by an MVPD, it loses subscribers. But there is a small positive

effect of vertical integration on the subscriber growth rate. When a channel goes

from being independent to being owned by an MVPD, its subscriber growth rate

increases by a small amount. Looking at the subset of networks where there are

data on the number of viewers as well as the number of subscribers, holding the

number of subscribers constant, the number of viewers actually watching the

channel falls when it becomes vertically integrated.

•

Looking at the impact of becoming vertically integrated on the amount of license

revenue the cable network gets from the distribution systems and the amount of

advertising revenue it generates (that is, the two sources of revenues for the

programming) and the amount spent on programming (that is, the cost of

providing the programming), there is very little evidence that vertical integration

of a channel has any noticeably beneficial impact on revenues or costs. The same

network performs exactly as well before and after it is vertically integrated.

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•

Since some of the economics literature suggests that the efficiencies of vertical

integration flow only to start-up networks, not to well established ones, analysis

also was performed for the subset of networks that were started since 1997.

Results for these younger networks showed no major differences from the results

for all networks. There is no evidence that when new networks become vertically

integrated it increases subscribers or changes their subscriber growth rates.

•

Excluding the major vertically integrated cable network that are carried on

virtually all major cable systems, and focusing instead on 11 wholly or partially

vertically integrated basic cable networks that have carriage rates between 5%

and 90%, nine of those cable networks showed evidence that cable systems are

significantly more likely to carry the cable network if they have an ownership

interest in the network. But for nine of the 11 networks, the higher the DBS share

in the local market, the more attenuated that relationship becomes. For those

nine, the interaction of vertical integration with the DBS share has a significant

negative coefficient. This evidence suggests, perhaps, an explanation for vertical

integration rooted in competitive pressures rather than efficiencies. The DBS

share that makes the vertical integration effect equal to zero averages around

20%-25%. Thus for at least a subset of the networks there is evidence consistent

with the view that DBS competition reins in the ability of cable systems to use a

vertically integrated position to promote their own channels.

•

At the network level, there is little evidence that vertically integrated cable

networks attract more subscribers, grow faster, raise more advertising revenues or

licensing fees, or have lower programming costs.

The peer reviewer, David Waterman, Professor, Indiana University Department of

Telecommunications, generally finds the regression analysis used in the broadcast portion of the

study to be a valid methodology. But he states, “the results of this regression must be regarded as

suggestive rather than conclusive, at least in the absence of a more detailed vetting of the results’

robustness to alternative model specifications. As the report acknowledges, program profits

[rather than revenues] are the desired measure and meaningful cost measures are not available.”

He indicates that “there are large differences in prime-time program costs by program format

(e.g., sitcom, variety, drama) as well as by network, that may not be captured by the model, and

could thus bias or invalidate the results.”

With respect to the cable portion of the study, Professor Waterman notes that “the overwhelming

majority of ‘independent’ cable networks successfully launched in the period of the study are

owned by affiliates of large media conglomerates who do not have cable system interests ...

which implies that the financial resources or bargaining leverage in common to the large

corporations which also own numerous other established networks, rather than vertical integration

itself, may be the most significant advantage that successful cable network suppliers now have.”

He states that the study uses regression techniques that show vertical integration to have little or

no positive effect on cable network performance. But “[i]n my opinion, this regression analysis,

while interesting and suggestive, employs a methodology that makes interpretation of the results

questionable.” The primary measure of vertical integration in the study—the ratio of the total

national subscriber base of the MVPD that owns the network to the network’s national total of

subscribers—has some desirable characteristics, but it is difficult to interpret because it combines

in one functional form three separate aspects of vertical integration’s potential effects: the fact of

integration itself, the influence of MVPD size, and the variations of influence that integration may

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have over a network’s life cycle. It therefore is difficult to understand the effects of integration

per se.

Professor Waterman finds the models and estimation methods used in the analysis of the 11 basic

cable networks with between 5% and 90% national market penetration are valid and the author’s

conclusions are reasonable. But he states that the study does not address the effects of vertical

integration on the carriage of independently owned networks and does not consider whether the

various integrated networks (or their non-integrated rivals) are carried on basic tiers or on

generally less accessible digital tiers.

Study 10: “Review of the Radio Industry, 2007,” by George

Williams, Senior Economist, Media Bureau, Federal

Communications Commission

This is the FCC’s fifth review of the radio industry. It is primarily a data collection exercise,

presenting data on changes in the industry since passage of the 1996 Telecommunications Act,

including trends in ownership consolidation at the national and local levels, ownership diversity,

format diversity, satellite radio, radio industry financial performance, radio listenership, and radio

advertising rates. It presents some hypotheses, such as the impact of radio ownership

consolidation on radio advertising rates, but does not reach conclusions. Among its findings and

hypotheses are:

•

From March 1996 to March 2007, the number of commercial radio stations in the

United States increased by 6.8%, to 10,956. During the same time period, the

number of owners declined 39%, from 5,133 to 3,121.

•

The decline in the number of owners reflects a continuation of the consolidation

of the commercial radio industry that has occurred since passage of the 1996 Act;

however most of the consolidation occurred in the years immediately following

passage in 1996. From 1996 to 2000, on average 18.5% of radio stations changed

hands each year; from 2001 to 2006, the annual average fell to 7.8%.

•

From 1996 to 2002, the number of radio station owners with 20 or more stations

doubled from 25 to 50; in the last five years that figure has increased to 60, a

change of only 20%.

•

The two largest radio group owners in 1996 owned fewer than 65 radio stations

each. In March 2002, the two largest radio group owners owned 1,156 and 251

radio stations, while the third, fourth, and fifth largest held 206, 184, and 100

respectively, representing a substantial shift in consolidation. As of March 2007,

the two largest radio group owners consisted of 1,134 and 302 radio stations,

while the third, fourth, and fifth largest held 226, 159, and 110, respectively. And

the largest group owner, Clear Channel Communications, in November 2006

announced plans to restructure itself and sell 448 stations. Thus, consolidation

has increased only slightly since 2002 and appears to be about to decrease.

•

Approximately 60% of all commercial radio stations are licensed to communities

in the 299 radio markets delineated by Arbitron; more than three-fourths of the

U.S. population resides in these markets. In the 50 largest markets, on average,

the top firm holds 34% of market revenue, the second firm holds 24%, and firms

three and four split an additional 26%. For the 100 smallest markets, on average,

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the first firm holds 54%, the second firm holds 30%, and the next two firms split

13%. Overall, in 189 of the 299 Arbitron radio markets (over 60% of the

markets), one entity controls 40% or more of the market’s total radio advertising

revenue, and in 111 of these markets the top two entities control at least 80% of

market revenue.

•

Although there has been an historical trend toward greater concentration in local

radio markets, this trend has substantially tapered off over time, with no

substantial change in four-firm concentration ratios between March 2002 and

March 2007.

•

The decline in the number of radio owners nationally reflects a general trend

across Arbitron markets, and not simply consolidations in a few large or small

markets. In March 2007, the average number of owners across all Arbitron

markets was 9.4, with a range of 6.5 in the smallest markets (ranks 101-299) to a

high of 23.9 in the 10 largest markets. In March 2006, the average number of

owners in an Arbitron market was 13.5.

•

The average number of radio formats available in an Arbitron market has been

about 10 over the March 1996-March 2007 period, with no trend in either

direction. The smallest markets have offered an average of nine formats; the 10

largest markets have offered an average of 16 formats. The number of formats

declines as the market gets smaller. However, while the average number of

formats nationwide has held steady, the number of formats has declined slightly

in some of the larger markets while increasing in most of the smaller markets.

The Report states that the chosen measure of format, based on format categories

in the BIA Radio Database, may not be the best proxy for capturing the diversity

of programming.

•

The growth in subscriptions to the two satellite radio services—Sirius and XM—

has been dramatic, increasing more than 100-fold since 2002, to more than 14.5

million subscribers.

•

The earnings before interest and taxes margin (EBIT margin), defined as the ratio

of a firm’s earnings (before subtracting out interest and taxes) to the firm’s total

sales, represent the gross profit margin of a company. Before 2001, the quarterly

gross profit margins of the publicly traded radio broadcast companies were

greater than the gross profit margins of the S&P 500 companies for 15 out of 21

quarters. The median EBIT margin for the study sample of radio companies fell

below the median S&P 500 companies during 2001, but the radio companies

have consistently outperformed the S&P 500 median since the first quarter of

2002. Throughout the period, the gross margins of the radio companies show a

strong seasonality, with gross margins generally highest during the second and

third quarters of the year.

•

The net profit margin, defined as the ratio of a firm’s net income to its sales,

reflects the operating performance of the firm after netting out interest and taxes

from the EBIT margin. While radio companies are realizing greater gross profits

than the typical S&P company, they are netting less than the benchmark S&P

company. New profit margins for radio companies remained substantially below

those for the typical S&P company during 2001 and the first quarter of 2002.

After the first quarter of 2002, the trend for net profit margins for radio

companies appears to have risen, while the trend for the median S&P 500

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company appears to have risen slightly. The overall pattern of radio companies

realizing larger gross profits but netting less than the typical S&P firm suggests

that radio companies either are paying more in taxes than other firms are, or are

paying more in interest than other firms (that is, using more debt to finance

operations).

•

Debt as a percentage of total capital represents a measure of a firm’s debt load

and is the typical measure of a firm’s relative use of debt capital vs. equity

capital. The publicly traded radio companies have generally used more debt than

the typical S&P 500 company to finance operations and growth. Therefore, the

radio companies’ lower net profit margins result, at least in part, from the greater

interest expense of these companies. Another effect of the greater debt loads

(leverage) is the increase in the volatility of radio-sector earnings compared to

the less-leveraged S&P 500 companies. This increase in volatility is seen by

comparing the variability of the radio-sector median EBIT Margin and net profit

margin values with those of the S&P 500 firms.

•

Publicly traded radio companies’ debt as a percentage of capital declined over

time until the third quarter of 2004, approaching the debt load of a typical S&P

500 company. However, since then, the ratio of debt to total capital for publicly

traded radio companies has increased significantly and remains well above the

S&P benchmark.

•

Fixed charge coverage after taxes is a measure of a firm’s ability to pay its

interest expense out of its net income. This is measured as the ratio of quarterly

net income (before extraordinary items) divided by interest expense, from which

1 is subtracted. The ratio measures how many times the interest expense is

“covered” by the company’s net income, which provides a sense of the

company’s ability to manage its debt load. While not generating the same level of

net income to interest expense as other companies, the publicly traded radio

companies appear to be generating enough cash flow to meet their interest

obligations. Fixed charge coverage for radio stations remains positive for all

quarters except the first and third quarters of 2001 and the first quarter of 2002.

Fixed charge coverage rose substantially after the first quarter of 2002 for the

radio sample and after the first quarter of 2003 for the S&P 500.

•

The market to book ratio is defined as the ratio of a firm’s market value of equity,

which is the accounting value that remains of a firm’s assets after the firm pays

off its creditors. The market to book ratio is a useful measure of the market’s

assessment of that firm’s future prospects. Until the year 2000, the market placed

higher valuations on radio properties and operations than those of other

companies, such as those reflected in the S&P 500 median market to book values.

The market to book ratios of the radio companies exceeded those of the S&P 500

companies in all 17 quarters before 2000. However, in the first quarter of 2000,

the median market to book ratio for the study sample of radio companies dropped

below that of the median S&P company, and has remained below the S&P level

ever since. This seems to suggest that the market value of radio companies

relative to book value had declined relative to the S&P 500.

•

Quarterly stock market returns of the publicly traded radio and S&P 500

companies are calculated by including their cash dividends in the return

calculation. This return measure reflects both stock price appreciation and the

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return of cash in the form of dividends to shareholders. While the typical radio

company’s returns have varied more than those of the typical S&P company,

radio company stocks overall outperformed the broader market, as reflected in

the S&P 500 median stock returns, in most quarters, until the year 2000. The

greater volatility of the radio companies’ stock market returns is related to the

greater leverage of (greater use of debt by) these companies. But stock returns for

radio companies declined sharply throughout 2000 and 2001. Beginning in 2002,

radio companies’ stock market returns bounced back relative to the S&P 500,

even exceeding it in some quarters. Since 2004, the radio companies seem to

have underperformed the S&P 500.

•

The decline in stock returns in 2000 and 2001 likely was the result of the slowing

economy during that time. Revenues in radio depend exclusively on advertising,

and a firm’s willingness to advertise is highly sensitive to how much consumers

are buying. The percent change in retail sales and food services (adjusted for

inflation) fell sharply beginning in the second quarter of 2000. Retail sales

growth rates, while somewhat volatile, have rebounded from the 2001 trough, but

have not reached the peak growth rates of 1999.

•

A possible source for radio’s stock decline may be the slowing of the radio

industry’s consolidation. As opportunities for increased profit through radio

acquisitions have dwindled, investors’ have placed a lower value on the radio

industry, depressing the value of the radio industry’s stock.

•

The trend in the average number of listeners to radio per quarter hour has

continued to fall since 2002. From autumn 1998 to autumn 2006, Arbitron reports

that the average number of listeners per quarter hour has fallen from

approximately 19.7 million to 18.4 million, a drop of 6.6%.

•

While listenership declined slightly between autumn 1998 and autumn 2000,

listener ratings held steady between the summer of 2000 and the early portion of

2005. During 2005, however, radio listenership appears to have taken another

substantial dip. Between autumn 1998 and autumn 2006 the average annual

decline in the average number of listeners per quarter hour is 0.82%.

•

Average radio advertising prices have increased since September 1996. From

1996 to 2002, radio advertising prices increased steadily in excess of the

consumer price index (CPI). Radio advertising prices dipped between 2002 and

2004 before continuing to increase. The dip in prices was probably a lagged

response to the sharp decline in growth in retail sales. Overall, it appears that the

cost of radio advertising has nearly doubled since the 1996 Act was passed. By

contrast, the CPI increased 29% during the same period. In other words, the CPI

increased approximately 3% per year during this time period, while the annual

growth rate in radio advertising prices was approximately 10%.

•

Radio consolidation may have an effect on radio advertising prices if advertisers

have fewer radio owners to bargain with over prices. Consolidation in the radio

industry may allow radio companies to exercise market power in local markets or

possibly nationally.

The peer reviewer, George Ford, Chief Economist of the Phoenix Center for Advanced Legal and

Economic Public Policy Studies, found the discussion of the descriptive statistics relies on

established techniques and theoretical concepts. He found the study’s interpretation of the trends

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in the financial indicators to be consistent with standard professional practice. “While others may

have different interpretations of the trends, those used in this study are sensible and consistent

with professional standards.” He stated the data sources used are generally viewed as reliable and

their use for this study is reasonable.

Dr. Ford has one substantive criticism: “In my opinion, the statistics do not support the argument

that consolidation has slowed (though they are consistent with the argument). Consolidation need

not be the consequence of stations sales; concentration arises only when such sales reflect a

purchase by entities that already own radio stations.”

The Filing by the Consumer Commenters

The Consumers Union, Consumer Federation of America, and Free Press jointly submitted a 321page document that, among other things, presents detailed criticisms of the 10 FCCcommissioned studies and provides the results of their own econometric models. These models

were constructed by revising some of the econometric models in the FCC-sponsored studies to

“correct for” perceived mis-specifications that either had been identified by the peer reviewers or

by the Consumer Commenters themselves and were run using the data from the FCC studies.

The Consumer Commenters state that “One of the positive externalities of the 10 studies is the

creation of a usable data set for the public to use to conduct policy analysis of its own.” But once

they perform their own analysis, the Consumer Commenters claim that:

Once definitions are corrected and policy relevant variables included in properly specified

statistical models, there is no support in the FCC data to relax media ownership limits. In

fact, the FCC’s data show the opposite result. Newspaper-broadcast cross-ownership results

in a net loss in the amount of local news that is produced across local markets by broadcast

stations. The Commission has studied the impact of these mergers only at the station level,

rather than at the market level. At the market level, cross-ownership results in the loss of an

independent voice as well as a decline in market-wide news production. This finding

obliterates the conclusions of the recent studies on cross-ownership as well as the basis for

the Commission’s argument for relaxing the rule in the Prometheus case.

The Consumer Commenters’ studies were submitted during the comment period in the

proceeding. The public was given 15 days to submit reply comments responding to the

comments. Media General, Inc., submitted reply comments that included an appendix by Dr.

Harold Furchtgott-Roth, entitled “Econometric Review,” that raised methodological issues with,

and challenged the conclusions of, the Consumer Commenters’ studies but did not provide

regression analysis of its own. 39

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 and Local Markets; Definition of Radio Markets, MB

Docket Nos. 06-121 and 02-277 and MM Docket Nos. 01-235, 01-317, and 00-244, Reply Comments on FCC

Research Studies on Media Ownership, Media General, Inc., November 1, 2007, Appendix A.

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The Consumer Commenters’ Criticisms of the FCC Studies

The Consumer Commenters present a number of criticisms of the FCC studies. Some of these

involve relatively narrow technical matters of model specification that are unrelated to whether

the models address the right policy issues but may have significant implications for the statistical

analysis.40 These criticisms should be addressed by expert econometricians capable of vetting

their seriousness. 41 Other criticisms raise fundamental questions about whether the models in the

FCC-commissioned studies address the right policy issues or are constructed in a fashion that

allows the statistical results to be unambiguously interpreted. Here are a few of the Consumer

Commenters’ policy-related criticisms.

Analysis should be performed at the market level, not at the level of

individual stations

The Consumer Commenters’ most fundamental criticism is that, with the exception of Study 5 on

radio ownership, the FCC-sponsored studies address the effect of cross-ownership on the local

news output of the cross-owned stations, rather than the effect on the local news output in the

entire market:

From the standpoint of the individual citizen, it is the total amount of available news and the

diversity of independent voices offering that news in the entire market that matters. While in

some cases there may be an increase in news output at the individual cross-owned station

(although much of this is sports and weather), examining the question at the market level

reveals a decline in the total output of local news for the market as a whole.

It is possible for cross-ownership to lead to increased local news programming by the crossowned station, but decreased local news programming for the overall market. For example, crossownership might reduce the news production costs or increase the advertising revenues of the

cross-owned station, thus fostering more spending by that cross-owned station on local news

programming, but at the same time reduce the advertising revenues and news audience for

competing stations, thus discouraging them from providing local news programming. The latter

effect could be greater than the former, resulting in less total local news programming.

Analysis of cross-ownership should distinguish between cross-owned

television stations that had been grandfathered in 1975 and those created

subsequently by waiver of the rules

The Consumer Commenters claim that there are two very different types of stations that make up

the category of television stations cross-owned with newspapers—those that were grandfathered

For example, Consumer Commenters claim that in Studies 3 and 4 the standard errors should be clustered by station

or by market to account for non-independence; that in Studies 3, 4, and 6 market-time fixed effects should be included

to relax the assumption that time period effects are equal across all markets; and that in Studies 3, 4, and 6 the models

should be run with parent fixed-effects.

The technical econometric criticisms of the FCC-commissioned studies will not be addressed in this report.

Similarly, an analysis of the technical criticisms of the econometric analysis of the Consumer Commenters’ filing falls

to expert econometricians to perform.

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at the time the cross-ownership rule was first adopted in 1975 and those that have been created

subsequently through the waiver process.

TV-newspaper combinations with waivers involve the recent entry of a TV station into a

cross-ownership situation. The owners bought the news operation, they did not create it. To

claim that the behavior of the acquired stations reflects the effects of cross-ownership is

simply incorrect—in the form of an error of confusing correlation with causation. Crossownership did not create the behavior. Since the grandfathered situations have been in place

for a long period of time, it is much more reasonable to argue that the behavior of the TV

stations in those combinations reflects the long-term effect of cross-ownership.

The waived cross-ownership situations have been created recently, primarily by the merger

of highly rated TV stations in large, competitive markets with dominant newspapers. The

acquired stations produced more news before they merged and, lacking time series data, the

analysis claim, “benefits” of cross-ownership that just reflect the acquisition of a station that

already did more news.... The stations that entered into cross-ownership combinations in

recent years, subject to waiver, were in less concentrated, larger markets with higher market

shares.

The newly minted TV-newspaper combinations are also likely to behave differently for

another reason.... [B]ecause they are subject to a waiver, they are likely to be on their best

behavior. If the waivers are made permanent by a change in the policy, their behavior may

change, perhaps in the direction of the grandfathered stations.

One key study inappropriately addresses all news programming and all public

affairs programming rather than local news programming and local public

affairs programming

The Consumer Commenters argue that since localism is one of the three primary goals of U.S.

media policy, the FCC studies should focus on the impact of media ownership characteristics on

local news and public affairs programming. But one key study, Study 4, Section I, “The Impact of

Ownership Structure on Television Stations’ News and Public Affairs Programming,” does not

address local news programming or local public affairs programming, but rather looks at the

impact of media ownership characteristics on all news programming and all public affairs

programming.

Some of the FCC-commissioned models fail to account for key station and

market characteristics

The Consumer Commenters, based in part on comments made by the peer reviewers, claim that

some of the FCC-commissioned models fail to account and control for key station and market

characteristics that may affect programming. These include:

•

the existence of a television duopoly in the market/whether a particular station

was part of a duopoly.

•

the existence of Local Marketing Agreements in the market/whether a particular

station was part of an LMA.

•

market concentration, as measured by the Herfindahl-Hirschman Index (HHI)

used by the antitrust authorities. The three long-standing goals of United States

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

media policy are localism, diversity of voices, and competition. Market

concentration is a measure of competition.

•

whether the television station is owned and operated by, or affiliated with, one of

the four major television networks (ABC, CBS, Fox, and NBC). These tend to be

larger stations, with higher revenues, and might be able to provide more local

news programming.

•

the age of the television station and/or whether it is a VHF or UHF station.

(These two variables are highly correlated because television was first offered

over the VHF spectrum and only later offered over UHF spectrum.) VHF signals

are stronger and their reception tends to be better, so, other things equal, VHF

stations tend to have larger reach and greater revenues, which might increase

their ability to provide local news programming. They also are more likely to be

owned and operated by, or affiliated with, one of the four major television

networks, again influencing revenues and perhaps programming.

The FCC has failed to adequately account for the true level of female and

minority ownership or to analyze the impact of relaxing ownership limits on

minority ownership

The Consumer Commenters fault the FCC for failing to create an accurate census of the gender

and race of broadcast licensees based on its own data and for allegedly commissioning two lastminute studies (Studies 7 and 8) in the absence of usable data on minority ownership. They state

that the Commission’s flawed data on minority and female ownership infected all of the major

statistical studies of the broadcast media (Studies 3, 4.1, and 6) and claim that closer examination

of corrected data shows that relaxation of media ownership limits reduces minority ownership.

The Consumer Commenters claim (at p. 14) that the authors of the two external studies of

minority issues commissioned by the FCC “abandoned the FCC’s data base and were forced to

resort to other data bases. Our own efforts to construct an accurate census of minority ownership

suggest that the FCC has missed between two-thirds and three-quarters of the stations that are

minority/female owned.”

According to the Consumer Commenters, the “main issue [with the two studies of minority

issues] is the absence of usable data.” The authors of Study 7 relied on a Bureau of Census count

of firms to estimate minority ownership. But the Consumer Commenters claim that the authors

should have counted stations, not firms, since on average minority-owned firms have fewer

stations than majority-owned firms, so data on minority-owned broadcast firms as a share of all

broadcast firms will overstate the actual representation of minorities in broadcast ownership.

The Consumer Commenters state that the authors of Study 8, which analyzes the impact of the

FCC’s duopoly rules on minority ownership, sought to build an accurate data base, but did not

achieve that goal. Nonetheless, the Consumer Commenters state “the study is supportive of our

independent findings. It finds that sales of minority stations were twenty times higher in duopoly

markets than in non-duopoly markets. This corroborates the conclusion in our analysis that

relaxation of ownership limits has already reduced minority ownership.”

But the Consumer Commenters do not explain why they appear to have more confidence in the

findings of Study 8, with which they themselves find fault, than in the findings of the other FCC-

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

commissioned studies, other than that the Study 8 findings are in agreement with their own

findings. That confidence appears to be misplaced for several reasons:

•

The Consumer Commenters themselves admit the authors of Study 8 were not

able to build an accurate minority ownership database. The Consumer

Commenters claim that the FCC database missed between two-thirds and threequarters of the stations that are minority/female owned. Did the database

constructed by the authors of Study 8 capture many of those missing, and thus

uncounted, minority and female owners? If not, depending on whether the

undercount was more pronounced in the earlier or later years of the 1999-2006

period, the findings of Study 8 might understate or overstate the actual reduction

in minority and female ownership.

•

A further statement by the Consumer Commenters suggests that the database

used in Study 8 failed to identify many of the minority and female owned stations

that the Consumer Commenters identified. They state that Study 8 “estimates a

large decline in the total number of minority owned stations, Free Press [one of

the Consumer Commenters] did not identify such a large absolute decline,

although it did see a relative decline.” If Study 8 overstates the decline in

minority-owned stations (especially in the later years of the study period), the

Consumer Commenters may have misplaced its confidence in the Study 8 finding

that sales of minority stations were twenty times higher in duopoly markets than

in non-duopoly markets.

•

As explained in the earlier discussion of Study 8, that study improperly attributes

all the changes in minority ownership between 1999 and 2006 to the change in

the duopoly rule, without controlling for any of the other factors at play during

that time, such as the elimination of the minority tax certificate program. Thus, it

likely overstates the impact of the change in the duopoly rule on minority

ownership.

The study on media ownership characteristics and media bias employs

“contentless content analysis” that is flawed, and has other methodological

problems

In analyzing the relationship between media ownership and media bias, the author of Study 6

ascribes slant to a media outlet by defining certain words or issues as Democratic or Republican

and then counting the number of times the word is used or the issue is covered by stations. What

is actually said or shown about the issue is not analyzed. The Consumer Commenters call this

“contentless content analysis” and claim that academics and professional journalists have

identified four major concerns with the methodology:

•

It fails to understand what it means for a reporter to cite a source and to

distinguish between ideological opinion in news coverage and reporting.

•

The selection of external referents to ascribe ideology to media outlets is

inevitably biased.

•

Selectivity in coverage of citations leads to bias and questions of

unrepresentativeness of the data.

•

The creation of single indices to represent complex concepts is flawed.

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

The Consumer Commenters argue that counting references to phrases or issues does not reveal

how those phrases were used or issues portrayed. For example, the study categorizes the Iraq war

as a Democratic issue. But during the week covered by the study, President Bush visited 10 states

to hold press conferences with local candidates or give major speeches, speaking frequently about

the war. Under the methodology used, news coverage of those presidential speeches was likely

categorized as having a Democratic slant.

The Consumer Commenters also claim that, by choosing to analyze a single, special week—the

week before the 2006 election—rather than the routine practice of building a database from

randomly selected days to construct a two-week sample, the author risked using a nonrepresentative sample that might be radically different from normal.

Also, the methodology used in Study 6 is an extension of the methodology used in the research of

the peer reviewer of Study 6, and the Consumer Commenters argue that the peer reviewer

therefore cannot provide an objective review.

The study on vertical integration ignores several fundamental characteristics

of the industry and uses biased data

The Consumer Commenters claim that Study 9 totally ignores several fundamental characteristics

of the contemporary video industry, including:

•

the relegation of the small number of independent programmers in prime-time to

unscripted reality shows;

•

the dominance of vertically integrated programming in pilots and syndication;

•

the

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