Broadcast Services; Television Stations

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 73

[MM Docket Nos. 87-8 and 91-221; FCC 94-322]

Broadcast Services; Television Stations

AGENCY: Federal Communications Commission.

ACTION: Further notice of proposed rulemaking.

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SUMMARY: The Commission proposes a new analytical framework in which to

evaluate its television ownership rules. This framework provides a more

structured approach to a comprehensive economic and diversity analysis

of the rules. This Further Notice of Proposed Rule Making (FNPRM) is

issued in order to allow compilation of a comprehensive record, using

this new framework, which would enable the Commission to make a fully

informed decision in this important area.

DATES: Comments are due by April 17, 1995, and reply comments are due

by May 17, 1995.

ADDRESSES: Federal Communications Commission, Washington, D.C. 20554.

FOR FURTHER INFORMATION CONTACT:

Roger Holberg, Mass Media Bureau, Policy and Rules Division, (202) 418-

2130 or Robert Kieschnick, Mass Media Bureau, Policy and Rules

Division, (202) 418-2170.

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SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's

Further Notice of Proposed Rule Making in MM Docket Nos. 87-8 and 91-

221, FCC 94-322, adopted December 15, 1994, and released January 17,

1995. The complete text of this FNPRM is available for inspection and

copying during normal business hours in the FCC Reference Center (Room

239), 1919 M Street, N.W. Washington, D.C., and also may be purchased

from the Commission's copy contractor, International Transcription

Service, (202) 857-3800, 2100 M Street, N.W., Suite 140, Washington, DC

20037.

Synopsis of Further Notice of Proposed Rule Making

1. This FNPRM proposes a new analytical framework within which to

evaluate our ownership rules applied to television stations. This new

framework provides a more structured approach to economic and diversity

analyses of the rules. While the Commission found the comments received

in response to the Notice of Inquiry (56 FR 40847, August 16, 1991) and

Notice of Proposed Rule Making (NPRM) (57 FR 28163, June 24, 1992) in

this proceeding useful, we believe that the issuance of this FNPRM is

necessary to permit compilation of a record based upon this new

framework which will enable us to make a fully informed decision in

this important area. Additionally, the Commission solicits further

comments in MM Docket No. 87-8, Television Satellite Stations, on the

treatment of satellite television stations under our ownership rules.

2. This review of the television ownership rules originated as a

result of a 1991 report developed by the Commission's Office of Plans

and Policy, which found that the market for video programming had

undergone tremendous changes over the previous fifteen years, and that

new competition to ``traditional'' broadcast services had affected the

ability of broadcast services to contribute to a diverse and

competitive video programming marketplace. The Notice of Inquiry

initiating this proceeding thus solicited comment on whether the

Commission's existing ownership rules and related policies should be

revised to enable television licensees to be more responsive in meeting

this competition. The subsequent Notice of Proposed Rule Making was

issued to consider changes to several long-standing structural rules

governing the television industry, including the rules limiting the

ownership interests that a person or entity may have in television

stations on both the national and local level. The Commission also

solicited comment on certain rules governing the relationship between a

network and its affiliates.

3. This FNPRM considers the effects of several major developments

since the 1992 NPRM that have altered the telecommunications landscape

and accentuated the need to further explore the desirability of

modifying the TV ownership rules. In particular, the Commission has re-

regulated cable television pursuant to Congressional mandate, leading

to rate reductions and raising the prospect of increased cable

penetration. DBS and wireless cable (MMDS) are becoming increasingly

important players in the video marketplace, and some telephone

companies may soon begin to provide video dialtone service. These

developments increase the number of competitors broadcast TV stations

face and thus may justify loosening the restrictions on broadcast

television station ownership. Thus the Commission wishes to analyze the

extent to which our TV ownership rules should explicitly account for

these competing media. Finally, in 1992, the Commission adopted a

regulatory scheme, recently reaffirmed and clarified, governing LMA

rules for radio and wishes to consider whether similar rules should be

adopted for TV.

I. Competitive Analysis of Television Broadcasting

Framework for Competitive Analysis

4. The purpose of competitive analysis is to describe the markets

at issue in light of established economic theory and legal precedent to

determine how the current market structure and regulatory schemes

affect competition and consumer welfare. The Commission's competitive

analysis of the rules at issue in this proceeding focuses upon whether

and to what extent market power exists and is being exercised, and what

effect these rules have on the existence and exercise of this market

power. This analysis requires two steps: (1) Definition of the relevant

product markets, and (2) examination of these markets' structure for

evidence of the existence and exercise of market power. A standard

method to define the product market within which a particular firm

operates is to ask the question: If this firm raised the price of its

produce, to what degree would consumers continue to purchase that

product or turn to the products of other firms, and what are these

other products and other firms? After this set of relevant products is

determined, the geographic extent of the market is outlined. In

general, the geographic market refers to the area where buyers of the

particular product can practicably turn for alternative sources of

supply, or the area in which sellers sell this product. A useful

technique in determining the geographic extent of the market is to

examine the geographic region where buyers would buy and where sellers

would sell in response to a ``small but significant and nontransitory''

price increase by any firm in that market. No single geographic market

definition is likely to be decisive for all purposes in examining a

particular industry.

5. Once reasonably interchangeable substitutes are identified and

the geographic extent of the market is delineated, the participants in

the relevant product market can be identified. This identification

allows market shares to be calculated to characterize the market's

structure and its concentration. Such calculations are useful as one

component of a competitive analysis of potential market power. As with

many other human activities, a firm's possession and use of market

power is a matter of degree. The potential for the exercise of market

power is limited by the degree to which its consumers can turn to

substitutes, the competition offered by its existing competitors, the

potential competition offered by new entrants, and the degree to which

its suppliers can sell their product to other firms. If the relevant

product markets are properly defined, the ability of consumers to turn

to substitute products offered by other firms will already be reflected

in their definition. Market share and concentration can only be

reasonable proxies to estimate market power if the market is properly

defined.

6. Market power cannot be adequately assessed by mere reference to

market shares, however, because other factors, such as barriers to

entry, can influence the degree to which market share conveys market

power. As a result, in addition to market concentration, the conditions

of entry in each market must be examined to determine whether the

exercise of market power is possible.

Television Broadcasting's Relevant Markets

7. With the above principles in mind, the Commission turns to an

identification of the product markets influenced by the rules under

consideration. We find that TV broadcasters operate in three economic

markets relevant to the rules under consideration: (1) The market for

delivered video programming; (2) the advertising market, and (3) the

video program production market. For each of these markets, we need to

identify what

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products are relevant substitutes for one another, who are suppliers of

these products, what is the geographic scope of the relevant market,

and how to measure market share for the different suppliers. It is

these questions to which we now turn for each of television

broadcasting's relevant markets.

The Delivered Video Programming Market

8. Delineation of Relevant Substitute Products and Suppliers. To

identify the relevant substitutes to delivered video programming, it

must be recognized that Americans can spend their leisure time doing

other activities. The stability of Americans' use of television as a

leisure activity suggests that video programming seen on television may

be a sufficiently different economic product from other entertainment

so that it should be treated as a separate product market. However,

parties are requested to comment on this view and supply data and/or

analysis which demonstrates the economic relevance of their proposed

substitutes for delivered video programming.

9. Turning to an identification of economically relevant suppliers,

the Commission is confronted by a more difficult demarcation of this

market. Public broadcast station operators clearly compete with

commercial broadcast television operators for viewer attention. Cable

system operators also compete with broadcast television stations and

have grown in importance as a group of suppliers of delivered video

programming. The number of cable video networks and the channel

capacity of cable systems continue to grow dramatically. However, the

Commission notes that more than half of all viewing hours in cable

households during the 1992-93 season were of retransmitted broadcast

signals. In addition, more than one-third of all households that could

subscribe to cable elect not to do so. Because some consumers choose

not to purchase cable service, the degree to which cable TV channels

are substitutes for broadcast television channels is an issue on which

the Commission requests specific comment.

10. In addition to cable, there are now several emerging for-

subscription multichannel providers of video programming, such as home

satellite dish service, wireless cable service, and direct broadcast

satellite service, which may compete with broadcasters in the same

manner as cable. While all the above listed alternative suppliers

currently provide some amount of delivered video programming, we will

tentatively conclude, for purposes of this FNPRM, commercial broadcast

television operators, public broadcast television station operators,

and cable system operators to be economically relevant alternative

suppliers of delivered video programming. While the Commission wishes

to tentatively include some of the other suppliers (e.g., MMDS, DBS,

VDT, etc.) in our demarcation at this time, we concede that it may not

be appropriate to include them because their current market penetration

is so low that they are not relevant substitutes to a majority of

Americans. However, this situation may rapidly change and we solicit

comment on these tentative conclusions. Finally, while VCRs are present

in a large number of television households, they do not provide a

complete schedule of video programming and so are treated as

sufficiently different as to suggest that perhaps they should not be

included at this time. However, commenters are asked to provide

information on the degree of economic substitutability of all

internatives considered above to a broadcast TV station's video

programming. In submitting comments, commenters should provide evidence

on the extent to which these are economically relevant substitutes as

demonstrated by their cross-price elasticities of demand and supply.

11. Delineation of the Market's Geographic Scope. Because

commercial broadcast television stations have a limited signal range,

it appears that, from these operators' perspective, the ``area of

effective competition'' is geographically limited. This suggests that

commercial broadcast television operators compete in a ``local'' market

for delivered programming. However, the alternative suppliers that

might be included in the product market have different service areas.

Therefore, we recognize that as competition and technology change the

geographic reach of the relevant competitors, our notions of the

geographic scope of the market for delivered video programming may

change.

12. Earlier comments suggested several alternatives for defining

the boundaries of the ``local'' market for delivered video programming.

While in the past, the Commission has used the Grade B contour to

define a local market, comments previously submitted in this proceeding

tended to suggest the use of either a smaller geographic area

definition (the Grade A contour) or a larger geographic area definition

(the DMA). The Commission proposes to continue to rely on a contour

overlap standard but will consider the DMA definition of ``local'' for

determination of the relevant geographic dimensions of the market for

delivered programming. However, further comment is sought on the use of

the DMA definition of the geographic scope of these markets. Are DMAs

equally applicable for alternative distributors such as cable? Are they

too large?

13. Delineation of Market Power Measurement. To determine whether

market power exists, the Commission must also determine how to measure

market concentration within the local delivered video programming

market. There are four different measurement scales that were

frequently mentioned in earlier comments. They are: (1) The number of

separately owned stations or outlets, (2) the audience share of the

separately owned stations or systems, (3) the number of available

channels, and (4) the audience share of the separately available

channels. The Commission tentatively proposes to use the number of

separately owned stations or outlets serving a market as our unit of

measure. However, we recognize its potential limitations and would like

additional comment on which of these four measurement scales the

Commission should use. Specifically, if the Commission were to use the

audience share of the separately available outlets or channels, how

should we address the variability this introduces into our television

station ownership rules because of changes in the number of outlets or

channels offered and the popularity of those outlets' or channels'

programming over time? Further, if the Commission were to count the

number of available channels, how should mandated-access channels on

cable systems be included? Finally, comment is invited on the

conditions of entry and other structural features of this market which

influence the exercise of market power.

Advertising Markets

National Advertising Market

14. Delineation of Relevant Substitute Products and Suppliers.

Examination of available data (See appendix D in the full text of the

decision) suggests that video advertising is the mass media of choice

for advertisers wishing to reach national audiences. Unfortunately, the

Commission has no clear evidence on the degree to which all the other

alternatives reflected in Appendix D are economically relevant

substitutes for video advertising. Consequently the Commission will

tentatively consider video advertising an economically distinct segment

of the national advertising market. However, we solicit any evidence

that commenters can provide which demonstrates that some

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of the other alternatives provided in Appendix D are economically

relevant substitutes for video advertising of the national advertising

market.

15. The Commission believes that the primary suppliers of video

advertising in the national market consist of the broadcast networks,

program syndicators, cable networks, and perhaps cable multiple system

operators (MSOs). The Commission tentatively excludes individual

broadcast television stations' and cable system operators' sale of

advertising to media buyers (i.e., spot sales) from this market because

spot sales of advertising to national advertisers are frequently made

to allow the national advertisers to reach a more targeted geographic

focus and not to reach a national audience. Further, at this time, we

do not include wireless cable operators, DBS operators, or VDT

operators because they do not presently provide appreciable amounts of

national advertising. However, the Commission solicits evidence which

would demonstrate that we have either included too many or too few

alternative suppliers of national video advertising.

16. Delineation of the Market's Geographic Scope. As stated

earlier, we view the national advertising market as distinct from the

local advertising market. By its very characterization, we view this as

advertising directed to a national audience, and hence national in its

geographic scope.

17. Delineation of Market Power Measurement. To measure market

share for the purpose of discerning the concentration of this market,

the Commission proposes to use advertising revenues. Because of data

availability concerns, we will proxy this by advertiser expenditures by

media, from such sources as McCann-Erickson Incorporated. However, we

invite suggestions of alternative measures which might be better

indicators of market share in the national video advertising market, on

the availability of data necessary to use the measure, and on the

conditions of entry and other structural features of this market which

influence the exercise of market power.

The Video Program Production Market

18. Broadcast TV stations are also involved in the video program

production market through their transmission of video programming

produced by others. The competitive concern about multiple ownership of

television stations in this market is one of either monopsony or

oligopsony power--i.e., the ability of one or several firms to

artificially restrict the consumption of programming or price paid for

programming.

19. Delineation of Relevant Substitute Products and Suppliers. The

products involved in the video program production market, from movies

to first-run syndicated television series, are readily distinguishable

from other types of programming, like radio programming, and are

therefore relevant substitutes. There are a number of sellers and/or

suppliers in this market, including program production companies,

broadcast television networks, movie studios, and syndicators.

20. Broadcast television stations are major buyers of video

programs and typically acquire the video programs they deliver to

consumers in one of three ways. First, a broadcaster can affiliate with

a broadcast network and obtain an entire package or schedule of

programming directly from its network (the network ``feed''). For

clearing its airtime for network programming, an affiliate is

compensated according to the time of the day it clears time for network

programming and the size of its potential audience. Second, television

broadcasters can also obtain programming from suppliers called

``syndicators''--national or regional entities that sell programming to

television stations on a market-by-market basis. Finally, television

stations can produce their own programming. Network affiliates and

independent stations both generally air such locally-originated

programming as local news and sporting events.

21. Over the last 15 years, the list of additional buyers of video

programs for delivery to consumers has grown. This increase in

potential purchasers would seem to imply that there is competition

among buyers of video programming and, thus, concerns that television

broadcasting companies exercise oligopsony power in the purchase of

video programs have lessened to some extent. However, the Commission

invites comment on this implication.

22. Delineation of the Market's Geographic Scope. The video

programming production market is clearly national and perhaps

international in scope, because television broadcasters obtain a large

portion of their programs from national providers. The fact that

television broadcasters produce some programming locally does not

detract from the national scope of this market, because the television

broadcasters could reasonably turn to national sources of supply for

programming.

23. Delineation of Market Power Measurement. The Commission

proposes to use expenditures on video programming as the proper means

of determining market shares for the purposes of examining the buying

power of the relevant purchasers of video programming. Commenters are

requested to discuss whether this a proper measure for assessing the

potential for oligopsony power in this market and on the conditions of

entry and other structural features of this market which influence the

exercise of market power.

Tentative Economic Conclusions

24. Above, the Commission has reached a series of tentative

conclusions about the three markets that broadcast television stations

are involved in that are important to consider in the context of this

FNPRM. The Commission will assume these delineations of relevant

substitutes and suppliers, geographic scope, and measures of market

power for the market for delivered programming, the market for

advertising, and the video program production market in subsequent

analyses of the effect of broadcast ownership rules under

consideration. To aid the reader, the Commission set out the

alternatives in Appendix E of the full text of the decision, and those

starred alternatives that will be tentatively used as working

assumptions about the relevant markets in further discussion. Clearly

these delineations should be the focus of comments on our competitive

analysis of television broadcasting, and so are subject to change based

upon comments and evidence received in response to the FNPRM.

25. In analyzing the economic effects of the rules under

consideration, the Commission assumes the above product market

descriptions, and considers: (1) Whether the existing evidence points

currently to exercise of market power (focusing upon prices in the

different markets); and (2) whether relaxing the current rules will

substantially increase the concentration of these markets to levels

which raise concerns about the potential for the exercise of market

power?

II. Diversity Analysis of Television Broadcasting

26. The Commission has historically examined the effectiveness of

its broadcast regulations in achieving diversity goals by primarily

assessing diversity within the broadcasting industry, on national and

local levels. However, due to the increasing availability of a variety

of video programming sources, the Commission believes that a new

framework for

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assessing diversity, which takes into account the developments in the

communications marketplace and which captures the rigor of our economic

analysis may be appropriate.

27. In the full text of this FNPRM, the Commission lays out its

traditional diversity goals and approaches for achieving them, raises

questions concerning new approaches for defining diversity, and seeks

comment on how to apply a framework for assessing the efficacy of

broadcast regulations in achieving these goals. More specifically,

Section IV A describes the three types of diversity that the

Commission's rules have attempted to foster--viewpoint, outlet and

source diversity, and the two basic techniques the Commission has used

to achieve these diversity goals--direct means (such as

nonentertainment programming guidelines) and indirect means (like our

structurally-based ownership rules). Section IV B, then considers new

approaches to ensure diversity, and Sections IV C and D set forth

possible methods for defining what markets should be evaluated to

determine whether the Commission's diversity goals are being served by

the particular broadcast regulation in question. Section IV C proposes

a broadening of the ``product'' market that the Commission has

traditionally examined for diversity purposes, to go beyond just

broadcast-delivered video programming received in the home, and Section

IV D discusses the geographic markets the Commission would examine in

determining whether its diversity goals are being furthered by the

broadcast regulation in question.

28. Once the Commission has determined the appropriate product and

geographic markets that are relevant for assessing whether the

diversity goals of a rule are being met, we will examine each rule at

issue by (a) identifying which diversity goal or goals the rule seeks

to foster (e.g., viewpoint, outlet and/or source), (b) determining

whether the rule in fact fosters such goals in the relevant markets,

and (c) deciding whether, in those markets, there is a need for

continued regulation to maintain or increase existing levels of

diversity.

III. National Ownership Rule

29. Currently, a company is limited to owning 12 broadcast TV

stations nationally in different local markets and to a maximum

aggregate 25% national audience reach. The reach limit presently

prevents a group owner from owning television stations in each of the

12 largest markets. The national networks and some other group owners

have concentrated their station purchases on stations located in

markets with the largest audiences. As a result of this strategy, some

group owners have reached the 25% audience reach limit before they have

acquired 12 stations. Thus, it appears that for many of the existing

national TV group owners, the 25% national audience reach limit is the

more binding regulatory constraint on group acquisition of additional

stations nationally. In order to examine whether the national ownership

limits should be relaxed, the full text of this FNPRM presents first a

competitive analysis and then a diversity analysis.

Effects on Competition

30. In conducting the competitive analysis, the Commission seeks to

examine the effects of relaxing these rules on the potential

competitiveness of the markets for delivered video programming,

advertising, and video program production. The primary focus in each of

these discussions is on the effect of changing the rules on the

concentration of the market. As a consequence of these analyses, the

FNPRM solicits comments on a number of issues such as: (1) The effect

of relaxation of the national ownership limits on competition in the

local market for delivered video programming; (2) the effect of

relaxation of the national ownership limits on competition in local

advertising markets; (3) evidence concerning economies in the

distribution of video programming which may accrue to group owners of

television stations, particularly if the commenters distinguishes

between the effects of owning a group of stations and the effects of

affiliating with a network; and (4) the effect relaxation of national

group ownership limits might have on the prices of broadcast television

stations, with its attendant effect on the ability of minorities to

acquire broadcast television stations.

Effects on Diversity

31. In conducting the diversity analysis, the Commission seeks to

examine the effects of relaxing these rules on the diversity of

viewpoints available to the public, paying particular attention to the

diversity of voices. The FNPRM notes that one of the premises of the

national television ownership limitations has been that placing

limitations on the number of stations a party can have a cognizable

interest in promotes diversity outlets and viewpoints, and limits the

degree of control over viewpoints expressed nationally that any entity

could have thus furthering First Amendment goals. However, while the

national ownership rules may foster these goals, and especially outlet

diversity, the rules may not be essential to achieving such diversity.

It appears that such factors as increased video media competition,

network affiliation and diversity on the local level all favor

alteration of the national ownership limitations. While the

Commission's analysis suggests that, from a diversity standpoint,

changes in the current national ownership limitations may be warranted,

commenters should nevertheless address what effect, if any, group

ownership and consolidation of ownership nationally would have on

viewpoint diversity in news and public affairs programming, especially

locally. Additionally, for national news, network affiliated stations

primarily use their network affiliation to provide national news

programming, and broadcast networks must compete with each other and

with cable news networks in providing national news. Consequently, we

ask whether changing national group ownership rules would have any

impact on the delivery of national news and, if so, what that impact

would be. Finally, given that the pursuit of large audiences may drive

all licensees--whether group owners or not--towards the exclusion of

controversial, non-mainstream subjects from their programming, does

ownership diversity, indeed, have a major effect on viewpoint diversity

with respect to television?

Tentative Proposals

32. The Commission tentatively concludes that liberalization of the

national ownership limits would not have an adverse impact upon

competitiveness of the markets for delivered video programming, the

market for advertising, or the video program production market. Nor do

we believe that raising the national ownership limits would have

serious adverse effects on diversity. Therefore, the Commission

proposes raising national ownership limits and seeks comment about the

manner in which these limits should be expressed (e.g., number of

stations or outlets, number of stations or outlets with a reach cap,

reach cap without any limit on the number of stations or outlets, or

audience share cap) and the extent to which they should be raised. The

Commission believes that changes in the national multiple ownership

rules should be incremental in order to avoid significant dislocation

in the television industry.

33. The NPRM in this proceeding proposed several adjustments to the

multiple ownership rules, which

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commenters should consider in the context of this decision. The NPRM

proposed amending the national numerical limit to permit common

ownership of 18, 20 or 24 television stations and altering the national

reach restriction to permit a group owner to reach 30 or 35 percent.

Alternatively, the NPRM sought comment on whether to modify only the

numerical limit, retaining the 25 percent reach limit. Commenters were

mixed in their responses to each of these proposals and provided little

structured analysis by which we could compare contrasting positions.

Consequently, comments are requested on these proposals which are

structured in a manner consistent with the analytical framework

proposed herein.

34. Comment is also invited on the following new proposal. The

Commission could eliminate the numerical station limit entirely, and

allow the reach limit to increase by some fixed percentage, such as 5%

every 3 years, until the reach limit rises to 50%, the final limit.

During this period, the Commission would monitor the relevant markets

and determine whether or not problems have arisen which call for a halt

in the relaxation of the national ownership limit. The Commission

believes that formulating national limits only in terms of reach,

rather than in conjunction with a number of stations limit, may be

preferred because it captures the relevant dimension of interest (i.e.,

the total audience potentially available) and it allows companies

flexibility to own either a few stations serving large population

markets or a larger number of stations serving small population

markets. In addition to these advantages, it may be desirable to allow

the reach limit to rise gradually rather than immediately to 50%, in

order to monitor industry changes. Parties are encouraged to comment on

all the above proposals and any others they wish to suggest.

35. In applying the above to full power stations, we note that UHF

stations are now attributed with only 50 percent of their theoretical

reach within the ADI. The Commission incorporated this adjustment in

the 1984 rules to account for the physical limitations of the UHF

signal. The Commission seeks comment on whether this adjustment should

be retained. Similarly the Commission similarly seeks comment on

whether and, if so, to what extent, there remains a disparity between

VHF and UHF signal propagation and how this should affect the UHF

discount, if at all. In this regard, comment is also invited on

whether, should the UHF discount be modified, existing group owners

should have the reach discount for any currently owned UHF stations

``grandfathered,'' or whether this should be done only where

divestiture would otherwise result from a new UHF reach rule that no

longer reduced the theoretical reach by 50%.

36. Next, the Commission notes that a television station that

qualifies as a satellite is exempt from the national ownership

restrictions. Because the Commission, in this proceeding is now

considering modifying all aspects of the national and local ownership

rules in this proceeding, we believe it is appropriate to incorporate

MM Docket 87-8 (Second Further Notice of Proposed Rule Making at 56 FR

42306, August 27, 1991; Report and Order at 56 FR 31876, July 12, 1991)

the outstanding proceeding on satellite television stations and resolve

such ownership matters in this proceeding. In light of the proposed

treatment of local marketing agreements in this FNPRM, we invite

comment on whether satellite television stations should continue to be

exempted from the national multiple ownership rules.

VI. Local Ownership Rule

37. The local ownership rule prohibits common ownership of two

television stations whose grade B contours overlap, and is intended to

preclude ownership of more than one television station in a local

community in order to promote competition and diversity. As discussed

earlier herein, television stations compete for viewership and sell

advertising in local markets. Thus, it is important that the

Commission's rules ensure workable competition in local markets.

Accordingly, changes to the local ownership rule give rise to more

serious concerns than changes to the national ownership rule. The

Commission intends to carefully evaluate the economic factors that

affect the local marketplace, including changes that occurred after the

NPRM was adopted in 1992. We will also look at how the proposal to

modify the contour overlap rule from Grade B to Grade A is affected by

other proposals in this FNPRM and how it and these other proposals

influence the effects of allowing common ownership of broadcast

television stations with contour overlap in a local market.

Effects on Competition

38. Because commercial broadcast television station operators

effectively compete with each other, with public broadcast television

stations, with cable system operators, and others serving their

``local'' market, some existing large markets for delivered video

programming appear to be unconcentrated when we use either the number

of independent operators measure or the number of channels of

programming measure for market share calculations.

39. Allowing one entity to own more than one broadcast TV station

within a ``local'' market may permit the company to realize economies

of scale, reducing the costs of operating the two stations. The

Commission seeks hard evidence from commenters of the existence and

magnitude of such economies, particularly information regarding the

experience of those group owners who have consolidated pursuant to the

Commission's relaxed local radio ownership rule and the one-to-a-market

waiver standard. Comment is also invited on whether experiences with

respect to the radio market can be used to predict the benefits of

relaxing ownership rules in local television markets.

40. Allowing a company to own more than one broadcast TV station in

a local market might give the company the economic power to raise video

advertising rates within the local service area, if, by virtue of the

combination, the local market became sufficiently concentrated.

Evidence on whether significant market power in the local advertising

market already exists is mixed. Further, at this time, it is not clear

whether cable system operators offer effective competition to broadcast

station operators in providing local advertising. It is also not clear

how substitutable radio and newspaper local advertising is for

broadcast television local advertising. Interested parties are asked to

provide whatever data and analysis they can on the substitutability of

these media in the local advertising market at present and in the

future. Assuming that they are not effective substitutes, comment is

also requested on how many independent providers of local video

advertising are necessary to ensure effective competition in this

market. Statistical evidence supporting comments will especially be

welcome.

41. Television stations purchase or barter for video programming in

a national market in the sense that producers of video programming

typically create product which is marketed to be broadcast in more than

one local market. However, the program market could be affected if

Commission relaxation of the local ownership rules permitted one or a

few broadcast station owners to exercise significant market power in

the purchase of video programming. The result might be that suppliers

of video programming would

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be forced to sell their product at below competitive market prices in

order to gain access to the local market controlled by one or a few

local group owners. However, the ever increasing number of alternative

providers of delivered video programming in just about every major

market may mitigate the potential distortion of video programming

prices through an entity's control of broadcast access to television

sets in a local market by providing program producers with additional

outlets for their product. The Commission solicits comment on this

point and evidence on the potential market power in the purchase of

video programming in different markets if we were to relax the local

ownership rule.

42. As with relaxing the national ownership limits, relaxing local

ownership limits could increase the price of broadcast television

stations. The potential for increased prices of broadcast TV stations

is troubling in light of the limited financial ability of minorities

and women to purchase TV stations. The Commission addressed issues

relating to the difficulties of minorities and women in obtaining

access to capital in a Notice of Proposed Rule Making in MM Docket 94-

150 (FCC 94-324, adopted December 15, 1994, and released January 12,

1995). We ask for comment and analysis of these issues.

43. The Commission is also concerned about the possibility that

changes in the local ownership limits may adversely affect the pool of

independent television stations available for acquisition by and/or

affiliation with nascent broadcast networks. Consequently, we solicit

comment on the effects of allowing station ownership consolidation at

the local level on the future development of these nascent broadcast

networks. A separate but related concern, is with allowing the owner of

a station affiliated with or owned by an established broadcast network

to own another broadcast television station serving the same market.

This possibility may confer on such an owner more market power than

would arise from an independent station operator acquiring a second

station in the market. Comment is sought on the importance of this

concern.

Effects on Diversity

44. The Commission's concern with diversity is most acute with

respect to local ownership issues. The Commission has consistently

believed that a reduction in local outlet diversity would translate

into a reduction of viewpoint diversity. While the existing duopoly

rule may foster diversity by assuring that only one television outlet

in a given market can be owned by a single entity or individual

(assuring that each local television outlet is owned by a different

person or entity), we believe it is appropriate to solicit comments on

whether the rule remains essential in its current form to ensure

diversity.

45. In recent years the totality of information outlets on the

local level has increased. In a recent radio ownership proceeding

(Report and Order in MM Docket No. 91-140, 57 FR 18089, April 29,

1992), the Commission found that the abundance of radio and other media

outlets now available ``make clear that the local marketplace is far

more competitive and diverse--indeed, has been virtually transformed--

since the local ownership rules were first promulgated.'' On this

basis, the Commission liberalized the duopoly rule with respect to

radio.

46. With respect to television, because of the fewer number of

broadcast television stations than broadcast radio stations, we must be

cautious in our analysis of outlet diversity, and the impact of mergers

among TV stations on the local level on such diversity. Further, it

should be recognized that the apparent level of television outlet

diversity may not reflect what is in fact available to, or obtainable

by, many consumers. For example, cable and other subscription services

are perceived to provide an alternative video outlets. How, if at all,

should the portion of viewers that chooses not to subscribe affect our

analysis of available programming outlets? Is an outlet of opinion less

available simply because it is not popular or is more costly? Further

comment is requested on the degree to which such fee-based sources and

outlets for video programming provide true alternatives to over-the-air

television for purposes of ensuring viewpoint diversity.

Tentative Proposals

47. The Commission sets out one specific proposal and requests

comment on other possible rule changes. The current rule prohibits

common ownership of broadcast television stations with overlapping

Grade B contours. The Commission believes that the record already

established in this proceeding is sufficient to justify proposing to

relax the rule by decreasing its prohibited contour overlap from Grade

B to Grade A. Comment is sought on this proposal as well as on other

possible ways in which the rule could be modified.

48. The NPRM, asked whether the Commission should modify the

contour overlap rule, balancing the greater flexibility afforded

broadcasters against the potential harm to our underlying competition

and diversity concerns. Comment was invited on whether the predicted

Grade B contour should continue to determine prohibited overlap, or

whether it should be changed to the Grade A contour. The vast majority

of commenters agreed that a Grade A contour standard provides a

substantially more realistic and accurate measure of a station's core

market than the existing Grade B contour rule. The commenters also

stated that the switch from a Grade B standard to a Grade A standard

will increase broadcasters' long-term viability by enabling them to

reap the benefits provided by ``economies of scale''--without any

commensurate loss in program diversity. The Commission thus proposes to

modify this rule so that joint ownership will be precluded only where

there is overlap of the Grade A contours. The Commission seeks further

comment on this proposal in light of our competitive and diversity

analyses of the television broadcasting industry. Comment is also

requested on what the impact would be of moving from a Grade B to a

Grade A contour rule on particular markets. Further, how many cases

would occur in which relaxing the rule to a Grade A contour would allow

an entity to own two stations within a single designated market area or

within a single metropolitan statistical area?

49. As a separate matter from whichever contour test the Commission

ultimately decides to use, the issue arises as to whether, in at least

some situations, a company should be allowed to acquire stations with

overlapping contours. The Commission requests comment on whether to

permit common ownership in local markets, such as UHF/UHF combinations

or UHF/VHF combinations, or maintain the current prohibition against

contour overlap and allow waivers either under a presumptive guideline

or a case-by-case basis.

50. The NPRM asked whether or not an entity should be permitted to

own two UHF stations with overlapping contours. Comment was also sought

on whether the Commission should permit a UHF station to merge with a

VHF station as a more effective way of preserving or improving the

service of UHF stations, and on whether it would be appropriate to

consider such consolidations only where a minimum number of separately

owned television stations would remain after the proposed combination.

Commenters were very divided as to whether the economic benefits to

licensees outweighed the potential harm to

[[Page 6497]]

competition and diversity. Commenters are invited to submit further

analyses of these proposals with reference to a Grade A contour

definition of the relevant local geographic market for purposes of

establishing local television ownership limits. However, commenters

arguing that the economic benefits outweigh the potential harm to

competition and diversity need to provide more specific evidence of the

projected economic benefits as weighed against the potential harm to

competition and diversity.

51. If the Commission were to maintain the existing prohibition

against common ownership of broadcast television stations with contour

overlap but allow waivers, it must also be determined whether to follow

a case-by-case approach. Parties may wish to address the factors the

Commission currently considers in one-to-a-market waivers, which

include the financial condition of the station to be purchased, the

competitive and diversity characteristics of the market, and potential

public interest benefits.

52. Whether the Commission relaxes the rule or adopts a waiver

standard, it is necessary to consider the number of independent

suppliers serving the market. In a number of our past ownership

proceedings, the Commission described and generally took into account

the growth of new media that provide competitive and diversity

enhancing alternatives to over-the-air television (or radio). However,

with the exception of the one-to-a-market rule, the Commission

fashioned the actual rule that counted only television stations or only

radio stations in the local or in the national market. Given the

conclusions discussed above regarding who are the relevant alternative

suppliers and the kind of analysis we were concerned with (e.g.,

competitive analysis versus diversity analysis), comment is invited on

the issue of which market or analysis should control the determination

of who are the independent suppliers that the Commission counts for

purposes of setting local ownership limits.

53. In determining the number of independent suppliers for either

competitive or diversity analysis of a relaxation to the contour

overlap rule, the Commission must define the region in which the count

is performed. One proposal is to treat the overlap area as the relevant

region. Another proposal would be to treat the relevant region as the

DMA within which the two broadcast television stations operate. This

second proposal might allow joint ownership of two broadcast television

stations with contour overlap when such joint ownership does not reduce

the number of independent suppliers in their DMA below some critical

level. The Commission solicits comment on both these proposals.

54. Finally, should the Commission decide to designate a minimum

number of independent suppliers that should remain in a local market,

the question must be addressed of whether we should choose a number

which allows everyone in the market currently to acquire another

station or whether to allow firms to be acquired on a first-come first-

served basis until some minimum number of independent broadcast

television stations remain. The Commission seeks guidance on which

threshold number, if any, of remaining independent suppliers would

satisfy both competition and diversity concerns. Further, comment is

solicited on whether simply counting outlets is preferable to examining

audience share for addressing the impact of an outlet on our

competitive and diversity concerns. Finally, guidance is sought on

which of the above approaches is the preferred approach with respect to

these concerns.

II. The Radio-Television Cross-Ownership Rule

55. The radio-television cross-ownership rule, or the one-to-a-

market rule, basically provides that a company cannot own both a radio

station and a television station located in a given ``local'' market.

This rule was adopted to limit any potential market power in the media

market, and to ensure a sufficient diversity of broadcast outlets, and

was amended in 1989 to permit, on a waiver basis, radio-television

mergers as long as the combination occurred in one of the top 25

television markets and 30 separately owned broadcast licensees remained

after the combination, or if the waiver request involved a ``failed''

station, or if the waiver request satisfactorily addressed five

criteria relating to public interest concerns. Whether this limit is

still needed to promote these ends will be considered in the following

discussion.

Effects on Competition

56. As indicated above, the Commission tentatively concludes that

delivered video programming and delivered audio programming were

sufficiently distinct products so as to represent different product

markets for competitive analysis purposes. Commenters are asked to

provide information on the nature and extent of harm, if any, from

relaxing this rule on these markets.

57. The main potential economic cost of permitting the owner of a

broadcast TV station to own a broadcast radio station in a local

market, or vice versa, appears to be that it might give the company the

market power to raise local radio and/or television advertising rates.

People may listen to radio and watch television at different times

while advertisers might view either means as an acceptable substitute

for getting their message to the same people. On the other hand, some

advertising messages may be more effective on television and others

more effective on radio. However, as our earlier discussion indicated,

we do not have sufficient evidence on this issue to address the effects

of relaxing the one-to-a-market rule on the local advertising market.

Assuming for the purposes of soliciting comments, that they are

economically relevant substitutes, then the issue arises as to how many

independent suppliers of local advertising are necessary to ensure that

these markets are workably competitive. The Commission invites comment

and evidence on both these issues.

58. Earlier in the FNPRM, the Commission tentatively concluded that

video programs are sufficiently distinct products that the market for

video program production should be considered a separate product

market. By this logic, the markets for video program production and

audio program production are arguably distinct markets. Thus, market

power in the video program production market should not translate into

market power in the audio program production market, unless the company

already has such market power. However, these program production

markets are national markets and presumably the national ownership

limits for either broadcasting station type should prevent a company

from acquiring such market power. Thus the Commission sees no reason

why relaxing the one-to-a-market rule should harm competition in either

of these supply markets, but seeks comment on this tentative

conclusion.

59. The benefits of permitting the owner of a broadcast TV station

to own a broadcast radio station in the same local market, or vice

versa were discussed in the Memorandum Opinion and Order in MM Docket

No. 87-7 (54 FR 32639, August 9, 1989). The company can reduce its

video and audio programming costs through a reduction in personnel and

overhead expenses and could use one advertising sales force instead of

two for the two stations. This reduction in expense could make the

joint enterprise more economically

[[Page 6498]]

viable than the separate operations were before the combination took

place. It would be important for commenters to provide factual evidence

on the size of such efficiency gains so the Commission could weigh them

against any potential costs of relaxing the one-to-a-market rule.

Effects on Diversity

60. The radio-television (``one to a market'') rule is intended to

foster outlet and viewpoint diversity on the local level. The rule

appears to be achieving the diversity goals for which it was adopted,

but may not be necessary in its current form to ensure competitive and

diverse radio and television markets. Nevertheless, as noted above,

diversity has the most impact in the local context and we must be

cautious in taking any action that could serve to reduce that

diversity, particularly in smaller markets.

Tentative Proposals

61. The NPRM in this proceeding sought comment on a variety of

proposed relaxations to the one-to-a-market rule, including: (1)

Elimination of the rule--using local limits of each service to prevent

undue concentration; (2) allowing common ownership of one AM, one FM

and one TV station per market; (3) allowing TV-AM combinations only;

and, (4) codifying current waiver criteria and applying them to all

markets, and not just the top 25 markets, where 30 independently owned

voices remain. Commenters were generally in favor of elimination or

relaxation of the current rule, arguing that the economies from joint

operations would allow more stations to remain on the air and would

also permit licensees to provide better service to the public.

62. The Commission tentatively concludes that there are two

alternative approaches towards modifying the one-to-a-market rule. On

the one hand, the Commission could find that radio stations and

television stations do not compete in the same local advertising,

program delivery, or diversity markets and propose to eliminate this

rule entirely and rely on local ownership rules to ensure competition

and diversity at the local level. On the other hand, the Commission

could conclude that radio and television do compete in some or all of

these local markets, in which case we propose to allow radio-television

combinations in those markets that have a sufficient number of

remaining alternative suppliers/outlets as to ensure sufficient

diversity and workable competition. In this regard, the Commission

seeks comment on whether ``30 separately owned, operated and controlled

broadcast licensees'' continues to represent the appropriate minimum

requirement, or whether diversity and competition concerns can be

satisfied if a lesser number of licensees remain, such as 20. Further,

comment is invited on whether this count should be for independent

supplier/outlets within a DMA or some other geographic market

delineation. Finally, the Commission notes that if the latter proposal,

to modify rather than eliminate the rule were to be adopted, we also

propose to continue accepting waivers for ``failed'' broadcast stations

as currently provided for in note 7 of Sec. 73.3555 of the Commission's

Rules, and to continue evaluating other waiver requests on the basis of

the five considerations set forth in the Second Report and Order (54 FR

08744, March 2, 1989) and the Memorandum and Order (as cited above) in

MM Docket No. 87-7.

VIII. Local Marketing Agreements

Description

63. A Local Marketing Agreement (LMA) is a type of joint venture

that generally involves the sale by a licensee of discrete blocks of

time to a broker who then supplies the programming to fill that time

and sells the commercial spot announcements to support it. Such

agreements enable separately owned stations to function cooperatively

via joint advertising, shared technical facilities, and joint

programming arrangements. In MM Docket 91-140, the Commission adopted

guidelines primarily applicable to the AM and FM services for LMAs. We

also decided that TV station LMAs should be kept at the station and be

made available for inspection upon request by the Commission.

64. The NPRM sought comment on the prevalence of TV LMAs, whether

they presented the same types of competitive and diversity concerns

that the Commission found in the radio context, and whether they should

be subject to some limitations. Few commenters addressed LMAs, and

those who did comment on this issue basically expressed two divergent

general views: (1) That TV LMAs should remain unregulated absent

evidence of abuse, irrespective of whether new TV multiple ownership

rules are adopted; or (2) that if the Commission did adopt rules

governing TV LMAs, such rules should be no more restrictive than those

governing radio LMAs. The Commission seeks further comment and specific

information on this matter to enable us to choice between these views

and adopt appropriate guidelines for TV LMAs.

65. Specifically, the Commission solicits specific quantitative

data about TV LMAs, indicating the number of such agreements currently

in existence. If such comment is not received, it may be necessary for

the Commission to conduct a survey to obtain this quantitative data.

Also do TV LMAs serve the same purposes as radio LMAs or are there

significant differences between them? What benefits accrue to the

parties involved in TV LMAs? What benefits accrue to the public from TV

LMAs?

Analysis and Tentative Proposals

66. The Commission believes that, to ensure that TV stations using

LMAs comply with the TV multiple ownership rules, regardless of whether

such rules are modified, some guidelines may be necessary. We

tentatively propose to treat LMAs involving television stations in the

same basic manner as radio station LMAs. That is, time brokerage of

another television station in the same market for more than fifteen

percent of the brokered station's weekly broadcast hours would result

in counting the brokered station toward the brokering licensee's

national and local ownership limits. If the local TV multiple ownership

rules are not relaxed, such an attribution provision would preclude TV

LMAs in any market where the time broker owns or has an attributable

interest in another TV station. Additionally, TV LMAs would be required

to be filed with the Commission in addition to the existing requirement

that they be kept at the stations involved in an LMA. Furthermore, the

TV LMA guidelines would allow for ``grandfathering'' TV LMAs entered

into prior to the adoption date of the FNPRM, subject to renewability

and transferability guidelines similar to those governing radio LMAs.

67. To test the appropriateness of these proposals, the Commission

seeks comment on the following issues. Are there any compelling reasons

why the Commission should not apply the existing radio LMA guidelines,

including the filing requirements, the limitation on program

duplication, and the ownership attribution provisions, to TV LMAs? If

the radio ownership attribution rule applies to TV LMAs, should the

Commission use the fifteen percent benchmark that it used in the radio

context, or is some other percentage more appropriate? What effects, if

any, should LMAs have on the renewal expectancy of TV stations? What

effects, if any, would these

[[Page 6499]]

proposed attribution guidelines have on the ownership of TV stations by

minorities and women, and how should the Commission deal with such

effects?

68. To avoid any unnecessary disruption to existing contractual

relationships, the Commission also seeks comment on guidelines

concerning the termination, transferability and renewal of TV LMAs.

Should the contract rights associated with existing TV LMAs be

transferable when the brokering station is sold? If so, what

restrictions, if any, should apply? Should TV LMAs entered into before

the adoption date of this Further Notice be subject to the same

``grandfathering'' and renewability guidelines that govern radio LMAs

as set forth in the Second Radio Reconsideration, supra, irrespective

of whether the local TV multiple ownership rules are modified?

Specifically, should existing LMAs be ``grandfathered'' for the

remainder of the initial term of the LMA and then be subject to the

governing local TV multiple ownership rules?

Administrative Matters

69. Pursuant to applicable procedures set forth in Section 1.415

and 1.419 of the Commission's Rules, 47 CFR 1.415 and 1.419, interested

parties may file comments on or before April 17, 1995, and reply

comments on or before May 17, 1995. To file formally in this

proceeding, you must file an original plus five copies of all comments,

reply comments, and supporting comments. If you want each Commissioner

to receive a personal copy of your comments, you must file an original

plus nine copies. You should send comments and reply comments to Office

of the Secretary, Federal Communications Commission, Washington, D.C.

20554. Comments and reply comments will be available for public

inspection during regular business hours in the FCC Reference Center

(Room 239), 1919 M Street, N.W., Washington, D.C. 20554.

70. This is a non-restricted notice and comment rulemaking

proceeding. Ex parte presentations are permitted, except during the

Sunshine Agenda period, provided they are disclosed as provided in the

Commission Rules. See generally 47 C.F.R. 1.1202, 1.1203, and

1.1206(a).

Initial Regulatory Flexibility Act Statement

71. The Initial Regulatory Flexibility Act Statement found in

paragraphs 18 through 25 (57 FR at 28166-67) in the summary of the

Notice of Proposed Rule Making in this proceeding remains unchanged.

72. As required by Section 603 of the Regulatory Flexibility Act,

the Commission has prepared an Initial Regulatory Flexibility Analysis

(IRFA) of the expected impact on small entities of the proposals

suggested in this document. The IRFA is set forth in the Notice of

Proposed Rule Making in this proceeding as set forth above. Written

public comments are requested on the IRFA. These comments must be filed

in accordance with the same filing deadlines as comments on the rest of

this Further Notice, but they must have a separate and distinct heading

designating them as responses to the Initial Regulatory Flexibility

Analysis. The Secretary shall send a copy of this Further Notice of

Proposed Rule Making, including the Initial Regulatory Flexibility

Analysis, to the Chief Counsel for Advocacy of the Small Business

Administration in accordance with paragraph 603(a) of the Regulatory

Flexibility Act. Public Law 96-354, 94 Stat. 1164, 5 U.S.C. Section 601

et seq. (1981).

List of Subjects in 47 CFR Part 73

Television broadcasting.

Federal Communications Commission.

LaVera F. Marshall,

Acting Secretary.

[FR Doc. 95-2502 Filed 2-1-95; 8:45 am]

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