The FCC Initiates Comprehensive Review of Broadcast Ownership Rules
 
October 21, 2002
 
Charles Naftalin - Washington

On September 23, 2002, the FCC released a notice of proposed rule making that initiated a long-awaited comprehensive review of its broadcast ownership rules.  This proceeding is likely to be one of the most important to broadcasting that has been undertaken by the Commission in many years. 

Almost all of the FCC's broadcast ownership rules are unsettled due to previous rule makings, which have not been resolved and are now part of this new proceeding, and because of court reversals of FCC ownership rules.  The court decisions clearly have directed the FCC to develop a consistent rationale to support its ownership decisions and rules.  The FCC now invites the interested public to develop a thorough record in order for it to adopt defensible, consistent standards.

The following is a brief description of most of the significant broadcast ownership rules in play.  The Commission is likely to take action on most or all of them as part of its new proceeding.

Radio Ownership 

There is no national limit on radio station common ownership.  The present restrictions apply only to local ownership, for example up to eight radio stations (five stations in one service, i.e. FM, and three in the other  service – AM) in markets with at least 45 stations, up to seven stations in markets with between 30 and 44 stations (four stations in one service and three in the other).   Local ownership is tied to the total number of radio stations in “the market” and that definition has been an area of controversy.  The FCC is undertaking a comprehensive reexamination of this rule, with particular emphasis on the way a “market” should be defined for purposes of counting the number of stations in the market and considered to be under common ownership. 

Local Television Ownership 

Until 1999, local television ownership was restricted to “one to a market,” although there were some specific exceptions.  Since adopting a new rule in 1999, the Commission permits ownership of two television stations in a market, but only if at least eight separate television owners remain after the combination and if at least one of the two commonly owned stations is not among the four television stations with the highest viewing shares in the market.  

Earlier in 2002, the current rule was challenged and the court upheld the rule's constitutionality by finding that competition and diversity policies may support an FCC decision to adopt or retain a television duopoly rule.  However, the court held that the reasons the FCC had given for adopting its present rule were not adequate, particularly faulting the way the FCC had counted “voices” in a market for diversity purposes.  The court pointed out that the television duopoly rule/eight-voice test counted only the owners of television broadcast stations, but that for purposes of the rule limiting local cross-ownership of radio and television stations, the FCC counted television stations, radio stations, daily newspapers and cable television systems.  The court remanded the matter to the FCC so that it might consider this discrepancy and, if it decides to retain the duopoly rule, to do so on the basis of an internally consistent rationale.  The rule remains in effect until the FCC concludes its proceeding.

Local Radio and Television Cross-Ownership 

At the same time the Commission amended its rules to permit common local ownership of up to two television stations in a market, as described above, it also started permitting local common ownership of radio and television stations.  Essentially, the Commission now permits television station ownership to fit into the local ownership restrictions applied to radio stations.  Thus, if eight radio stations may be owned in the same market, then seven radio stations and one television station may be commonly owned in the same market.  Similarly, if an entity could own two television stations in that market, then it could commonly own those two television stations and six radio stations.

This rule could be subject to change based upon the Commission's decisions concerning the television duopoly rule and the local radio market definitions. 

National Television Ownership  

For many years, the Commission’s rules have prohibited common ownership of television stations in markets constituting more than 35% of U.S. television households.   The number of households in markets in which an owner has only a UHF station or stations is discounted by half in computing the 35% and two commonly owned stations in the same market are counted as one.

In its 2000 biennial review report, the FCC had decided to leave this rule unchanged.  However, in February 2002, the U. S. Court of Appeals for the D.C. Circuit held that the FCC had not adequately justified its decision not to change the rule.  The court said that the biennial review statute created a presumption that any ownership rule under review is no longer necessary in the public interest in light of competitive conditions today, and that the FCC must therefore repeal or modify any ownership rule unless it can find reasons sufficient to show that the rule is “necessary” in the public interest.  The court held that the FCC had not met this test in the case of the 35% cap.  However, because the rule was not unconstitutional and because the Commission might be able to develop evidence and a rationale to support it, the court remanded the case for further consideration by the FCC, which now will take place.  In addition, the present temporary waiver that permits CBS to own stations in excess of the cap will continue until the FCC reaches a new decision.

Newspaper/Broadcast Cross-Ownership 

Applicable locally only, the newspaper/broadcast rule prohibits common ownership of a broadcast station and a daily newspaper that is published in a community located within defined signal contours of the station (the contours are Grade A for television, 2 mV/m for AM and 1 mV/m for FM).  Some such common ownerships were grandfathered when the rule was adopted and continue today along with a few other permanent waivers of the rule.  This rule is at play in the new proceedings.

Television Networks 

In the recent past, the Commission eased its restriction on common ownership of television networks.  As changed, the rule now permits common ownership of two television broadcast networks so long as the two are not combinations among ABC, CBS, NBC or Fox.  Smaller networks, such as WB and UPN, became acquisition targets, because of that decision.  The new proceeding has put this rule into play.

Two important media-related ownership rules are not subject expressly to the new proceeding, both of them related to ownership of cable televisions systems.  However, the analysis and rules that eventually are adopted may become important to them.  Those rules follow.

Cable/Television Local Cross-Ownership 

There have been no national restrictions on cable and broadcast television common ownership but the Commission has prohibited common ownership of a television station and a cable system located wholly or partially within that station's Grade B signal contour.  In its 2000 biennial review report, the FCC had decided to retain this rule without change.

The same court decision that invalidated the television 35% national ownership cap also reversed the FCC with respect to the television/cable rule.  However, in that part of the decision, the court found the Commission's reasons for retaining the rule so inadequate that the court “vacated” the rule, meaning that when the court's decision becomes effective the rule no longer exists. 

National Cable Ownership 

The national cable cap had prohibited the common ownership of cable systems serving more than 30% of the national multichannel video programming audience.  This rule was invalidated in a March 2001 court decision.  The same decision struck down a related FCC rule that prohibited a cable program distributor from providing more than 40% of the channels on cable systems affiliated with the provider.  As to the 30% national ownership cap, the court told the FCC either to compile a record that would justify the rule “as not burdening substantially more speech than necessary” or to repeal or rewrite the rule. 

In conducting this comprehensive review of ownership rules and policies, the FCC has invited broad participation by all interested parties.  The result of this proceeding may have profound effects on the media marketplace.  Interested parties would be wise to pay close attention and to take part in the process.

For more information, contact Charles Naftalin, toll free, at 888-688-8500.