FCC TO OVERHAUL BROADCAST OWNERSHIP RULES ADOPTED DECADES AGO

FCC began most comprehensive look at media ownership regulation it ever has undertaken, Chmn. Powell proclaimed, by examining virtually all rules limiting broadcast ownership. At Thurs. meeting, item passed 3-0, with Comr. Martin concurring in part and Comr. Copps concurring but not voting in favor of item. Copps said he believed “tone” of Notice of Proposed Rulemaking (NPRM) indicated Commission had prejudged situation in favor of deregulation. Powell denied that, telling reporters after meeting that he was keeping “an open mind.”

Commission said aim of single NPRM was to determine whether 6 broadcast ownership rules, some of which were adopted 40 years ago, still were relevant and necessary in changed and evolving media landscape. Item asked parties to provide data, information and insight on variety of questions posed by FCC, including: (1) Does market provide enough competition to protect and advance FCC’s policy goals of promoting diversity, localism and competition in local media markets? (2) If not, do current ownership rules achieve those goals? (3) Are revisions in rules required to protect and advance FCC’s policy goals?

Powell called proceeding “long overdue,” saying most of rules in question were adopted before advent of cable, DBS, Internet and other forms of media. “I believe in this interim the Commission has failed… to tailor and adapt its rules of the marketplace, and I think that is evidenced by the continuing dissatisfaction of the courts,” he said.

Copps said he concurred because notice fulfilled Commission’s statutory mandate to review ownership rules, but said he would have preferred to have item “be a truly clean slate” for FCC analysis. He said he had some concerns “that the timing and tone of the notice may be seen as prejudging these very important issues. Indeed, some analysts have already concluded that the ownership caps and limits are history.” Copps also said he believed courts would be amenable to keeping most of Commission’s rules, if agency justified them with evidence. “Some observers act as though the court has decided to be rid of all our rules. They have said nothing of the sort,” he said. Copps asked other commissioners to consider holding hearings in D.C. and around country to get comments from industry, labor, consumers, academia, artists, entertainers. Although Powell later told reporters Copps’s suggestion would be considered, he didn’t appear to embrace idea warmly.

Martin, who voted with majority, questioned why Commission wasn’t simply out-and-out deciding issue of newspaper-broadcast ownership. FCC has more than enough evidence to make decision, he said, and at very least it could have “tried to articulate more where we think we'll end up going” on that rule, in order to give companies and Wall St. more guidance.

Proceeding involves 6 rules: (1) Newspaper/broadcast cross-ownership ban, passed in 1975. (2) Local radio ownership rules adopted in 1941. (3) National TV ownership rule, also adopted in 1941, capping ownership of stations to reach no more than 35% of national audience. (4) Local TV multiple ownership rules, passed in 1964. (5) Radio/TV cross-ownership restriction, adopted in 1970. (6) Dual TV network rule, passed in 1946. Two of 6 rules -- newspaper/broadcast cross-ownership and local radio ownership -- already are subject of open rulemakings, so Commission combined their records into new proceeding. Two other rules -- national TV ownership and local TV multiple ownership -- have been remanded to FCC by U.S. Appeals Court, D.C.

Commission said recent court decisions reversing its ownership rules emphasized that any limits must be based on facts, not on predictive judgments alone. Citing Fox v. FCC, agency said court in decision on national TV ownership rule said: “Although we agree with the Commission that protecting diversity is a permissible policy, the Commission did not provide an adequate basis for believing the rule would in fact further that cause.” FCC also quoted D.C. Circuit on local TV ownership rule: “The deficiency of the Commission’s explanation is underscored by the explanation it failed to give for defining ‘voices’ differently in the cross-ownership and local ownership rules.” To provide courts and others with factual data, Commission has commissioned 8 studies, some in-house and others farmed out, to examine state of media marketplace, including how consumers use media, how advertisers view different media outlets, how media ownership affects diversity, localism, competition. Commission said results of those studies would be released for public comment in coming weeks. It said evaluating rules together would “create a comprehensive and consistent analytical framework that will avoid future criticism by the courts.”

Rulemaking was part of Commission’s 3rd biennial review of its rules and also invited comment on standard for biennial review. FCC asked for comment on whether 1996 Telecom Act required agency to repeal rule unless it found it to be “necessary,” meaning “indispensable,” or whether it could retain rule if it merely served public interest. Question was left unresolved by D.C. Circuit in Fox v. FCC, Commission said. Comments are due 60 days after release of various studies, and replies 30 days later.

Noticeably absent from rulemaking was cable-broadcast cross-ownership rule, which courts have vacated for similar justification and evidentiary reasons as in other ownership cases. Asked about omission, Media Bureau Chief Kenneth Ferree said rule effectively was “dead” and Commission didn’t want to “breathe new life into it,” instead simply was letting it die its death. However, he didn’t rule out possibility that issues involving cable-broadcast cross- ownership would be addressed in larger context of broadcast proceeding. For example, if Commission were to adopt some sort of voice test by which to evaluate local media markets and potential media mergers, such test probably would apply across media landscape, he said.

Consumer groups were largely displeased with FCC’s action. Center for Digital Democracy Dir. Jeff Chester said Commission was on path to place control of nation’s TV stations, broadcast networks and major daily newspapers “in the hands of fewer giant corporations.” He said studies under way at Commission “are insufficient to develop a truly independent record that will protect the public.” Consumers Union Co-Dir. Gene Kimmelman said he feared that fewer and fewer media companies would mean less independence for journalists. Reporters will be less likely to do investigative journalism on accounting improprieties and other questionable practices at media companies that pay their salaries, he said. Consumer Federation of America (CFA) Dir. Mark Cooper said FCC had started down path toward allowing more consolidation. He described agency’s actions as “assault on the cornerstone of a vibrant democracy” and said commissioners were in “such a rush” to eliminate ownership limits that they “can’t wait until the results of their own studies are in.” He and Chester also said FCC would permit media mergers to impinge on freedom of Internet.

NAB spokesman said Assn. would seek to have newspaper- broadcast cross-ownership ban eliminated, calling it “a relic of a bygone era. But we will be equally vigorous in arguing for retention of the 35% TV ownership cap.” NAB’s members include affiliate groups that want to fend off leverage of national networks. National network owner Viacom said it was pleased with FCC’s decision to review broadcast rules: “We look forward to demonstrating to the Commission that the current rules are both arbitrary and outdated.” NCTA didn’t celebrate over Commission’s decision not to defend FCC’s cable-broadcast ownership ban, as NCTA wasn’t party to that case. “While not a priority issue for our association, the issue is better addressed by market dynamics and the cable/broadcast cross-ownership prohibition has outlived its usefulness,” said NCTA Senior Vp-Law & Regulatory Policy Daniel Brenner.

However, Cox Enterprises, which owns both cable systems and TV stations, although in different markets, had challenged cable-broadcast ownership rule and was pleased by FCC’s decision to let it go. “We don’t think that cross- ownership in this area makes any sense in the context of the modern marketplace, nor do we think the newspaper-broadcast ownership makes sense,” said Alex Netchvolodoff, senior vp- public policy, Cox Enterprises. Cox also owns newspapers. Netchvolodoff stressed, however, that company wouldn’t run out to buy TV stations and/or cable systems in same markets, saying company was concentrating on reducing its debt and creating free cash flow. Tribune Co., which owns newspapers and TV stations in some of same markets, also had challenged FCC on newspaper-broadcast cross-ownership.

Precursor Group analysts told investors Wed. that they were predicting FCC was “likely [to] permit the convergence, vertical integration and consolidation of the media sector,” conclusion Copps decried as “dangerous.” Precursor Group CEO Scott Cleland defended analysts’ conclusions, saying they were in business of telling their investors what to expect. Bear Stearns analyst Victor Miller said he believed Commission would be “deliberate” in relaxing some of rules but would not repeal them completely. “At the end of the day, I think they're going to take it to a point where they can mollify the court’s pressure to do something meaningful and do something that’s legitimate and something that recognizes the reality of today’s marketplace,” Miller said. Legg Mason analyst Blair Levin said direction of proceeding “is clear -- greater deregulation of media ownership that will lead to greater consolidation and a dramatic restructuring of the media marketplace.” He predicted Commission would move away from distinct lines of current rules and toward “a more flexible, case-by-case approach.”

Meanwhile, at news conference following meeting, Powell told reporters commissioners had considered addressing questions about dual must-carry and whether multicasting should be considered part of definition of “primary video” for broadcasters. “That effort was not complete in time,” he said. “We chose to pull back and continue the work on it. I wouldn’t try to characterize what state it’s in, only that deliberations are continuing on that subject among the commissioners and among the staff, and we're continuing to pursue the process of developing some consensus that answers that question.” Powell said Commission didn’t feel pressure to complete its deliberations by Oct. 1, deadline by which broadcasters must choose to elect for must-carry or retransmission consent on cable systems for next 3 years. “This is important policy, policy that will have ramifications even far exceeding 3 years and I think that what we're trying to do is do all of these things as soon as possible… and do them in a way that’s correct and sustainable.” He said those issues could be decided on circulation, although he didn’t indicate Commission necessarily would. Asked if he had any idea when nomination of Senate aide Jonathan Adelstein for FCC’s 5th seat might get through Congress, Powell said he had no idea. “This is one of those things that is truly up there,” Powell said, motioning toward Capitol Hill. “I don’t know.”