McCAIN SAYS HE WILL BATTLE 35% CAP AMENDMENT

Senate Commerce Committee Chmn. McCain (R-Ariz.) said Thurs. he would oppose efforts to legislate a 35% broadcast ownership cap through appropriations legislation. After the Committee’s 7th hearing this session on media ownership, he said he still was unsure of how -- or to what limit -- to regulate media ownership. McCain said he had a hold on S- 1585, the Commerce Justice State appropriations measure and the bill would be rolled into an omnibus appropriations measure, to which he would introduce an amendment to remove the 35% cap.

“I don’t think policy decisions should be made through appropriations bills,” McCain told reporters after the hearing: “We want [the 35% cap amendment] out. If we can’t get it out, we will be considering other amendments.” Senate appropriators added language to the bill that would prevent the FCC from spending resources to raise the broadcast ownership cap to 45%, which the agency voted June 2 to do. The House already has passed a CJS appropriations bill that includes a 35% cap.

McCain said the hearing was an effort to determine what levels of media ownership restriction were appropriate. “A line should be drawn somewhere,” he said: “I'm just not sure where it should be drawn.” After hearing from witnesses, he said it was clear that the cross-ownership provisions approved by the FCC would have a greater impact than the broadcast ownership cap. The witnesses generally agreed with McCain on that. As he has in the past, McCain said it was “hypocrisy” for senators to focus on the 35% cap while ignoring cross-ownership and he blamed the lobbying efforts of NAB for creating the “distinction.”

Perhaps the most controversial witness was Victor Miller, a broadcast analyst for Bear Stearns who was criticized by McCain for perpetuating the disconnect between “Main Street and Wall Street.” Miller argued that new ownership rules created through the Telecom Act of 1996 and through FCC policies had served the public interest by creating a more robust media environment. Duopolies, while controversial, have helped create new broadcast networks such as UPN, WB and Telefutura and given the average home more TV viewing options, both local and national, he said.

Miller also said the loosening of radio ownership rules through the Telecom Act and the FCC’s 1992 radio duopoly rule had helped make the radio market more “healthy and robust.” From the mid-1990s, the cash flow of radio stations has risen from single to double digits, he said. McCain said if all radio ownership rules were rescinded, the cash flow would rise “even more dramatically.” But radio has lost some revenue since 2000, Miller said, and advertisers, who would be most likely to complain about concentration, haven’t. But McCain said advertisers preferred concentration because they then would have to make only one contract. “When it’s the only game in town, you have to go there,” he said.

In his written testimony, Miller said “intense” competition had taken a toll on broadcasting. Local TV broadcasters are facing competition from a consolidating cable industry, which he said would affect retransmission discussions and create competition for advertising revenue and programming franchises such as local news and sports. “One cable operator already captures more ad revenue than does ABC’s owned and operated TV group, we believe,” Miller said. Ad-skipping technology such as TiVo is likely to reach significant mass by 2005, he said. If TV ad revenue breaks down entirely, Miller said, monthly cable subscriber fees could go up by $46 per month. Broadcasters are becoming less profitable, he said, and newspapers are losing revenue and market share.

McCain cited the opinions of Eli Noam, Columbia U. prof. of finance and economics, as influential on his question of what ownership limits should be adopted. Noam suggested a system where a minimum number of voices should be required for a certain sized market, depending upon the policy set by Congress. McCain said he took note of the contrast Noam cited between larger and smaller markets.

In his testimony, Noam looked at the Justice Dept.’s HHI measurement formula for measuring monopoly power and applied it hypothetically to the “worst-case scenario” should markets concentrate as fully as the newly adopted rules would allow. A raise to the 45% cap would create a slight rise in HHI to a level that still would low, to 227 from 152. The duopoly and triopoly rules would raise HHI levels again, to 1,933 from 1,865. But the newspaper-TV cross ownership rules would raise the HHI to 3,551 from 1,865, he said. “This would be a substantial increase,” Noam said.

Philip Napoli, Fordham U. prof. of communications and media management, said efforts to study media ownership had focused on the relationship between media ownership characteristics and media performance. “I think it is very important that the Committee recognize that this is a relatively new and, consequently, not particularly well- developed area of inquiry,” Napoli said. He said media ownership studies were not as well developed as standard monopoly ownership studies. He noted that the FCC studies on media ownership used to create the diversity index were rigorous when they focused on economic issues of market concentration, but other policy concerns, such as localism and diversity, were “less sophisticated and less rigorous from both a theoretical and a methodological standpoint.”

Mark Cooper of Consumer Federation of America said the FCC’s new media ownership rules were likely to lead to consolidation, just as the Telecom Act led to radio consolidation. “When Congress did it, it sent a signal that mergers would be allowed,” Cooper said. He said the prospect of failing stations wasn’t a legitimate reason to negate the old ownership rules because they had a “failing firm waiver” that would make cross-ownership exceptions in such cases. He said the new rules were about maximizing profits, not to prevent companies from failing.

The hearing had perhaps the poorest attendance by senators of those so far. McCain was present throughout. Sen. Burns (R-Mont.) arrived early, but left quickly on other Senate business and didn’t deliver a statement or ask questions. Sen. Dorgan (D-N.D.) arrived midway and asked several questions. Sen. Lott (R-Miss.) arrived late in the hearing and also asked several questions. All supported restrictions on the media ownership rules.