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X` hp x (#%'0*,.8135@8:0*H&H&@@Ԍ` `  CHAIRMAN KENNARD: Mr. Grossman, do you believe we should have a different public interest standard for license for the different licensees we have or should we apply the same public interest standard to all licensees? ` `  MR. GROSSMAN: I think myself and this may surprise you it's time to change that whole standard. I don't think that the public interest standard for commercial broadcasting really obtains in any meaningful way any longer except for the three hours of children's programming a week. ` `  I would much rather see a public noneforprofit public service broadcasting or a telecommunications service that has exists to serve the public interest and have in effect the spectrum auctioned off and the money go to the public treasury and let the commercial broadcasters do what they will. But that's such a radical change that it's not what you're facing here at all and not likely to have happened. ` `  CHAIRMAN KENNARD: Do any of the other panelists have any view on whether the Commission should apply a single public interest standard or have different standards for different licensees? ` `  MR. BAKER: I would argue a common public interest standard. I think that's the best public policy, not having a Grade A and Grade B public interest. I don't think that works. But that's just my personal opinion.%?0*H&H&@@Ԍ` `  MR. GROSSMAN: In radio, to all intents and purposes, there is no way you can enforce that, observe it, or deal with it. And increasingly, as digital television comes along with thousands of channels operating and different kinds of industries, I think you're going to have an even more difficult time. And that's why I think it's time to take a whole reexamination about public policy regarding licensee assignments. ` `  COMMISSIONER POWELL: I would like to ask a question with regard to Mr. Mikkelson, I hope I'm pronouncing your name correctly but mentioned that one of the greatest problems here is that there is no diversity HHI index. ` `  There is no commonly agreed to basis for measuring whether you have diversity, how much of it is enough and whether the structural policies you're pursuing are adequate other than sort of visceral what I find to be largely visceral and sort of subjective judgements about these things. We've touched on it a number of times here. You don't like Jerry Springer, but it's one of the most popular shows on TV. I don't quite know what to do with that. ` `  MR. ALGER: I don't like Jerry Springer, but I didn't say ` `  COMMISSIONER POWELL: No. No, no. I know who I'm pointing at. And, you know you know, and I'm very, very%@0*H&H&@@ uncomfortable with the suggestion that the five of us are supposed to make judgements about what we should teach our public and not teach them with regard to what they'll embrace. And that that is a disturbing notion that I think is much spoken to by the First Amendment as as Professor Fiss' suggestion that there is an affirmative obligation under that provision. ` `  But that said, something called diversity of voices and something called diversity of choice seems to be important I think across the board to all of us. But what I want to know also goes to some of the crossownership rules which is if our focus is on either choice or voice, what is the propriety of considering the full realm of outlets for the provision of those varying viewpoints to the public. ` `  I'm often troubled that we shift terms when it's convenient. These other mediums are in when it helps an argument and they're out when they don't. ` `  But truth be told, as my family sits around the house, we have any number of ways to get any number of sources from the headiest highbrow sorts of information to the lowest of the low if you think that's what Jerry Springer is. And all of those mediums I will tell you in my opinion can produce the full range of all of them. ` `  You can find plenty of magazines that will provoke intellectual thought more dramatically than any television%A0*H&H&@@ program I've ever seen as well as the sleaziest of sleaze. You can find any internet site that can do the same thing. You can find any radio station that can do the same thing. ` `  So if people could address how they think we should factor in other outlets when considering the importance of broadcast, in particular, on diversity. And I'll let anyone answer. ` `  MR. ALGER: Since you were sort of attacking my statement about Jerry Springer, may I clarify? I tried to make this very clear. Whoever wants to watch Jerry Springer is perfectly fine with me. My point is is the provision of news is the core responsibility of the Commission and is the core of the First Amendment issue. And I was saying that was in the place of the news the standard midwest late news time. ` `  And there is no news as I mentioned, I've written in my testimony, there is no news on that station or the others of that sort in the Minneapolis market. That's my point. Whoever wants to watch Jerry Springer is fine. I find it offensive, but others may not. That's a First Amendment and you're quite right. Okay? ` `  So let's let's be clear. I'm talking about the provision of news as the core most important function of of broadcast TV which remains the most universal mass medium of access to all Americans, not just some. That's my point.%B0*H&H&@@Ԍ` `  PROFESSOR FISS: Commissioner Powell, could I try to answer specifically? And I say this with due respect. You should not ` `  COMMISSIONER POWELL: This is when you're really in trouble. ` `  PROFESSOR FISS: Right. ` `  COMMISSIONER POWELL: Especially from a professor. But ` `  PROFESSOR FISS: You should not I I think it would be irresponsible for you to answer the question you posed based on your experience sitting in your house with the diversity of outlets that you have. There is all of us could recognize this emerging new sources of news and information; cable, internet, satellite transmission, magazines. ` `  But the essential point of Turner Broadcasting is to understand that there are significant portions of Americans who are dependent on overtheair broadcasting for their understanding of the world around them. They don't have these alternatives. Now, it's ` `  COMMISSIONER POWELL: But but but ` `  PROFESSOR FISS: true that these alternative markets compete with broadcasting or these alternative outlets compete. But I don't think they replace them. ` `  COMMISSIONER POWELL: Let me take issue with that%C0*H&H&@@ for a second. First of all, I by no means suggest that I make decisions based on my own personal experience. And we will we will turn to facts and evidence to support just as I require of all of you if you are going to make the arguments. ` `  But I'm not prepared to say that there isn't a plethora of newspaper and magazine sources available to a good number of people. Seventythree percent and growing, a percentage of Americans have access. Somewhere in the middle between what we're saying is the truth. ` `  But my question really is not so much whether you should should take the most fruitful market and use that as your moniker, but to the extent that you should evaluate the presence of those alternatives nationwide in making the choice. ` `  And I also would urge people to address the issue of it's absolutely right that a not insignificant portion of Americans rely on broadcasting. And it's absolutely right that that's still the most valued source. It's not always clear to me why it's absolutely right that that would stay the case and will always or should be by right the case. ` `  Not that I dispute that we might come to that conclusion. But, you know, part of that is the presence of television's head start and the legacy of that media, respective of the provision of these things which has been%D0*H&H&@@ in large measure eroded over time with the advent of things. And so I wouldn't be surprised if there will come a day that some commission will be seeing numbers that are dramatically different. ` `  And what I'm wondering about is if it wasn't a third, if it was ten percent, rules have a way of lasting for a long time. I thought it was very interesting someone said be careful because, you know, these things you know, rules themselves when put in place are hard to repeal in the future, as well. And so I just wanted to clarify. ` `  MR. MILLER: Commissioner, I mean, the thing we look at is that it goes right to the heart of what you're saying. In 1980, the average household had ten viewing options. That was it. ` `  Now they have over fifty. And that's less than twenty now, that doesn't include magazines, newspapers and all the other media that are also exploding in terms of everybody is starting to go to the tiniest part of the demographics, serving individual demographics down to very minute segments at this point. So there is tons of that. ` `  In fact, we actually wrote a piece called, "Will Choices Outweight the Voices?", when we were looking at local ownership rules; should duopoly and LMAs be permitted. And we had one thought that there was once thought that there was going to be a scale. Is it more offensive to have%E0*H&H&@@ a a oneowner control, effectively control two televisions in a station or is it better that we now have a new viewership choice in that market? ` `  And we thought that there would be you know, one would one would weigh in higher. We found out that actually both can occur simultaneously, so we didn't have to take sides. ` `  In the cases of a lot of the LMAs and duopolies we see or not really duopoly at this point, but LMAs we see that a new entrant is brought in which gives people like the people you're talking about, Mr. Fiss, the opportunity for people, overtheair broadcast dependent people have another viewership choice. ` `  And at that same time, we really haven't affected the marketplace that much because the average LMA takes four percent of the revenue in the market and three percent of the viewership share. So we've added a new we've added a new voice, and we haven't really undermined competition in the marketplace. ` `  MR. BAKER: But it is possible for the opposite to happen. And that is, as we look at this vast array of choices and if we look them, especially the cable networks, many of them are all commonly owned, and are those necessarily different voices. ` `  You also talk about the leverage of cross%F0*H&H&@@ԫpromotion. You know, you see that in you see that in radio markets in radio stations. There may be a lot of radio stations. The ones that are commonly owned tend to have the ability to sell together, to promote together. ` `  Those are wonderful economic efficiencies, no doubt. But it also drives a huge audience to that segment and gives them a voice that may be louder than the other voices and could be anticompetitive in the sense of a smaller player coming in. ` `  MR. GROSSMAN: Can I make a quick response, Commissioner Powell? There are ways of judging this or testing on on a noncontent basis which I think is what you're trying to get at and which I agree with. ` `  You can find out before radio stations are sold and the year after, has their news department got a larger budget or a higher budget? Are there fewer or more people in the news division? Is there more or less local live programming; more or less local public affairs programming? Never mind how good or bad it is or what it has. ` `  But I think those would be and similarly, with before and after television station, local television stations have been sold. What has been the trend? I think it would be very useful to find out. I don't know the answer to that, but I have my suspicions based on my conversations with the news directors of both television and%G0*H&H&@@ radio before and after they've been sold. ` `  And I suspect you will find that those kinds of outputs have diminished rather than increased. And that may help you in your decisions. ` `  CHAIRMAN KENNARD: Mr. Alger. ` `  MR. ALGER: Yes. Commissioner Powell had mentioned the rules put in place are often hard to repeal. May I respectfully submit that massive concentration of media across most of all sorts of media with massive lobbying resources and so on is a hell of a lot more difficult to undo than rules in place, especially when those media control, as I say, wide swaths. ` `  Chapter 3 in Mega Media go out and buy a copy, everybody documents Time Warner, Turner, Disney, Cap Cities, ABC, Rupert Murdoch's News (phonetic) and so on. It's extraordinary the range of media that are controlled by eleven or twelve of these corporations which brings me to another point. ` `  Mr. Baker mentioned the crosspromotion. One thing I would like and we need more research on and I said that in the book one thing I would I would like the Commission to think about is does the existence of conglomerates distort the competition in local markets. ` `  The gist, as I understand it, of the the theoretical foundation of the Telecommunications Act and,%H0*H&H&@@ indeed, of classical economics is that there is competition in a specific market for a specific service. But if, in fact and that's and the competition is based on quality and price. That's why it's supposed to be efficient and effective. And that's how you send market signals. ` `  But if in fact you have a conglomerate bringing in from other parts of the country, other geographical markets, and from other product markets including industrial markets on which they may have monopoly control in, can they not only massively crosspromote which we're seeing ABC, Disney, etcetera, but also can they crosssubsidize to a very significant extent and, hence, again, drive out minority ownership. ` `  We're seeing evidence of that the ownership of eight stations in Chicago. I point out in my written comments that in Chicago, for example, you have three megamedia corporations that control two VHF prime VHF TV stations, fifteen or sixteen radio stations, the prime newspaper in the area and so on. That's a great deal of crossmedia ownership, a great deal of concentration; not diversity. ` `  So I would encourage the Commission to think about that core economic concept that we're supposedly the market mechanism that's supposed to be efficient and effective is based on the idea of sending signals based on%I0*H&H&@@ competition on price and quality of a particular product. ` `  But if you bring in massive crosspromotion, if you bring in massive crosssubsidy, does that distort that market mechanism which the Commission is is here to to try and discharge based on the Telecom Act. ` `  CHAIRMAN KENNARD: Mr. Alger, that will be the last word on this panel. Thank you all very much. It was a terrific discussion. We will recess for ten minutes and reconvene at 11:20 for our next panel. ` `  (Whereupon, a brief recess was taken.) ` `  CHAIRMAN KENNARD: Okay. We are ready to begin our next panel this morning. Now we are going to hear from people who are actually out in the marketplace every day, operating under the ownership rules that we administer here at the Commission. And we're also going to hear from a public interest advocate who watches very closely what happens in the market place. ` `  We're going to begin with Jeff Marcus. And I'll remind the panelists that we are on a fairly tight time schedule. So please keep an eye on our timekeeper. And please introduce yourselves and give us your affiliation. Jeff. ` `  MR. MARCUS: Good morning. I am Jeff Marcus. I am the President and CEO of Chancellor Media, the nation's largest radio company. I am formerly Chairman and CEO of%J0*H&H&@@ Marcus Cable which was the largest privately owned cable company. I have not written a book yet. ` `  It is both ironic and apt that I'm here today representing the National Association of Broadcasters. It is ironic because until last summer, I had spent my entire career, thirtyone years, in the cable industry building cable systems which competed with broadcasters. ` `  And it is apt because the subject of this hearing is media competition. And there can be no better informed witness than someone who has helped build the most successful and relentless competitor the broadcast industry has ever faced; one which has completely transformed the competitive media landscape. ` `  The pace of change in media competition is nothing short of breathtaking. And NASA and satellite industry has become a major provider of video. The internet has exploded and the ability to deliver audio and video signals over computers is growing ever greater. 3The cable industry is changing to digital technology that will dwarf today's channel capacity. ` `  To negotiate these developments will require extraordinary agility and flexibility. It is in this environment that we examine the two venerable regulations, the television duopoly and onetoamarket rules which are the subject of this hearing.%K0*H&H&@@Ԍ` `  These two rules are glacial remnants of a regulatory ice age. They stem from an almost forgotten time when a few TV and radio stations were the electronic media. They are the product of regulatory fears that have no place in today's market. ` `  Eight years ago, the Commission's Office of Plans and Policy found that the irreversible growth of multichannel competitors would lead, without a change in the regulatory environment, to a reduction in the quantity and quality of broadcast service. ` `  The record shows that the duopoly rule and onetoamarket rules are counterproductive and destroy, not advance, your goals of competition and diversity. The duopoly prevented dozens of stations from being launched and condemned others to broadcasting with secondclass signals and even worse programming. ` `  We know this because we can see the results of the Commission's experiment with two station operations under the local marketing agreements, or LMAs. Nearly twothirds of these LMAs involve failing or struggling stations. Nearly all the others put new stations on the air. ` `  Nearly twothirds of the LMAs provided outlets for the emerging WP and UPN networks. And over half the LMAs were carrying new local news programs, a topic debated this morning. Nearly half resulted in a substantial upgrade in%L0*H&H&@@ technical facilities. ` `  The efforts of LIN Television, soon to be a subsidiary of Chancellor Media, are typical of these LMA pioneers. Through an LMA, LIN saved a failing station in Battle Creek, Michigan, restoring the only local news programming and preserving a local outlet which even today would not be viable on a standalone basis. ` `  In Norfolk, a LIN LMA enabled the transformation of a minimum facility home shopping channel to a full service WB affiliate. And in Austin, Texas and New Haven, Connecticut, LIN LMAs launched stations which had been unable to obtain adequate financing. ` `  Perhaps most important, LMAs show how changing the duopoly rule can strengthen broadcasting as a competitor to multichannel providers such as cable and satellite. When I ran a cable company, it seemed to me that cable had two main advantages over broadcasting: dual revenue streams and the ability to spread programming and other costs over multiple channels. ` `  Now that I am in broadcasting, I see how hard it is to overcome these barriers. And while I am proud of our free, overtheair system, I don't understand why the FCC should restrict free broadcasters' ability to compete with paid competitors who do not face the same restrictions. ` `  The onetoamarket rule has no better%M0*H&H&@@ justification. Even when it was adopted, the Commission could not point to any actual problems that the rule would remedy. The many grandfathered radioTV combinations and the waivers that the FCC has granted since 1996, like LMAs, allow us to look into what a world without the rule would be. And the answer is that no reduction in service or diversity has been caused by radioTV crossownership. ` `  Instead, radio and TV stations have strengthened their service to the public by realizing efficiencies from joint operations. If the radio and television stations do not compete, there is no justification for our crossownership rule. ` `  The Department of Justice and recently the FCC has looked only at radio when examining proposed transactions. Surely the Commission cannot have it both ways, restricting radio ownership by looking at radio only, but barring crossownership based on an entirely different market. ` `  Certainly there is no evidence, nor could there be, that the onetoamarket rule in operation results in greater competition or diversity of programming in any market. The Commission should therefore heed the advice the OPP gave it years ago and get rid of rules that reflect only a bygone era of media competition. ` `  The FCC should repeal the onetoamarket rule. It should reform the TV duopoly rule to permit common%N0*H&H&@@ ownership of two TV stations where at least one is a UHF station or where the combination has no likelihood of diminishing competition. ` `  However, if you should not take this course, the investments, the millions and millions of dollars of investments that broadcasters have made to improve service to the public should not be jeopardized. And the existing LMAs and onetoamarket waivers should be grandfathered. ` `  And I would like to make one additional observation. ` `  CHAIRMAN KENNARD: Mr. Marcus, I will ask you to wrap up. ` `  MR. MARCUS: Chancellor Media and many others in the broadcasting industry share the Chairman's concern about the impact of current and future consolidation, however inevitable, upon the ability of diverse new entrants to gain a successful foothold in broadcasting. ` `  We believe strongly, however, that such diversity cannot be manufactured through the imposition of noneconomic ownership restrictions targeted at narrow media sectors. And a more plausible solution is to facilitate access to capital. ` `  Chancellor is very optimistic that it can, working with other substantial broadcast organizations and Wall Street concerns, develop a significant venture capital fund%O0*H&H&@@ to facilitate the development of viable new broadcast entrants. But it could only do so in a regulatory environment that enables broadcasters themselves to remain competition. Thank you. ` `  CHAIRMAN KENNARD: Thank you very much. Mr. Frank. ` `  MR. FRANK: Good morning. The first thing you will notice is that I am not Bill Rine. I am Alan Frank. I run the Post Newsweek Station in Detroit. To Bill's great disappointment, to your disappointment, to mine, as well, he can't be here due to a longstanding, unbreakable commitment. ` `  Because of his strong convictions about duopoly and LMAs, Bill very much wanted to be here and he made great efforts over the past month to accommodate the shifting dates for this hearing. But I'm very pleased to be here because I share Bill's convictions on this issue. ` `  We believe the controlling first principle is localism, something that's old and emptied of meaning by having been used too often as a slogan or overtaken by new developments. But localism is vibrant and substantive, and remains the soundest available guide for resolving various broadcast issues. Besides, it is the law. ` `  Consistent with this Congressional mandate, our country's television service is universal, free and locally and nationally diverse and competitive. It is the envy of%P0*H&H&@@ the world. ` `  From a viewer's perspective, localism is local news, coverage of political figures for the public they represent, and station support of local charities and local civic activities. The range and shear volume of these contributions to our communities are staggering, but too often go unrecognized. ` `  From a programming perspective, localism is the balance of network and locally produced or selected programming, a mix that we affiliates tailor to the audiences in our communities. From a regulatory standpoint, localism is Section 307 of the Act, the table of channel allotments and the propagation, interference and other technical rules and principles that provide the structure for local service throughout the United States. ` `  Congress and the Commission have been faithful to localism principles. The table of DTV channels, the decision to uphold the Grade B standard, the preservation of the thirtyfive percent national cap., the FCC's refusal thus far to water down the affiliate's right to reject network programming, and Congress' insistence on reasonable DTV cable carriage rules are all examples of the continued vitality of the localism principle. ` `  We believe that the localism principle requires a meaningful duopoly rule to assure a diverse and competitive%Q0*H&H&@@ local marketplace. It is healthy to have different entities owning and controlling different broadcast outlets in a market. It leads to economic programming and viewpoint competition. ` `  If a market has six outlets, it seems obvious that the interest of competition and diversity are better served id six different entities own and operate them than if one or two entities each owns and controls two or more stations in the market. ` `  To provide consistency and predictability, the Commission properly codified the this presumption into the duopoly rule, stating that its purpose was, quote, "to promote maximum diversification of program and service viewpoints and to prevent undue concentration of economic power contrary to the public interest." ` `  We agree that the Grade B standard for the duopoly rule should be relaxed and is unrealistically stringent. We support the Commission's proposal that generally stations should not be coowned if their Grade A contours overlap or if they are in the same DMA. ` `  Because the distinction between UHF and VHF is becoming outmoded and will expire in the digital world, it should not be a basis for exceptions to the duopoly rule. Exceptions might, however, be permitted for failing stations and other special circumstances.%R0*H&H&@@Ԍ` `  Most LMAs are simply a way of evading the duopoly rule. Recognizing this fact, the Commission decided in the radio environment that if one station duplicates more than fifteen percent of the programming of another station, it should be treated for purposes of the duopoly rule as being coowned. Nobody has given any good reason why that logic shouldn't apply to television LMAs, as well. ` `  As for grandfathering existing LMAs, shams, regardless of when they were entered into, should not be grandfathered at all. If LMAs entered into after November 1996, when the FCC put the industry clearly on notice that LMAs were suspect and should not be relied on, should be grandfathered for no more than a year. ` `  The FCC's statement in the November 1996 notice that intended to grandfather preexisting LMAs for the remaining length of their original terms should be honored, but only for three to five years. Any more than that would reward overreaching. ` `  These constitute reasonable, even generous periods for broadcasters to bring themselves into compliance. After all, the radio rule, which is based on the same principle, has been in effect for seven years. ` `  Some advocates for gutting the duopoly principle also believe in localism. Some, however, are simply after shortterm dollars and have no regard for the impact on the%S0*H&H&@@ local television system. For us, the genius of our system is localism. And the duopoly principle is essential to preserving it. Thank you. ` `  CHAIRMAN KENNARD: Thank you very much, Mr. Frank. Mr. Yudkoff. ` `  MR. YUDKOFF: Good morning. My name is Royce Yudkoff and I am Managing Partner of Abry Partners. I am also here today on behalf of ALTV, the Association of Local Television Stations. ` `  Abry Partners is a Bostonbased private equity investment firm which manages 825 million dollars in equity capital dedicated to investing in broadcasting and other media. We acquire underperforming broadcast stations in small and medium markets, and improve their performance by upgrading programming, news, staffing and signal coverage. Such investments lead to better service to the public. ` `  Abry currently holds controlling interests in three television groups, one of which is in the process of being sold. Our two remaining television companies, NEX Star and Quorum, own and operate eighteen television stations. ` `  Since 1993, we have been involved in several television LMAs, each providing valuable public interest benefits. NEX Star and Quorum are now involved in two LMAs. NEX Star owns WJET TV, Erie, Pennsylvania, the hundred and%T0*H&H&@@ fortysecond market. ` `  NEX Star took over an existing time brokerage agreement for Channel 66, WFXP in Erie. @@8@@8FXP is a standalone Fox affiliate in a market this small could not survive. With the LMA, FXP now broadcasts a local 10:00 p.m. news, five days a week, and provides Erie with a full schedule of Fox programming including Fox News Sunday. ` `  Last December, FXP broadcasted a local high school football playoff game. We made it possible for many local fans to see this game, including grandparents of players. As a standalone station, WFXP would have had neither the equipment nor the personnel to undertake a project like this. Our future plans for WFXP include expanding its local newscast to weekends. ` `  The benefit of an LMA is that it allows small market broadcasters to economize on expenses that do not impact the public in order to provide the public with more that is directly on the screen. Rather than preach to you about this, let me share with you our economics. ` `  Erie, Pennsylvania has four commercial TV stations sharing 13.2 million dollars in net revenue each year. A solidlyrun Fox affiliate will capture about fifteen percent of that, or two million dollars in revenue. But it costs of that 2.9 million dollars to run a barebone, small market Fox affiliate with local news. It costs this much because%U0*H&H&@@ our costs are fixed. ` `  The electricity to run my UHF transmitter costs the same as in a big market. So does the gasoline for my news trucks. ` `  How does a broadcast operator fix this problem of losing $900,000.00 a year? The station can't cut administrative costs by declining to pay its telephone bill. It can't reduce its sales force without reducing revenue. It can't cut engineering expense by shutting off the electricity. ` `  What it does is it eliminates its local news and it cuts its locally originated programming expense to get to breakeven. What an LMA allows us to do in contract is to cut expenses that are irrelevant to the public. We can use one building, not two. We can consolidate certain selling expenses. We can share maintenance engineers and production equipment, while becoming more attractive in the areas the public wants to see. ` `  For example, our other company, Quorum Broadcasting, recently acquired KSVI TV, Billings, Montana, the hundred and sixtyseventh market. With that acquisition came an LMA with W with KHMT, Harden, Montana, the market's Fox affiliate. ` `  KHMT could not sustain itself as a standalone station. In fact, that station was off the air from 1993%V0*H&H&@@ until the middle of 1995. Now under the LMA, KHMT provides the market with overtheair delivery of all Fox programming including Fox News Sunday, plus a great deal of support for local activities. ` `  One example is KHMT's Teens Now, a series of vignettes dealing with problems encountered by local teenagers, coupled with a monthly magazine distributed through the schools. Last year we contributed $180,000.00 of public service announcements to local community activities on that station. ` `  KHMT's overtheair coverage is still much less than the other stations in the market because they cover this geographic vast area with numerous translators. We are committed to spending several hundred thousand dollars in 1999 for translators and microwave links in order to improve KHMT's service to the public. .We obviously are preparing for a transition to digital and the required investments. ` `  It's clear that the LMA in Billings is serving the public interest by providing for an additional free overtheair station that simply would not otherwise exist. It is just as clear that there has been no harm in the market due to the LMA. In fact, in 1998, the combined share of revenues of these two stations was less than onethird of the market's revenues. ` `  I focused on small markets. But the record before%W0*H&H&@@ you demonstrates the benefits of LMAs and markets of all sizes. These combinations should not be terminated. To the contrary, the opportunities to improve service through local combinations should be open to all. The TV duopoly rule should be relaxed to permit ownership of two stations in a market. Given the fierce competition from multichannel providers, it makes little sense to limit the future of free overtheair television to a single channel. ` `  CHAIRMAN KENNARD: Thank you very much. Our next witness hardly needs introduction. Mr. Wonder. ` `  MR. WONDER: Thank you. Thank you very much, ladies and gentlemen, Commissioners. I would like to share some of the notes with you. And I will make sure that you have the complete statement in speech form before I leave D.C. ` `  I am Steven Morris, professionally known as Stevie Wonder. I am an artist. I bought a radio station in 1979 because I understood and valued the power of radio. As an artist, I appreciated the marketing power of the airwaves. As a student of social justice, I witnessed the power of and the reliance of mass communications. ` `  When I bought KJLH, it was the only minorityowned radio station in the Los Angeles area. I bought a piece of history, as KJLH is the first blackowned radio station west of the Mississippi. This history is more precious now than%X0*H&H&@@ it was then. This purchase was for the specific purpose of continuing to provide a voice to a community that had been unheard. KJLH was designed to be the eyes and ears of a people who lived in the shadows of Big Brother and big business. ` `  My vision was to join an evergrowing collective of minorityowner entrepreneurs who understood the power of this medium. Twenty years later, I look into the future and I'm reminded of the past. KJLH is a standalone, Class A FM station fighting to survive in the country's second largest market. The evolution of regulation and deregulation has brought us full circle. ` `  Twenty years ago, minority owners of radio stations were the rare breed, yet a species developing and becoming strong and powerful. Today, the minority owner is again rare; now, an endangered species pursued by large corporate predators who consume the single and small owner. ` `  Consolidation of radio ownership has made it difficult, if not impossible for the single owner. Competition with conglomerates who own several stations in a single market does not allow for fair access to advertising dollars. This is particularly true when conglomerates pursue a format that has been traditional domain of the minority owner. ` `  Survival becomes a game of deep pockets. Often%Y0*H&H&@@ many single owners cannot afford to survive. In a scheme of free enterprise, I suppose this is fair game. However, control of the eyes and ears of the United States has never been about economics exclusively. ` `  History has taught us the danger of monopolistic control of the means of the communication. Legislators consider these dangers. And even in this era of deregulation and laissez faire, the public interest is still protected in the Communications Act. ` `  The public interest cannot be protected when waivers are granted to allow multiplestation owners to own more stations. How are the single owners to compete with this the owners who stand to own more than nine hundred stations? Consider the value of the single radio station owner, particularly the ethnic minority owner. ` `  Ownership diversity makes a difference in the mission of the station. This is lost when but a few businesses own almost everything. Different people have different ideas. During the unrest of the '60s and the '90s, my station had a special voice that served and affected the reality of despair and frustration in our community. Our messages helped heal and unify the community. ` `  A simulcast between KJLH and Radio Korea was designed to dissolve tensions between the African American%Z0*H&H&@@ and Korean communities. The station was a beacon of hope for all of Los Angeles. And during the uprising of 1992, the studio stayed open in the midst of turmoil and violence. People came day and night to use this medium to sooth the community. ` `  KJLH won the Peabody Award in 1992 for the quality and the responsiveness of our programming during this crisis. Minority single owners have a personal motivation to provide this kind of service for the public interest. ` `  Our concerns are not driven by remote stockholders who are looking at the bottom line for return on their investments. Our concerns are not dictated by the Dow Jones, but by the Mary Joneses who rely on our station as their source of information and entertainment. ` `  Public interest demands and public interest requires the protection of stations who stand alone like the dots in a PacMan game destined to be gobbled up by the voracious conglomerates. The big owners want more. Now they want TV and crossownership of TV and radio. ` `  Whose interest is served by allowing television stations to acquire radio stations? Can we honestly say that public interest is served when we stand mute? Can we stand mute and watch the single minority station owners to be devoured by the relaxation of ownership rules? What is the standard? %[0*H&H&@@Ԍ` `  When do you say that a company has enough? Is four hundred not enough? Are nine hundred stations sufficient? Are you contemplating a future where one or two companies can own all the stations? Is that not the script of some scary science fiction book we read as children? ` `  Can we look in the future and see the voice of the people reflected in our precious airwaves? Or should we follow the stock market to understand what we hear and see? ` `  It is in the power of this Commission to protect the public interest. As a minority owner and a member of the National Association of Black OwnedBroadcasters, I strongly urge you to stop the grabbing of multiple blanket ravers, stop the consolidation and remember the community that has placed its trust in your hands. I thank you very much. God bless you. ` `  CHAIRMAN KENNARD: Thank you. Mr. McCarthy. ` `  MR. McCARTHY: Thank you, Chairman Kennard and Commissioners. I'm Mike McCarthy, Executive Vice President and General Counsel of Belo Corporation. ` `  At the outset, let me say that there is at least one thing said by the previous panelist that I agree with and that is all the nice things said about A.H. Belo Corporation. But it's by no means just Belo. ` `  And Commissioner Tristani, we commissioned a study for the Gore commission that would give you some empirical%\0*H&H&@@ information about the nonentertainment programming provided by at least the network affiliates in several markets which I would be happy to discuss during the question period. ` `  Belo has been in the media business for a hundred and fiftyseven years. We are the owner of seventeen television stations, reaching 14.3 percent of the nation's households. We also own six daily newspapers with the Dallas Morning News as our flagship paper. ` `  We operate LMAs in four of our television markets and believe we add considerable public interest value and editorial diversity in the markets where these LMAs operate. But while I would be pleased to answer questions about these LMAs, I would like to confine my remarks to the Commission's television duopoly rule. ` `  While the television business today faces an extremely challenging competitive climate, Belo sees numerous opportunities to develop new businesses as extensions of our traditional local TV franchises. We are doing this by focusing on our major strength which is the hallmark of the structure of American television regulation. ` `  We are licensed to serve local communities. Television stations are the only free local video services in the United States. We are key suppliers of quality local news and information to viewers. ` `  To thrive in the burgeoning multichannel%]0*H&H&@@ university, our stations have to strengthen and extend their local news and information franchises, to find more outlets and provide repurposed and in most cases, differentiated franchised news programming.--It's the only way we will maintain our viewer and advertiser bases. ` `  Right now, Belo has joined us by programming cable news channels in our TV station markets and operating for LMA stations. Belo has two twentyfourhour regional cable news networks, one in the northwest and one in Texas. These networks provide informational programming different from that broadcast over our stations in those areas. ` `  Three of our four LMA stations have their own local news and all four have locally originated programs. But our ability to program additional local outlets, like other television stations, is strictly circumscribed now by the FCC with the prospect that we may not be able to do anything more at all. ` `  Even as we weigh these limited options, our video competitors keep forming everlarger, more formidable business combinations and alliances. Cable companies continue clustering their systems. Time Warner is now the owner cable provider in Houston, San Antonio and Austin, Texas, having exchanged cable systems in other markets with TCI and a new joint venture. ` `  Now, Time Warner and TCI/ATT, which already%^0*H&H&@@ provide myriad news and information services into U.S. homes, proposed to provide American households with local telephone businesses and high speed internet access. The RBOCs keep buying each other, adding cable and internet programming services to their wired homes. ` `  Public utility companies are also beginning to provide programming into U.S. homes over their utility wires. And the satellite business is merging into fewer companies and proposing through signal compression more channels. ` `  Comparable business alliance opportunities are unavailable to local TV stations. While new video outlets on cable, satellite, internet and telcos are exploding onto the competitive horizon, TV stations have to exist under a regime of scarcitybased ownership regulation. ` `  The phrase, "an abundance of media outlets", has become an understatement. At the very least, thousands of web sites with streaming video are created every day. Remember that local television stations are the only service providing onethird of America with free local overtheair news and information. We need the same loose regulatory considerations afforded cable television and telephone companies to expand our own business and programming basis. ` `  From a public policy standpoint, it makes eminent sense for the Commission to remove any duopoly restrictions,%_0*H&H&@@ at least in the larger television markets. There is no risk that this would result in a lack of editorial diversity in these larger markets. ` `  The top twentyfive television markets average close to fifteen or sixteen fullservice television stations. Cable television MSOs propose a five hundredchannel universe in these markets. Then there is a prospect of five hundred satellite channels, the everexpanding internet, then forty to fifty radio stations. ` `  And these are just the video and audio outlets. I won't take time here to mention the print providers of editorial information in our large markets where there are few, if any, barriers to entry. 0The Department of Justice has all the legal and administrative machinery it needs to monitor the competitive conditions. ` `  In sum, Mr. Chairman and Commissioners, a significant loosening of the duopoly LMA restrictions, starting with the larger television markets at a minimum, is long overdue. We're not asking for special consideration. We merely want regulatory parity. ` `  And I would just like to add my comments to Mr. Marcus' comments that we very much support the venture capital fund and have focused a lot of our efforts with Belo in management training for minority and women within our company as a means of training very qualified executives. %`0*H&H&@@ Thank you. ` `  CHAIRMAN KENNARD: Thank you, Mr. McCarthy. Mr. Schwartzman. ` `  MR. SCHWARTZMAN: Thank you very much, Mr. Chairman. Before the clock runs, let me apologize to the Commission and staff. I was so proud of myself that I had mastered our new Adobi software and integrated the graphic exhibits that I had with the WordPerfect file of my testimony that I used the last draft of the testimony with a lot of typos and a couple of genuinely incoherent sentences in it, more incoherent than usual. ` `  I will try to get you something that actually scans. An I apologize for that. 1But the graphics are great. ` `  Thank you. I am going to scrap most of those prepared remarks which is one of the reasons I am concerned about getting it to you, because I think given where we are in the day, maybe I can try to touch on a couple of the things that have come up productively. ` `  First, I will incorporate by reference what I wind up saying at just about every one of these events, as well as on the Hill: The best stations in the country doing the best service show up at these hearings, in large part because they are the only stations that think it's important to be able to take highlevel executives' time to commit to%a0*H&H&@@ writing testimony, preparing it, sending it to Washing, and care about looking good. And they stand here and tell you what a great job they do, and they do. ` `  But this is not about those stations. This is about the thirty percent of the stations that we found have no local newscasts whatsoever. This is about the twentyfive percent of the stations we've found that have no locally originated programming whatsoever, television stations in this country. ` `  That's why you need to have a regulatory scheme that does no additional obligations on these broadcasters but nonetheless, does not allow concentration at the expense of the public. ` `  I'm going to say that the kind of waiver discussion we had before today, earlier today, it is possible to base waivers on contentneutral, quantitative commitments to provide certain kinds of programming. To say locallyoriginated programming should not cause problems with Commissioner Powell's viscera, I don't think it's a very straightforward kind of thing. ` `  You can extract commitments for the kind of programming that's being described today for LMAs and eliminate those LMAs which are doing nothing, absolutely nothing for their communities. ` `  The model of newspaper joint ownership agreements%b0*H&H&@@ resembles LMAs in some way except that there is a very strict regime providing separation that doesn't exist with LMAs. LMAs here are merely a devise for evading the Commission's rules. If the Commission wants to define ownership, wants to have a waiver policy, fine. If it wants to have a system that simply promotes evasion, then it should stick with LMAs, I think to everybody's detriment. ` `  Prophylaxis, defining these things, having a waiver policy, works. It will avoid the most painful issue you have in this docket which is divestiture. The reason the LMA divestiture issue is before you is because of the Commission's failure to adopt rules. ` `  We raised the question of LMAs in 1991 and the Commission said at the time, "Well, there is only one TV LMA that we know of. If this ever becomes a problem, we can deal with it then." Well, now you have to deal with it. And it was a mistake not to have dealt with it then. ` `  And to say, "Well, we made investments", as Mr. Miller said, and and those people's stock is going to go down, they made a bet. I've lost a couple of lunches betting on what this Commission is going to do. And if those people in the stock market made the wrong bet, that's unfortunate. But it's no basis for you to enforce the law and to read the law as it was written. ` `  I'm here and you're there because the%c0*H&H&@@ Communications Act contemplates that you have to make difficult decisions. Relaxed local ownership may well generate economic efficiencies, but it doesn't translate into more or more varied programming. And it most certainly does not replenish the creative gene pool to ensure that broadcasting can stay in touch with ethnic and social diversification of American society. ` `  Don't look at what they say about how terrible the problems are; Mr. McCarthy's concerns about the costs of trying to compete with all these other nonlocal program services. If if Belo wants to pay a five percent franchise fee, commit four percent of its capacity to least access and wants to take onethird of its capacity for what amounts to the fairness doctrine, mustcarry, if they want to pay that franchise fee, I'll happily apply the same standard, looser regulations he calls for for cable. ` `  History is relevant. In the '80s, the Commission lifted the rules. There is a frenzy. Debtservice, not programservice, became important and it's become important now. The recession hit in 1991. OPP wrote a report which said, "Oh, well, the broadcasting industry is dead; we have to give them relief." Here we are again, same place. And I think that you need to avoid making the same kinds of mistakes again. ` `  I've put into my materials what the Television%d0*H&H&@@ Bureau of Advertising says about the strength and the unique nature of local broadcasting; how it and only it delivers ninetyseven percent of the American homes. Cable, internet, none of these other services get the same advertising and have the same ability to serve their community as they do. ` `  Look at the facts sheet. Look what TBB says itself. Look at what the stations and the broadcasters tell Wall Street. They don't say, "We're really suffering." Stock market prices are going up, as we've noted. The valuations are way up. Wall Street bets that this industry is going to make money, a lot of money. ` `  And I think that you can work within that framework to decide a system that is going to preserve a very viable, effective broadcasting system. As I often say in this room or in the Commission Meeting Room, not this room we have the best system in the world because of, not in spite of, the Communications Act of 1934. ` `  You can adopt your scheme to those rules, leave a viable industry; but not abandon diversity, not abandon localism. That's what you're being asked to do and you shouldn't bite. ` `  CHAIRMAN KENNARD: Thank you, Mr. Schwartzman. ` `  COMMISSIONER TRISTANI: Mr. Chairman? ` `  CHAIRMAN KENNARD: Yes?%e0*H&H&@@Ԍ` `  COMMISSIONER TRISTANI: If I could interject a moment ` `  CHAIRMAN KENNARD: Please. I understand that you have to leave, so ` `  COMMISSIONER TRISTANI: I have to leave. ` `  CHAIRMAN KENNARD: by all means. ` `  COMMISSIONER TRISTANI: And I would like to thank the panelists for their incisive remarks. I'm going to watch what you're going to say now as to the questions later. And a prior engagement makes me leave. But I want to thank all of you. ` `  And I want to thank in particular those panelists that have reminded us of the critical role that broadcasting plays in our society. Thank you, Mr. Chairman. ` `  CHAIRMAN KENNARD: Thank you very much, Commission Tristani. And my thanks to the panelists, as well. Mr. Yudkoff, I would be interested in your response to Mr. Schwartzman's testimony. What about these thirty percent of stations that are providing no local news at all? And we understand that there are very compelling efficiencies whenever we allow one of these combinations. But what is the benefit to the public? ` `  And your discussion of I believe it was the Erie situation where you talked about it was the LMA was really essential for that station to be able to survive. %f0*H&H&@@ But what do you tell the public when we see stations that are providing no news and no public affairs, none of the local programming that makes free overtheair television so important? ` `  MR. YUDKOFF: Well, we know that the result of LMAs has been a significant increase in the amount of local news because a short time ago, your Commission put out an FCC inquiry. And the result of that was that we learned that fiftyfour percent of the brokerage stations are producing local news which compares to twentythree percent of all nonnetwork affiliated stations producing local news. ` `  That is an astonishing statistic because most of the stations that are time brokered were either bankrupt or near bankrupt. So they don't even reflect the average of all nonnetwork affiliated stations. ` `  The reason that most owners if they have the financial wherewithal want to produce local news, they want to, is because it attracts the public away from the nonlocal competitors. It is the single most powerful mechanism for differentiating ourselves from the sixty cable channels that in aggregate have more audience share than the leading station in any of our markets. /So I actually think that LMAs have been a tremendous driver for an increase in local news, speaking statistically. ` `  CHAIRMAN KENNARD: But what about the class of%g0*H&H&@@ stations and I'm not exactly sure what percentage there is. But I'm confident there is a class of stations out there that could operate as standalone stations, providing an opportunity for yet another voice in the marketplace, that are operating under LMAs and not providing any significant additional publicinterest programming. ` `  I mean, what in that class of station, what is the benefit to the public and why should a combination like that deserve regulatory relief from this Commission? ` `  MR. YUDKOFF: I think that the issue is the issue I'm most experienced with is in midsized and small markets where the dilemma for the if you want to increase the number of voices in the market, the dilemma is that with a fixed pool of revenue, that that, even more than regulation, sets a finite limit on the number of stations or the quality of local programming that the marginal station can produce. ` `  And if you want to add to that, either in terms of number of voices or the amount of local programming, other than increasing the amount of revenue which, regrettably, is not in your power to do, you can allow us to share some of the costs. And that is the that is the only other mechanism I'm aware of to allow stations that don't have the wherewithal or choose not to produce local programming or local news, to have the resources to do that.%h0*H&H&@@Ԍ` `  CHAIRMAN KENNARD: And is it your testimony that duopoly relief should be confined to those smaller and midsized markets where these efficiencies are really necessary in order to promote local programming? ` `  MR. YUDKOFF: Sir, that's really beyond my expertise. I I really operate in midsized and small markets. I'm not really prepared to speak to large market issues. ` `  CHAIRMAN KENNARD: Commissioner Ness, anyone else? ` `  COMMISSIONER NESS: Your testimony, however, said that duopolies should be open to all. Does that also suggest that or are you saying is it your testimony that two healthy, financially healthy stations operating in a market ought to be able to to merge? ` `  MR. YUDKOFF: I think that one of the benefits that you will see from duopoly generally is by economizing on redundant costs that the viewer doesn't see or doesn't care about will increase the level of competitiveness in the areas that viewers do care about because all of the markets in which I'm familiar with are extremely heated in their competition for pleasing the viewer. And I think that what you will be doing is putting more on the screen for the viewers and creating less in the back room that no viewer appreciates or understands. ` `  COMMISSIONER NESS: But isn't there a cost%i0*H&H&@@ involved there and the cost being the reduction of an independent editorial voice? ` `  MR. YUDKOFF: Well, I think that there are already antitrust regulations that set limits on the level of concentration in markets. But I also think what you're doing is creating new voices in a market because you are you are creating the economics where stations that are either not on the air or even more frequently are these twentythree percent of stations that don't produce local news or local programming, they have the economic resources to enter into that competitive fray. ` `  COMMISSIONER NESS: Well, certainly, there is a difference between stations that economically are not viable or which have been struggling economically and can't survive without support. I think there one could draw a distinction between that kind of situation and a kind of situation where you have perfectly healthy stations competing in the marketplace. And now you're suggesting I believe that they ought to be allowed to combine. ` `  MR. YUDKOFF: Well, Commissioner, that is we're just speaking about the extremes right now. Most of the stations fall somewhere on the spectrum. ` `  For example, in a small market, to go from an entertainmentonly station to a news station requires a minimum capital investment of about a million dollars. %j0*H&H&@@ That's a barebones investment. 00Jeff Marcus will smile. In one of his bigger market stations, it's many times. that. ` `  But the least you can get the news on the air with is about a million dollar capital investment. I certify to you that in a lot of these small markets, operators just cannot make the numbers work if they have to put a million dollars up before turning the lights on a local news, even though you may rightfully regard them as a reasonably successful, profitable station. ` `  If they were allowed to share the capital infrastructure with another station in the market, to take one element of the example, that would allow them to much more economically get into the business of providing additional news voice in the market, even though they would not meet your test of being an unprofitable station. ` `  COMMISSIONER NESS: Should it be permitted then in every market that we take the number of stations and divide it by half so that every single station ought to be able to merge with another station? ` `  MR. YUDKOFF: I think subject to some kind of antitrust restrictions, the answer would be yes. ` `  COMMISSIONER NESS: So the ones who happen to be at the gate last or that did not take advantage of the duopoly rules to have LMAs presently would end up not being able to combine because everyone else had combined%k0*H&H&@@ previously? ` `  MR. YUDKOFF: I think that would vary from markettomarket because I think there will also be situations where there will be new entrants in the market or marginally competitive stations will become vibrant new competitors in the market. So we would have to look at it across each individual market in that sense. ` `  CHAIRMAN KENNARD: Mr. Marcus, you testified that you didn't believe that there was any reduction in diversity as a result of consolidation in the last few years. And I think as we've seen from our this panel and the panel before, that that's certainly a debateable proposition. ` `  But what I don't think is debateable based on what I've heard today is that there has certainly been a reduction in ownership diversity; that is, we're seeing more and more licenses concentrated in fewer and fewer hands. ` `  And I think that the end of your testimony, you sort of acknowledged that by indicating that you were interested in exploring ways that we can increase the numbers of minority and womenowned stations in the country which we know to be a declining number based on studies over the last few years. Can you give us a little bit more testimony about what you had in mind specifically in that area? ` `  MR. MARCUS: Well, let me say, first of all, that%l0*H&H&@@ the reduction of minority and women owners and other individual owners has not been a result of these people being forced out of the business. These people have all sold out at enormous profits and fulfilling the American dream. This is something that many many of us all dream of doing in building a business and selling it at a profit. ` `  But I would also say that the top three radio broadcasters, which own approximately a thousand stations, represent less than ten percent of the total radio stations in the country. And if you measure it by revenue, it's less than thirty percent. So there is a lot of independent and smaller ownership structures that are still out there. ` `  Having said that, if we define diversity, not only by format, but by ownership, by gender, by by ethnic background, and we believe that there there is a desire to see that enhanced, then we are interested, and I know many others are interested in helping with that. ` `  And we are proposing that against the backdrop of enlightened regulation, that we would be willing to have a major role in setting up a fund, a venture capital fund, that would match capital with opportunity for those qualified radio or television operators; that is, media operators, people that can demonstrate a history and an ability to run these assets. And we would back them. ` `  We would have this run not by Chancellor, not by%m0*H&H&@@ someone else, but by professional management. And we would invest in this altogether to try and fulfill that aspect of diversity. ` `  CHAIRMAN KENNARD: Very interesting idea. Any other comments on what Mr. Marcus has just said? Mr. McCarthy? ` `  MR. McCARTHY: Mr. Chairman, I think that it would be well for the Commission to recognize that there are some there are two clear incentives at work here which Victor Miller alluded to and several of the panelists of both panels. And that is that Commissioner Ness pointed out, is that news is profitable. And when I say news these days, part of that is public affairs also under the old Commission's definitions. ` `  One, news is profitable. And then and in most of these markets, particularly the larger markets, there is a race, a very competitive race, to seize the franchise and to hold that franchise and extend your brand into different different forms like cable news channels or LMAs because that's the only thing that's distinctive about local television, is that we have a large component of our broadcast day that is locally originated or locally originated programming and that's news and some syndicated product. ` `  And there is this incentive that is in operation%n0*H&H&@@ in the penalty of what the Commission is doing. And it would be fair to recognize that incentive. And it's shown up in the LMAs from the standpoint of there definitely being new news programming put on that is differentiating news programming. It isn't just repurposed. You've heard that word a lot obviously. Well, we all have, the repurposing. ` `  But the only way you can and this is the second incentive I'm speaking to. The only way you can continue extending your brand and extending your ability to use your news in nonentertainment programming is not have it be similar. In other words, ownership diversity I don't think you can say that ownership diversity means there is not viewpoint diversity. ` `  In other words, we operate an LMA in Seattle. It isn't it has a news programming on a program on its own. It isn't the same program as our KING in Seattle. That wouldn't make sense from the standpoint of developing the franchise. In other words, you've got to differentiate your programming from all of the other video outlets. And then you've got to differentiate your programming to a great extent on our cable news networks. ` `  We don't run we don't simply just repurpose our programming and so you're just watching the main station at a different time. I think those two incentives are very powerful incentives. And they're at work now and could%o0*H&H&@@ certainly underpin a relaxation of the duopoly rule. ` `  CHAIRMAN KENNARD: Mr. Morris? ` `  MR. WONDER: Chairman, I would like to speak on one particular thing that was said a moment ago. I had the pleasure of reading a comment recently that was made about Stevie Wonder. And they were talking it was said in a sarcastic way that I was impoverished. ` `  The reality is that the very reason that I'm able to be here today as Stevie Wonder, born as Steven Morris, is because of the radio station that was a minorityowned station in Inkster, Michigan, WCHB, which is a daytime station. ` `  And it was through me listening to the music and listening to the news and information that inspired me to as a little kid, far against my mother's rules I went and I took one of the radios she had and kind of put some plugs in different places and tried to broadcast through the house and got a whipping. ` `  But the point I'm making is never did I imagine that I was going to be the the owner of a radio station. But I when coming to Los Angeles and hearing the station that was licensed by the city of Compton, KJLH, was so inspired by how much it sounded similar to the format of music and information as did the station that was an AM station in Inkston, Michigan.%p0*H&H&@@Ԍ` `  The truth of the matter is that I a few years ago was approached to sell that station, to give it up. And I could have gotten myself forty or fifty million dollars. I love playing with money. It's okay. ` `  But the the real important thing for me is that I wanted to far more important than than getting some money, I wanted to make sure that the voice of a community would be consistently heard and that it would open up a place of communication so that not that not just that minority community, but all various peoples of this melting pot that is to be called the United States, various cultures could be heard and united. I just wanted to make that point. ` `  CHAIRMAN KENNARD: Thank you very much. Mr. Schwartzman. ` `  MR. SCHWARTZMAN: I would like to make three points as fast as I can. First, you're getting some spin here. I do this by recollection and I hope I'm right. But I believe that Mr. Miller's published revenue projections for television for 1999 and 2000 is a nine to twelve percent growth which is about three times what he was talking about this morning. ` `  We are hearing about everybody does news and news is is important; it's profitable. A major market groupowner issued the statement that says, "After long and" %q0*H&H&@@ this is Broadcasting Magazine "After long and careful" Broadcasting and Cable Magazine, I'm an oldtimer. ` `  "After long and careful evaluation, we have concluded there is more than enough news programming in our market.  The company said it could said it could better serve its viewers with entertainment programming. I don't think our strategy includes news." ` `  This is what's going on. In fact, some of the companies again I hate to pick on Mr. Miller but some of the companies that he's whose stock he's recommending are going around to Wall Street saying, "We cut costs; we eliminate news departments." ` `  One company brags it has no local programming staffs at all in all of its stations. The only thing they have in place at each of the communities where they own stations are salesmen. Everything else comes in by satellite. "What a wonderful business; why don't you invest with me." That's really what's going on here. ` `  Number two, if you want to go along the lines of Mr. Marcus' suggestion, I think that is a very promising one, to try to find ways for meaningful amounts of capital. And as you know, Mr. Chairman, better than anybody else on earth, the amount of money that's been put together for those kind of ventures in the past has been so small as to be completely ineffective. %r0*H&H&@@Ԍ` `  It's got to be a large amount of money to really be meaningful given the valuations here because you're going to have to get stations. You're going to have to buy off all of the people who are here who have got all the value. ` `  If you're going to do that, you need very strong safeguards. Otherwise, you are going to have the LMA situation which, again, the Commission could help clarify by not sitting on appeals clarifying what the relationships with LMAs should be for years and years and years. ` `  Number three, let's not get hung up on labels. This is not about news. I'm not saying it has to be news programming. What is news programming? ` `  If you focus on locallyoriginated programming, if you focus on programming that discusses the way Commission traditionally approached it, issues of concern to the community give broadcasters tremendous latitude, but make them commit in exchange for any kind of relief. Make them commit to programming which comes from places or is of a nature to remediate the loss and diversity that comes with allowing some sort of common ownership. ` `  You can have that cause and effect and you can do it in a way that will not cause discomfort intestinally for some of the people who don't like looking at content. I think it's possible to do that, but it does not involve the bright lines that your staff understandably favors.%s0*H&H&@@Ԍ` `  MR McCARTHY: Mr. Chairman, could I just take thirty seconds to respond to that? ` `  CHAIRMAN KENNARD: Certainly. Go ahead. ` `  MR. McCARTHY: Because it isn't what's going on really. The only way you're going to get a franchise in your in your market is to produce a lot of nonentertainment programming, news/public affairs being a significant component. And we the study I referred to when Commissioner Tristani said, you know, "Show me the figures." ` `  We commissioned a study which Wiley, Rine and Fielding did for the Gore commission which said, "Take seventeen markets" which happened to be the markets Belo was in "take the four" "the four main networks and take a program week, and eliminate all the commercial content; use the Commission's old program categories of nonentertainment programming news, public affairs and all the other nonentertainment programming exclusive of sports and let's see what a hundred and sixtyeight hours a week" "let's see what percent of that week these stations do." ` `  The average was close to twentyfive percent of the program week, was nonentertainment programming. And the reason they're doing that is so because you've got to with your nonentertainment programming, your community%t0*H&H&@@ service, you've got to differentiate yourself and distinguish yourself from all the other video outlets and you've got to get that franchise and extend that franchise. ` `  And we can't we're limited as to how we can extend that franchise. But it's it's definitely in the public interest in my view. ` `  CHAIRMAN KENNARD: But isn't the case, Mr. McCarthy, that those market incentives may be there and driving some broadcasters, but others have a different business plan and that's not part of it. And I think that's why we're seeing this discrepancy between what Mr. Schwartzman is saying and what you were saying. ` `  There are some stations that are doing local programming and nonentertainment programming. But there is a class of stations that aren't. And we are being called upon to draw some line here. And that's what we're obviously grappling with. Jeff. ` `  MR. MARCUS: Mr. Chairman, I would maintain that you really are going to have in the future two classes of overtheair broadcasters. You're going to have the ones that believe in localism and the ones that don't because the race is to localism. ` `  Cable companies over the last several years have focused on clustering. And there has been trading and swapping and buying and selling so that one company has the%u0*H&H&@@ majority share of the market, if not the entire market. ` `  And what they do once they get that is they go for a local news channel. And they go for local local programming channels. And the old issue of the access channels not being meaningful, all of a sudden they become meaningful because they can deliver the entire market. And they have all of this service that they can attract viewers with and now advertisers with. ` `  So as broadcasters, our only defense is to go local because we can't compete with the fifty or eighty channels on on the cable system. And in order to go local, we need the fire power to come back at these cable companies. And I feel sort of strange arguing against my old industry. But we need the fire power to come back against the cable industry. And that's why LMAs and duopoly is important. ` `  Not everybody goes for entertainment programming. We do news. Our differentiation in the marketplace and the reason our LMAs are becoming successful is because we focus on local news because that's what people want to see. ` `  CHAIRMAN KENNARD: Thank you. Mr. Frank. ` `  MR. FRANK: Sir, the issue I agree with Jeff Marcus. The issue is localism. And and but the other side of that is that when two competitors combine when when a company combines with another competitor, it%v0*H&H&@@ adversely affects the marketplace for everyone else in the marketplace. ` `  And you do lose the diversity of viewpoint and you do lose perhaps the public service. And those are the overriding principles. ` `  You know, we've talked a lot about stations that are in trouble. Many of us who have taken over stations have taken them over in our company in Miami and in Detroit where the ratings were three shares, five shares; very, very low. And today, they are number one stations. ` `  There is a period of hard work and investment. And that's what it takes to move a station up into the marketplace. And it is oftentimes we believe localism is the way to do that. ` `  But just because you have a small share in the marketplace at this time does not mean you are a failing station and does mean you should be an exception to the LMA rule. When you allow when you allow LMAs and duopolies, what you do is really go against that principal of localism and diversity in public service. ` `  CHAIRMAN KENNARD: Mr. Yudkoff. ` `  MR. YUDKOFF: Mr. Chairman, I just wanted to come back to the important issue of diversity of ownership. I run an investment fund that invests in the broadcast business. And the reason we exist is to back inchoate%w0*H&H&@@ entrepreneurs and help them to get into the broadcast businesses profitably to us. ` `  I think that the most realistic way to make sure there is a diversity of ownership is to have a diversity in the management pool of broadcast properties which is the pool that these entrepreneurs realistically come from. ` `  I think that a much less practical way to ensure a diversity of ownership is to regulate such that the small market stations, which are the most likely point of entry for entrepreneurs, are minimally economically viable. I don't think that will help having a diverse group of entrepreneurs unless that diversity comes from entirely other sources like like diverse owners who happen to be independently wealthy, completely aside from the broadcasting industry. ` `  CHAIRMAN KENNARD: Ms. Slade. ` `  MS. SLADE: I would like to say one thing. I'm in the radio side of the business. And we've just been through this consolidation. So you have existing operators that you can pull from, you've got a factual base if you want. You can ascertain what happened with the ownership rules changing. You we know what happened as far as ownership. There are fewer minorities. There are more conglomerates. ` `  Can we assess what happened in the radio side of the business before we make all the changes in the%x0*H&H&@@ television side? I mean, before we go into a television duopoly, can we see what impact it had from a public interest standpoint, from a diversity of interest standpoint, from a diversity of viewpoint standpoint? Can we make those assessments, ascertainments? I mean, can you do that for us before you change the rules? ` `  Because as a small operator, I'm the one competing out there. And it's very difficult to compete with conglomerates. Just a case in point, I have a finite amount of inventory. I pitch, do my best. My numbers are what they are. I get the buy or I don't. ` `  If I'm competing with someone that owns five, six, seven, eight radio stations and a television station and a billboard company, they're packaging it all together. They've got onestop advertising. It's very difficult to compete. ` `  Now, we do okay. But as you raise the bar and raise the bar, at some point you'll go under. When I came into this business ten years ago, there were five blackowned and operated facilities in Los Angeles. We are the only one now. And that's because the owner made a commitment to stay in the business. ` `  We are committed to this industry. But the bar keeps raising and my competitors are not playing with the same rule book. I have a finite amount of inventory. They%y0*H&H&@@ buy another station. It's very difficult. ;So I would submit or recommend that you evaluate what's already happened on the radio side before you make massive changes on the television side. ` `  CHAIRMAN KENNARD: Thank you. Commissioner FurchgottRoth. ` `  COMMISSIONER FURCHGOTTROTH: Thank you, Mr. Chairman. I believe, Mr. Schwartzman, the answer to number nine down is tension. But some of this may be an academic exercise. We received yesterday a letter from several leading members of Congress giving us some guidance that's kind of unequivocal. ` `  "There is no" and I quote, "There is no question that all local marketing agreements have been grandfathered permanently." And they go on to cite parts of the '96 Act. ` `  They go further to state, "The concept of grandfathering is fairly straightforward. These arrangements should continue as long as the parties agree. Local broadcasters have invested hundreds of millions of dollars in these arrangements. They have served the public interest. It would be unfair and inconsistent with the law to now impose posthoc limitations. The agreements should be renewable and freely transferable. Any restrictions such as imposing a term of years, limiting transferability, or%z0*H&H&@@ limiting an LMA to its initial contract term are flatly inconsistent with the concept of grandfathering." ` `  Many of you on the panel have testified frequently before Congress and have some sense of how strongly they feel about some issues. And I just wondered if you could give us, the FCC, some guidance about doing something that might not be consistent with such a straightforward, unambiguous message. ` `  MR. SCHWARTZMAN: Commissioner, you are, to be sure, an independent regulatory body which is more clearly an arm of Congress than any other part of the governmental body. But you are an independent regulatory commission. You are delegated authority and you are charged with interpreting the laws. ` `  Members of Congress who write the laws have some very useful things to say. But it's decided by you and by the courts. Members of Congress who provide what is referred to by the courts as postenactment legislative history don't always find that it's follows. ` `  And while I value the interpretations and the suggestions that these members of Congress may have received as to what that letter may have contained as they sat down together and wrote it and assembled all the cases and reviewed their extensive knowledge of LMAs, I'm reminded that we frequently see amicus briefs filed by members of%{0*H&H&@@ Congress. Most recently, one comes to mind is the census case the Supreme Court decided on different sides. ` `  We had this before before the Commission judicial review of the Iowa Utility Board case. They both can't be right. That's why you're there. And your job is to interpret the law; not do what a member of Congress tells you in a letter you should do in interpreting the law. ` `  MR. McCARTHY: Here is the hope for editorial diversity again. I disagree. And I don't think you can follow all of the the track record of the adoption of the 1996 Telecommunications Act without reading Congressional intent, legislative intent, that the Commission was asked to review some of these these rules, some of which go back to the '60s and with the purpose of rescinding those that no longer had any credibility in the marketplace we're in. ` `  And the companion acts of Congress essentially deregulating the other telecommunications providers I think is a very strong indicator of Congressional intent. I I agree with you wholeheartedly that LMAs were intended to be grandfathered. ` `  And the newspaper broadcast crossownership rule and all the other rules which had their beginnings in the '60s and '70s, the purpose of of putting in this this by any old review is saying, "Well, we'll defer to a certain extent to the Commission." But bear in mind, this is what%|0*H&H&@@ we this is how strongly we feel about these. We're starting to deregulate the other ones. And the purpose is you look at them and deregulate what doesn't make any sense, duopoly certainly being one of them. ` `  MR. MARCUS: I would only add that I would agree with Mr. McCarthy. And I think the language and the legislative intent is very clear. And we see these letters coming to the Commission with greater frequency because I think the people that were a part of the process are concerned that the process may not be carried out. And so I would I would say that the intention of Congress needs to be followed here. ` `  And if that were the case, if that were to happen, then I think that we would see greater opportunities for new entrants, minority and other new entrants into the into the business because there would be much more activity in the duopoly side and the LMA side. ` `  And certainly, those of us that would like to invest in the in the venture side of it to bring on new entrants would feel that the laws that were adopted in 1996 and codified further in 1997 were being followed. We have to have a stable regulatory scheme. We have to be able to rely on what's been passed and not have the rules changing all the time because we are making major, major investments that are based upon on a regulatory scheme that has to%}0*H&H&@@ remain intact. ` `  CHAIRMAN KENNARD: Let me just say one thing about this point because I'm the one that most of these letters are addressed to. And I look at them all. And I study them carefully. ` `  And I have not seen since I've been Chairman or when I was General Counsel at this Agency, I have never seen a controversial issue where there has been unanimity in the letters that we have received from Congress. =And this issue is no different. Commissioner Ness? ` `  COMMISSIONER NESS: Mr. Marcus, just following up on your last point. How many stations do you own presently? ` `  MR. MARCUS: When all the pending transactions close ` `  COMMISSIONER NESS: Please. ` `  MR. MARCUS: we own four hundred and sixtyseven radio stations and thirteen TV stations ` `  COMMISSIONER NESS: So ` `  MR. MARCUS: including four LMAs. ` `  COMMISSIONER NESS: So you've profited tremendously from the great liberalization under the 1996 Telecom Act. Is that not right? ` `  MR. MARCUS: Well, I don't know if profit is the right word. We've been able to consolidate. ` `  COMMISSIONER NESS: Is there any reason why today%~0*H&H&@@ you could not contribute substantially to a fund to provide for minority ownership that's run independently? Is there anything preventing you from doing so today? ` `  MR. MARCUS: The instability of the regulatory scheme. ` `  COMMISSIONER NESS: Is preventing you from making a contribution. ` `  MR. MARCUS: That's correct. ` `  COMMISSIONER NESS: Is there anything I'll ask this generally of the panel. Is there anything preventing companies today from owning, for example, a cable channel in their market? I would point out, in Washington, D.C., there is Channel 8 which is owned by Albritt a subsidiary of Albritt Communications Broadcast Company. It provides for the opportunity to amortize the cost of providing the news operation. ` `  Is there anything that's preventing a company today from owning an internet business, from owning a satellite channel, from owning magazines in the marketplace, from owning broadcast properties outside of the marketplace? Is there anything that's preventing these companies from participating in the vast assortment of communications outlets with the exception of a very narrow, specific situation within the local market? ` `  MR. McCARTHY: I think that you certainly can%0*H&H&@@ lease cable news channels. But I would sort of turn that question around and say the the ability of our competitors to do far more than we can. ` `  And TCI could buy the Dallas Morning News, for example, in Dallas if it wished. We couldn't buy a cable system. We couldn't buy another TV station in that market. You know, Microsoft could come in and buy most or all of the media facilities in any market. It's regulatory parity that is the issue. ` `  We have we have some freedom and we've used that freedom in developing cable news networks. But we don't have as much freedom as our competitors. ` `  COMMISSIONER NESS: Mr. McCarthy, I would suggest that you have an opportunity for a second channel in your marketplace. In fact, you have an opportunity with the digital broadcast system to provide a wide assortment of programming in your market for the public. And that's what certainly we are hoping will be happening as we convert from analog to digital. ` `  MR. McCARTHY: But Commissioner Ness, I think that you have to and I'm sure you're aware that no one is watching. There are very few digital TV sets out there. And this is going to take a long time ` `  COMMISSIONER NESS: No one was watching television when it first went on the air, I'm sure %0*H&H&@@Ԍ` `  MR. McCARTHY: Well ` `  COMMISSIONER NESS: many years ago. ` `  MR. McCARTHY: we all have to, when we make investments, see the return. ` `  COMMISSIONER NESS: Nobody was listening to FM radio when that first went on the air. ` `  MR. McCARTHY: And we're hopeful that this will do as well as FM radio. But the fight is at the local level, the fight is for the viewer's eyeballs competing with the cable operators for the fragmentation, trying to fight back against the fragmentation of the video marketplace. ` `  And in order to to do that, we have to have additional power in the marketplace so that we can attract those eyeballs. And we as a company, and I know Belo as a company and many others, are willing to make the commitment to develop those stations. But and we have made the commitment to develop those stations. ` `  And I would I would maintain that if we can't do this, that there will be further fragmentation of the marketplace. And we've seen this. If you look twenty years ago at the network share, what it was and what it is today, and it continues to erode, it is going more towards the cable operators, more towards and as the cable operators cluster, more towards local. And we have to have the ability to fight back.%0*H&H&@@Ԍ` `  CHAIRMAN KENNARD: Mr. Marcus, I'm afraid that's going to have to be the last word. We've gone over time in large measure because this has been such a fascinating panel. And I ` `  MR. MARCUS: I rarely get the last word at the Commission, sir. ` `  CHAIRMAN KENNARD: Okay. We do have a closing statement from Commissioner Ness. ` `  COMMISSIONER NESS: Just basically a closing thought. This was a quotation from a leading TV journalist in an interview on "Fresh Air", which is a public broadcast radio program. ` `  "It is true we all work for bigger organizations now. The fewer large organizations there are owning more media, in very general terms, the potential for that being worse for the media and not better is just obvious because when you have a lot of media owned by a lot of people, this is an obvious opportunity for much more free expression. ` `  Now, the direct corollary is not that because we are owned by", in this instance, "Disney that we're all suddenly choking to death. Quite the opposite. But I think axiomatically speaking, yes, more media in fewer hands obviously has potential peril." And that speaker was Peter Jennings. ` `  CHAIRMAN KENNARD: And that will be the last word. %0*H&H&@@ Thank you very much. ` `  (Whereupon, at 12:50 p.m. on Friday, February 12, 1999, the hearing was adjourned.) %0*H&H&@@  ? (!   ` X vVwHeritage Reporting Corporation &(202) 6284888V "REPORTER'S CERTIFICATE ă  ?X  FCC DOCKET NO. : N/A  ?  CASE TITLE : FCC EN BANC; LOCAL BROADCAST OWNERSHIP  ?x  HEARING DATE : February 12, 1999  ?  LOCATION :  Washington, DC  I hereby certify that the proceedings and evidence are contained fully and accurately on the tapes and notes reported by me at the hearing in the above case before the Federal Communications Commission. Date: _21299__ __Sharon Bellamy_____________ Official Reporter Heritage Reporting Corporation 1220 "L" Street, N.W. Washington, D.C. 20005  ? <! TRANSCRIBER'S CERTIFICATE ă  I hereby certify that the proceedings and evidence were fully and accurately transcribed from the tapes and notes provided by the above named reporter in the above case before the Federal Communications Commission. Date: _21899__ ____Bonnie Niemann____________ Official Transcriber Heritage Reporting Corporation  ?  <!PROOFREADER'S CERTIFICATE ă  I hereby certify that the transcript of the proceedings and evidence in the above referenced case that was held before the Federal Communications Commission was proofread on the date specified below. Date: _22299__ ___Lorenzo Jones______________ Official Proofreader Heritage Reporting Corporation