MM Docket No. 95-40
Amendment of Part 73 of the Commission's Rules concerning the Filing of Television Network Affiliation Contracts
Adopted: April 5, 1995 Released: April 5, 1995
Comment Date: June 12, 1995
Reply Comment Date: July 12, 1995
By the Commission:
3. In 1955, the Commission initiated a general inquiry
into television network broadcasting that culminated in
the 1957 Barrow Report.(n8) This report recommended that affiliation
agreements be made available for public scrutiny. The
Barrow Report argued that each affiliate should know the
contents of all of its network's other affiliation agreements,
just as the network does, thereby placing both into an
equitable bargaining position. The intended result would
be to make all of a network's affiliation compensation
rates more similar, as the Report claimed that favored
treatment of group station owners might discourage local
ownership of television stations. Specifically, it found
that networks were agreeing to better contract terms with
group owners because of the opportunities they offered
to increase the number of affiliated stations in other
markets. It added that the varying rates often reflected
agreements regarding the level of program clearance.(n9) The
Barrow Report concluded that, without guaranteed secrecy
from both its competitors and the Commission, the networks
would not likely pursue contract terms that violated the
public interest. It therefore asserted that continued
Commission monitoring, combined with mandated public disclosure
of affiliation agreements, was required to prevent such
practices as undue rate favoritism to group owners, exclusive
affiliation agreements, network use of option time, and
network control of the affiliate's advertising rates.(n10)
The Commission initiated a proceedingfour years later,
focusing on public inspection of affiliation agreements.(n11)
However, the Barrow Report's recommendations were not
acted upon, in part because a subsequently passed statute
delayed the proceeding.
4. In 1967, Congress enacted the Freedom of Information Act (FOIA),(n12) prompting the Commission to review its policies regarding the disclosure of various filings, including those of affiliation contracts. FOIA placed the burden of justifying nondisclosure on the government. In response to this statute, the Commission, continuing the proceeding initiated after the Barrow Report, sought additional comment on public inspection of affiliation agreements.(n13) It analyzed whether network affiliation agreements were privileged and confidential, and thus statutorily exempt from the mandatory disclosure requirement. Almost all commenters in the proceeding, including networks and affiliates, opposed lifting the prohibition against public access. They stressed that dissemination of contract terms, especially those regarding rate compensation, would constitute a serious competitive injury. Commenters predicted that, with the publication of contract terms with affiliates in favored, more valuable markets, other affiliates would demand equal treatment. This, they claimed, would damage the networks' negotiating abilities.(n14)
5. The Commission held that these claims were "exaggerated,"(n15) noting that the higher value placed on affiliates in certain markets "w[ould] not ... come as a shock or even be 'news' to their competitors."(n16) Further, according to the Commission, any likely costs of the new rule were outweighed by the public interest benefits of disclosure, because the public had a right to know the terms under which network service was provided. Disclosure, the Commission held, would also moderate the substantial variety in contract terms being negotiated throughout the country. It shared the concern of the Barrow Report that contract terms favoring group owners discouraged local ownership.(n17) In its analysis, the Commissionnoted the conclusions of a Congressional subcommittee that, overall, network affiliation agreements seemed arbitrarily to favor multiple-station owners over smaller, independent entities,(n18) and it cited the Barrow Report's similar finding.(n19) Therefore, the Commission lifted the public access restriction in 1969 and made the filings publicly available at the Commission. Further, to facilitate inspection, all agreements had to be reduced to one document.(n20)
6. In 1977, following a comprehensive review of its AM
and FM radio network rules, the Commission made several
rule changes. Although many of the radio network rules
were abolished, the required filing of commercial network
affiliation contracts was retained for those networks furnishing
programming to affiliated stations at least five days per
week during eight or more months per year, as stations
with less network programming were unlikely to be unduly
influenced by that network.(n21) The Commission eliminated
the filing requirement for "occasional" networks (e.g.,
seasonal sports networks), thus reducing the paperwork
burden for some licensees. The Commission maintained the
requirement for "regular" interconnected networks because
"[t]hese entities are of too great importance for us to
dispense with having this information readily available."(n22)
The television network rules were not addressed in that
7. In 1985, the Commission eliminated the affiliation
contract filing requirement for all radio licensees but
retained the requirement for television licensees that
are affiliated with national networks.(n23) In eliminating
the radio filing requirement, the Commission observed that
there were over 3,400 radio stations affiliated with one
or more of the over 100 networks. With such a significant
number of program sources and choices, in addition to locally
originated programming, the Commission found it unlikely
that any one program source could exercise undue influence
over any particular radio station. This evolution eliminated
the need to collect and monitor affiliation agreements,
and, coupled with thereview required by the Paperwork Reduction
Act and Regulatory Flexibility Act,(n24) led the Commission
to abolish the filing requirement for radio licensees.
8. With respect to television licensees, the Commission stated that the number of national networks and program sources was more limited for broadcast television than for radio, and that the amount of national network programming carried by an affiliated television station was considerably more than that carried by an affiliated radio station. Therefore, the Commission believed that there could be significantly more dependence of the affiliate on the national network for programming. In order to ensure that the licensee maintained ultimate control over programming, the Commission determined that closer scrutiny of national network/affiliate relationships was warranted. Accordingly, the filing requirement was retained for affiliates of national networks.(n25) However, the Commission eliminated the rule for stations affiliated with regional and other non-national networks, concluding that they more closely parallel radio networks because they provide less programming to their affiliated stations, which are in turn less dependent on them. Consequently, the Commission determined that the filing requirement could be eliminated for affiliates of such networks.(n26)
10. In general, the major purpose of the network/affiliate
rules has been to restrict the potential exercise of market
power of networks over their affiliates to the detriment
of the public. Specifically, the Commission has argued
in the past that network control over affiliates is detrimental
to the public because such control potentially reduces
the diversity of programming available to the public, especially
local programming.(n27) In addition, some of the rules concern
not only the potential power of existing networks over
their affiliates, but also potential implications for third
parties, such as advertisers and potential new networks.
11. Since 1985, when we last examined this rule, the video marketplace has changed dramatically. As pointed out in our recent Further Notice of Proposed Rule Making addressing broadcast television ownership, there has been an increase in the number of broadcast stations available for affiliation with a broadcast network in nearly every market.(n28) Moreover, new, aspiring networks have emerged.(n29) As a result of these changes, the bargaining positions of broadcast television networks and commercial broadcast television stations have changed and differ market by market. The recent affiliate switches demonstrate the increased competition between broadcast networks for affiliation with broadcast television stations in different markets, and thus suggest that broadcast networks' market power over their affiliates has diminished to some extent.(n30)
12. Given the recent increased competition between
broadcast networks for affiliates in different markets,
we solicit comment on whether or not there is a continuing
need for the Commission to monitor network/affiliate relationships
through mandatory filings of their affiliation agreements.
We also seek comment on the extent to which filing these
contracts with the Commission is necessary to deter violations
of the network/affiliate rules. If we conclude that routine
filing of agreements is not necessary to deter violations
of the rules, we could relieve licensees of the duty to
file affiliation agreements routinely, and instead simply
require the production of such agreements upon Commission
13. Separate and apart from the issue of whether contracts
should be filed with the Commission is the issue of whether
licensees should be required to make these contracts available
to the public. Making these agreements publicly available
allows the general public to inspect them and to file complaints
where abuses of the public interest are discovered. Italso
allows third parties (e.g., advertisers), whose commercial
interests are affected by these agreements, to determine
if their interests are harmed by these agreements. We
solicit comment on the importance of these purposes and
examples of the general public's use of these filings that
illustrate the extent of the benefits from making these
filings publicly available.
14. Turning to the possible costs of the rule, we note
that there are direct and indirect costs to be considered.
The direct costs of filing these agreements are the additional
expenses incurred to prepare and submit the filings to
the Commission over the expenses incurred to prepare affiliation
agreements for their original purpose. We solicit evidence
on the size of these costs incurred by filing affiliates.
15. The indirect costs of filing these agreements are
more difficult to quantify, potentially more serious, and
a result of our requirement that the filings be publicly
available. First, networks must bargain with broadcast
stations serving different markets to gain access to their
potential audiences through affiliation agreements. As
mentioned earlier, the number of potential parties to such
contracts differs market by market, but generally represents
a few potential parties on either side. By making compensation
or other data in these filings publicly available, the
Commission may facilitate the ability of parties either
seeking or offering affiliation to avoid competition.
For example, in markets where there are more commercial
stations than broadcast networks interested in seeking
affiliation agreements, networks might seek, through parallel
action, to lower the compensation they pay potential affiliates
and could use the public filings to ensure each party is
performing as agreed.(n31) Alternatively, in markets where
there are more broadcast networks seeking affiliation agreements
than commercial broadcast stations available, commercial
stations could seek to ensure that the compensation that
each of them receives is higher than the compensation any
one of them alone was willing to accept. In either example,
the publicavailability of the affiliation compensation
data facilitates joint monitoring to ensure similar behavior.(n32)
The Commission solicits comment on the potential for such
behavior in light of current market conditions, estimates
of the size of these indirect costs, and their consequences,
if any, for viewers.
16. Second, making these filings publicly available alters
the dynamic of the contracting process. For example, the
requirement reduces a network's ability and willingness
to craft contractual arrangements with one affiliate to
recognize special market conditions of that affiliate.
By way of illustration, a network may discern that a new
affiliate requires improved local news coverage in order
to compete against other television stations in its market
and may wish to help fund such improvement because of the
financial constraints that the new affiliate faces. However,
the network may be reluctant to do so if its other affiliates
can discover such improved or different terms and are likely
to demand similar terms. Thus, by requiring contracts
to be publicly available, our rules make it less likely
that the terms are tailored to best suit the needs of the
parties to the contract.(n33) Confidentiality of the financial
terms of affiliates' contracts would break the linkage
between concessions offered to one affiliate and negotiations
with other affiliates. Networks would be able to tailor
affiliation contracts solely to local conditions with less
concern for repercussions in other markets. On the other
hand, as the Commission previously concluded, public filing
of these contracts enables weaker affiliates to attempt
to ensure that they receive comparable or competitive compensation
to other affiliates of a network, thereby strengthening
their overall financial condition and ability to serve
the public. Consequently, we solicit comments on the advantages
and disadvantages of a network's being able to tailor its
contracts versus affiliates' desire to ensure comparable
contracts, particularly in terms of the Commission's competition
and diversity concerns.
18. Alternatively, we could continue to require contracts
to be filed with the Commission, but maintain the confidentiality
of the contracts by limiting access to authorized FCC employees.
This modification of our rule would allow us to continue
to monitor network/affiliate relations to protect the public
interest, while at the same time reducing the indirect
costs of the current filing requirement which arise from
the public availability of these agreements. However,
the Freedom of Information Act requires agencies to disclose
documents in certain circumstances. Given that we did
not exempt these filings from the Freedom of Information
Act in our 1969 Public Inspection of Affiliation Agreements,
we also solicit comment on whether or not this proposal
is a viable option.
19. Another alternative would be to continue the filing
requirement but modify it to require that only redacted
copies of contracts be made available to the public. These
copies would omit any references to the values which determine
the affiliate compensation and, possibly, other business
sensitive terms. In this way, the public could continue
to monitor the issues affecting program diversity in their
community and we could continue to monitor the network-affiliate
relationship. This option would preserve the benefit of
general public scrunity of these agreements, but reduce
their potential negative effects on the competition for
20. We could, of course, also maintain the rule as it
currently stands. We would adopt this option only if we
determine that the direct and indirect costs associated
with these filings continue to be less than their benefits.
We request that comments on the above proposals weigh the
benefits and costs in a manner which justifies the particular
recommendation a commenter makes.
22. This is a non-restricted notice and comment rulemaking
proceeding. Ex parte presentations are permitted, except
during the Sunshine Agenda period, provided they aredisclosed
as provided in the Commission Rules. See generally 47
C.F.R. Sections 1.1202, 1.1203, and 1.1206(a).
23. Additional Information: For additional information
on this proceeding, contact Robert Kieschnick (202-739-0770),
Paul Gordon (202-776-1653), or Tracy Waldon (202-739-0770),
Mass Media Bureau.
25. Objective of this Action: The actions proposed in
this Notice are intended to reduce concerns over the potential
deleterious effects of making some or all the substance
of broadcast television affiliation agreements publicly
26. Legal Basis: Authority for the actions proposed
in this Notice may be found in Sections 4 and 303 of the
Communications Act of 1934, as amended, 47 U.S.C. §§ 154
27. Recording, Recordkeeping, and Other Compliance Requirements
Inherent in the Proposed Rule: The proposals may reduce
28. Federal Rules that Overlap, Duplicate, or Conflict
with the Proposed Rules: None.
29. Description, Potential Impact, and Number of Small
Entities Involved: Approximately 1,500 existing television
broadcasters of all sizes may be affected by the proposals
contained in this decision.
30. Any Significant Alternatives Minimizing the Impact
on Small Entities and Consistent with the Stated Objectives:
The proposals contained in this NPRM are intended to simplify
and ease the regulatory burden currently placed on commercial
31. As required by Section 603 of the Regulatory Flexibility
Act, the Commission has prepared the above Initial Regulatory
Flexibility Analysis (IRFA) of the expected impact on small
entities of the proposals suggested in this document.
Written public comments are requested on the IRFA. These
comments must be filed in accordance with the same filing
deadlines as comments on the rest of this Notice of Proposed
Rulemaking, but they must have a separate and distinct
heading designating them as responses to the Initial Regulatory
Flexibility Analysis. The Secretary shall send a copy
of this Notice of Proposed Rule Making, including the Initial
Regulatory Flexibility Analysis, to the Chief Counsel forAdvocacy
of the Small Business Administration in accordance with
paragraph 603(a) of the Regulatory Flexibility Act. Pub.
L. No. 96-354, 94 Stat. 1164, 5 U.S.C. Section 601 et seq.
32. This Notice of Proposed Rule Making is issued pursuant
to authority contained in Sections 4(i) and 303 of the
Communications Act of 1934, as amended, 47 U.S.C. §§ 154(i),
FEDERAL COMMUNICATIONS COMMISSION
William F. Caton
I. INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 II. BACKGROUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 III. ANALYSIS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 IV. PROPOSALS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 IV. ADMINISTRATIVE MATTERS . . . . . . . . . . . . . . . . . . . . . . . . 21 V. INITIAL REGULATORY FLEXIBILITY ANALYSIS . . . . . . . . . . . . . . . . 24
47 C.F.R. § 73.3613 states that "[e]ach licensee or permittee
of a commercial or noncommercial . . . TV . . . broadcast
station shall file with the FCC copies of the following
contracts, instruments, and documents together with amendments,
supplements, and cancellations (with the substance of oral
contracts reported in writing), within 30 days of execution
(a) Network service: Network affiliation contracts between stations and networks will be reduced to writing and filed as follows:
(1) All network affiliation contracts, agreements, or understandings between a TV broadcast or low power TV station and a national network. . .
(2) Each such filing ... initially shall consist of a written instrument containing all of the terms and conditions of such contract, agreement or understanding without reference to any other paper or document by incorporation or otherwise. Subsequent filings may simply set forth renewal, amendment or change, as the case may be, of a particular contract previously filed in accordance herewith.
(3) The FCC shall be notified of the cancellation or termination of network affiliations, contracts for which are required to be filed by this section."
Footnote 2 Report on Chain Broadcasting, Commission Order No. 37; Docket 5060 (May, 1941), modified, Supplemental Report on Chain Broadcasting (October, 1941), appeal dismissed sub nom. NBC v. United States, 47 F. Supp. 940 (1942), aff'd, 319 U.S. 190 (1943).
Footnote 3 E.g., Id. at 35-36, 51 (discussing the negative effects that exclusive affiliation agreements were having on the public interest).
Footnote 4 E.g., Id. at 74 (noting that no network had ever enforced its contractual right to set an affiliate's advertising rates).
Footnote 5 Id. at 80-87.
Footnote 6 See Report and Order in Docket No. 14710, 15 RR 2d 1579, n. 1 (1969) (Public Inspection of Affiliate Agreements), citing Order in Docket No. 6572, August 2, 1945.
Footnote 7 Rules Governing Television Broadcast Stations, 11 Fed. Reg. 33, 37 (January 1, 1946).
Footnote 8 Network Broadcasting, Report of the Network Study Staff to the Network Study Committee (Oct. 1957), reprinted in Report of the House Committee on Interstate and Foreign Commerce, H.R. Rep. No. 1297, 85th Congress, 2nd Sess. (1958) (the Barrow Report).
Footnote 9 Id. at 462-66.
Footnote 10 Id. at 467-68. The Commission had prohibited these practices in 1941 for radio networks and affiliates, based on its conclusion that they allowed a network to exert undue influence over its affiliate, thereby limiting licensee discretion and local programming. Report on Chain Broadcasting, passim.
Footnote 11 Notice of Proposed Rulemaking in Docket No. 14710, FCC 62-745 (released July 16, 1962).
Footnote 12 Public Information Amendments to the Administrative Procedure Act, 5 U.S.C. § 552.
Footnote 13 Order in Docket No. 14710, FCC 68-954 (released September 20, 1968).
Footnote 14 Report and Order in Docket No. 14710, 15 RR 2d 1579 (1969) (Public Inspection of Affiliation Agreements).
Footnote 15 Id. at 1585.
Footnote 16 Id. at 1586.
Footnote 17 Id. at 1582-85.
Footnote 18 Id. at 1581, citing Report of Antitrust Subcommittee of House Committee on the Judiciary, 85th Cong., 1st Sess., March 13, 1957.
Footnote 19 Public Inspection of Affiliation Agreements at 1584, n. 9.
Footnote 20 Public Inspection of Affiliation Agreements at 1588. The Commission adopted the one-document requirement in one sentence, with no further elaboration.
Footnote 21 See Report, Statement of Policy and Order in Docket No. 20721, 63 FCC 2d 674 (1977).
Footnote 22 Id. at 688.
Footnote 23 Report and Order in MM Docket 85-5, 101 FCC 2d 516 (1985) (Radio Network Affiliation Agreements).
Footnote 24 The Paperwork Reduction Act (44 U.S.C. §§ 3501 et seq.) and the Regulatory Flexibility Act (5 U.S.C. §§ 601 et seq.) impose responsibilities on regulatory agencies to ensure that the benefits of continued governmental regulation outweigh the costs associated with such regulation. In the Notice of Proposed Rulemaking initiating the 1985 proceeding, the Commission had stated that the filing requirement annually placed a paperwork burden of approximately 2,500 hours on the broadcast industry, and that the contract terms had become relatively standard in nature. Notice of Proposed Rulemaking in MM Docket No. 85-5, 50 Fed. Reg. 2596 (January 17, 1985) (Radio Network Affiliation Notice).
Footnote 25 Radio Network Affiliation Agreements at 519.
Footnote 26 Id. at 519-20. The Commission took this opportunity to define national network as that contained in (then) Section 73.658(j)(4) -- "any person, entity or corporation which offers an interconnected program service on a regular basis for 15 or more hours per week to at least 25 affiliated television licensees in 10 or more states." Id. at 519, n. 7.
Footnote 27 Report, Statement of Policy, and Order in Docket No. 20721, 63 FCC 2d 674, 690 (1977).
Footnote 28 Further Notice of Proposed Rule Making in MM Docket No. 91-221, 60 Fed. Reg. 6490 (Feb. 2, 1995).
Footnote 29 Fox now competes with ABC, CBS, and NBC. Further, United Paramount Network and Warner Brothers Network are beginning to develop as competitors to these networks.
Footnote 30 See Julie A. Zier, Fog of war engulfs affiliation battles, Broadcasting & Cable, Dec. 5, 1994, at 50, for a discussion of recent affiliation changes.
Footnote 31 See B. M. Owen and S. S. Wildman, Video Economics, Harvard University Press, (1992) at 166-172 for a discussion of influences on the bargaining position of broadcast television networks and commercial broadcast television stations in negotiating affiliation agreements. For a general overview of the manner in which data dissemination among competitors may facilitate cartel-like behavior, see N.R. Prance, Price Data Dissemination as a Per Se Violation of the Sherman Act, 45 U. Pitt. L. Rev. (1983) at 68-78; see also Donald S. Clark, Price-Fixing without Collusion: An Antitrust Analysis of Facilitating Practices after Ethyl Corp., 1983 Wis. L. Rev. 887, 900-901 ("The exchange of cost, price or other data reduces a firm's uncertainty about rivals' likely or actual behavior. These exchanges therefore may facilitate the achievement of a consensus on price and output levels, and increase confidence that the consensus can be and is being maintained. In addition, the dissemination of certain types of data can facilitate the discovery of secret discounting or other forms of cheating, increase the likelihood of retaliation, and therefore discourage cheating altogether."); see also MCI Telecom. Corp. v. AT&T, 114 S. Ct. 2223, 2233 (1994) for an example of the Commission's concern over this issue.
Footnote 32 The literature on data dissemination among competitors in the prior reference addresses this point.
The standardization or uniformity of affiliation contracts
was noted in Radio Network Affiliation Agreements at 517.