(As prepared for delivery)
"Re-Engineering The Broadcast Industry"
It's great to be in Quello-Land. Ever since I arrived at the Commission in 1994, I have heard stories about the Michigan Association of Broadcasters. Now, it's your chance for rebuttal.
Jim is your state's best promoter. He said, "You'll love Michigan in February... assuming you can get there!" And my legal advisor, who's from Grand Rapids, urged me to "dress for success -- in Michigan that means an extra pair of long johns and two scarves."
I am delighted to be with the Michigan Broadcasters -- even in February -- as you talk about the many challenges facing you. Since joining the Commission, I have tried to meet with as many broadcasters as possible at their state association gatherings.
Broadcasting plays a special role in our society. Radio and television get the attention of more people, more often, and more powerfully than any other way of reaching the public. It is the any-time, any-place, no-cost way that most Americans get their news and information.
But broadcasting is more than that. It is integral to -- and a reflection of -- the community it serves. Localism is your birthright. It is your strength for the future.
Your local programming efforts are key. Your involvement in your communities and your responsiveness to your audiences differentiates you from other media voices to give you a competitive edge.
One way that broadcasters connect with their local communities is through public service. For example, many of you participated in last fall's "Harvest Gathering" which brought forth contributions of food and money for food banks throughout the state.
I've been told that you're in the planning stages for a month-long focus this April on child immunization. And many of you are providing radio and television support for the campaign to reduce violence and drug abuse among young people.
Using the power of broadcast media to help people contributes greatly to the well-being of your community -- and makes good business sense, too.
EEO also makes good business sense. I applaud the MAB for having a full-time EEO director to help increase your minority representation in the industry.
Today, everything is being re-engineered. In our brief time together, I'd like to focus on the way that broadcast ownership has been re-engineered, and describe the FCC's efforts to re-engineer TV and radio through Digital TV and Digital Audio Radio (or DARS).
Re-Engineering Broadcast Ownership
My starting point is that broadcasting is different from other services licensed by the FCC. It is free to everyone in the country. It is ubiquitous -- 95% of the population listens to radio each week. And, broadcast licensees receive their licenses from the government for free, in exchange for serving the public interest.
I believe in free-over-the-air broadcasting. It is an insurance policy for democracy. I do NOT believe that it is in our nation's interest for its citizens to rely solely on a bottleneck provider -- cable or satellite dish -- for news and information.
Congress "re-engineered" radio ownership with a stroke of the pen when it passed the Telecommunications Act of 1996. The race began. During the past year, an unprecedented level of station trading has occurred.
To illustrate: Two weeks ago, I looked at a list in Radio Business Report of what were the top 70 radio groups just one year ago: only seven of them listed "no major activity" -- and one of those seven was Viacom.
Then, this past week, I looked at the trades and saw news of the $1.6 billion Evergreen/Chancellor merger and acquisition of Viacom! This huge transaction is proof that consolidation is alive and well in the radio industry.
At the FCC, we are faithfully executing the intent of Congress. The Audio Services branch approved transfers of almost 4,000 radio stations in 1996 -- that's almost one in three stations. Congress removed the national ownership cap on radio stations, and we have watched groups mushroom from 20 AM and 20 FM to a proposed 267 stations.
I'll bet today's group owners can't even name all of their call letters.
After considerable debate, Congress set limits on local ownership. Depending upon market size, up to eight stations can be owned. This, compared with the old limit of 2 AM and 2 FM stations. Already, consolidations have resulted in acquisitions that would exceed the new ceiling.
And the stations being acquired often are the top signals in the market.
Throw in some joint sales agreements, maybe even a television station -- together with a second TV station under a Local Marketing Agreement -- and, suffice to say you have a dominant position.
Now big is not necessarily bad. Indeed, radio duopolies have enabled group owners to diversify into programming that otherwise might not have been carried but for the combined channel capacity and economies of scale. And some stations that would otherwise have gone dark have been saved.
But, the Communications Act also says that the FCC has an obligation to approve only transfers that are "in the public interest." That means it is important for us to assess what affect the combination would have on local competition and diversity of voices.
On occasion, the Justice Department makes it own, independent analysis of market conditions. We at the FCC give great weight to their expert views on competition. But the Justice Department's jurisdiction is complementary to the FCC, based on its own statutory directive.
Again, only the FCC has had the task since 1934 to grant, renew, or transfer broadcast licenses when it is "in the public interest," convenience and necessity. In its overhaul of the Communications Act, the Congress could have -- but did not -- remove this public interest test for FCC approval of license transfers.
In addition to competition, we must look at the combination's effect on the "diversity of voices" in the community. Diversity of voices is not synonymous with diversity of programs or formats.
To make my point: what would you do if you were a candidate for mayor or governor and the owner of the five leading FM stations and three big AM stations just didn't happen to like you to the point they wouldn't sell you advertising, and you couldn't get news coverage on any of their stations?
Those eight stations may have extremely diverse programming formats, but they are not independently programmed. In that scenario, there is no diversity of voices.
Historically, radio has been the special province of entrepreneurs who have given their heart and soul to their work. It has also been one area where minority and female owners could thrive. It would be a pity if unlimited consolidation -- that might not necessarily serve the public interest -- prematurely forced such entrepreneurial companies into retirement. So, what changes are in the wings?
The FCC is reviewing its broadcasting ownership rules: the radio-newspaper ownership ban, the "one-to-a-market" rule prohibiting ownership of TV and radio in the same market; the duopoly rule prohibiting ownership of two TV stations in the same market; and our attribution rules which define "ownership."
We are still receiving reply comments, so I have not made any judgments about what, if any changes should be made to these rules.
While many broadcasters support relaxation of these rules, citizens' organizations and other broadcasters say, "hold the line where it is." Even Electronic Media has editorialized against further loosening our rules.
The radio industry has already experienced wholesale change, and it seems prudent to let the dust settle before we expand further. Now that ownership limits have been relaxed, I would like to see us tighten the definition of attributable interest. Why should we allow TV LMAs to continue to be unattributed when two years ago we made radio LMAs attributable?
And should we not attribute the interest of a broadcaster which has a 49% voting interest in the equity of another station in the same market? After all, why would an owner invest in his competitor?
We should allow TV duopolies only in those limited circumstances where the public would clearly benefit. For example, two UHF stations with a combined revenue share below those of the major stations in the market might provide programming and news that otherwise would be absent from the market. Any such promises of programming improvements or other public interest benefits, however, would have to be explicit and concrete. And they would have to outweigh a strong preference for additional voices in the market.
But with the allotment of digital television around the corner, I am cautious about allowing all but the weakest TV stations to double up -- absent clear benefits to the public. The opportunity is close at hand for single station broadcasters to develop multichannel programming in the digital environment. As we consider changes to our duopoly rules, we should keep in mind how different the landscape could look if many television broadcasters take advantage of the multichannel world.
Re-Engineering Television: DTV
Another "re-engineering" project: our mammoth undertaking to assure a smooth transition from analog to digital television broadcasting.
The Commission took a big step in December by adopting a world-class transmission standard. The standard was developed in the private marketplace with cooperation of broadcasters, equipment manufacturers, cable operators and computer interests.
The standard provides magnificent video pictures and theater-quality sound. It also allows multiple streams of standard quality programming within one six MHz channel. The standard is the only one in the world that provides for broadcasting in progressive formats that are compatible with computers. This also enables a whole new variety of computer friendly broadcast services.
You may well see the first DTV chips in computers this Christmas, and the first DTV TV sets in stores during the summer of 1998. Within two years, these devices should be widely available from competing manufacturers.
But much remains to be done before you will receive digital TV broadcasts at home. Consumers need sufficient time to purchase a digital set or an inexpensive converter box before the analog signals are turned off. Cable systems also need time to implement carriage.
The DTV transition is unlike the introduction of prior broadcast services. FM did not replace AM radio. Color was added to black and white television. But DTV will replace analog NTSC transmission. In the long term we do not have enough spectrum to do both. We are now writing the rules for this transition period.
We hope to complete two orders by April: one, a schedule of station allotments, and the other, the rules for DTV service.
In the allotment item, we are working diligently to provide a second channel for all existing broadcasters that will permit replication of each full-powered station's current service area. This is a daunting task.
I am pleased that MSTV and the FCC staff are working out the differences in their tables so that a portion of the channels from 60 to 69 can be made available for other services, including public safety. Call this early return of analog spectrum as a "down-payment" on the eventual return of all of the analog channels.
As we write service rules in the other item, we must address buildout requirements, the length of the transition, public interest obligations, and the sticky wicket -- the return of the analog spectrum.
My principal goals are: first, to achieve a smooth transition for the American consumer; and second, to ensure a free over-the-air broadcast service. I believe that a buildout schedule that maximizes the number of DTV viewers in the shortest amount of time will facilitate this transition.
But not all broadcasters can afford to make the transition immediately. Equipment prices will decline as the service develops. Therefore, our rules should phase in DTV buildout, with the largest stations in major markets being first to convert. Our timetable must also provide leeway for those stations planning new tower construction.
We must deal with the appropriate length of the transition period. Should the FCC specify in advance the length of the transition, or should the transition be tied, say, to the percentage of households that purchase the new digital sets or have converter boxes? Or should we wait for a period, perhaps five years, and then set the conversion date?
I am committed to preventing a break in service to consumers. But, at the same time, I want to set in motion the rapid return of the analog spectrum. So, my decision, for example, on a simulcasting requirement will be based upon whether it is likely to delay or accelerate the transition to digital.
There has been much discussion about the specific public interest obligations that should be required of digital broadcasters. Three weeks ago, Vice President Gore announced a Presidential advisory group to study this question and make recommendations within a year.
I support the creation of this advisory group. Broadcasters are stewards of the airwaves, and have public interest responsibilities that must be met.
I am especially pleased the Vice President urged the FCC to move forward with issuing digital licenses while the public interest discussion is underway. I feel very strongly that our transition to digital must not be delayed.
Re-Engineering Radio: Digital Audio Radio
Digital also means radio.
What radio broadcasters are facing today is what the audience is likely to demand: a move to digital transmission. Many of you already have converted parts of your production chain to digital. With the use of digital sound in movies, on CDs, and soon even on broadcast television, radio stations cannot fall behind.
I have followed the developments of in-band digital technology. My hope is that the engineers working on in-band will come up with a satisfactory transmission system. There have been several systems designed for broadcasters to transition to digital within the existing AM and FM bands, but these have not worked well if analog broadcasts continue on the same spectrum. Westinghouse is devoting considerable resources to working on an in-band system, and we should know the results this year. Others may also be working on in-band systems.
On the other hand, the Consumer Electronic Manufacturers Association -- CEMA -- last week told broadcasters that a separate band for digital terrestrial broadcasting is needed.
I prefer to use the existing bands for terrestrial digital radio and support efforts to re-engineer them. But, if these bands are not adequate, we must work together to see how radio broadcasters will get into the digital world.
As we speak, the Commission is finalizing its rules authorizing satellite delivery of digital radio. Although CEMA has also raised questions about the viability of the 2.3 GHz band allocated for this purpose, the applicants disagree. I think that they should be permitted to try it.
We have proposed an auction for DARS licenses and have limited it to the existing four applicants. While I would prefer that the DARS auction be open to all bidders, including terrestrial broadcasters, we should not delay the introduction of this service any further.
I have worked to craft rules that promote the unique benefits of satellite delivery yet limit the adverse impact on terrestrial broadcasters. You provide local service to your community. Radio broadcasters who differentiate their product by emphasizing local service should continue to do well.
Today, everything is being re-engineered. Broadcasting is no exception. These challenges provide both uncertainty and opportunity. It's up to you to seize the opportunities.
I want all of our nation's children, rich and poor, to have free access to programming that enriches our lives, and with a technical quality that reflects today's technological advances. It's up to broadcasters to invest in technology, invest in your future -- and keep the focus on the public you serve.