June 20, 2000
SEPARATE STATEMENT OF
COMMISSIONER MICHAEL K. POWELL
Re: 1998 Biennial Regulatory Review - Review of the Commission's Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996.
The majority of the rules we review today are old. The National Ownership Cap rule was first adopted in 1941. The Newspaper/Broadcast (1) and Cable/Television Cross-Ownership (2) rules were adopted in the 1970s. Though some of these rules have been modified slightly over the years, their predicates have remained the same, namely, that networks and stations enjoy tremendous market power that can lead to anticompetitive effects. Moreover, the goals of our structural rules also remain largely unchanged: (1) to guard against ill-effects in advertising and programming markets, (2) to promote diversity in programming, and (3) to promote locally-originated content.
Time does not stand still, however, and the highly concentrated video entertainment, news and information markets of the past, with their attendant limited programming offerings, have changed dramatically. Congress' recognition of this dramatically changed and changing landscape stands behind the Biennial Review process where we are charged to "determine whether any of such rules are necessary in the public interest as a result of competition." (3) My dissatisfaction with the present review is its stubborn refusal to fully consider the competitive landscape today and validate that these structural rules still serve their stated purposes--particularly in light of significant evidence that the rules are unnecessary to protect competition (and may even be causing competitive harm) and that diversity and localism are prospering as a consequence of new venues and greater capacity available to consumers. For these reasons, I concur in part and dissent in part from this Order.
I. GENERAL CRITIQUE OF STRUCTURAL BROADCAST REGULATIONS
Before turning to my critique of particular rules, I first will sketch the breadth of change that should compel a more fulsome review of the rules than is represented by this Biennial Review. Second, I will generally outline the government's stated interest in these rules and challenge some of their underpinnings in light of the dramatically altered video landscape.
The Video Marketplace: Take the Mask off the Old Lone Ranger
"Return with us now to those thrilling days of yesteryear." (4)
A time when there were three television networks that dominated the land (NBC, CBS and ABC). A time when there were only six television stations. A time before cable television, before direct broadcast satellite (DBS), before VCRs, before the Internet. It was a time of highly concentrated video markets in which only one medium--television--reigned. It was a time of nascent video advertising markets, and of very limited program sources. In this era, there were few around to curtail the power of these rustlers. There was only one Lone Ranger to discipline the dominance of the "Network Gang of Three." But "who was that masked man?" "A fiery horse with the speed of light, a cloud of dust and a hearty 'Hi-Yo Silver.'" The FCC!
Today, over fifty years after The Lone Ranger television show filled the bubbled screens of our black and white sets, the Lone Ranger rides again in an episode entitled The 1998 Biennial Regulatory Review of the Commission's Broadcast Ownership Rules. So much has changed since the days that Tootsie Roll, "America's favorite candy," and General Mills brought to Americans the Ranger and his companion Tonto. Yet, the nostalgic FCC Ranger cannot bring itself to take full cognizance of this change and face whether it is time to retire the mask and let other forces do the job. Instead, we continue to sprint ahead kicking these rules forward, while being chased by a growing multitude (of new media, of economic change, of logic).
By any measure, the market, and thus the foundation of the FCC's structural ownership rules, has changed dramatically in ways that should lessen the dangers we purport to address that are associated with market dominance. The actor Clayton Moore starred in The Lone Ranger television series from 1949 to 1956. Mr. Moore passed away just last year, and in his name I couch my argument for a more thorough examination. Simply put, there is MORE, more of everything:
MORE Broadcast Networks: In the 1940s and 1950s there were only three networks (NBC, CBS and ABC). Today, those three are joined by Fox, WB, UPN, and PAX to yield seven networks competing for programming and advertising dollars.
MORE Broadcast Stations: Most households live in a television market served by eleven or more local stations. In 1946 there were only six stations nationwide. (5)
Today there are over 1,600. (6)
MORE Video Outlets: Today approximately 81 percent of all Americans subscribe to either cable, DBS, or another multi-channel service provider, rather than receive their signal free and over the air. (7) That is, the invention and ubiquitous deployment of cable and DBS services have given advertisers, programmers and Americans substantial alternatives to broadcast. These systems offer viewers a plethora of options unimagined when many of the rules reviewed in the Order were adopted. The average cable subscriber has 54 channels available to him. (8)
The average DBS subscriber has hundreds of channels available to her. (9)
Additionally, 50% of Americans have access to the Internet. (10)
Moreover, the ubiquity of VCRs, DVD players and other video medium offer consumers additional entertainment, news and information sources. And, more recently the Internet is adding yet another. Most importantly, there is no end in sight to this trend.
MORE Programming: There are more sources of programming than any time in history. There are 170 cable networks and seven broadcast networks. (11)
The programs are also more diverse than in the "golden age of television," when Americans sat around watching the same basic shows. It was inconceivable in days of old that there would be channels dedicated to news 24 hours a day like CNN or Fox News. Or, that there would be channels dedicated not only to sports, like ESPN, but single sports like the Golf Channel. Or, that hundreds of movie channels would be available on their televisions, many on demand, with hundreds more titles in their local video store. Even on pure broadcast stations, there are more sports, movies, drama, and national and local news than at any time previously.
With so much more in the market, one can expect to find more competition and more diversity. Advertisers have many more choices to display their products. And, consumers have many more options to choose from as sources for entertainment, information, and news. If, as I believe, the good and plenty of outlets and programming is fertile ground for a healthy marketplace, there is clear reason to question why such forces (where consumers and producers interact) will not produce competitive prices, competitive opportunities for programming, and robust options for viewers. Yet, the Commission continues to place unsupportable faith in the concept that such things can only happen by government fiat and not by the natural forces of the market.
To Question the Rules is not to Question the Venerable Goals of Broadcast Regulation
The goals of our broadcasting rules are laudable. They seek: (1) to constrain undue economic power, (2) to promote diversity and (3) to promote locally originated programming. There may have been a time in which such objectives could not be achieved without regulatory intervention (though I question it). But, surely these values are not incompatible with market forces, or market failures in the classic sense. Thus, one does not abandon these objectives by calling on the Commission to consider if the rules are necessary at all or in their present form, particularly in the face of substantial evidence that they are unsupported by the facts, and that they may actually in some instances harm producers, suppliers and consumers. For an outstanding overview of the current market conditions and public harms being caused by some of our structural rules, I would direct the reader to Old Rules and New Rivals: An Examination of Broadcast Television Regulation and Competition, (12)
by Michael L. Katz, which is included in the record of this proceeding.
Broadcast Economic Power in the Video Market
Video producers make money by inducing viewers to watch their products. If one follows the broadcast model, the product is free to viewers and revenue is generated through advertising. The game here is to get the most eyeballs you can, regardless of the type of program. Where one can charge for subscribers, as can cable, DBS and MMDS, you can make money both through advertising and by inducing viewers to pay for programming.
If the video market was highly concentrated, leaving few avenues to reach audiences, that unquestionably could result in harm. For instance, as is assumed by many of our broadcast structural rules, if a broadcaster enjoyed undue market power it could theoretically raise advertising rates to non-competitive, monopolistic levels, thereby harming advertisers. Similarly, if broadcasters (individually or collectively) could monopolize audiences they could harm suppliers of programming by demanding uneconomically low program prices.
Yet, again, if one notes the dramatic change in the market (which the majority only does superficially) one can see how questionable many of the suppositions are that undergird our ownership rules. For example, television networks have lost a substantial share of the national viewing audience. Between 1952 and 1991, the prime time ratings of the three major networks fell from 75 to 37.5, and by 1998 had fallen another 25 percent to 28.3 percent. (13)
Are today's broadcast shares large enough to allow broadcasters to unilaterally raise advertising rates without constraint? This is just one question that deserves review if we wish to continue to justify ownership restraints on our fear of the impact on advertising markets. (14)
Additionally, there has been an explosion of media outlets to which both advertisers and programmers may turn, lessening the ability and incentives of broadcasters to unilaterally dictate rates. With regard to cable service, 67 percent of all Americans subscribe to this medium and nearly 97 percent have cable available. (15)
Another 12.5 percent subscribe to DBS, which is virtually available to 100% of Americans within the continental U.S. (16) Consequently, advertisers now have other options from which to choose in reaching a national audience. In the vernacular of antitrust, there are substitutes. If a network or station owner attempted to extract monopoly rents, advertisers would have other options for reaching consumers. Moreover, other medium may prove more attractive to advertisers who can more carefully tailor their messages to particular demographics on media like cable or DBS. At a minimum, there is reason to question the blind assumption that advertisers would be harmed without the protections of our ownership rules, given the increased availability of other outlets.
The proliferation of other distribution outlets has also constrained broadcast program purchasers from depressing the prices program suppliers get. In fact, with more outlets, high quality programming can "shop" for the highest rents. This explains the trend we see toward cable and DBS capturing marquee programming such as sporting events, top movies and increasingly major news, history, public affairs, and arts programming. Indeed, contrary to what should be predicted if network concentration were substantial, programmers are able to command a premium for shows like E.R., (17)
NFL Football, (18)
and NHL Hockey. (19)
In short, it is hard to defend the assumption that broadcasters have sufficient market power to command monopoly rents for advertisements or to deflate prices for programming. Surely, one sees no evidence to justify a standing structural rule, rather than rely on antitrust enforcement.
Diversity in the Market
Diversity is also an admirable goal, yet, it is an elusive concept. It has come to mean many things. Limiting ownership concentration does one obvious thing; it increases or maintains the number of different owners. Limiting ownership and allowing more owners has three primary diversity effects: For one, there are more broadcast properties and more ownership opportunities available for more people. Protecting opportunity is one way of promoting minority and female ownership. This is sometimes called "source diversity." (20)
I will not discuss this point in this statement. Second, more owners might mean more from which to choose. Viewers will be able to see the different programming choices of different owners, and it is hoped that these programs will vary in content and style. This is what we often call "program diversity." The third point is a subtle variation on the second. Proponents often urge rules to promote not just different program genres or styles to capture viewer interest, but different "viewpoints." That is, by the fact that owners are different people or institutions, one might expect to see different perspectives that are "antagonistic" to those of other programmers. Let me first make some general observations about the number of distinct program choices available to consumers.
It is said, "beauty is in the eye of the beholder." (21)
The same could be said for television. It is difficult and perhaps constitutionally impermissible for government to impose its conception of worthiness or beauty on viewers. (22)
Yet, it is understandable to craft rules that promote the widest swath of programming choice to match the infinite variety of interests of the American consumer. Whether your taste runs to WWF wrestling (perhaps the most popular programming on television today), the symphony, sports, comedy, news, drama, feature film, cartoons, music videos, history, public affairs, or shopping, the video marketplace has more of it, in more colors and flavors, than ever before.
To make my point I highlight a powerful and persistent trend in programming--movement from broadcasting to narrowcasting. In the early period of television, broadcasting was the primary means of receiving video content (excluding the movie theatre). Broadcast is a medium that provides one signal to many people. That is its central virtue, but also its central limitation. Because it can only serve up one program at any given moment in time, it has to find a program that appeals to the broadest possible audience. This is particularly the case since broadcasting is solely advertiser supported. Thus, almost by its nature, broadcast has trouble being diverse--that is, serving a more narrow, particularized community of interest is difficult, both in technical terms (the signal goes everywhere) and in economic terms (to remain viable a station must maximize eyeballs, i.e, aggregate interests). When broadcasting dominated video programming the challenges of program diversity were quite acute.
Cable, and later DBS, brought to the marketplace a new medium that had characteristics that clearly enhanced program diversity and choice. A cable system offers subscribers multiple channels. A subscriber that hungers for sports might watch a channel dedicated to that genre (e.g., ESPN, Fox Sports). A history buff the same (e.g, History Channel). A movie fanatic the same (e.g., HBO, Showtime, Cinemax). A news and public affairs junkie the same (e.g., CNN, MSNBC, Fox News, C-Span), and WWF fans can watch all day and night to their hearts content. A system operator can offer this diverse programming economically because he draws both from advertising and subscription revenue. Subscription fees also allow a program producer to gauge a viewer's preference. Programs that are strongly desired are more valuable and thus more can be charged. (This is why there are tiers and programming packages offered.) Additionally, the technical nature of the system allows for this variety. Because cable is not hindered by interference problems, like broadcasters, the system can be upgraded continually to increase capacity and thus provide more channels. (23)
The importance of cable, DBS and other systems is not just to increase video competition. These mediums also have ushered in greater diversity, for they can program to distinct parochial interest on a daily basis in a manner that is challenging for broadcasting. The ability to program to a wider variety of interests is what, in part, accounts for the fact that the majority of Americans (nearly 80 percent) subscribe to some multichannel service.
Of late, the trend toward tailored programming is getting finer with the advent of digitalization and the Internet. Perhaps the penultimate expression of diversity is the ability to program for a single individual's unique interest. The video landscape is moving in this direction. On the Internet one clearly sees the trend: "My Yahoo" and "My AOL" for example. Products like WebTV, AOL TV, Geocast, and Excite@Home, all promise to enhance traditional television product with personalized, tailored content. These trends show clearly that the breadth of unique and different programming has exploded and is growing exponentially. Under the weight of such trends, I cannot begin to see how one can claim the loss or fear of loss of diverse programs and choices for consumers.
Viewpoint Diversity
The strongest proponents of diversity in programming will insist that it is not multiple, different choices that matter, but "viewpoint diversity." Given the facts of the marketplace, I believe this to really be the crux of the government's purported diversity interest. The goal is not simply to provide choices that appeal to diverse interests. The proponents want shows that are "antagonistic to each other." (24)
The first problem with this conception is that it is unclear that a market that produces programming that serves the interests of a broad and varied audience does not also represent a sufficient number of "viewpoints" from which consumers can choose.
Secondly, I question what the concept means for the vast majority of programs consumers watch. Is NBC's Friends antagonistic to WB's Dawson's Creek? Is ABC's Who Wants to be a Millionaire antagonistic to CBS' Touched by an Angel? Or, is ABC's Monday Night Football antagonistic to Fox's Football Sunday? It's hard to see the relevance of this concept. Perhaps, the viewpoint interest is reserved for public affairs and news programs, where issues might be presented and debated. But, here, too, one questions its meaning. Local news programs rarely editorialize, or pick political candidates, or take stands on major issues such as abortion or gun control. The reason is simple enough: because consumers do not pay to watch, broadcasters make money by reaching the largest possible audience. They rarely take the kind of risks that might endear them to some in the viewing area and raise the ire of others. They are not in the "antagonizing" business. Moreover, I am not sure why we are certain "antagonistic" programs do not sell. I see plenty of evidence of opinionated programming: Crossfire, Face the Nation, Hardball, Larry King Live, and why not Jerry Springer, for examples. Are we to believe all of this would vanish absent our structural ownership rules?
I also fail to see how ownership restrictions in themselves do much to promote the goal of antagonism. Different owners may have different perspectives, but they probably have more in common as commercial interests than not, for each must compete for maximum audience share to remain profitable. Moreover, the ownership class may include different people, but it is hard to see how that ensures that they are different in their viewpoints. We do not and could not possibly insist there be Republican owners and Democratic owners, pro-gun and anti-gun owners, etc. I would suggest some amount of "antagonism" sells. Controversy and conflict are the stuff of good story. If different viewpoints are to be found, I think they will be the products of the commercial market much more than by our rules and our adherence to the high-brow ideal we used to defend them.
Localism
Finally, I would like to say a brief word about localism, which is often subtly distinguished from diversity in general. The principle is that the government favors locally originated programming because that is the programming most likely to serve the interests of those viewers and listeners in the community of the licensed station. The majority of stations are affiliated with a national network. Because the broadcasting business seeks to maximize viewers, there has always been concern that a powerful network would force local stations to carry their national program, theoretically to the detriment of local viewers and local interests. For decades, the Commission has pursued rules intended to ensure networks do not dominate local stations and their programming preferences. (25)
One central failing of regulations intended to promote localism is that they assume that such programming would not flower if networks and stations were too large. One is hard pressed, however, to see why, in a healthy marketplace, if the public values local programming, producers would not supply it. If a local audience desires a program, and is willing to watch the program, that program will attract advertising dollars and thus a station or network will have an incentive to produce and provide that show. Indeed, since most consumers purchase advertised product in their local towns and communities, advertisers--even national ones with local franchises--would favor programs that appeal to local audiences.
I remain struck how often we simply assume that such programming will vanish if we do not require it. Of course, if consumers do not want certain kinds of local programming and it is not provided as a consequence, there is no justification for the government to compel it. Where government attempts to promote the messages and images that it prefers, even where consumers themselves do not, we are no longer in America and the First Amendment has been abandoned. (26)
II. CRITIQUE OF THE BIENNIAL REVIEW
I will now turn and address the specifics of today's Order. The Commission has taken steps today to modify some of its broadcast ownership rules in an attempt to make our regulations more consistent with current marketplace conditions. While I support these steps, I believe they are too limited in scope and reflect a continuing reluctance to examine in a meaningful way the legacy of our broadcast regulations. As a result, I concur in part and dissent in part to the Order released today. I will address the rules to which I dissent or concur below.
Before doing so, I wish to state my approach to the Biennial Review of structural ownership rules. Since our charge is to examine whether a rule continues to serve the public interest in light of competition, I feel it imperative to always fully examine the state of the video market--market share, number of competitors, competitive effects, ease of entry and inefficiencies--and challenge the continued validity of prophylactic ownership rules in light of this examination. (27)
I believe the clear bent of the biennial review process set out by Congress is deregulatory, in recognition of the pace of dramatic change in the marketplace and the understanding that healthy markets can adequately advance the government's interests in competition and diversity. Thus, contrary to the approach of the majority, I start with the proposition that the rules are no longer necessary and demand that the Commission justify their continued validity. Against that backdrop, I turn to today's decision.
National Television Ownership Rule and UHF Discount
I respectfully dissent from the majority's conclusion that, based on the record before us, the national ownership cap still serves the public interest. The Order contains no meaningful examination of the market or the state of competition, a glaring omission given Section 202(h)'s directive to consider whether competition obviates the need for such rules. This is particularly disturbing, since serious questions have been raised (but not adequately addressed) as to whether this rule is substantially related to the stated government interests of protecting local competition and promoting local diversity, and evidence has been presented that the rule may actually cause harm to the public interest. (28)
In the Notice of Proposed Rulemaking, we asked for comment on the effect of the rule on competition in the national advertising and program production markets. We also asked about the effect of the rule on existing television networks and the formation of new networks. These points of inquiry go to issues of competition in the national markets. One would expect to see an examination of market concentration, advertising and programming price effects, etc. The Order, however, lacks any meaningful discussion of either of the national markets or the formation of new networks. If it had, it would have noted the substantial change that has occurred offering greater competitive discipline and substantially increased diversity. See Section I, supra.
Instead, the Order validates the rule on two other grounds: It states that (1) additional time is needed to assess the impact of the local ownership rule changes made last August; (29)
and (2) expresses concern about the growing number of large group owners and the potential for disruptive restructuring. None of these articulated reasons address the national programming or advertising markets, or the rules' impact on new or existing networks.
Indeed, the justifications appear to focus almost exclusively on competition and diversity at the local level. (30)
It is not intuitive why national ownership restrictions have any meaningful impact on local competition or local diversity. We have very detailed rules limiting the number of stations one may own in a given local market. Thus, no matter how many stations one owns nationally, he cannot increase concentration in the local market, by operation of our local ownership rules. Indeed, these rules were modified less than a year ago to reflect our present views on local competition and diversity. Consequently, I fail to see the relationship between the national cap and the stated government interest in local competition and diversity. Further, the Order does not offer a meaningful explanation. I would note that on many previous occasions the Commission has itself squarely expressed doubt about the linkage between the national cap and its stated goals. (31)
Not only are the stated rationales for retaining the rule in its current form not persuasive, but the Order lacks any meaningful discussion of the potential harms posed by the rule. For example, the study completed by Professor Michael Katz raises the possibility of some non-trivial harms associated with this rule. The study finds that the rule: (1) limits economies of scale associated with common ownership, thus raising costs and reducing incentives to invest in over the air television; (2) blocks the expansion of particularly well-run station groups; and (3) limits the ability of broadcast networks to own stations, an arrangement that would improve coordination and lower the risks associated with investing in high-quality, innovative programming. (32)
These harms are not small concerns to an industry in the midst of remaking itself in digital form and for whom every day the number of competitors increases while total viewership declines.
These concerns are also strikingly similar to those raised by the Commission in its decision to modify the Dual Network Rule. In the Notice of Proposed Rulemaking in that proceeding, also issued today, the Commission reviews with some specificity the current economies of the network broadcasting market. As noted in the NPRM, networks are in the business of producing mass audiences, and the size of that audience is facing continuing erosion from cable and DBS. The NPRM finds that in order for networks to be economically viable they must be "larger rather than smaller as measured in terms of affiliated stations and the viewers produced and sold to advertisers." (33)
In the dual network context, the Commission finds that contract negotiations between program producers and networks are extremely complex and, as a result, the costs of these contracts are high. Integration allows for lower costs and better allocation of risks. (34)
The NPRM also points to the amount of integration that has occurred in this market after the repeal of our financial interest and syndicated exclusivity rules (fin/syn) as reflective of the difficulty in negotiating contracts. (35)
I would argue that these same economic costs and efficiencies accrue to a network's affiliate relationships as well. Contract negotiations between networks and affiliates are also complex and the costs high. And as in the case of the fin/syn rules, I would point to the number of networks that are either closing in or at the cap as evidence of the difficulty and costs associated with contracting with affiliates. (36) For those companies that are at the cap, these costs are a direct result of our rules. But the Order not only fails to analyze these costs, but also whether the costs associated with the rule are justified on the basis of our interest in preserving competition in the national programming or advertising markets, or even competition or diversity at the local level.
The Order also states that a change in the cap may well influence the bargaining positions between broadcast television networks and their affiliates, and that we should proceed cautiously, particularly given the restructuring that may be taking place concurrently on the local level. However, we do not have evidence of a massive restructuring taking place at the local level. Only 42 applications for duopolies in local markets have been filed since we modified our local ownership rules, and 19 of those reflect purchases of television stations that the buyer already programs through local marketing or time brokerage agreements. And, while I am sensitive to the shifts currently taking place in the network/affiliate relationship, I am unconvinced that these concerns necessarily implicate issues of diversity and competition at the local level. Protecting one group of station owners over another for its own sake is not a valid function of government. Nonetheless, I would have liked to hear much more about the impact on local stations and how that impact undermines the public interest in an NPRM that would more comprehensively examine the 35 percent audience reach cap.
In short, the Commission's decision is deficient in several ways. It fails to fully examine the video market and consider the changes in that market. It merely assumes a valid link between a national limit and local competition and diversity, despite fairly substantial evidence to the contrary. And, it fails to consider the public interest harms that may flow from the rule. I believe there is more than enough on the record of this proceeding to call into question whether the public is being served by the 35 percent audience reach cap, and I would have supported a Notice to examine more thoroughly the possibility of its modification or repeal. Further, I support the Commission's decision not to amend the UHF discount. Any action on the discount should be considered in conjunction with a thorough analysis of the cap.
Newspaper/Broadcast Cross-Ownership Rule
I also must respectfully dissent from the majority's conclusion that the newspaper/broadcast cross-ownership rule continues to serve the public interest. While I welcome the decision to issue an NPRM to look at the impact of the rule in particular circumstances, I am disappointed that the Commission appears unwilling to engage in a broader debate about the continuing validity of this 25-year-old rule, which has never been modified. This rule raises significant First Amendment concerns, and, as a result, requires rigorous analysis in support of its continuing validity. To my mind, the Order falls short of that bar, and I cannot conclude that the rule continues to serve the public interest as a result of competition.
As I predicted in my separate statement to the NOI, the pivotal issues in this entire proceeding evolve around the issue of diversity. Nowhere is this more the case than in the analysis surrounding the newspaper/broadcast cross-ownership rule. With respect to this rule, the Commission relies heavily on its goal of promoting "viewpoint diversity," which looks specifically at the amount of "local" programming in a market. While the Order considers the effect of the rule on competition, it limits its discussion to whether meaningful efficiencies derive from existing combinations. A more thorough competitive analysis would also discuss, for example, the relationship between the advertising markets for broadcasting and newspapers and the substitutability of the television and newspaper products. If they are the same products, then the Commission should justify its decision to permit television duopolies but not newspaper/television combinations in local markets. If they are different products, then the Commission should justify why it will continue to apply a complete ban on cross-ownership between the mediums, based simply on their character.
The heart of the newspaper/broadcast cross-ownership rule is the Commission's belief that these two mediums are the only two suited to providing content oriented toward the local community. (37) This Order retains that thesis by rejecting the proposition that the explosion in alternate sources of programming obviates the need for the rule. It finds that: (1) "new outlets" (DBS/MMDS) are not substitutes for newspapers or broadcasters on the local level; and (2) that cable is a poor substitute because it is not required by law to provide locally originated content, even though some systems do. By contrast, the Order places faith in broadcasting, because broadcasters are required, pursuant to their public interest obligations, to provide programming responsive to the needs of the local community, and newspapers, even though they are not required to, typically cover local issues. From these observations, the Order concludes that broadcast television and newspapers continue to be the dominant source of local news and public affairs information in any given market. Let me address each of these two propositions.
As configured today, it is true that most satellite and wireless based video providers offer primarily national programming. The central reason for this is technical. Satellite technology has had difficulty beaming unique programming into local communities from hundreds of miles in space. The technology is changing, however, and with spot beam technology DBS providers are pursuing localized carriage. Indeed, they fought aggressively to modify the Satellite Home Viewer Act to allow them to carry local broadcast signals, feeling that it was a competitive disadvantage not to have local content. (38) Some companies appear to be pursuing a satellite service that would include multiple channels of tailored 24 hour local programming, including weather, sports, traffic, arts and community affairs. Thus, as competition increases in providing national programming content (broadcast, cable, DBS, MMDS, Internet) carriers will naturally push into local content to differentiate their offerings. It is clear, in my view, that content as an important competitive offering. So, while I would concede that these services provide limited local programming today, it is clear that video competition is driving them to provide localized content and they should not be dismissed as viable alternatives out of hand.
The majority's rejection of cable as a viable medium for local content is more baffling. The fact is that many cable systems are offering local programming, perhaps for more concentrated periods than broadcast television. News Channel 8 in our own area offers just one example. Cablevision's New York Metro service offering local news, weather, traffic, sports and community affairs is another. Most cable systems offer community PEG channels. Many systems offer local high school sports, such as the Home Team Sports channel. HTS is apparently valuable enough to consumers that it costs extra to have access to it. Moreover, cable systems are operated locally, just as stations are, and I see no real impediment to them offering local services if their community wishes to have them. In fact, local cable systems are regulated by local franchises that often extract local community services as a condition of receiving a local franchise. Broadcast stations have no local regulatory oversight. Despite all of this, the Commission turns a blind eye, refusing to survey the breadth of local cable programming and dismissing the argument by holding that because federal law does not mandate local content, we cannot count on such systems providing it.
The Commission, however, repeats the same error I note in Section I. It seems unwilling to recognize that localism sells. There are a bevy of commercial motivations for offering such fare: advertisers want to target groups with similar demographics and interests. National programmers want to differentiate their products. Multichannel systems want to increase the value of subscription fees. I find it a bit remarkable we will not look to or credit competitive content, where there is not a regulation compelling it, when reviewing the market to see if competition has obviated the need for a regulation! Moreover, the Order refuses to consider local content in cable systems, because it is not required, but in direct contradiction is unobstructed in crediting regulation-free local newspaper coverage because that medium "typically" covers local issues. This is unquestionably arbitrary analysis.
In defending this rule, the Commission again trumpets the value of "antagonistic voices," or "viewpoint diversity." I question generally some aspects of this governmental interest, which I discussed more fully in Section I. I would only add a few points. For one, I do not see how one can demonstrate that newspapers, by their very nature, are antagonistic to broadcasters and, thus, their combination would frustrate our stated goal. I have not observed or been shown any particular give and take between these two mediums. I don't believe we have even genuinely examined this proposition. Surely, one can hypothesize that if a local paper and local station combined, there may be some homogenization of news and information. But, one can equally imagine that the combined resources may allow for greater and more efficient coverage of local events that could not be covered by the two individually. (There is some evidence of this where certain combinations have been grandfathered). Second, I would note that a broadcast station is the most likely candidate to take views antagonistic to another station, since they directly compete for audience share. Yet, we allow a single entity to own two broadcast stations in many markets, if enough "voices" remain in the market. I do not see why newspaper/broadcast combinations could not be regulated the same way.
Based on the above considerations, I cannot support the conclusion that the newspaper/broadcast cross-ownership restrictions continue to serve the public. I would support a proceeding that would look critically at how the significant and far reaching changes in the video marketplace since 1975 have eviscerated the need for what is an extremely prohibitive regulation.
The Cable/Broadcast Cross-Ownership Rule
I also dissent from the Order's decision to retain the Cable/Broadcast Cross-Ownership rule. The rule is 30 years old, and, as in the case of the rules discussed above, I believe there have been sweeping and pervasive changes in the local video programming market that warrant a more critical analysis of the benefits associated with this rule than has been undertaken in the context of the instant NOI. I believe that many of the harms, such as channel positioning, asserted in the context of this rule may be adequately addressed by other rules the Commission regularly enforces. For example, I would observe that even if one were concerned that cable might have an incentive in favoring its own local station on its cable system, the "must carry" rules would largely deny it the ability to do so.
Finally, I find it ironic that the majority is concerned that it will lose an "antagonistic voice" if a local cable system is co-owned with a broadcast station, but is unwilling to count that same voice as viable in the broadcast/newspaper cross-ownership context. For all of the above reasons, I would have supported a rulemaking to more adequately and thoroughly examine whether this rule is still necessary to promote the public's interest.
The Dual Network Rule
I concur in the Order's conclusion that the Dual Network Rule as it applies to UPN and the WB may no longer serve the public interest and the decision to issue an NPRM to evaluate possible modifications to the rule. While I would support an NPRM that would also consider repeal of the current rule as it applies to the top four networks, I believe that the record supports this more limited NPRM as an adequate first step. I look forward, however, to continuing to review this rule in our upcoming biennial reviews.
Local Radio Ownership
I also concur in the decision today to retain the current local radio ownership rules. However, I am unconvinced that the further proceeding contemplated by the Order is warranted, nor do I believe, as a general matter, that consolidation in the industry has threatened local competition and diversity in a manner inconsistent with the intent of Congress.
The Order contemplates a Notice of Proposed Rulemaking (NPRM) to address several radio market issues. One issue is how to harmonize the counting methods we use to determine both the size of the market and the number of stations in the market that count toward the cap. To the extent that this NPRM addresses what may be an arbitrary distinction between counting methods, I support its issuance.
The NPRM will also ask whether the Commission should adopt a different (and more restrictive) method for determining the relevant "market" because our current definition may be "producing unintended results that are contrary to Congress' intent." My single greatest problem with the proposed action here is one of statutory interpretation. The effect of its proposal would be to shrink markets and thereby substantially limit the number of stations that one could own. When Congress adopted its radio ownership provision, Commission regulations defined these markets in a particular way. That way was the law of the land. The Arbitron market definitions were in existence, but they were not used for regulatory purposes, and Congress did not specifically incorporate them. I believe that it is disingenuous to suggest at this late date that only by changing the market definition to Arbitron can we effectuate what Congress "really meant." I believe proper statutory interpretation would lead one to conclude that Congress set its numerical limits against the market definition that prevailed in regulation at the time, and not a definition that had not been used for this purpose previously. (39)
Moreover, if Congress did not mean to set the appropriate level of concentration, or the acceptable level of diversity, what on earth are the numerical market levels meant to do?
III. CONCLUSION
In conclusion, I do not believe that the Commission has justified its decision that the 35 percent audience reach cap, the newspaper/broadcast cross-ownership rule or the cable/broadcast cross-ownership rule continue to serve the public interest as a result of competition as Section 202(h) requires. With respect to each of these rules, I would have supported further proceedings to more thoroughly evaluate the pervasive changes that have occurred in the video marketplace, and whether these rules continue to achieve the goals for which they were intended. I think such an analysis is critical in light of the challenges facing the broadcasting industry, especially the reality that the technical advances in digital capabilities will allow more and more platforms to deliver video programming. This Commission must look forward if it is to foster, and not stand in the way of, the digital revolution that is occurring across all of the communications industries. The approach taken by the Commission today, however, continues to look to "the days of yesteryear," to justify its rules. It is time to take the mask off this old Lone Ranger and look more deeply into the face of change.
ADDENDUM
The purpose of this Addendum is to address material that was added by the majority to the item after its adoption and after the preceding statement was completed. Specifically, the facts in paragraph 28 and the analysis contained in the last four sentences in paragraph 30 were circulated two weeks after the item was adopted. As a procedural matter, I am concerned that the changes, which I believe are substantive, have been inappropriately added after the item's adoption on May 26, 2000 and may change the adoption date of the item to no sooner than June 13, 2000, well past the statutory deadline. (40) In any case, I will respond to the newly added material below.
The majority now maintains that elimination or relaxation of the national cap rule would lead to "the consolidation of ownership of all or most of the television stations in the country in the hands of a few national networks." (41)
This apocalyptic pronouncement is without foundation. As the Order itself points out, large numbers of stations are currently owned by group owners and there is not even a hypothesis proffered as to why such major commercial interests would suddenly sell their full complement of stations to the networks. (42)
While it may be a valid hypothesis that network-owned stations have an incentive to clear the majority of their network programming, it is far from clear that they would not also have economic incentives to program local content that would attract both viewers and advertisers. Clearly, competitive video service providers believe local content is key to the success of their product. (43)
Moreover, every station, regardless of ownership, is required to serve its local community, a point relied on by the majority in distinguishing broadcasters from other providers of programming, (44) Thus, network-owned stations could not, arguably, run national programming exclusively.
The majority also now for the first time says that we should be concerned that there is a loss of an outlet for non-network programming sources, but I am not sure that this concern comports with the facts. Do the current network owned and operated stations have higher clearance rates for network programming? Do they serve their local communities with less local content than affiliated stations? Do national programmers find themselves blocked from distributing their product through stations owned and operated by the networks? Who knows? We certainly have not bothered to look.
The majority is correct in noting that Congress chose not to eliminate the cap, but only to liberalize it in the 1996 Telecom Act. But Congress also clearly instructed the Commission to continually evaluate market and competitive conditions to determine whether rules remain in the public interest. Failing to have done so fully, it cannot glibly escape its responsibility by deferring, without more, to a judgment Congress made four years ago and one that Congress specifically directed us to continually revisit.
1 Amendments of §§ 73.34, 73.240 and 73.636 of the Commission's Rules Relating to Multiple Ownership of Standard, FM, and Television Broadcast Stations, Docket No. 18110, Second Report and Order in Docket 18110, 50 FCC 2d 1046 (1975), recon., 53 FCC 2d 589 (1975), aff'd sub nom. FCC v. National Citizens Committee for Broadcasting, 436 U.S. 775 (1978).
2 Amendment of Part 74, Subpart K, of the Commission's Rules and Regulations Relative to Community Antenna Television Systems, and Inquiry into the Development of Communications Technology and Services to Formulate Regulatory Policy and Rulemaking and/or Legislative Proposals, Docket No. 18397, Second Report and Order, 23 FCC 2d 816 (1970), recon., 39 FCC 2d 377 (1973).
3 Telecommunications Act of 1996, Pub. L. No. 104, 110 Stat. 56 (1996).
4 This is the opening line of the television series The Lone Ranger which ran from 1949 to 1950, 1954-56. See <http://www.geocities.com/TelevisionCity/7286>.
5 See Warren Publishing, Inc., Television & Cable Factbook: Services Volume No. 68, 2000 Ed., at I-45.
6 According to the FCC's most recent broadcast station tabulation, there were 1,616 television stations (VHF, UHF, and educational) licensed on September 30, 2000. See Station Totals prepared by Mass Media Bureau, Audio Services Division (rel. Nov. 22, 1999) at <http://www.fcc.gov/mmb/asd/totals/bt990930.html>.
7 According to the FCC's sixth annual report on the competitive status of markets for the delivery of video
programming, a total of 80.9 million households subscribed to multichannel video programming services
(i.e., cable and noncable MVPDs) as of June 1999, up 5.5% over the 76.6 million households subscribing to
MVPDs in June 1998. This subscriber growth translates into a 3.2 percentage point increase in
multichannel video programming subscribership to 81.4% as of June 1999, i.e., 99.4 million U.S. homes
with at least one television divided by 80.9 million households subscribed to multichannel video
programming services. See Annual Assessment of the Status of Competition in Markets for the Delivery of
Video Programming, CS Docket No. 99-230, Sixth Annual Report ["1999 Report"], 15 FCC Rcd 978, ¶¶ 6,
19 (2000).
8 The 1999 Report noted 98.6% of all cable customers subscribed to systems with
capacities of 30 channels or more, and 64.2% of all subscribers were served by systems
with capacities of 54 or more channels in October 1999. Id, ¶ 23. In addition, 4.8% of
all subscribers are reportedly served by systems with capacities of 91 or more channels.
Id. 9
10 It is currently estimated that roughly 50 percent of American homes possess a personal computer and nearly 50 percent have Internet access. See, e.g., Consumer Electronics Manufacturer Association, U.S. Consumer Electronic Industry Today, 1999 Ed., at 5 ("Computers now are in almost half of all American households, 45 percent, and some 60 percent of those homes have two machines in use."); Christine Doherty, Online Market Is Hotting Up, Sunday Business Post, May 14, 2000 (currently "49 percent of Americans enjoy internet access from their homes"); Business Wire, Internet-Connected Households Soar to 60 Percent in 2000, Mar. 28, 2000 (consultancy notes "majority of U.S. household, approximately 60 percent, will have personal Internet access in the year 2000").
11 The 1999 Report noted a total of 171 basic, premium and pay-per-view cable networks. See 1999 Report, supra inote 6, ¶ 25.
12 Michael L. Katz, Old Rules and New Rivals: An Examination of Broadcast Television Regulation and Competition ("Old Rules and New Rivals"), Sept. 1999.
13 Id. at 11 (citing Paul Kagan Associates, The Economics of TV programming and Syndication, 1999 at 21-22).
14 I would add that I have always questioned why the FCC should concern itself with advertising rates. We do not regulate advertising and the price impacts there do not have a secondary effect on viewers in a manner cognizable by the Communications Act. The antitrust statutes adequately address advertising concerns as they do generally for all markets.
15 1999 Report, supra. Note 6, ¶¶ 19-20
16 Id. ¶ 15.
17 See id. ¶ 26. See also Kyle Pope, Network Makes $850 Million Deal with Warner Bros., Wall St. J., Jan. 15, 1998, at B1 (NBC strikes "a record $850 million deal to keep the nation's top-rated show, ER); Peter Kaplan, NBC Pays Top Dollar to Keep No. 1-Rated "ER" on Board, Wash. Times, Jan. 15, 1998, at B6 (same); Brian Lowry, NBC's Prescription for Success: Keep "ER" TV, L.A. Times, Jan. 15, 1998, at A1 (same).
18 See, e.g., NFL Buyers, Sellers Could Butt Heads on Rates, Multichannel News, Jan. 26, 1998, at 28 ("Fox Broadcasting, ABC, CBS and ESPN will shell out a combined $17.6 billion across eight [NFL] seasons."); John M. Higgins, Cable Operators Blast ESPN for NFL Megabid, Broadcasting & Cable, Jan. 19, 1998, at 10 (Of $17.6 billion total, ESPN "agreed to pay $600 million per season for 18 Sunday night games"); MSOs Await Bill as ESPN Grabs NFL, Multichannel News, Jan. 19, 1998, at 1 (same).
19 See Disney Offer Would Triple NHL's Current TV Deal, Palm Beach Post, Aug. 6, 1998, at 8C (Walt Disney Co. offered "to pay the [NHL] almost $600 million for exclusive U.S. broadcast rights for five years". . .the deal "would triple the amount Fox Sport and ESPN [paid] the league" under the prior deal).
20 Source diversity refers to "promoting a variety of program or information producers and owners." In the matter of 1998 Biennial Regulatory Review--Review of the Commission's Broadcast Ownership Rules and Other Rules Adopted Pursuant to Section 202 of the Telecommunications Act of 1996, Notice of Inquiry, MM Docket 98-35, rel. Mar. 13, 1998, ¶ 6.
21 Apparently, "beauty is in the eye of the beholder" is a misinterpretation of the following aphorism by Plato:
"Remember how in that communion only, beholding beauty with the eye of the mind, he will be enabled to bring forth, not images of beauty, but realities (for he has hold not of an image but of a reality), and bringing forth and nourishing true virtue to become the friend of God and be immortal, if mortal man may."
See Quoteland.com <http://www.quoteland.com>.
22 See United States v. Playboy Entertainment Group, Inc., 529 U.S. ___, 2000 WL 646196, at *13 (2000) (Asserting that the Constitution exists to grant the people, rather than the Government, the ability to evaluate moral, artistic, and intellectual content.)
23 Bear, Stearns & Co., Inc., Byte Fight!: Cable TV & Broadband Report (rel. Apr. 2000), at 59 (With hybrid fiber optic-coaxial upgrade, "[a] cable operator with 750 MHz system can ultimately offer the equivalent of 240 channels (both analog and digital) while having 50 MHz, or the equivalent of 80-100 digital channels held in reserve." With eventual digitalization of cable plant, operator "will be able to offer the equivalent of 1,100-1,600 digital channels") (emphasis added).
24 "The First Amendment 'rests on the assumption that the widest possible dissemination of information from diverse and antagonistic sources is essential to the welfare of the public . . .'" Order (quoting Associated Press v. U.S., 326 U.S. 1, 20 (1945)).
25 One example is the "right to reject rule." See generally, 47 C.F.R. § 73.658.
26 See Playboy, 2000 WL 646196, at *13 (Stating that "these judgments are for the individual to make, not for the Government to decree, even with the mandate or approval of the majority.")
27 I believe the guiding principles articulated in Commissioner Furchtgott-Roth's separate statement have merit.
28 See Old Rules and New Rivals, supra note 11.
29 Review of the Commission's Regulations Governing Television Broadcasting; Television Satellite Stations Review of Policies and Rules, 14 FCC Rcd 12903 (1999).
30 The Order finds that applications for duopolies under our new local television ownership rule were only filed this past November and, as a result, they should monitor developments under this new rule prior to making any changes to the national television ownership reach cap.
31 See, e.g., Amendment of Multiple Ownership Rules, 100 FCC 2d 17, 37 (1984) (noting irrelevance of national rules to diversity in local markets). See also Old Rules and New Rivals supra note x, at 61 (discussing Department of Justice opinion in 1983 that eliminating the national multiple ownership rules would raise little risk of adverse competitive effects in any market).
32 See Old Rules and New Rivals, supra., note 12, at ii-iv.
33 Amendment of Section 73.658(g) of the Commission's Rules - The Dual Network Rule, Notice of Proposed Rulemaking, FCC #00-213, Adopted Jun. 8, 2000, Rel. Jun. 20, 2000, at ¶ 12.
34 Id., at ¶ 18.
35 Id., at ¶ 15.
36 CBS is currently at 40 percent audience reach, FOX at 35 percent, PAX at 34 percent and Tribune at 29 percent. See Special Report Top 25 Television Groups, Broadcasting and Cable, Apr. 10, 2000, at 72-98.
37 See Amendment of §§ 73.34, 73.240, and 73.636 of the Commission's Rules Relating to Multiple Ownership of Standard, FM, and Television Broadcast Stations, Docket No. 18110, Second Report and Order in Docket 18110, 50 FCC 2d 1046, 1057-58 (1975).
38 See, e.g., Audio Notes, Audio Week, Nov. 15, 1999, available in 1999 WL 7563749 ("CEA Pres. Gary Shapiro . . . said CE companies 'have long believed that the ability of DBS subscribers to receive local network signals is critical to the success of the home satellite market.' "); Capitol Hill, Warren's Cable Regulation Monitor, Nov. 29, 1999, available in 1999 WL 6826333 (DirecTV and EchoStar planned to provide local broadcast network channels to their customers as soon as President Clinton signed SHVA into law).
39 "It is a commonplace of statutory construction that the specific governs the general," Morales v. Trans World Airlines, 504 U.S. 374, 384-385 (1992) (citing, Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 445 (1987).
40 Section 5003, Pub. L. 106-113 Stat. 1501 (1999). See also Dissenting Statement of Commissioner Harold W. Furchtgott-Roth.
41 See Order,¶ 30.
42 The Commission's Order at the Appendix indicates that the top 25 group owners own 527 of the over 1600 television stations operating today. The average number of stations owned by the top 25 group owners is 21. NBC owns 13 stations, ABC owns 10, Fox owns 23 and the newly merged Viacom/CBS owns 35, but is subject to divestiture conditions to come into compliance with the 35% cap.
43 See p. 15, infra.
44 See p. 14, infra.