FCC Media Consolidation Decision
By Mitchell Brecher and
Judith O’Neill, Greenberg
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On June 2, 2003, a bitterly-divided Federal Communications Commission
enacted new rules governing ownership of broadcast television and radio
stations. The vote was along party lines, with the three Republican FCC
Commissioners (including FCC Chairman Michael Powell) voting to modify in
important respects the rules governing how many television stations may
be owned by a single entity, how much of the population may be reached by
stations owned by major television networks, and whether, and under what
circumstances, there may be common ownership of newspapers and broadcast
stations in the same geographic markets.
|"By revising the rules governing
broadcast station ownership, the FCC has significantly altered the
landscape for delivery of TV and radio programming as well as the
economics of those industries."
The FCC’s review of its broadcast ownership rules was compelled by a
provision of the Telecommunications Act of 1996. The 1996 Act directed the
FCC to make certain changes to its rules governing broadcasting ownership.
In addition, Section 202(h) of the 1996 Act directs the FCC to review those
rules every two years and to determine during each of those so-called "biennial
reviews" whether any of the ownership rules remain necessary in the public
interest as a result of competition. The FCC also is required to "repeal
or modify any regulation it determines to be no longer in the public interest."
The June 2 decision was taken as part of the "biennial review" process which
began in September 2002.
Summary of Rule Changes
The following is a summary of the most important changes to the broadcast
ownership rules promulgated by the FCC:
1. Dual Network Ownership Prohibition
The FCC continues to prohibit mergers among any of the top four national
broadcast networks. The top four networks are 1) NBC (owned by General Electric
Co.); 2) ABC (owned by Disney Corporation); 3) CBS (owned by Viacom); and
4) Fox (owned by News Corporation). Viacom and News Corporation were both
plaintiffs in a court action which challenged the prior regulation that
prevented them from owning stations that broadcast to more than 35% of U.S.
households. The new regulations eliminate the requirement of Viacom to divest
any of the stations it acquired in its merger with CBS in 2000, which put
it over the 35% limit.
2. Local Television Multiple Ownership Limit
- In markets with five or more TV stations, a company may own two stations.
However, only one may be among the top four stations in that market in
ratings at the time of the acquisition.
- In markets with 18 or more TV stations, a company may now own three
TV stations, only one of which may be among the top four rated stations
at the time of acquisition.
- In determining the number of stations in a market, both commercial
and non-commercial stations are to be counted.
- For markets with 11 or fewer TV stations, the FCC will consider requests
for mergers of two of the top four rated stations on a case-by-case basis,
based on a waiver policy announced by the FCC.
3. National Television Ownership Limit
The FCC increased the percentage of U.S. households that may be served
by over-the-air broadcast to 45 percent from 35 percent. Under this rule,
the share of households served is calculated by adding the number of television
households in each market in which a company owns a TV station, irrespective
of the station’s ratings in any market. Under an existing FCC rule, the
number of households in a market served by UHF TV stations (stations broadcasting
on channel 14 and above) is "discounted" by fifty percent, based on the
principle that UHF stations cover smaller geographic areas so that fewer
households receive those stations over-the-air in a market. The FCC will
retain the UHF discount in applying the new 45 percent rule. The UHF discount
is being retained notwithstanding the fact that many consumers receive television
stations via cable or satellite-based systems. Where a UHF station signal
is delivered via cable or satellite, its coverage is the same as that of
VHF stations delivered in the same manner.
4. Local Radio Ownership Limit
The current limits or "caps" on local radio ownership will be retained.
They are as follows:
- In markets with 45 or more radio stations, a company may own eight
stations, only five of which may be in one class, AM or FM;
- In markets with 30-44 stations, a company may own seven stations,
only four of which may be in one class;
- In markets with 15-29 stations, a company may own six stations, only
four of which may be in one class;
- In markets with 14 or fewer stations, a company may own five stations,
only three of which may be in one class.
The rules governing ownership of radio stations were changed following
enactment of the 1996 Telecommunications Act. Those changes led to a period
of increasing concentration of ownership of commercial radio stations. One
company, Clear Channel Communications, now owns more than 1,200 stations,
including multiple stations in many radio markets. Although the FCC has
retained the number of stations which may be owned in any market, the FCC
has changed the manner in which markets are identified. In the past, the
FCC has based market determinations on signal contours (maps showing predicted
coverage areas of stations based on such factors as operating power, antenna
location, etc.). Instead, the FCC will utilize geographic market definitions
established by Arbitron. Under the Arbitron method, all stations licensed
to communities in a market as well as stations licensed to other markets
but considered "home" to that market will count. Commercial and non-commercial
stations will be counted in determining the number of stations in a market.
5. Cross-Media (Including Newspaper) Limits
The FCC will replace the old broadcast-newspaper cross-ownership rule
with a new rule whose provisions will include:
- In markets with three or fewer TV stations, no cross-ownership is
permitted among TV, radio and newspapers. Waivers may be granted if a
company shows that the television station does not serve the area served
by the cross-owned property.
- In markets with between four and eight TV stations, combinations are
to be limited to one of the following:
- A daily newspaper, one TV station, and up to one-half the radio
station limit for the market, or
- A daily newspaper, and up to the radio station limit for that market,
- Two TV stations (if permissible under the local TV ownership rule),
and up to the radio station limit for that market.
- In markets with nine or more TV stations, the newspaper-broadcast
cross-ownership ban and the television-radio cross-ownership ban have
6. Radio and TV Transferability Limited to Small Businesses
The FCC recognized that certain existing ownership arrangements may violate
the new TV and radio ownership limits. These arrangements have been "grandfathered."
However, such above-cap clusters may not be sold, subject to a limited exception
which will permit sales of above-cap clusters of stations to small businesses.
In creating this small business exception, the FCC is attempting to avoid
hardships on existing above-cap cluster owners who are themselves small
businesses, and to promote entry into broadcasting by small businesses,
many of which are (according to the FCC) minority or female-owned.
What do the FCC Media Ownership Rule Changes Mean?
Throughout the eighteen month debate on media ownership, much was said
and written. Proponents of the new rules (including the three FCC commissioners
who voted for them) have claimed that the rules were necessary and appropriate.
Their statements to this effect were more declaratory than focused on market
phenomena, though statistical studies were used to support the declarations.
However, the claims of necessity for the new rules do not specifically address
any wrong or problem that the new rules are designed to correct. Rather,
they are claimed to be necessary because several previous attempts by the
FCC to justify previous ownership rules were struck down by appellate courts,
and there was a fear that without judicially sustainable rules there would
be no rules in place to govern media ownership. Proponents of the new rules
also noted that the market has changed dramatically in the years since the
broadcast multiple ownership, network ownership and newspaper-broadcast
cross-ownership rules were adopted. Specifically, they point to the dramatically
increased sources of information, e.g., cable television channels,
satellite services, and the Internet, none of which existed when the original
rules were adopted (an era which FCC Chairman Powell has referred to as
a "black and white world").
Opponents of the new rules (including the two FCC commissioners who voted
against them and who have written dissents that are highly critical of the
action taken) argue that the new rules effectively eliminate meaningful
limits on control of the media by the largest media companies, while not
correcting any suggested problem that required fixing. They point out that
five large companies – the four network owners plus AOL Time Warner, will
control much of what is seen and heard on television. They also note that
the FCC received more than 750,000 "comments" on the proposed rule changes,
more than 99 percent of which opposed further media consolidation. The two
dissenting FCC commissioners conducted a series of regional hearings around
the country where they heard from many who opposed the proposed rule changes.
The FCC stated that its guiding principles in the media consolidation
proceeding were localism, diversity and competition.
Whether the rule changes will, as the proponents claim, promote those goals,
or whether they will undermine those goals and lead to unfettered consolidation,
remains to be seen.
The FCC did not "deregulate" media ownership, nor did it outright eliminate
the limits on the number of media outlets which may be owned by any one
entity. However, the new rules are borne of a deregulatory philosophy and
will (assuming they are sustained) significantly increase the number of
television stations which large companies, including those that own television
networks, may own. The rules also will hasten the ability of large companies
to own and operate two, and in some cases, three television stations in
individual markets. While the precise impacts of these changes cannot be
determined, such concentration is likely to increase the leverage enjoyed
by those station owners in their negotiations with the creative community
for programming and in the prices charged for advertising.
This recent FCC action is the latest in what has been a two-decade movement
toward reduction of the regulation of broadcasting. In the early 1980s,
then-FCC Chairman Mark Fowler (a Republican appointed by President Ronald
Reagan) described television as a "toaster with a picture." In a dissent
to the June 2 decision, FCC Commissioner Jonathan Adelstein (a Democrat
appointed by President George W. Bush) said that following this decision,
if television is "the toaster with pictures, soon only Wonder Bread will
Congress is split largely, but not exclusively, along party lines on
the matter. Rep. Markey (D-MA) referred to the order as "making Citizen
Kane look like an underachiever," while Rep. Tauzin (R-LA) applauded it
as removing the "muzzle" on free speech in America. The independent programmers
and the caucus for television writers, producers and directors, vowed to
"keep fighting." While the cable industry was largely without immediate
comment, Fox Communications President Jim Robbins opined that the decision
would exacerbate what he claims are already unreasonable requirements levied
by national television broadcasters to consent to the retransmission of
programming. Mr. Robbins fears that this would tend to increase cable bills
to consumers and decrease the ability of local cable companies to provide
programming customized to their local communities. It should be noted that
the FCC’s rules do not address cable ownership. Previous efforts by the
FCC to establish ownership limits on cable operators have been struck down
by the courts.
What Happens Now
As of the date of this memo, the FCC report and order containing the
new rules has not yet been issued. It is virtually certain that many parties
will seek to appeal the FCC ruling to the Federal Court of Appeals. Opponents
of the rules (including many citizens groups and public interest organizations,
as well as such special interest organizations as the National Organization
for Women and the National Rifle Association) are likely to appeal on the
basis that the FCC decision was too "deregulatory" and will limit the number
of voices which may be heard over public airwaves. They will also challenge
the decision on the basis that it was not supported by the record and that
the FCC did not follow proper procedures. Proponents of the rules, including
the broadcast networks and other large media companies, are likely to appeal
on the basis that the rules did not go far enough, i.e., that under
the "necessary" standard contained in Section 202 of the 1996 Telecommunications
Act, all ownership limitations are unnecessary and should have been eliminated.
It is also possible that legislation will be introduced in Congress, which
would roll back certain portions of the new rules, e.g., the increase
in the percentage of households which may be reached by stations owned by
any one company to 45%. Some parties affected by the FCC rule changes may
elect to ask the FCC to reconsider aspects of the new rules by petitioning
the FCC for reconsideration. If such reconsideration petitions are filed,
it is likely that the FCC would ask the courts not to proceed with the appeals
until the agency has acted on the reconsideration petitions. That could
further delay appellate review of the FCC ruling.
Unless the rules are stayed either by the FCC or by a court, the rules
will become effective following publication in the Federal Register
and following approval of the Office of Management and Budget (which must
"sign off" on all federal regulations which have budgetary or paperwork
By revising the rules governing broadcast station ownership, the FCC
has significantly altered the landscape for delivery of TV and radio programming
as well as the economics of those industries. The effects of these rule
changes will be felt by broadcasters, network operators, alternative programming
and information sources (cable operators, satellite companies, etc.), as
well as by the creative community and those that use the electronic media
for advertising. There is little doubt that the new rules will lead to further
consolidation in the television and radio industries. For example, mid-sized
broadcasters may well see an increase in share value as they become a desirable
target for absorption by the larger companies. Smaller broadcasters, who
complain of existing economic problems due to the lack of economies of scale
and digitalization expenses, yet who are in markets too small to benefit
from the new consolidation rules, may actually lose value if they do not
take creative action. Investment banks and other investors in the industry
should be and likely will be active to evaluate each of these situations
as they become involved in facilitating these transactions.
If you would like further information about the new FCC media ownership
rules and how those changes may impact your business, please contact us.
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