FCC Overhauls Media Ownership Rules

Article by Bruce D. Ryan, Michelle W. Cohen & Neil R. Fried

Highlights
As rewritten by the FCC, the new rules provide as follows:

• Increases the national TV ownership cap to 45% from 35% of U.S. television households, as measured by all potential viewers in the markets collectively reached by the commonly owned stations.
• Continues the so-called "UHF discount," which attributes to a UHF station only 50 percent of the TV households in the station’s assigned market, although the FCC plans to sunset the rule for at least the four top networks when the transition to digital television is completed.

• Triopolies: Allows for the first time common ownership of up to three TV stations in the largest markets – those with at least 18 TV stations, such as New York, Los Angeles, Philadelphia, and San Francisco-San Jose) – provided no more than one of the three stations is among the market’s top four in ratings.
• Duopolies: Expands the scope of permitted TV duopolies by allowing common ownership of two TV stations in markets with at least 5 or more TV stations, provided both are not among market’s four top-rated stations.

• Retains the same set of tiered numerical limits specified in the 1996 Act, but tightens the regulatory definition of local radio "markets" by replacing the former signal-contour method with an Arbitron-based definition, thereby reducing the number of stations that may be commonly owned in some markets.
• For smaller, non-rated markets, the FCC will conduct a new rulemaking to define markets, and will apply a modified contour method in the interim.
• Existing clusters of stations will be grandfathered Sales of above-limit clusters generally will be prohibited, although sales to qualifying small businesses will be allowed.

• Replaces both the newspaper/ broadcast and radio/TV cross-ownership rules with a new set of "Cross-Media Limits." The new limits are based on the so-called "Diversity Index," developed by the FCC to weigh various media sources and measure what it calls "viewpoint diversity concentration."
• The new rule provides different regulatory treatment across three tiers of local media markets, as follows:

• Retains the dual network rule in its present form, allowing a broadcast station to affiliate with a multiple-network organization unless the dual or multiple networks are created by a combination among the "top four" networks (i.e., ABC, CBS, Fox or NBC).

Legal and Regulatory Context
Section 202(h) and Recent Court Decisions. The FCC undertook this comprehensive review of the media ownership rules pursuant to its statutory obligations under Section 202(h) of the 1996 Act. That provision directs the FCC to reexamine its broadcast ownership rules every two years and to repeal or modify any regulations it determines to be no longer in the public interest as a result of competition.

Recent court decisions have ruled that Section 202(h) erects a presumption in favor of repealing or modifying the ownership rules. To comply with this statutory directive, the FCC must analyze the state of competition, and justify any decision to retain ownership limits on the basis of a solid factual record.

In the Fox Television Stations, Inc. v. FCC decision last year, the U.S. Court of Appeals for the D.C. Circuit held that "[t]he statute is clear that a regulation should be retained only insofar as it is necessary in, not merely consonant with, the public interest." The FCC asked the D.C. Circuit to revisit that decision, however, arguing that the court’s interpretation imposed a higher standard in deciding whether to retain a rule than in adopting the rule in the first place. On rehearing, the court decided to leave "unresolved precisely what § 202(h) means when it instructs the Commission first to determine whether a rule is ‘necessary in the public interest’ but then to ‘repeal or modify’ the rule if it is simply ‘no longer in the public interest.’"

The FCC’s New "Diversity Index." In conducting the mandated review in this proceeding, the FCC sought to examine the extent to which the existing media ownership rules were necessary to achieve three public interest objectives: diversity, competition, and localism. The FCC stated that its new rules were intended to acknowledge, among other things, the increased competition that broadcast television faces from cable and satellite television, and the significant amount of choice consumers seeking news and information now have.

To assist in its analysis, the FCC developed a so-called "Diversity Index" for analyzing viewpoint diversity. The FCC said that the index is "consumer focused" in that the FCC has built it on data about how Americans use different media to obtain news and information. The FCC also stated that the index has enabled it to recognize significant differences between the availability of media in large and small markets. In the almost certain judicial review of the ownership rules, the courts will scrutinize the diversity index and the way the FCC used it to support the new regulations.

What’s Next?
Potential for Further Appeals. The full text of the FCC's Report and Order has not yet been released, and the new rules will not become effective until after publication of the decision in the federal register. Various interested parties on both sides may petition the FCC for reconsideration and/or seek review of the new rules in court.

Opponents of consolidation will likely argue that liberalizing the rules jeopardizes competition, diversity and localism. Advocates of further consolidation also may appeal, arguing that – at least in certain respects – the FCC has failed to demonstrate how any limitation on ownership is necessary in the public interest, in light of the increase in the number and types of media voices in the market.

Regardless whether the reviewing court applies a "necessary" or "consonance" standard, the Fox decision indicates that the FCC will have the burden to justify each decision to retain any of its media ownership limits. The FCC will need to demonstrate substantial empirical support for any such decision, along with a consistent analytic framework across the various ownership rules. In light of this obligation, opponents of consolidation will likely have a difficult task convincing a court that the FCC erred on the side of being too deregulatory. Indeed, identifying flaws in the FCC’s analysis is more likely to result in elimination of the ownership limits or possibly court remand to the FCC for their further justification

If a court were to vacate any of the new rules, the old rules could be restored, at least temporarily. Courts often remand vacated rules to allow the FCC to issue a new order that corrects the defects of the original decision. In the Fox decision, however, the court vacated the cable/broadcast cross ownership rule outright, on the grounds that the FCC could not possibly justify it. Moreover, as the D.C. Circuit has already remanded the national and local TV ownership rules in the Fox and Sinclair decisions, a reviewing court may not be willing to grant the FCC another bite at the apple.

On the other hand, courts generally have agreed that when an agency’s rules have been vacated, the agency has the authority to adopt interim measures to avoid "fire sale"-type divestitures and similar disruption to the industry with respect to acquisitions that occurred in reliance on the new rules that were subsequently vacated by the courts. Thus, the FCC may be permitted to adopt interim rules so that parties need not immediately divest any new acquisitions. Indeed, the FCC has in the past granted interim waivers to some parties who have acted in conformance with new rules that were later overturned by the courts. If a court vacates any of the rules, however, new acquirers likely would be required at some point to divest of interests that exceed any reinstated rules.

Congressional Oversight and Potential Legislative Action. The Senate Commerce Committee, chaired by Sen. John McCain, has scheduled a hearing for Wednesday, June 4, 2003. All five FCC Commissioners will appear before the Commerce Committee to discuss the new media ownership rules. The Committee also will consider issues related to the FCC’s reauthorization.

The relaxation of the national television ownership cap has already drawn significant oppostion on Capitol Hill. Several powerful members of the House and Senate Commerce Committees – the primary committees of jurisdiction – have also introduced bipartisan legislation that would override the FCC’s action by codifying the national television ownership cap at 35%. Most notably, Sen. Ted Stevens (R-AK), Chairman of the Senate Appropriations Committee, introduced S.1046 on May 13, 2003 with Senate Commerce Committee Minority Ranking Member Fritz Hollings (D-SC) and Senate Communications Subcommittee Chairman Conrad Burns (R-MT).

In addition, Senators Hollings and Stevens have indicated that they may attempt to attach the bill to "must-pass" spending legislation. Sen. Byron Dorgan (D-ND) also intends to introduce a resolution of disapproval of the FCC’s ownership rules. If passed by Congress and signed by the President, the resolution would have the effect of nullifying the FCC rules.

On the House side, Rep. Richard Burr (R-NC) introduced H.R. 2052 on May 9, 2003, with House Energy and Commerce Committee Ranking Democratic Member John Dingell (D-MI) as its key co-sponsor. That bill has the same provisions as S.1046. Both S. 1046 and H.R. 2052 are gaining additional cosponsors rapidly.

Notwithstanding the apparent momentum of legislation to overturn the FCC’s revised national ownership rule, its fate is far from certain. Both Chairmen of the House and Senate Commerce Committees – Rep. Billy Tauzin and Sen. John McCain – oppose the legislation. House Appropriations Committee Chairman Bill Young (R-FL) has also said that he will oppose any attempt to attach ownership language to an appropriations measure. Historically, Congress has almost always failed to overturn deregulatory FCC initiatives. Moreover, the Bush Administration has provided tacit support for the FCC’s decision.

FCC Ownership Transfer Freeze. In a move potentially designed to thwart any "race to the FCC," the FCC has established a "freeze" on the filing of all radio and television transfer-of-control and assignment-applications, except for transactions considered "pro forma" (i.e., non-substantial and control changes such as corporate reorganizations). The freeze began on June 2, 2003 (the adoption date of the FCC’s Report and Order), and will stay in effect until the FCC has published notice in the Federal Register that the Office of Management and Budget ("OMB") has approved the FCC’s revised transfer and assignment forms. It is unclear how long it will take for OMB to approve the new forms and for the FCC to publish notice of the approval in the Federal Register. Typically, however, FCC forms are not revised until after new rules have gone (or are about to go) into effect.

Parties may not file new applications for FCC approval of major ownership changes, or of station-facilities changes that implicate the multiple-ownership and cross-ownership rules, until the OMB notice described above is published. At that time, parties may file new applications, provided they demonstrate compliance with the new multiple ownership rules or submit a "complete and adequate showing" that a waiver of the new rules is warranted. Pro forma applications may be filed at any time and will be processed.

It appears that pending applications to assign or transfer broadcast licenses will be processed under the new rules. Those parties with applications pending as of June 2, 2003 may amend the applications once the same OMB notice has been published. Parties must submit new multiple ownership showings to demonstrate compliance with the new ownership rules or submit a request for waiver of the new rules.

Possibility of Other Continuing Legal Constraints. It remains to be seen to what extent, if any, the FCC intends to continue to exercise its authority to review the competitive effects of license transfers occurring in connection with media mergers and acquisitions on a case-by-case basis under the "public interest" standard of the Communications Act, apart from its various ownership rules. In radio, for example, the FCC Media Bureau has already issued a Public Notice stating that all pending petitions to deny and informal objections contesting license transfer applications solely on competitive grounds pursuant to the FCC’s former interim policy will be dismissed as moot. On the other hand, as Commissioner Abernathy noted in her separate statement, "the modification of these prophylactic rules does not strip [the FCC] of [its] continuing obligation to review transfers of media licenses to ensure they are consistent with the public interest."

In addition, it is important to note that any future transactions remain subject to the antitrust laws, notwithstanding their compliance with FCC ownership rules. As was witnessed with prior deregulation of media ownership rules in the wake of the 1996 Act and other FCC rulemakings, the elimination or modification of regulatory obstacles can sometimes trigger more active scrutiny of transactions by the antitrust enforcement agencies. Moreover, the Department of Justice has recently demonstrated that it will continue to conduct competitive reviews of media mergers and acquisitions in appropriate cases.

Summary of New Rules and Key Implications
A rule-by-rule summary of the media ownership changes, their regulatory and marketplace implications, and some of the key issues going forward follows.

1. National TV Ownership Cap
New Rule: The revised rule permits one entity to own television stations collectively reaching up to 45 percent of all U.S. television households. The FCC calculates a company’s U.S. television-household reach by adding all the potential viewers of a company’s stations in each market, regardless of actual ratings.

The new rule also preserves the current "UHF discount," in which the audience reach of UHF stations is discounted 50 percent because of disparity in signal quality with VHF stations. The FCC plans to sunset the discount rule for stations owned by the four largest networks when the digital television transition is complete, on the theory that digital transmission will ameliorate differences in signal quality. The FCC will consider in a future biennial review whether to sunset the rule for other networks and station groups.

Change from Prior Rule: Increases the national television ownership cap from the previous 35-percent limit, which the FCC concluded did not strike the right balance of promoting localism and preserving free over-the-air television. The FCC stated that, based on the record, the previous cap "did not have any meaningful effect on the negotiating power between individual networks and their affiliates with respect to program-by-program preemption levels"; that "network owned-and-operated stations (‘O&Os’) served their local communities better with respect to local news production;" and that "the public interest is served by regulations that encourage the networks to keep expensive programming, such as sports, on free, over-the-air television." The FCC said it decided to maintain the UHF discount because more than 40 million Americans live in households that have access to only free, over-the-air television, and UHF stations typically still have smaller signal coverage areas than VHF stations.

Likely Consequences: Increasing the cap eliminates the need for Fox and Viacom/CBS to divest any stations, as both have already exceeded the 35-percent limit under temporary waivers following recent acquisitions. Moreover, the revised rule will allow the major broadcast networks generally to increase their footprints with targeted station acquisitions. The higher national television ownership cap may also give the networks greater negotiating leverage over their affiliates.

Potential for Further Review:

In the absence of successful legislative action of the type discussed above, the fate of the new 45% national cap likely rests with the courts. In Fox Television, the D.C. Circuit instructed the FCC to revisit its 1998 Biennial Review decision to retain the old 35% rule, including the UHF discount. The court said that the FCC’s decision that retained the national television ownership rule while it waited to see the effects of changes in the local television ownership rule could not be squared with Section 202(h), which "carries with it a presumption in favor of repeal or modification of ownership rules."

The Fox court ruled that the FCC had "adduced not a single valid reason to believe the [national television ownership rule was] necessary in the public interest, either to safeguard competition or enhance diversity." In particular, the court held that the FCC did not sufficiently analyze the state of competition. Nor did it have adequate record evidence to support its argument that retaining the national television ownership rule promoted localism and diversity by strengthening the bargaining power of network affiliates. This was especially so in light of a 1984 FCC ruling that concluded the FCC "had no evidence indicating that stations which are not group-owned better respond to community needs, or expend proportionately more of their revenues on local programming."

The court decided not to strike down the national television ownership rule outright, however, because "the probability that the Commission will be able to justify retaining the Rule is sufficiently high." The court noted that the FCC could develop a better record and point to changed circumstances, or perhaps rely on arguments proffered by some that the national television ownership rule furthers competition in the national television advertising market. The National Association of Broadcasters ("NAB") has also argued that the FCC could demonstrate that the 1984 ruling was flawed.

The court also concluded that the FCC’s decision did not violate the First Amendment, reaffirming in the process that First Amendment review of broadcast regulations is more deferential than is First Amendment review of cable or print-media regulations. And the court rejected arguments that Section 202(h) does not allow the FCC to justify broadcast-ownership regulations solely based on diversity, noting that notions of "the public interest" in broadcast regulation have historically embraced both diversity and localism, even at the expense of some amount of free-market competition.

The FCC will likely have an easier time defending its new rule than it did its old rule, as it is loosening its restriction, not simply maintaining it. Although its full written decision has not yet been issued, the FCC can also presumably formulate a sounder justification for its action, as it has now compiled a massive record and has the benefit of several court opinions upon which to guide its analysis. Moreover, the Fox court itself observed that the FCC could likely justify its rule the second time around.

The national ownership limit also is unlikely to be susceptible to any substantial First-Amendment challenge. Courts apply a relatively lenient "rational-basis" test to First-Amendment challenges of media ownership restraints on broadcast media because broadcast spectrum is considered a scarce public resource. Moreover, the Supreme Court stated in its 1994 Turner Broadcasting v. FCC decision that "promoting the widespread dissemination of information from a multiplicity of sources" is a governmental interest of the "highest order" unrelated to the suppression of free speech.

Nevertheless, given the stakes, parties can be expected to challenge the FCC’s revisions. The FCC will need to justify its selection of 45 percent as the appropriate cap, as well as the reasonableness of its decision to retain the UHF discount. Parties opposed to further national TV consolidation (e.g., affiliate groups, public interest groups, and the NAB) will likely argue, among other things, that the FCC has failed to explain how its relaxation of the 35% cap will continue to protect diversity, localism, and competition. On the other hand, the major networks may contend that the FCC has failed to justify retention of any national limit and/or failed to adequately explain the new 45% number, on the basis that significant increases in the number and types of media voices are more than adequate to protect diversity, localism, and competition.

2. Local TV Multiple Ownership
New Rule: A single entity may own up to two television stations in markets that have five or more TV stations, provided both are not among the market’s top four in ratings. And a single entity may own up to three TV stations in markets that have 18 or more, provided no more than one of the three is among the four top-rated. Commercial and non-commercial stations count toward the number of stations that must be present in a market to allow common ownership.

In markets with 11 or fewer stations, entities may seek waivers from the FCC to own two stations that are among the four top-rated in a market. The FCC will consider such waivers on a case-by-case basis, and will grant them if dual ownership would better serve a particular local community than independent ownership of the stations.

Change from Prior Rule: Previously, the local television ownership rule allowed an entity to own two television stations in a market only if: (1) the station’s Grade B signal contours did not overlap; or (2) at least one of the stations was not among the four highest-ranked stations in the market and at least eight independently owned "voices" would remain in the market after the consolidation. For purposes of the rule, the only "voices" the FCC deemed relevant were full-power commercial and noncommercial television stations.

The FCC determined that it could not justify the prior rule on either diversity or competition grounds. The FCC found that Americans rely on a variety of media outlets, not just broadcast television, for news and information, and that local broadcasters now faces significant competition from cable and satellite TV services.

The FCC concluded that "[t]he new rule permits local television combinations that are proven both to enhance competition in local markets and to facilitate the transition to digital television through economic efficiencies." The FCC also stated that the revised limits, and the continued ban on common ownership of more than one of the four top-rated stations, will preserve and advance viewpoint diversity in local markets.

Likely Consequences: Many predict that the loosening of the duopoly restriction and the authorization of new triopolies will lead the four major broadcast networks and other major broadcast groups to try to assemble more efficient station combinations and round out their national footprints. While the old rule essentially limited duopolies to the top 30 markets, the new rule would allow duopolies in more than the 100 largest markets. And the new rule would allow triopolies in a handful of the largest markets, such as New York, Los Angeles, Philadelphia and San Francisco-San Jose.

The new rules may create pressure to do deals sooner rather than later, at least in some markets. Because the rule prohibits duopolies from containing more than one top-four-rated station, earlier transactions could foreclose the possibility of later transactions in the same market. Take for example a market with 5 television stations and 5 owners. If an owner of one of the top-four-rated stations acquires the fifth-rated station, the other three remaining owners would not be permitted to consolidate because doing so would result in joint ownership of two top-four rated stations. Similarly, in a market with 6 TV stations, only the first two duopolies would be permitted.

Potential for Further Review: In its 2002 Sinclair Broadcast Group, Inc. v. FCC decision, the U.S. Court of Appeals for the District of Columbia Circuit directed the FCC to re-examine the local television ownership rule. The court reasoned that the FCC did not adequately explain its decision to consider only broadcast television stations as relevant independent voices, especially since it considered major newspapers, radio stations, and cable systems when examining independent voices for purposes of its radio/television cross-ownership rule (discussed below). The court stated that the FCC could adjust on remand not only the definition of voices but also the number of independent voices that must be present in a market to allow common ownership.

The court upheld other aspects of the rule, however. The decision came after the initial Fox Television ruling but before the rehearing, and so applied the "necessity" standard. Nonetheless, the court held that the FCC "adequately explained how the local ownership rule furthers diversity at the local level and is necessary in the ‘public interest’ under § 202(h) of the 1996 Act."

The court also rejected a First Amendment challenge to the local television ownership rule, concluding that the rule was a content-neutral restraint on speech that was rationally related to the FCC’s diversity and competition goals. The court reasoned that the First-Amendment does not confer an absolute right to hold a broadcast license, and that the FCC may impose ownership limitations designed to ensure that the grant of a license and a licensee’s operation of a station serves the public interest.

Again, both opponents and advocates of consolidation may decide to challenge the rule. And again, as with the national television ownership cap, the FCC will likely have an easier time defending its new rule than it did its old rule because the FCC has relaxed rather than maintained its restriction. The Sinclair court also previously approved the FCC’s diversity rationale and stated that the FCC could adjust the number of voices required in a market to allow duopolies. Presumably, when the full text of the FCC’s decision is released, it will formulate a sounder justification for its action, as it has now compiled a substantial record and has the benefit of several court opinions upon which to guide its analysis.

However, the FCC will need to explain why it decided to focus only on the number of television stations in a market (and not other "media voices") in structuring the new local TV ownership rule, and how that analysis fits with its decision to continue to look at multiple types of voices in the cross-ownership context. It appears that the FCC may seek to justify this different treatment based on the differing policy rationales of competition and diversity underlying the new rules. The FCC will also need to explain, among other things, why five TV stations in a market was the right minimum number to allow duopolies, and why 18 was the right number to allow triopolies.

3. Local Radio Multiple Ownership
New Rule: Continues to permit common ownership of radio stations in local markets according to the same set of tiered-market numerical limits, up to a maximum of eight stations in the largest markets (ones with at least 45 radio signals). As before, the total number of stations licensed in a market determines the precise number of AM and FM radio stations that a single company can own in that market. However, the definition of a radio "market" for purposes of the numerical limits has been tightened, by replacing the old signal-contour overlap standard with an Arbitron-based method.

Change from Prior Rule: Under the prior rule, local radio markets were determined by a detailed engineering analysis of signal-contour overlaps. The new rule substitutes the geographic market approach taken by Arbitron, based on the FCC’s belief that Arbitron’s method will better reflect the "true markets" in which radio stations compete. All radio stations licensed to communities in an Arbitron market, as well as stations licensed to other communities but considered "home" to that Arbitron market, will be counted in the market. Also, both commercial and non-commercial stations will be included. For non-rated markets, the FCC will conduct a further rulemaking proceeding to adopt a market definition comparable to Arbitron.

Likely Consequences: The new rule does not dramatically change the regulatory landscape for radio combinations, although the impact will still be felt. The changes are likely to have the greatest impact in smaller and mid-sized markets, where the switch to the new Arbitron-based definition will significantly reduce the total number of radio stations in some markets and hence the number of radio stations that can be consolidated. On the other hand, the effect of the rule changes is likely to be minimal in larger markets, which generally will remain in the top (45 + stations) tier even under the new rules.

The immediate impact in most places will be modest since many markets have already been substantially consolidated in the seven years since passage of the 1996 Act and existing combinations will be grandfathered. However, some pending transactions in smaller and mid-sized markets may be disrupted, and future sales of above-cap clusters will generally be prohibited. This may effectively preclude major mergers of some radio consolidators.

However, the FCC will allow entities with grandfathered broadcast ownership interests that would otherwise violate the new rules to sell above-cap clusters to small businesses. This exception ties in with Chairman Powell’s recently announced initiative to further promote broadcast ownership by minorities and women, many of whom own small businesses. The small businesses would not be allowed to resell their interests for three years. (Although one of the Commissioner’s statements described the resale provision as a two-year limitation, the Media Bureau Chief explained in a press conference that the waiting period is actually three years.)

Potential for Further Review: The existing local radio ownership rules are a product of the 1996 Act, which established a set of tiered-market numerical station limits that enabled much greater consolidation than previously had been permitted under more restrictive FCC rules. Some parties may challenge the FCC’s new market definition, on the ground that Congress set its statutory numerical limits against the established FCC market definition at that time, and this definition cannot be radically changed by the FCC to effectuate a different result contrary to congressional intent. (Indeed, this was the position taken by then-Commissioner Powell in 2000 at an earlier stage of this same proceeding.)

There could also be challenges to the provision limiting sales of newly non-compliant station clusters to qualifying small businesses. Owners of existing clusters that previously complied with the rules, but no longer do, may argue that the sharp change in market definition is not only inconsistent with the 1996 Act, but is impermissibly retroactive in upsetting their reasonable expectations at the time of their transactions.

Finally, on the other side, some parties may seek to argue that the new bright-line rule – which appears to eliminate any consideration of the competitive effects of radio license transfers under the "public interest" standard of the Communications Act, and appears to cease to give any weight to audience or advertising revenue shares – is inconsistent with a long line of agency decisions interpreting that standard over the past several years.

4. Cross-Media Limits
New Rule: Replaces both the newspaper/broadcast and radio/television cross-ownership rules with a new rule providing a graduated set of cross-media ownership limits. In the smallest markets (i.e., those with 3 or fewer TV stations), no cross-ownership is permitted among TV, radio and newspaper. In the largest markets (i.e., those with 9 or more TV stations), cross-ownership restrictions are eliminated completely. In the middle tier of markets (i.e., those with between 4 and 8 TV stations), several different combinations will be permitted: (A) a daily newspaper and one TV station and up to half of the local radio station limit for the market; OR (B) a daily newspaper and up to the full radio station limit for that market (but no TV stations); OR (C) two TV stations (if permissible under local TV ownership rule) and up to the full radio station limit for that market (but no daily newspapers).

Change from Prior Rule:
(a) Newspaper/Broadcast Combinations – Since 1975, FCC rules have prohibited the common ownership of a full-service broadcast TV or radio station and an English-language daily newspaper of general circulation in the same market (i.e., when the broadcast station’s service contour encompasses the newspaper’s city of publication). In adopting the original rule, the FCC prohibited future newspaper/broadcast combinations and required existing combinations in highly concentrated markets to divest holdings to come into compliance within five years. The FCC grandfathered combinations in other markets, provided the parties to the combination remained the same. Currently, there are approximately 50 grandfathered newspaper/broadcast combinations and four permanent waivers of the cross-ownership rule. The FCC also issued several temporary waivers of the newspaper/broadcast cross-ownership restriction (e.g., to Cox Radio and to Capital Cities/ABC), which the FCC granted subject to the outcome of the just-completed Biennial Review proceeding.
(b) Radio/TV Combinations – The prior radio/TV cross-ownership rule permitted common ownership of up to two TV and six radio stations, or one TV and seven radio stations, in markets with 20 independent media "voices." The rule similarly allowed common ownership of up to two TV and 4 radio stations in markets with at least 10 independent "voices."

Likely Consequences:
(a) Newspaper/broadcast Combinations – By permitting cross-ownership of broadcast stations and daily newspapers in markets with at least four TV stations, the new rule will enable such combinations to occur in roughly the top 150 U.S. TV markets. A number of parties have expressed interest in swapping or trading newspapers and TV stations to enhance the strength and efficiency of their news operations in certain markets or regions. Others are likely to be buyers of either newspaper or televisions properties to couple with their existing assets. For instance, Media General has reportedly expressed a strong interest in having a TV station in Richmond, VA, where it already operates the Richmond Times-Dispatch. Other parties who have advocated the repeal or relaxation of the cross-ownership ban and who may be potential acquirers include the Tribune Company, Knight Ridder Inc., and Gannett.
(b) Radio/TV Combinations - In large markets (with 9 or more TV stations) having no cross-ownership restrictions, one entity will now be able to own whatever number of radio and TV stations are permitted under the separate local ownership rules. Thus, the loosening of this rule will enable companies in such markets to own the maximum permissible radio clusters (i.e., up to 8 stations in a 45-radio station market), along with a TV duopoly – or a TV triopoly, where there are at least 18 stations present – in the same market. Existing radio/TV combinations will also be able to increase their radio or TV holdings in a market up to the new permitted levels. The rule changes could also facilitate broader mergers between media companies with overlapping and complementary holdings of radio and TV properties.

Potential for Further Review:
(a) Newspaper/broadcast cross-ownership – The newspaper/broadcast cross-ownership rule was designed to promote two of the FCC’s longstanding goals in broadcast regulation – competition and diversity of information sources. In particular, the FCC reasoned that the rule promotes diversification of ownership, which in turn promotes diversification of viewpoints. The Supreme Court accepted this rationale in its 1978 FCC v. National Citizens Committee for Broadcasting decision when it rejected a First Amendment challenge to the newspaper/broadcast cross-ownership restriction.

While the number of daily newspapers has declined since 1975, the number of radio and television stations has increased dramatically, and cable television operators and satellite carriers have significantly augmented the programming choices available to viewers. The FCC reviewed the newspaper/broadcast cross-ownership rule in the 2000 Biennial Review and found that the rule continued to serve the public interest because it furthers diversity. However, the FCC noted at that time that the rule might not be needed under certain circumstances (e.g., depending on the size of the market ).

The Newspaper Association of America ("NAA") previously challenged the FCC’s 2000 decision not to repeal the rule in an appeal filed in the U.S. Court of Appeals for the District of Columbia Circuit. That case has been held in abeyance pending completion of this Biennial Review. In relaxing the newspaper/broadcast cross-ownership restriction in markets with at least four broadcast TV stations, the FCC has now determined that an outright ban is not necessary to protect a diversity of viewpoints in those markets because consumers today have many more media outlets from which to obtain news and information (e.g., cable television and the Internet). The NAA’s appeal could be reactivated with a challenge to the retained cross-ownership ban in smaller markets, and and/or a challenge to the restrictions that remain in mid-size markets. However, NAA’s press release after the announcement of the FCC’s decision on June 2, 2003 indicates that the NAA may seek continued relaxation of the newspaper/broadcast restriction in future FCC proceedings, rather than appeal the scope of yesterday’s decision.

Other parties also have previously indicated that they would challenge any FCC decision to maintain cross-ownership restrictions in smaller markets. Similar to prior legal challenges to the rule, such an appeal would likely be based on both First Amendment and Administrative Procedure Act grounds, as well as the statutory directive in Section 202(h) for the FCC to repeal or modify regulations that are no longer justified in the public interest.

(b) Radio/TV cross-ownership – Rules limiting the number of commercial radio and television stations that one entity may own in a local market have been in existence in some form since 1970, having last been relaxed in 1999. In Sinclair Broadcast Group, Inc. v. FCC (2002), the U.S. Court of Appeals held that the FCC had failed to justify applying disparate "voice" tests to broadcast television stations under the local TV multiple ownership and radio/TV cross-ownership rules. The court noted that the FCC’s local TV ownership rule included only TV stations in its voice test, while the radio/TV cross-ownership rule also considered daily newspapers, radio stations, and incumbent cable operators to be voices.

Accordingly, in the just completed proceeding, the FCC requested comment on a series of questions relating to formulating and applying a so-called "voices test" to assure competition and diversity under its various rules, including the radio/TV cross-ownership rule. Depending on how well the FCC justifies the continuing distinctions between the cross-media limits and the local TV limits in its full written decision (primarily under its "diversity index"), this issue may well be the subject of further litigation and appeals.

5. Dual Network Rule
New Rule: No Change.

Existing (Unchanged) Rule: The dual network rule currently provides that a "television broadcast station may affiliate with a person or entity that maintains two or more networks of television broadcast stations unless such dual or multiple networks are comprised of two or more persons or entities that, on February 8, 1996, were ‘networks as defined in §73.3613(a)(1) of the Commission’s regulations (that is, ABC, CBS, Fox, and NBC).’" In other words, broadcast networks may provide multiple program streams simultaneously within local markets, provided that none of the four top networks merge with one another.

Various groups advocated retention of the dual network rule, including the Network Affiliated Stations Alliance ("NASA"). NASA had argued, among other things, that allowing the major networks to merge would increase the networks’ economic leverage over affiliates, to the detriment of localism. The dual network rule was originally adopted over 60 years ago and was revised to its present form as a result of the 1996 Act and further FCC relaxation in 2001, which enabled Viacom (the parent of CBS) to acquire UPN. In the Biennial Review, the FCC found that the dual network prohibition continues to be necessary to promote competition in the national television advertising and program acquisition markets. The FCC contends that the rule also promotes localism by preserving the balance of negotiating power between networks and their affiliates.

Potential for Further Review: The main parties who advocated repeal of the dual network rule were Fox, NBC, and Viacom. It is possible that they could seek to challenge the FCC’s retention of the dual network rule as contrary to the mandate set forth in Section 202(h) of the Act.