Court Hears Media-Ownership Case

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Lawyers for some of the biggest players in the media business pressed a
federal court in Washington, D.C., Friday to toss out a pair of ownership rules
enforced by the Federal Communications Commission.

Judging from the tone in the questioning and comments that flowed from the
three judges, the media giants appeared to be headed for victory. But the scope
of that victory won't be known for several months when the court's opinion is
handed down.

At issue was an FCC rule that bars one TV-station owner from owing stations
that can reach more than 35 percent of TV households. NBC, Fox Television
Stations and CBS are fighting that rule over the opposition of the FCC and their
affiliates.

As a result of mergers, both CBS (owned by Viacom Inc.) and Fox (owned by
News Corp.) are over the cap by owning stations that reach 41 percent of TV
households.

The 35 percent cap was set by Congress and codified by the FCC in its
rules.

A second FCC rule that came under attack effectively bars the common
ownership of a TV station and a cable-television system in the same market. Time
Warner Entertainment is challenging the constitutionality of that rule under the
First Amendment and on other grounds. Congress repealed the ban in 1996 but
allowed the FCC to keep the rule, which was first adopted in 1970.

For 90 minutes, a panel of the U.S. Court of Appeals for the District of
Columbia Circuit quizzed lawyers on whether the FCC properly decided that the
rules were still necessary in the public interest and whether the agency's rules
could pass muster under free-speech protections of the First Amendment.

FCC lawyer C. Grey Pash said the FCC decision not to launch a rulemaking in
connection with the two rules was not reviewable by the court. 'The FCC didn't
think what it did here was final,' he added.

But if the court decided to issue a ruling, Pash said, both ownership rules
would not run afoul of the First Amendment.

Edward W. Warren, the lawyer for the three networks, said the FCC provided
only 'a paper-thin discussion' in support of keeping the 35 percent cap, and he
urged the court to find that the cap violated the First Amendment by denying the
networks the right to speak to 65 percent of the country.

'We think the court should vacate the cap forthwith,' Warren said. 'The First
Amendment concerns here are paramount.'

Network affiliates are concerned that elimination of the cap would give the
networks too much power over their independent distributors

In 1996, Congress ordered the FCC to review its mass-media rules every two
years. The media companies argued that the FCC's analysis in support of
retention was inadequate because the agency didn't take into account industry
growth and new forms of competition.

Among the three judges, Judge Harry T. Edwards (for whom current FCC chairman
Michael Powell served as a clerk) voiced the strongest support for the view that
the commission did not sufficiently support its decision.

Edwards said the FCC had an obligation to make a determination that the rules
were still necessary, but he said several times that he didn't think the agency
complied with the law.

The other judges -- Douglas H. Ginsburg and David Sentelle -- also seemed
sympathetic to the media industries. And Ginsburg indicated disagreement with
the FCC position that its decision on the rules was not reviewable at this
stage. 'I don't know why it wouldn't be reviewable,' he said.

The key question going forward concerns the scope of the court's ruling. Does
the court remand the rules to the FCC with instructions to do a better job under
some kind of deadline? Or does the court abolish the rules, putting the onus on
the commission to craft new ones.

'I think it's pretty clear that these rules are coming back to the FCC,' said
Blair Levin, a media analyst with Legg Mason Equity Research, who attended the
hearing. But he wouldn't predict whether the court would go so far as to vacate
the rules.

Former FCC member Susan Ness -- a Democrat who supported retention of the
rules -- said she feared that if the court vacated the rules, a wave of media
consolidation would occur and create a regulatory dynamic in which the mergers
would shape the scope of any new FCC rules, rather than the new FCC rules
shaping the scope of the mergers.

'If the rules are eliminated, the commission is going to have a very
difficult time,' she added after the hearing.

Edwards indicated several times that he favored vacating the rules, saying it
would provide the FCC with a clean slate. But he didn't rule out support for a
remand.

Ginsburg suggested that vacating the rules might be going too far and that
the FCC deserved another shot at reviewing its policies.

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