Tearing Down Walls

Author:
Publish date:

For decades, a regulatory Berlin Wall stood amidst many a potential mass-media merger. Now the federal government is poised to tear down that wall, evidently either brick by brick or in one swift demolition project.

By next summer, the Federal Communications Commission expects to complete work on a massive overhaul of its broadcast-ownership rules that some agency officials say have failed to keep pace with technology and, as a result, have failed to survive judicial review.

The effort is expected to trigger a raucous debate over whether the Republican-controlled FCC, under chairman Michael Powell, is catering to business interests or instituting reforms that prior commissions refused to embrace because of political pressure in favor of the status quo.

Precursor Group media analyst Scott Cleland said he expects "a bitter, partisan debate" in coming months.

A unanimous FCC voted Thursday to launch a rulemaking that some analysts say will end up relaxing or eliminating regulatory barriers that have stood in the way of ownership consolidation at the national and local levels for many years — in some cases, for decades.

FCC officials expect to finish work next spring on at least six rules, including the 35-percent national TV ownership cap, the ban on cross-ownership of broadcast stations and newspapers and the local TV station ownership rule.

"This is the most comprehensive undertaking in the area of media ownership, I believe, in the commission's history," said Powell. "It is ambitious but I submit it is long overdue."

At one time, cable operators were effectively barred from owning a TV station in a market where they owned the local cable system. But the U.S. Court of Appeals for the D.C. Circuit eliminated that ban.

The deadline for the FCC and consumer groups to appeal that ruling to the U.S. Supreme Court is Sept. 19. The agency is unlikely to appeal.

FCC officials said they do not plan to use the broadcast ownership review as a vehicle to revive the cable-TV station cross-ownership ban.

"While not a priority issue for our association, the issue is better addressed by market dynamics and the cable/broadcast cross-ownership prohibition has outlived its usefulness," said National Cable & Telecommunications Association senior vice president of law and regulatory policy Daniel Brenner.

But FCC officials did indicate that new broadcast-ownership rules might have affect a cable operator's ability to own a TV station in a market where it owns a system. The idea is that a cable-TV ownership restriction might kick in if either the cable system or the TV station has a substantial ownership interest in other mass media properties in the market.

Last week, Powell insisted that his mind is open as to the outcome of the rulemaking. Nonetheless, consumer groups fear he is about to unleash a new wave of consolidation.

"Soon, one company in a town will be able to control the newspaper, several TV and radio stations, the cable system, and the principal [Internet-service provider]," said Center for Digital Democracy executive director Jeff Chester.

NEWSPAPER TIES

The FCC is planning to review six rules in all, but three are likely to receive the most attention.

The agency will need to decide whether to relax or retain a rule adopted in the 1970s that bans the common ownership of a newspaper and a broadcast property (radio or TV) in the same market.

Both the Newspaper Association of America and the National Association of Broadcasters support repeal. Tribune Co., which favors repeal, is on a collision course with the rule in New York and other markets when its TV licenses there come up for renewal in a few years.

A second rule allows ownership of two TV stations in a market — provided the two are not among the four highest-rated stations, and that eight separately owned TV stations remain in the market.

This rule, known as the TV Duopoly Rule, has been strongly opposed by Sinclair Broadcast Group Inc., mainly because the TV-station group owner felt the eight-station test was too narrow and inconsistent with other FCC mass-media caps that factored in cable operators and local newspapers as well.

The D.C. Circuit remanded the rule to the FCC, agreeing with Sinclair on the eight-station test.

The third rule prohibits a single TV-station owner from reaching more than 35 percent of all U.S. TV households. The D.C. Circuit earlier this year remanded this rule to the FCC in a ruling that helped News Corp. and Viacom Inc., both of which exceed the 35 percent cap.

"We look forward to demonstrating to the [FCC] that the current rules are both arbitrary and outdated," Viacom said in a statement.

It's no accident that the FCC is on the cusp of some major changes. Congress ordered the agency to review its broadcast ownership rules every two years, a mandate that the D.C. Circuit has read to mean "justify or eliminate."

Reacting to the D.C. Circuit's holding that the FCC has failed to meet its legal burden, the agency reached out to outside experts to help prepare nine or 10 studies that will examine local media market trends in exhaustive detail.

Limits on TV-station ownership at the national and local level trace back to the 1940s and 1960s, respectively, and have been modified over the years.

CHANGING TIMES

The newspaper-broadcast ban was adopted in 1975 and has not been changed.

While the rules have remained largely stagnant, the marketplace hasn't. Cable and DBS serve about 90 percent of homes, and pay TV providers offer 230 national and 50 regional programming networks. Sixty percent of households have Internet access. And the number of TV and radio stations has skyrocketed over the decades.

When the rules were adopted, radio and TV were the center of the universe. But FCC Media Bureau chief Kenneth Ferree said the FCC is likely to discover that is no longer the case, just as Copernicus found that the sun, not the Earth, was the center of the universe.

A good example of that change is the ban on cross-ownership of a cable system and a TV station. Adopted in 1970, the rule was designed to prevent TV broadcasters from impeding the growth and development of the young cable industry.

Today, federal rules require cable systems to carry local TV stations, preventing operators from inflicting anticompetitive harms on broadcasters.

Democratic FCC member Michael Copps, who has been outspoken about some of Powell's deregulatory policies, voted to launch the rulemaking, though he voiced suspicion that the chairman has the agency positioned to relax the rules no matter what.

"Some analysts have already concluded that the ownership caps limits are already history," said Copps, a former top aide to Sen. Fritz Hollings (D-S.C.), chairman of the Senate Commerce Committee, and a strong opponent of FCC moves that would lead to ownership concentration in the media.

Copps also questioned whether the FCC is under heavy judicial pressure to eliminate the rules.

"I think the courts are still amenable to keeping most of our rules if we provide appropriate justification and evidence to support them," he said.

Republican FCC member Kevin Martin, who has clashed with Powell at times, indicated he won't be quick to kill a rule merely because it has been around a long time.

"Just because they are old doesn't mean that they don't still serve important goals," Martin said.

THERE ARE LIMITS

The extent of FCC deregulation would depend on the outcome of the November elections, predicted Washington Analysis telemedia analyst George Reed-Dellinger.

"Michael Powell will keep an eye on the upcoming elections. If the House [and Senate go] Democratic, maybe the ceilings would be less ambitiously liberalized," he said.

Victor Miller, a media analyst with Bear, Stearns & Co., said Congress and the courts have steered the FCC in the direction of deregulation but not limitless deregulation.

"Complete deregulation is not an option," said Miller. "Senator Hollings has a lot to say about media ownership. I think a lot of consumer groups will obviously be very vocal on this."

Related