FCC lays out new (or old) media ownership proposals in latest phase of quadrennial review process

Three days before Christmas, the FCC delivered a little present for broadcasters: a Notice of Proposed Rulemaking (NPRM) proposing changes to its media ownership rules. The NPRM followed up on a Notice of Inquiry (NOI) issued 18 months ago. While some might be thrilled with this gift, for most it’s probably more like a lump of coal.   

Under the 1996 Telecom Act, the Commission is required to review its media ownership rules every four years to determine if they remain “necessary in the public interest as a result of competition.” These quadrennial reviews tend to be controversial – the 2002 and 2006 reviews both ended up in appeals (before the Third Circuit) that essentially left the ownership rules the same as they were before the beginning of the 2002 review.

With this history in mind, in June, 2010, the Commission opened the latest round of media ownership review with the NOI. The FCC requested comment on not only the existing rules, but also “fundamental questions” related to media ownership. Big Questions like what public interest goals the Commission should be advancing and how those goals should be defined and measured. In the intervening 18 months, much has happened: vast numbers of comments and reply comments have been filed, studies have been released, and the Third Circuit has weighed in again, overturning portions of earlier FCC ownership rulings

Given all that, you might have expected some pretty significant changes to be proposed in the NPRM. If so, you’ll probably be disappointed, since the Commission seems to gravitate back to the status quo. However, from the multitude of questions the NPRM poses, it’s at least possible that the Commission may be positioning itself to make considerably broader changes than the surface of the NPRM suggests.

The NPRM rambles on for nearly 100 pages. We’ll take a more detailed look at the high points below. Here’s a quick-hit glimpse at those points. 

The FCC proposes to:

  • retain, for the most part, the existing media ownership rules, including the local radio ownership rules, the dual network rule, and the local television ownership rule (with minor modification);
  • toss the existing blanket ban on newspaper/broadcast cross-ownership (NBCO), replacing it with a modified version that would allow some cross-ownership in the largest markets; and
  • repeal the radio/television cross-ownership rule entirely. 

In ominous news for some broadcasters, the FCC requests comment on whether it should treat shared services and news sharing agreements as attributable interests, although it stops short of proposing rules to that effect. 

In response to the Third Circuit’s decision overturning its diversity rules, the Commission notes that it doesn’t have enough information to re-instate those rules. Accordingly, it asks for suggestions on how it could get such information or otherwise take actions to encourage minority and female ownership.

Finally, the NPRM requests comment on the 11 media ownership studies it released in the last year. 

On the Big Picture side, the NPRM reflects the FCC’s inclination to retain the traditional broad policy goals of its ownership rules, i.e., increasing competition, localism and diversity. (Notably, the notion of formally adding other goals – like the “protection” of local news/journalism – is apparently dead for now, although we would not be surprised if the Commission’s final Order mentions such goals at least a few times.) With these goals tentatively identified (or, more accurately, re-identified), the Commission addresses its five main media ownership rules.

Here’s the nitty-gritty. 

Local Television Ownership: Currently, an entity is allowed to own two television stations in the same DMA, but only if one of two conditions is met: (1) if there is no Grade B contour overlap between the commonly owned stations; or (2) if at least one of the commonly-owned stations is not ranked among the top-four stations in the market (“top-four prohibition”) and at least eight independently owned television stations remain in the DMA after ownership of the two stations is combined (“eight-voices test”).

The Commission figures that this rule is still necessary to promote competition. While the FCC acknowledges the availability of non-broadcast video services (e.g., cable, Internet), the Commission thinks that broadcasters compete against themselves in a market separate from non-broadcast operators. (One basis for that conclusion: non-broadcast video services do not change their programming based on decisions taken by local television stations and, to some extent, in response to local concerns at all.) So the local ownership rules would remain in place.

In place, that is, except for the “Grade B exception”. The Commission is proposing to eliminate that option entirely, meaning that same-DMA duopolies would have to satisfy the top-four/eight-voices tests, which the Commission would keep in place. (But the Commission nonetheless still poses a wide variety of questions – some likely to be controversial – about the possible need to revise or replace either or both of those tests.)

Tossing the Grade B exception would raise a number of practical issues – like whether and, if so, how, to grandfather any existing situations that would not satisfy an ownership regime lacking the Grade B exception.

The NPRM also asks whether the DTV-spawned potential for multicasting should affect local ownership rules.

Local Radio Ownership: Along the same lines as the local TV ownership rules, the Commission proposes generally to keep its local radio ownership limits, complete with AM/FM subcaps. This tentative conclusion is based on the view that broadcast radio constitutes a market unto itself, separate from satellite and Internet services. Again, however, the Commission poses a wide range of questions about possible alternatives, so it’s impossible to say for sure whether the status quo will remain the status quo once all is said and done. 

Among the questions posed are a number relating to the competitiveness of the AM service. The Commission is currently of the opinion that AM operators may still suffer some competitive disadvantages, and that the AM/FM subcaps assist in easing, if not overcoming, those disadvantages. But the availability of on-line streaming, HD radio technology and FM translators for rebroadcasting AM signals may also help level the playing field. 

Newspaper/Broadcast Cross-Ownership (NBCO): Perhaps the greatest source of controversy in the past two quadrennial reviews has been the NBCO rule, which flatly prohibits any common ownership of a daily newspaper and a broadcast station in the same market. The rule has been in place since 1975 – since efforts in 2002 and 2006 to change it were overturned by the Third Circuit.

As the FCC now sees it, the NBCO rule doesn’t have any impact on competition – in fact, newspaper/broadcast combinations could well serve the goal of localism. On the other hand, the Commission remains tentatively convinced that such combinations pose a risk to diversity, and particularly viewpoint diversity – so some restrictions on cross-ownership remain necessary. In assessing “diversity”, the Commission discounts (as it did in 2002 and 2006) the impact of the Internet as a source of news.  The web isn’t a significant source of independent local news, in the FCC’s view, largely because it doesn’t provide significant independent newsgathering, as opposed to commentary; plus, the local news sites that do exist tend to draw very small audiences compared to daily newspapers and local broadcast stations.

The Commission’s solution: Continue to prohibit newspaper/broadcast cross-ownership, BUT declare that, presumptively, certain combinations in the top-20 DMAs are acceptable, while combinations in other markets may be permissible if they satisfy a complicated waiver standard. This approach incorporates certain elements of the version of the rule proposed in the 2006 ownership review, with some twists. (One such twist under consideration: cross-ownership of any newspaper in a TV station’s DMA would be prohibited, not just those newspapers published within the station’s Grade A contour.)

The prohibition would preclude (a) TV/daily newspaper combinations if the paper is published in the TV’s DMA, and (b) radio/daily newspaper combinations if the paper is published within the 2.0 mV/m contour (for AM stations) or 1.0 mV/m contour (for FM’s). The presumptive waiver would then permit combination of a single radio station and daily newspaper in the top-20 DMAs. Common ownership of a single TV and daily newspaper in the top-20 DMAs would also be permitted, as long as the television station was not ranked in the top four and if at least eight “major media voices” would remain in the market.

The Commission may not be wedded to the radio/newspaper prohibition, though. The NPRM specifically asks whether that aspect of the NBCO rule could simply be eliminated, since radio stations tend not to constitute “primary outlets that contribute to local viewpoint diversity”. 

As with the rest of the NPRM, this portion poses a raft of questions both conceptual and practical. Again, grandfathering generally, and the transferability of grandfathered combinations, are among the particular concerns.

Radio/Television Cross-Ownership: In perhaps the lone clearly deregulatory aspect of the NPRM, the Commission proposes to totally toss its existing limits on radio/television cross-ownership. According to the FCC, radio and TV stations don’t compete for advertising in the local market and don’t, from the perspective of listeners/viewers, serve as substitutes for one another. The Commission also doesn’t fear that elimination of this prohibition  is likely to result in significant consolidation.

The Commission’s analysis in this portion of NPRM raises interesting contrasts with the remainder of the NPRM. Elimination of the radio/TV cross-ownership prohibition is said here to be justified in part because broadcast stations generally face increasing competition from non-broadcast sources of news and entertainment (including particularly the Internet), and the “primary marketplace for news is shifting”. Perhaps so, but the Commission discounted the effect of competition from such non-broadcast services in its analysis of its rules governing local radio, local TV and newspaper/broadcast ownership limits.

Dual Network Rule: The existing prohibition on a single entity owning any two of the top-four English-language television networks (ABC, CBS, NBC, or Fox) would be retained. In the Commission’s tentative view, the top-four networks remain categorically different from their competitors in terms of both viewership and advertising rates. As a result, a combination of any two networks would have a negative effect on competition among the networks, and affiliated stations, for programming and the sale of advertising time.

In addition to the specific ownership rules, the NPRM also addresses a number of other areas touching on the general notion of media ownership:

Diversity Order Remand: Last July the Third Circuit rejected all FCC rules based on the agency’s definition of “eligible entity”. Those rules had been adopted as part of the Commission’s efforts to increase minority and female ownership of broadcast properties. There are constitutional limits on a governmental agency’s ability to engage in decisionmaking based on race, gender or ethnicity, of course, so the Commission adopted an alternative approach. Using the concept of “eligible entities” – a revenue-based term defined essentially by the Small Business Administration – the Commission hoped to benefit minorities and women without expressly carving out set asides based on constitutionally suspect categories.

The Third Circuit seemed to feel that the Commission had not shown that offering a benefit to businesses with low revenues necessarily served the stated goals of increasing female and minority ownership. So the court voided all the Commission’s rules and policies based on the “eligible entity” concept and ordered the Commission to address the problem in this quadrennial ownership review.

In the NPRM, the Commission essentially punts, concluding that it still doesn’t have a sufficient evidentiary record to permit it to address the Third Circuit’s concerns. As a result, while the NPRM requests comment on how it might support or replace its definition of eligible entities, it proposes pushing off resolution of the issue to the 2014 quadrennial review. The Commission does conclude that promoting diversity in ownership, and particularly female and minority ownership, remain important policy goals, and requests comment on other, non-eligible entity-based, ways in which it can accomplish those goals. 

Media Ownership Studies: In the 2010 NOI, the Commission commissioned 11 studies to provide data that would support its analysis of the media ownership rules. It has since released the final reports of these studies, as well as peer review information and the data sets underlying the reports. In doing so, the Commission made clear that it didn’t want comments on the reports then. For anyone inclined to comment on those studies, now is the time. The NPRM invites comments on any or all of the 11 studies

Attribution Standards: Finally, at the end of the Christmas stocking that is the NPRM, we get to the lump of coal for broadcasters. The Commission asks whether it should revise its rules to make certain arrangements between stations – such as shared services agreements, local news sharing arrangements, agreements related to joint retransmission consent negotiations and the like – attributable to the stations’ owners. Expanding the concept of “attribution” to include such contractual relationships would impose considerably greater constraints on many broadcasters, since “attributable” interests trigger the Commission’s media ownership rules.

The proposal to expand attribution standards arises from a number of complaints and petitions for rulemaking focusing on arrangements between and among various stations. The complainants allege that various parties, primarily television stations, are attempting to circumvent the ownership rules through contractual arrangements that allow stations to work together to produce news, or manage other station operations.   The NPRM requests comments on why, whether, and if so, how, its attribution rules should be adjusted to address such arrangements. 

The filing dates for comments and reply comments on the NPRM have not yet been set. Check back here for updates.

This is an extraordinarily wide-ranging proceeding. While the Commission’s particular proposals appear to involve little if any substantial change from the status quo, let’s not forget the extraordinary litany of questions on which the Commission has sought comments. Having at least posed those questions in the NPRM, the Commission could follow up with comprehensive and dramatic rule changes veering far afield of the seemingly benign “proposals” described in the NPRM. Attention should be paid.