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One of the Federal Communications Commission’s longest-lasting headaches grows out of its regulation of television station ownership. Three times since the Telecommunications Act was passed in 1996 the FCC has tried to write new rules, and three times it has failed. Now the agency has launched its fourth rulemaking to look at the current limits on owning broadcast stations. At base, the problem is that the FCC is trying to accommodate traditional concerns about TV competition and viewpoint diversity in the midst of a rapidly evolving multimedia marketplace. Of particular concern is the fate of TV stations in smaller markets. Under Section 202(h) of the Telecommunications Act, the FCC is required to modify or eliminate ownership rules that are no longer justified by competition. Smaller-market broadcast stations are under increasing financial pressure from cable, satellite, and now telephone company and online alternatives. Their future may rest on what kind of relief the FCC does�or does not�grant them. DO THIS, DO THAT After three abortive efforts, the FCC does not begin with a clean slate. Its latest reconsideration of the ownership rules will require some careful navigation between the Scylla and Charybdis of appellate court decisions. In two 2002 decisions, Fox Television Stations v. FCC and Sinclair Broadcast Group v. FCC, the U.S. Court of Appeals for the D.C. Circuit rejected several aspects of the FCC’s 1998 review of the ownership rules. The court emphasized that under the review process, now required every four years under Section 202(h), any doubts about the need for a rule must be resolved in favor of deregulation�as the court put it, quoting Admiral David Farragut, “Damn the torpedoes! Full speed ahead.” It also faulted the FCC for inconsistency in determining whether to treat radio, newspaper, and cable outlets as alternatives to broadcast TV for purposes of providing diverse viewpoints. Finally, it concluded that the FCC’s assumption that broadcast TV (as opposed to cable) is our primary source of local (as opposed to national) news lacked any reliable foundation. The FCC made some effort to address these criticisms in its 2002 review, only to find itself answering to a different circuit court, which found its results too deregulatory. Over a strong dissent, the 3rd Circuit, in Prometheus Radio Project v. FCC (2004), held that the agency’s novel effort at quantifying viewpoint diversity across different media (the so-called Diversity Index) was internally inconsistent in weighting the importance of different media outlets. The 3rd Circuit also adopted a much less deregulatory interpretation of Section 202(h). The court then took the extraordinary step of continuing its prior stay of the FCC’s decisions indefinitely, “pending our review of the Commission’s action on remand, over which this panel retains jurisdiction.” Given the tension between these precedents, it’s very likely that the Supreme Court will ultimately be called upon to address the matter, just as it did in 1956 and 1978 with earlier versions of these rules. TWO ISN”T TOO MANY In the meantime, the FCC’s 2006 review once again addresses several of these ownership rules, including the newspaper cross-ownership rule, which bans common ownership of broadcast and newspaper outlets in the same market, and the radio-television cross-ownership rule, which limits common ownership of radio and television stations in the same market. While there is some pressure for the agency to address all the ownership rules at once (as it attempted to do last time), that seems less likely now for political reasons. And that may well be good news. Such a collective approach might prevent the FCC from focusing adequately on the problems of television stations in smaller markets, which seek relief most importantly from the television duopoly rule. This rule generally bars common ownership of any two of the top-four-rated TV stations in any local market, or any two TV stations in markets with fewer than eight independently owned stations. Smaller-market TV stations are facing increasing difficulties in offering high-quality local news and informational programming. They face much greater competition for advertisers and viewers from cable, satellite, and now the Internet. One traditional source of income, so-called compensation payments from the TV networks for running network programs, has been eliminated or even reversed (i.e., some stations now pay their network to carry its programs). Their exclusive local distribution rights for popular network programming may be eroded as these programs are distributed, or pirated, over the Internet. Finally, smaller-market stations continue to incur substantial expenses in making the transition to digital television�by the government-mandated deadline of February 2009�while facing uncertain prospects of new revenues from their digital spectrum. The last time the FCC looked at the television duopoly rule, even the two FCC commissioners opposing the agency’s general deregulatory approach did not seem to dispute the majority’s conclusion that the ability of TV stations to serve their communities has been “meaningfully (and negatively) affected in mid-sized and smaller markets.” As Commissioner Jonathan Adelstein recognized, television duopolies “may be appropriate . . . in the smallest of markets where proven localism gains may outweigh the diversity harms.” (Opponents of deregulation have directed much of their focus elsewhere�onto the efforts of much larger media companies to obtain relief from the newspaper cross-ownership ban, to raise the national limit on households reached by TV stations owned by a single entity (since capped by Congress at 39 percent), and to permit television “triopolies” in the very largest markets.) LET”S TALK SENSE In addressing the question of smaller-market duopolies, the FCC will need to employ a more rational approach to the competition and diversity issues that form the core of media ownership policy than it did last time around. In 2002 the agency concluded that the limit on mergers among the top four stations in a market remained necessary for smaller markets. The FCC seemed to base its argument for retaining that limit on the fact that cable operators continue to raise prices�effectively trying to maintain competition in one market because of the lack of competition in another. Perhaps the FCC embraced this novel analysis because, by justifying strict limits based solely on competition concerns, it allowed the FCC to finesse the more elusive question of how to measure viewpoint diversity. On that question, the FCC found last time that media outlets other than TV stations “contribute significantly to viewpoint diversity in local markets.” The principal fear of opponents of more duopoly relief is that in smaller markets, which already have fewer stations, a decrease in the number of different owners will lead to less diversity in news and informational programs. But the market share of TV stations is a concept ill-suited to measuring viewpoint diversity. As long as viewpoints are not actively suppressed, there would seem to be no failure in the marketplace of ideas�unless one subscribes to the notion that the FCC should strive to ensure some sort of ideological parity. That notion would seem at odds with Justice Oliver Wendell Holmes Jr.’s famous caution when he dissented in Abrams v. United States (1919): that “the best test of truth is the power of the thought to get itself accepted in the competition of the market.” And it is not what the FCC emphasized in its 1998 review, when it sought to determine whether nonbroadcast outlets are “accessible” as “meaningful substitutes,” not whether they are adequately influential. In any event, if the FCC still cannot get a reliable answer to the question of how influential local television continues to be as the audiences for cable and Internet grow ever larger, or how significant “viewpoints” on local TV are in forming public opinion, the imperative of Section 202(h) suggests that the agency cannot cling to four more years of duopoly restrictions on smaller-market TV stations. It cannot simply adopt, as the D.C. Circuit put it, a “wait and see” approach. At some point it becomes untenable to justify continued regulation on the basis of uncertainties that the FCC has been unable to resolve. Quite the reverse, in fact. As the Supreme Court held in Motor Vehicle Manufacturers Association v. State Farm (1983), an agency may revoke a standard “on the basis of serious uncertainties if supported by the record and reasonably explained.” It’s Time, Commissioners The ban on dual ownership of two top-four-rated TV stations in a market precludes any relief at all in at least 80 markets that have less than five commercial stations. It has thus been difficult to square with the FCC’s repeated acknowledgement that broadcasters in such smaller markets have the most pressing need for duopoly relief. In Prometheus, the 3rd Circuit upheld this line-drawing exercise as “not unreasonable.” That’s not exactly a sweeping endorsement, and it certainly does not preclude the FCC from re-examining the issue in light of current market conditions, as required by Section 202(h). What the FCC should recognize is that a top-four restriction is too broad. It prevents the leading station from reviving a much weaker fourth-ranked station, and it precludes weaker third- and fourth-ranked stations from merging to compete with a dominant first-ranked station. The FCC’s conclusions in the 2002 review that all top-four stations are significantly more profitable than others and that all carry their own local news programs were also premised on data derived from the top 50 markets. Top-four affiliates in smaller markets often present a very different picture. For a long time now, the FCC has recognized the difficulties facing TV stations in smaller markets, yet their fate is still tied to the larger debate about big media. Smaller-market stations do not have the luxury of waiting out a fourth and fifth and sixth round of review. The FCC’s decisions this time may finally determine whether broadcast television will be able to provide the high-quality news programming so important to a democratic society. William R. Richardson Jr. and John A. Rogovin are partners and Jack N. Goodman is counsel in the communications group in the D.C. office of WilmerHale, whose clients include broadcast stations with an interest in the proceedings described here. As FCC general counsel, Rogovin represented the agency in the Prometheus litigation. Goodman served as general counsel of the National Association of Broadcasters in that same litigation and the FCC’s related rulemaking. An expanded version of this article will run in an upcoming issue of CommLaw Conspectus ([email protected]).

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