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The Federal Communications Commission is poised to unleash sweeping changes to rules that will most likely set off a wave of merger and acquisitions activity. The FCC is planning to loosen or eliminate broadcast and cable rules such as the radio-television cross-ownership rule, which precludes the simultaneous ownership of newspapers and cable outlets in the same market. (That may change if those involved promise to keep such operations separate.) The agency probably will also loosen a rule prohibiting cable operators from owning systems that reach more than 30 percent of the country. Media watchdog Stanley M. Besen has followed the action from his Pennsylvania Avenue office in Washington, D.C. As a telecom and media consultant at Charles River Associates, Besen has had a lot to say: He has urged the FCC to start making local ownership rules really local — each market, he says, is different and should be treated as a special case. Besen has spent the last three decades offering his opinion on the FCC and the media landscape. In 1984, Besen wrote “Misregulating Television: Network Dominance and the FCC.” Using research from his two years (1978-1980) at the FCC, Besen admonished the agency for no longer doing its own work. While working for the commission, Besen was part of a team that researched advertising, cable rates and programming — all research areas, he says, for which the agency no longer seems to have much time or money. Instead, he says, the FCC relies too heavily on mostly biased, outside data. Now, with Michael K. Powell in charge at the commission, Besen has more to say than ever. He talked with The Daily Deal‘s Ron Orol about media ownership rules, public disclosure and his hope that the agency will improve its ability to make regulatory decisions based on its own information. The Daily Deal: In dealmaking, do you think the FCC is necessary as a regulatory institution? Besen: In many cases the FCC review of deals is redundant. My impression is that the commission seldom, if ever, blocks a deal that the Department of Justice Antitrust Division has already approved. However, the FCC in some cases imposes additional conditions on a deal. In most cases, the antitrust agencies do an adequate job of monitoring media mergers. The more that the FCC evaluates mergers and combinations in the same way that antitrust agencies do, the less need there is for the FCC to do an independent evaluation. In general, however, some sort of regulation is necessary because there are instances in which markets are so concentrated that a merger would be anticompetitive. DD: How could the FCC tailor its TV and radio local ownership rules to competitive conditions in particular geographic markets? Besen: Up until the 1996 Telecommunications Act was passed, no company could own more than one television station in any geographic area, regardless of the number of other stations or competing media in that market — if there are a few stations in a market, such combinations could be anticompetitive. However, some markets contain many stations, so that the effects of television duopolies would be much less. And since that rule was enacted, the number of radio and television stations in the U.S. has expanded significantly. From the 1970s to the 1990s, literally hundreds of new TV stations came on the air. Even if you were in a market that in the 1970s had only a few stations but by the early 1990s had many more, you still couldn’t have a merger. The new rules are more sensitive to the number of stations in the market. With these rules you can merge two stations if no more than one is among the four biggest stations in the market and if after a merger there will be at least eight independently owned stations in the market. Before duopoly rules were changed, a company could only own one AM and one FM station. Now there are many radio stations and a company can own lots of stations in the same geographic market. This has led to the creation of very large radio station groups. It’s clearly better to have a rule that takes into account differences in concentration in different geographic markets as well as changes over time in the number of media companies in a given market. DD: Do you think the FCC should allow for consolidation to result in less than eight TV stations in a particular market? Besen: I won’t comment specifically on that, but I would say the movement from absolute prohibition to a policy that allows some combinations as long as they didn’t decrease concentrations greatly is a step in the right direction. DD: Are there other areas where the FCC should adopt market-specific ownership rules? Besen: The ban on newspaper-TV cross ownership exists in every geographic market, regardless of the number of competitors that the combination would face. This looks very much like how the duopoly rule looked before it was changed to take into account differences in concentrations. I would like to see some more sensitive application of the newspaper/TV broadcaster cross ownership rule to take into account such differences. Combinations of newspapers and TV stations do not raise competitive concerns in markets where there are many stations and several newspapers and the merger of two of them would not have a significant impact on the level of competition in the geographic area. “One size fits all” is not a good idea. In a given market, things change. DD: FCC Chairman Michael Powell has said he wants the agency to make decisions based on hard data rather than anecdotes. Does the FCC perform a strong enough job of doing its own internal research to make a decision about forming a rule? Besen: I think they could do a better job. The FCC does some of its own research — I just want them to do more of it. I believe the commission relies too heavily on outside analysis. What happens when the outside parties don’t produce the kind of quality of work that is necessary to make a decision about forming a rule? The commission can just plow ahead, it can throw up its hands and say they’re not going to do anything or it can actually do some work. Doing some work is what they should do. While I worked at the commission I didn’t have any specific responsibilities or tight deadlines. I think the FCC needs more people that can do long-term research like I did. DD: The FCC recently started a working group on media ownership, with the goal of expanding research on restrictions for local and national media companies. Do you think it’s a good idea? Besen: It’s hard to say. A lot of the people that are members of the group have other responsibilities, such as commenting on rules and other things. I’m not sure that they will be able to find the time to do the kind of internal research the FCC needs. Maybe they need more people. Maybe they need more dollars. But the working group could be a good idea. It may be able to answer questions that no one else answers. Doing more internal research could also make the commission a much more sensitive consumer of the research produced by others. If the FCC officials making decisions about media ownership caps and mergers are specialists and are familiar with the cap or the deal being discussed, then that’s fine. But if it’s an area the FCC official doesn’t work in, he or she may not know a lot about what is being questioned, [and] may make decisions that are based on poor information. DD: Another reason many people say the FCC should do its own research is that most outside parties doing research have vested interests. Besen: Of course. Whenever the FCC considers a merger or changes to media ownership rules, outside parties can submit comments for the agency to consider. These comments are made mostly by interested parties but the general public can also submit these as well. Even if that were not true, the commission still would be in a better position to make good decisions if it played a larger role in analysis. In many cases the commission doesn’t do anything except read the comments that come from interested parties concerning media ownership regulations. As a result, the commission is kind of like a jury in a courtroom and whatever evidence the parties present is all that is available when it makes a decision. DD: So the FCC should do all the research itself? Besen: There should be a combination. The FCC should do a lot of the work itself and interested parties should be allowed to comment. This happened when the FCC adopted the rule that rolled back cable rates. As an outsider, I was able to obtain access to the data used by the commission to perform its own analysis and to provide comments on it. Although I did not agree with the outcome, the process used was precisely the type that the commission should use more often. By contrast, it is usually the case when the commission issues Notices of Proposed Rulemaking that it provides no indication of what internal FCC research supports the proposed rule. This doesn’t necessarily mean that the FCC hasn’t done any research, but there is seldom any indication of what that research might be. DD: Did the agency historically do more internal research? Besen: When I worked at the FCC we were responsible for something called Network Inquiry and we were able to do our research without having any pressure to come up with a rule at the end of the day. We published preliminary reports and put those out for public comment. This was, in general, information about an industry. Our task was to look at behavior of broadcast networks. We did studies on programming, advertising and relationships with affiliates and we put the work out for public comments. Not only was the public able to comment on our analysis but also we responded to their comments. Finally, we put out our final report. I would like to see more back-and-forth discussion between the FCC and interested parties, and that doesn’t happen often enough. DD: What kind of data should the FCC’s working group take into account when trying to figure out media ownership restrictions? Besen: Let me describe what I did while I was at the FCC to give you an idea what I think the FCC’s working group should do. We studied advertising, affiliate relations — that is to say relationship between networks and their affiliate stations. We studied programming as well. We collected advertising contracts and analyzed what determined advertising rates and competition. With respect to affiliate relations, it turned out that all of the affiliate contracts were filed with the FCC and so we were able to collect data and analyst contract terms and rates for affiliations. I don’t think that the FCC collects those anymore. We collected data on syndicated programs. We collected information on network programs, prices and license fees. I’m not suggesting … that the commission staff isn’t aware of this type of analysis. They have the ability to in fact do this if somebody insisted they do it and that’s what Chairman Powell appears to be asking for. DD: Some argue the FCC has a duty to ensure multiple voices are heard in a market. Should FCC impose ownership rules to maintain diversity on the airwaves? Besen: I’m not an expert on diversity issues but I’ve always found diversity to be an intellectual dead-end. I’ve seen some interesting results recently on diversity so maybe there is potential, but the analysis of diversity typically has not been very rigorous. It remains to be seen whether we can introduce an element of rigor into this type of analysis. In the past the tendency has been that economists have tried to come to conclusions based on data, and people who want to raise diversity issues would say, “That’s all well and good but what about diversity?” without being very precise about what they mean by that. If Congress says it’s important and some commissioner says diversity is important, the commission should be forced to come up with some careful analysis to make that policy goal operational, as opposed to simply a vague statement of good intentions. It may be possible to conduct studies of a similar type that economists do. The studies would be put out there, criticized and employed if they turn out to have something useful and rigorous to say. Copyright (c)2001 TDD, LLC. All rights reserved.

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