[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
BROADCAST OWNERSHIP REGULATIONS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TELECOMMUNICATIONS,
TRADE, AND CONSUMER PROTECTION
of the
COMMITTEE ON COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 15, 1999
__________
Serial No. 106-77
__________
Printed for the use of the Committee on Commerce
U.S. GOVERNMENT PRINTING OFFICE
59-991CC WASHINGTON : 1999
------------------------------------------------------------------------------
For sale by the U.S. Government Printing Office
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------------------------------
COMMITTEE ON COMMERCE
TOM BLILEY, Virginia, Chairman
W.J. ``BILLY'' TAUZIN, Louisiana JOHN D. DINGELL, Michigan
MICHAEL G. OXLEY, Ohio HENRY A. WAXMAN, California
MICHAEL BILIRAKIS, Florida EDWARD J. MARKEY, Massachusetts
JOE BARTON, Texas RALPH M. HALL, Texas
FRED UPTON, Michigan RICK BOUCHER, Virginia
CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
PAUL E. GILLMOR, Ohio FRANK PALLONE, Jr., New Jersey
Vice Chairman SHERROD BROWN, Ohio
JAMES C. GREENWOOD, Pennsylvania BART GORDON, Tennessee
CHRISTOPHER COX, California PETER DEUTSCH, Florida
NATHAN DEAL, Georgia BOBBY L. RUSH, Illinois
STEVE LARGENT, Oklahoma ANNA G. ESHOO, California
RICHARD BURR, North Carolina RON KLINK, Pennsylvania
BRIAN P. BILBRAY, California BART STUPAK, Michigan
ED WHITFIELD, Kentucky ELIOT L. ENGEL, New York
GREG GANSKE, Iowa THOMAS C. SAWYER, Ohio
CHARLIE NORWOOD, Georgia ALBERT R. WYNN, Maryland
TOM A. COBURN, Oklahoma GENE GREEN, Texas
RICK LAZIO, New York KAREN McCARTHY, Missouri
BARBARA CUBIN, Wyoming TED STRICKLAND, Ohio
JAMES E. ROGAN, California DIANA DeGETTE, Colorado
JOHN SHIMKUS, Illinois THOMAS M. BARRETT, Wisconsin
HEATHER WILSON, New Mexico BILL LUTHER, Minnesota
JOHN B. SHADEGG, Arizona LOIS CAPPS, California
CHARLES W. ``CHIP'' PICKERING,
Mississippi
VITO FOSSELLA, New York
ROY BLUNT, Missouri
ED BRYANT, Tennessee
ROBERT L. EHRLICH, Jr., Maryland
James E. Derderian, Chief of Staff
James D. Barnette, General Counsel
Reid P.F. Stuntz, Minority Staff Director and Chief Counsel
______
Subcommittee on Telecommunications, Trade, and Consumer Protection
W.J. ``BILLY'' TAUZIN, Louisiana, Chairman
MICHAEL G. OXLEY, Ohio, EDWARD J. MARKEY, Massachusetts
Vice Chairman RICK BOUCHER, Virginia
CLIFF STEARNS, Florida BART GORDON, Tennessee
PAUL E. GILLMOR, Ohio BOBBY L. RUSH, Illinois
CHRISTOPHER COX, California ANNA G. ESHOO, California
NATHAN DEAL, Georgia ELIOT L. ENGEL, New York
STEVE LARGENT, Oklahoma ALBERT R. WYNN, Maryland
BARBARA CUBIN, Wyoming BILL LUTHER, Minnesota
JAMES E. ROGAN, California RON KLINK, Pennsylvania
JOHN SHIMKUS, Illinois THOMAS C. SAWYER, Ohio
HEATHER WILSON, New Mexico GENE GREEN, Texas
CHARLES W. ``CHIP'' PICKERING, KAREN McCARTHY, Missouri
Mississippi JOHN D. DINGELL, Michigan,
VITO FOSSELLA, New York (Ex Officio)
ROY BLUNT, Missouri
ROBERT L. EHRLICH, Jr., Maryland
TOM BLILEY, Virginia,
(Ex Officio)
(ii)
C O N T E N T S
__________
Page
Testimony of:
Chernin, Peter, President and COO, News Corporation.......... 14
Fisher, Andrew, Chairman, Network Affiliated Stations
Alliance................................................... 20
Fuller, Jack, President, Tribune Publishing.................. 44
Hedlund, James B., President, Association of Local Television
Stations................................................... 31
Katz, Michael L., Senior Consultant, Charles River Associates 11
Sturm, John F., President and CEO, Newspaper Association of
America.................................................... 39
Yager, K. James, President and COO, Benedek Broadcasting, on
behalf of National Association of Broadcasters............. 23
Material submitted for the record by:
Asper, Leonard J., Chief Operating Officer, CanWest Global
Communications Corporation, prepared statement of.......... 65
Cox Enterprises, Inc., memorandum dated September 23, 1999... 72
Fisher, Andrew, Chairman, Network Affiliated Stations
Alliance, letter dated September 29, 1999, to Hon. W.J.
Tauzin..................................................... 70
(iii)
BROADCAST OWNERSHIP REGULATIONS
----------
WEDNESDAY, SEPTEMBER 15, 1999
House of Representatives,
Committee on Commerce,
Subcommittee on Telecommunications,
Trade, and Consumer Protection,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:10 a.m., in
room 2123, Rayburn House Office Building, Hon. W.J. ``Billy''
Tauzin (chairman) presiding.
Members present: Representatives Tauzin, Oxley, Stearns,
Cox, Largent, Cubin, Shimkus, Pickering, Fossella, Ehrlich,
Bliley (ex officio), Markey, Rush, Engel, Luther, Sawyer, and
McCarthy.
Staff present: Linda Bloss-Baum, majority counsel; Cliff
Riccio, legislative clerk; and Andy Levin, minority counsel.
Mr. Tauzin. Good morning. Today the subcommittee meets to
hear testimony on the FCC's broadcast ownership rules that
apply to the number and type of broadcast properties that
American media companies are permitted to own. Lately all we
have to do is pick up the newspaper or in the modern world
click onto any Internet news page to see the effects of
broadcast ownership rules on the media outlets.
Last week's announcement about the potential merger of two
media giants, CBS and Viacom, have brought these ownership
issues under a very special spotlight.
This example provides a real-life illustration of how media
is developing, converging and changing as we move into the next
century. As much as these companies would like to grow and
expand operations over a number of media outlets, several
restrictions imposed by the FCC currently stand in their way of
doing so.
We gather this morning to learn more about the broadcast
ownership rules that exist today and how they will affect the
information and entertainment that Americans will receive in
the years to come. Earlier this year, I joined with Chairman
Bliley, ranking member Dingell, and our counterparts in the
Senate, to call upon Chairman Kennard and the FCC to reform its
outdated ownership regulations. To its credit, last month the
FCC revised several of its ownership rules, rules that had been
in place since the time when only three major networks
dominated the American airways.
While the FCC has taken a noble first step by revising a
number of these restrictions, it did not address the whole
problem that current market imperatives present, primarily the
national ownership cap and the newspaper broadcast cross-
ownership restrictions.
On August 5 the FCC permitted some television stations in
the Nation's largest cities to own another station within the
same market. This is the duopoly rule. However, as media
companies have rushed to take advantage of these new business
opportunities, they have run into a ceiling that controls the
maximum number of stations they may own. By relaxing the
duopoly rule did the FCC intend to lead to a transformation of
local broadcast ownership? Of course we don't know. Will the
proceeding go forward now? We don't know. Hopefully the
testimony we will hear today will provide some of those
answers.
There is legislation introduced in the House today by my
good friend and colleague from Florida, Mr. Stearns. Mr.
Stearns, I know you are breathing a lot easier today as the
storm apparently has missed your constituents, and we are still
holding our breath as Floyd is churning out there.
Mr. Stearns' bill would raise the cap to 45 percent of
American households, and just this week a bill was introduced
in the Senate to raise the cap to 50 percent of households. We
need only to look around us to these recent merger proposals to
see how easily a network can exceed this national ownership
cap.
Similarly, the FCC should also reconsider its rules that
restrict a newspaper from owning a local television station
within its same market. The truth is that today anyone can
purchase a broadcasting station, with the exception of the
newspaper. A single entity can own two broadcast stations
within a market, but it is nevertheless precluded from owning
one station and one newspaper.
The inconsistency targets newspapers with unique
restrictions that appear to be, and I think are, outdated in
the technological world in which we live. Americans
increasingly rely on Internet sites produced by the broadcast
networks such as MSNBC for up-to-the-minute news and
information. These essentially electronic newspapers can be
owned by a broadcast station, yet a traditional newspaper
cannot.
Again, there is legislation in the House, H.R. 598,
introduced by Mr. Oxley, that would direct the Commission to
repeal the newspaper broadcast cross-ownership ban within 90
days of enactment.
I suspect that our witnesses this morning will focus
primarily on the need for the clarification about these two
important remaining areas of broadcast fellowship. I am
disappointed, frankly, that the FCC did not accept our
invitation for this morning's hearing to provide some of that
clarification. I was looking forward to having the Commission
here to give us a sense of what we can expect to hear from them
on these critical ownership issues in the future.
But we would like to use today's hearing as an opportunity
to publicly call upon the FCC again to reconsider both the
national ownership cap and the broadcast newspaper cross-
ownership restrictions in order to allow for the maximum growth
within the industry. By relaxing these remaining ownership
restrictions, we can ensure the continuation of free over-the-
air broadcast programming for America in years to come.
The Chair is now pleased to recognize my friend from
Massachusetts, the ranking minority member, Mr. Markey, for an
opening statement.
Mr. Markey. Thank you, Mr. Chairman, very much. I agree
with you; I wish the FCC was here as well. I have a lot of
questions for them as well.
During the course of today's proceedings we will hear a
number of proposals to drastically eliminate mass media
ownership rules. This discussion today comes in the aftermath
of the FCC's recent decision addressing local media ownership
issues. Last month the FCC went well beyond clarifying
attribution rules, while permitting some TV duopolies on the
basis of a legitimate failing station test, grandfathering,
LMAs, or even permitting limited UHF, UHF/TV combinations.
The FCC decision, which I believe is the worst FCC decision
since the Commission took the children's television rules off
the books in the early 1980's, will lead to a rapid
consolidation of local media properties in this Nation.
Its most predictable result will be to greatly accelerate
mergers that create unhealthy and unnecessary TV duopolies in
local communities. Moreover, as could also have been foreseen,
the FCC decision will have the effect of pouring gasoline on
simmering efforts to loosen other local media ownership rules.
The aggregate effect of the FCC's recent rule changes will
be to encourage a communications cannibalism in mass media
properties across the country. These rule changes will not
create more entertainment and information sources for
consumers, nor will they enhance the ability of the
broadcasting medium to meet the informal and civic needs of the
communities it serves, nor did the FCC condition the ability of
TV stations to combine on requirements for enhanced civic
service to the affected community or a boost for educational
programming, nor is there any meaningful new efforts to enhance
minority ownership as a result of these rule changes. Zero,
nothing, nada.
Instead, these proposals will concentrate media power at
the local level in the hands of a few. After the Congress and
the FCC spent years struggling to create more information
sources at the local level, proposals are now on the table to
allow a collapse of these new choices down to just a handful.
Low power TV and low power radio are not going to make up for
what has been lost.
People point to the rise of cable, of DBS, of the Internet
as justification for changing these rules. Cable has certainly
added more channels, but cable does not offer a local news
service in the vast majority of communities across the country.
We have a local cable news service in Boston, but it is the
exception, not the rule, for cable.
Cable offers a national media service. The same thing for
satellite, it is national, and even if we successfully
legislate a local-to-local provision, all this does is bring
back the same local TV stations that exist today. We are not
adding choices, and DBS on its own does not today and has no
plans in the future to offer a substitute for the local news
and information that local TV stations provide.
Next, we have the Internet. The Internet is certainly
growing and some day may offer a service that replaces what
local broadcast news offers for a community, but it doesn't
today. It won't next month or next year. Some day it will.
There are local Web sites that provide news. They typically are
the Web sites of the local broadcast stations and the local
newspapers themselves. When the Internet offers a community a
meaningful substitute for what television broadcasters today
provide, then it will make sense to adjust broadcast ownership
rules.
When I arrived in Washington in 1976 we had Channel 4, 5,
7, 9, 20 and 50, the Washington Post and the Washington Star.
Today in Washington we have Channel 4, 5, 7 and 9, Channel 20
and 50, the Washington Post and the Washington Times. No one
goes to the Internet to find out what is happening locally in
Washington. They go to their TV stations. They go to their
Washington Post or Washington Times. So the justification for
this huge reexamination of all of the rules unfortunately falls
if the Internet is being relied upon.
For these reasons, I also believe that now is not the time
to adjust the network audience reach rule or the broadcast
cable cross-ownership rule. The relationship between networks
and television affiliates has served our country well. Raising
the level of network audience reach at this time would tip the
balance between TV networks and their affiliates toward the
networks. I believe it is important to keep this balance.
Again, I want to thank Chairman Tauzin for holding this
very important hearing, and I am looking forward to hearing
from our witnesses.
Mr. Tauzin. I thank my friend.
I recognize the vice chair of the committee, Mr. Oxley, for
an opening statement.
Mr. Oxley. Thank you, Mr. Chairman, and now for the rest of
the story, as the gentleman says on the radio.
I want to first welcome our distinguished panel of
witnesses.
Mr. Chairman, I think it is only fair to commend the FCC
for what it accomplished in the recent local ownership
decision. Revising its rules for broadcast ownership and
attribution, the Commission clearly made progress in
modernizing its regulations to adapt to a rapidly evolving
marketplace.
Having said that, it is just as clear to me that the
commission didn't go far enough. I believe the FCC should do
more to allow combinations in smaller markets, that all
existing LMAs should be permanently grandfathered, and that the
radio television cross-ownership rule should be repealed
forthwith.
Most glaring of all, the Commission's failure to address
the antiquated newspaper broadcast cross-ownership rule is, to
my mind, simply perplexing.
That the FCC could correctly decide that an entity should
be able to own up to two TV stations and six radio stations in
a market but then conclude that a newspaper can't operate a
single broadcast station defies logic. It simply makes no
sense.
The newspaper broadcast ban was implemented a quarter of a
century ago at a time when three networks controlled 90 percent
of the TV audience. The Commission's inaction implies a belief
that nothing has changed in 25 years, when in fact everything
has changed except this counterproductive rule. Cable systems,
new networks, independent stations, MMDS, and DBS have all
exploded onto the national scene since 1975, to say nothing of
the World Wide Web.
The diversity of voices has multiplied beyond what anybody
could have imagined in 1975, yet the rule remains unchanged.
The rule is inequitable, fosters inefficiency, hinders the
ability of newspapers to compete in a multimedia environment
and prevents struggling newspapers from merging with local
broadcast stations to stay in business and serve the public.
As members know, I introduced legislation with the
gentleman from Texas, Mr. Hall, and the gentleman to my right,
Mr. Stearns, to repeal the cross-ownership ban. I invite all
members to review this legislation with an eye toward
supporting the reversal of this severely outdated restraint of
trade.
Again, Mr. Chairman, I look forward to the testimony from
our distinguished panel and I yield back.
Mr. Tauzin. The gentlelady from Missouri, Ms. McCarthy, is
recognized for an opening statement.
Ms. McCarthy. Thank you, Mr. Chairman. I want to thank you
for holding this hearing and ask for unanimous consent to have
my remarks put in the record. I do share many of the concerns
that are being raised here today, and I am grateful that the
panel is here and wish the FCC were here as well so that we can
sort through these issues. Thank you.
Mr. Tauzin. The gentleman from Florida Mr. Stearns is
recognized.
Mr. Stearns. Good morning and thank you, Mr. Chairman. I
want to thank you and Chairman Bliley for this hearing. You and
my friend Mr. Oxley have been instrumental, I think, in
prodding both the committee and the Federal Communications
Commission to act, as many have pointed out, to deregulate the
restrictions on broadcast ownership.
In answer to my colleague from Massachusetts, in this age
of high technology and near instant access to information, I
don't go to many sources for my information except the
Internet. I can get both local information from my hometown of
Ocala as well as national information off the Internet. And
sometimes there will be a day when perhaps I don't even read
the newspaper, except perhaps my staff will bring my attention
to something. And I think that is what you are going to see, a
click of a button, once we have high-speed access to the
Internet. You will get all your local news, and I can go to my
hometown Ocala, I can go to the St. Petersburg Times, I can go
to the Orlando Sentinel, on the Internet to find out what is
happening.
When you combine that with the possibility of satellite
communication broadcast as well as high-definition television,
I think there is going to be indeed a huge revolution in this
broadcast ownership, and I say to my colleague from
Massachusetts, he has been very instrumental in trying to
deregulate the satellite industry and he wants to deregulate
the energy industry. So I am sort of curious why for some
reason he doesn't want to deregulate the most prominent and
promising field of telecommunication, and that is broadcast.
As many of you know, I introduced with my colleague Mr.
Oxley and others, a comprehensive broadcast ownership bill,
H.R. 942. And I think as I pointed out earlier, we were able to
get the FCC to act on August 5 to enact a good portion of this
legislation to make the necessary changes, but inexplicably
they failed to act on, I think, the most necessary provision
that remained in my bill: They failed to rescind the ban on
newspaper cross-ownership.
Let me just tell my colleagues, right now newspaper cross-
ownership exists. So if people say we can't have this, let me
point out that the FCC enacted legislation in 1975 to ban
newspaper cross-ownership, but they grandfathered in certain
ownership combinations. For instance, Newscorp still owns a new
network affiliate in New York City as well as the New York
Post. In Chicago, the Tribune company operates a television
station WGN, and its own newspaper. In San Francisco, the San
Francisco Chronicle has owned and operated the city's NBC
affiliate, KRON.
So, Mr. Chairman, in a de facto way, cross-ownership exists
today. And so in 25 years of grandfathering, there is not one
instance of the newspapers previously mentioned attempting to
gain editorial control or editorial influence over their
television stations. In fact, television and radio broadcasting
is a different type of media. And so I think from examples we
see, there is no reason why we can't relax the ban on cross-
ownership.
If such a combination ever resulted in an attempt to use
their position to monopolize the market through advertising or
other control, that company would then be open to antitrust
violations and could be prosecuted at the Federal and State
level. So I think, Mr. Chairman, we have the laws already on
the books that we wouldn't have to worry about this high amount
of influence.
I would urge the FCC to adopt the rest of what I have in my
broadcast bill. In fact, Mr. Chairman, I hope you and others
will support me when I offer my bill the latter part of this
week or next week to see if we can go ahead with the remaining
items in the bill.
Senator McCain, I believe, is the one in the Senate who
went ahead and increased the ownership amount. So I would like
to say to my colleagues that I think we are at the point now we
can continue to deregulate in the broadcast industry, and I
think this hearing is very important, and I commend you for it,
Mr. Chairman.
Mr. Tauzin. The Chair now recognizes the gentleman from
Ohio, Mr. Sawyer for an opening statement.
Mr. Sawyer. Thank you, Mr. Chairman, and thank you for this
hearing. I ask unanimous consent to insert my opening statement
in the record and forego reading it to you at this point.
[The prepared statement of Hon. Thomas C. Sawyer follows:]
Prepared Statement of Hon. Tom Sawyer, a Representative in Congress
from the State of Ohio
Thank you Mr. Chairman for holding this important hearing on
broadcast ownership regulations this morning. I also want to thank our
witnesses for coming to share their thoughts on this issue with us.
As we are aware, the FCC last month completed part of its biennial
review of regulations as required by the Telecommunications Act of
1996. The result of the review was the relaxation of local broadcast
ownership rules--eliminating the duopoly prohibition; modification of
Local Marketing Agreement regulations; and revision of television/radio
ownership regulations. However, the Commission did not adjust the
national broadcast ownership cap which is currently set at 35%. It also
kept in place the prohibition on newspaper-broadcast stations cross
ownership.
While the Commission did not take action on those items I wish they
would have been able to testify before us today. Perhaps they would
have been able to give us an indication on whether or not they will be
reviewing the national ownership caps in the near future. Nevertheless,
raising the national cap and broadcast-radio media cross ownership will
be the primary focus of today's hearing. I am aware that both Mr.
Stearns and Mr. Oxley have separate introduced legislation that would
deal with these provisions. I look forward to hearing more about their
respective proposals.
I want to comment briefly that before this Subcommittee moves
forward on deciding whether the national ownership caps should be
raised, or even removed entirely, I believe we should take a cautious
approach. Let's look at what the FCC has done with respect to the local
ownership regulations. It took the Commission over three years to come
up with this policy. We should allow the regulations to be implemented
and then determine the affect the ruling has on the national cap. It
may prove that neither Congress nor the FCC need to raise the national
cap because broadcast stations may find it more beneficial owning more
than one station within a local area than raising the cap. I believe it
is best that we don't rush into a decision that Congress, or the
Commission, may ultimately regret.
I recognize that there are several outlets available, ranging from
network television to the Internet, that people use to receive their
news, watch their favorite program, listen to music, or even to listen
or watch a sporting event simultaneously on their home computer. At no
other time in our history have as many resources been able to deliver
such information. The ownership rules and regulations covering those
technologies must be reviewed and adjusted for modern times. However, I
hope we don't act too quickly to modify those rules and regulations
just to be doing so. Careful consideration needs to be taken to
understand the full effect those actions will have on preserving
quality programming, promoting diversity and competition within
marketplaces so that consumers and businesses benefit.
Thank you again Mr. Chairman for conducting this hearing. I look
forward to hearing from our witnesses.
Mr. Tauzin. The Chair thanks the gentleman, and with the
indulgence the committee, the chairman of the full committee,
Mr. Bliley, has arrived and the Chair will recognize Mr. Bliley
out of order for an opening statement.
Chairman Bliley. Thank you, Mr. Chairman. I apologize.
There is another hearing going on upstairs in the Health
Subcommittee.
I certainly want to thank the gentleman from Louisiana for
calling this hearing this morning to examine the latest effects
of the FCC's broadcast ownership rules. Earlier this year I
called for the FCC to act on the broadcast ownership
regulation. I was pleased to see the action to ease restriction
on what properties broadcasters may purchase.
Broadcast ownership regulations were created when the three
major networks solely monopolized the airways. This, as we are
all aware, is no longer the case. Today, television
broadcasters compete for program choice and viewing convenience
more than ever before. Cable systems serve more than 65 million
households. Direct broadcast satellite channels serve over 7
million subscribers and 2 million households that own home
satellite dishes. That is a lot of folks who can find what they
want without watching network television.
Furthermore, the Internet offers a brand new medium for
video entertainment. Broadcast ownership rules do not take the
Internet into account.
Needless to say, the availability of so many outlets and so
much programming has dramatically changed television viewing
patterns in the United States. These developments have changed
the environment for broadcasters, which has resulted in
substantial competition for audience share and advertising
revenues of conventional over-the-air television stations.
The FCC last month took the first step in easing the burden
of these broadcasters. The Commission announcement allows
broadcasters to own more than one station per market and
relaxes the limits for local marketing agreements. This moves
the marketplace to much of the high profile media consolidation
that we have witnessed as recently as this week, but the FCC
did not address all of the relevant ownership rules in its
consideration last month.
There is still work to be done. For example, the national
ownership cap of 35 percent of U.S. households for any
broadcasting company will continue to limit the broadcasters
who wish to purchase new stations. In addition, I think the ban
on ownership between a broadcaster and a newspaper in the same
market is outdated and disadvantages newspaper publishers
across the country.
Under the current rules, practically any individual or
entity is able to buy a broadcast station, except for the
newspaper publishing industry. This outdated restriction in my
opinion runs counter to the competitive spirit driving the
marketplace today. This is indeed an exciting time in the media
industry. The FCC should get the rest of the job done and write
rules to foster today's competitive marketplace as well as
ensure a diversity of voices over the airways.
I urge the FCC to review these important remaining areas of
broadcast ownership in the very short term. I look forward to
hearing the panel of witnesses this morning to explain how the
rules are working today, as well as hearing their predictions
of how the game will play out using this rule book in the years
to come.
I thank the chairman and yield back.
Mr. Tauzin. The Chair now recognizes the gentleman from
Illinois, Mr. Rush, for an opening statement.
Mr. Rush. Again, Mr. Chairman, I thank you for having this
timely hearing. Last month the FCC amended several of its
broadcast ownership rules, and I was dismayed however to find
that the FCC had failed to amend the newspaper broadcast
ownership rule. The newspaper broadcast cross-ownership rule
singles out newspapers and prohibits them from obtaining
broadcast licenses.
I believe that the rule is archaic and does not reflect the
new economic realities of this changing communications
environment, and I look forward to the testimony of our
distinguished panelists. I am very much interested in what we
can do to further modernize the FCC's broadcast ownership
rules.
Mr. Chairman, I do want to note that part of the testimony
here--we do have the president and I want to welcome him to the
committee of the Tribune Publishing Company, which is Chicago
based, Mr. Jack Fuller, and I look forward to his testimony
here this morning.
With that, Mr. Chairman, I yield back the balance of my
time.
Mr. Tauzin. I thank my friend, and the Chair now yields to
the gentlelady from Wyoming, Mrs. Cubin, for an opening
statement.
Mrs. Cubin. Thank you, Mr. Chairman. When I came here
today, I had a good idea of how I thought the solution to this
discussion should be resolved, and since I have been here I
already have questions. So I regret that I am not going to be
able to stay for the whole hearing, but I will study the
testimony. I certainly will listen to everyone's opinions and
all of the facts on the issue, and thank you all for being
here. I truly wish the FCC would be here as well, and thank
you, Mr. Chairman, for holding this hearing.
Mr. Tauzin. The gentleman from Minnesota, Mr. Luther.
Mr. Luther. Thank you, Mr. Chairman, and I certainly want
to thank you and Mr. Markey for the hearing today. As
complicated as these issues are, I believe as I am sure many of
my colleagues do, that our focus must be on the American
consumer, the American public that will be viewing the programs
in this evolving market, and how we can encourage diversity and
quality programming today in this media.
And so I, like you, look forward to hearing the testimony.
I will try to attend for as much as possible today, and again,
I very much appreciate this hearing.
Mr. Tauzin. The Chair thanks the gentleman.
The gentleman from Oklahoma, Mr. Largent, for an opening
statement. Mr. Largent does not have an opening statement. I
thank the gentleman.
Mr. Shimkus is recognized.
Mr. Shimkus. Thank you, Mr. Chairman. And this is a very
important hearing. I would like to also welcome Mr. Jack
Fuller, the President of Tribune Broadcasting in Chicagoland,
well respected company, along with Mr. Jim Yager, President and
Chief Operating Officer of Benedek Broadcasting who operates an
affiliate in my district, KHQA, Channel 7, in Quincy, Illinois.
I have learned a lot from the local broadcasters,
especially importance of free over-the-air broadcasts with
respect to the 1993 flood, which they covered along with the
other stations around the clock, 24 hours a day. We see that
coverage today as Hurricane Floyd makes its way up the eastern
seaboard. I will be really monitoring the debate because that
is what this debate for me is about: How do we keep free over-
the-air broadcast for the public interest sake in this new
arena?
And I appreciate this hearing. I think that is one of the
important aspects that I will be looking at, and I yield back
my time.
Mr. Tauzin. If the gentleman would yield, I wanted to
acknowledge to him that on our visit to his district, his area,
in fact we saw some of the films of the coverage and how
excellent it was in terms of early warning to citizens and help
in those areas. I thank the gentleman.
[Additional statements submitted for the record follow:]
Prepared Statement of Hon. Eliot L. Engel, a Representative in Congress
from the State of New York
Mr. Chairman, I am glad that we are here to discuss broadcast
ownership regulations. I continue to be amazed with the current high-
quality viewing choices that consumers have at their disposal. I can
still amaze my children when I tell them that I grew up in an age
without Cable-TV, the Internet and Satellite television. The truth is
that we are living in a vastly different era.
Today, there is greater competition in this medium than ever
before, although much of the laws which govern this industry were
written before the end of World War II. So I agree with the Chairman,
that it is time we revisit current regulations and determine if the
intent of the laws are still practical in this modern time.
It is no secret that I have great concern with cross ownership
between broadcasting companies and newspapers. As a New Yorker, I just
have to look at my neighboring State of Connecticut, which currently
has only one major Newspaper covering local State issues. I am not
convinced yet that having the potential for one major news outlet is
where we need to be heading.
I am also deeply concerned with the lack of ethnic and racial
diversity behind and in front of the camera, which exist today within
the broadcast industry. I have difficulty understanding how Network
programing has become less diverse since the 1970's. So while I am open
to hearing the perspectives of our panelists regarding regulatory
relief regarding the National Ownership Cap I am still cognizant of
current realities. So as we discuss these issues today I really want to
hear what the panelists are or will be doing on the issue of diversity.
Another of my concerns centers around the movement of current
popular network programming to their Cable counterpart. I do not want a
reality in which my constituents will have to pay to see the Oscar's,
or the World Series. In essence, having the best programming only being
able to be seen, if the consumer has the money to pay for it.
Additionally, I am interested in the panelists perception regarding
the FCC's current revisions. Once again, I am thankful that we are
having this hearing and I am looking forward to hearing from the panel.
______
Prepared Statement of Hon. John D. Dingell, a Representative in
Congress from the State of Michigan
Mr. Chairman, I thank you for your courtesy in recognizing me.
Today's hearing originally was scheduled to take place just prior
to the August recess. At that time, the main focus of the hearing was
intended to be on the question of raising the national ownership cap--
which is currently set at 35%.
Obviously much has changed in the broadcast world in the short time
since. The FCC adopted sweeping changes to the local ownership rules
just last month. The relaxation of these rules has unleashed a feeding
frenzy which, no doubt, will continue unabated for quite some time.
In reviewing the prepared testimony of the witnesses, it appears
that the new local ownership rules will take center stage today. Given
the enormity of the changes, that comes as no surprise. What does give
me pause is that much of the testimony focuses on the notion that these
changes didn't go far enough.
Mr. Chairman, while I'm not convinced that such a sweeping change
to the local ownership rules was necessary in the first place to
maintain a healthy, over-the-air broadcast service--or that it will
otherwise serve the public interest--I do hope the industry will take
advantage of the rules in a way that proves these concerns to be
without foundation.
But that proof will take some time. Until then, further relaxation
of the rules--at either the local or national level--would be
premature. Before acting legislatively, I believe we should know how
the newly adopted rules will affect media market concentration, and
what that means to both the industry players and the public.
For example, how will these local ownership changes affect the
balance of power between networks and their affiliates? Given the urge
to merge, and the vertical integration that is occurring between
programmers and distributors, we must ask whether an increase in
network ownership of local stations is in the best interest of either
the station owners or their viewers.
Mr. Chairman, there is no question that changes in the
telecommunications industry, and mass media in particular, are
occurring at breakneck speed. We may find that the remaining rules will
serve little purpose in the days to come. But I hope this Committee
will proceed on these issues with due care, and make sure we don't
unwittingly upset the dynamics of this industry with little sense of
the ramifications.
I thank the witnesses for appearing today, and yield back the
balance of my time.
Mr. Tauzin. The Chair is pleased now to welcome our panel.
The panel is, again, a very distinguished panel, and it is
large, and so we will make several reminders to the panel as we
begin. The first is that your written statements, by unanimous
consent, without objection, are made a part of the record as
well as the written statements of any of the members here or
those who may come, without objection, are made a part of the
record.
That being said then, we would like to keep this
conversational, so if you would please not read your
statements, if you will engage us as easily as you can in a
conversation about these issues, we will appreciate it, so we
can get into a Q and A session as rapidly as possible. So if
you will please the put written statements aside and tell us
the major points you wanted to make here today.
We will be limited by the 5-minute rule. We have these
little lights that work. The green light indicates that you are
on and when the red light hits, that is sort of like time is
up, you are off the air; newspapers, you shut down; so
terminate and move over, and we will go to the next witness.
That being the instructions, let me remind you of something
that Thomas Friedman in his excellent book, The Lexus and the
Olive Tree, once said. He said that Gutenberg made us all
readers and that Xerox made us all publishers, that television
made us all viewers, and that broadband on the Internet will
make us all broadcasters. A rather interesting observation as
we begin the ownership hearings today.
The witnesses will consist of Mr. Michael Katz, Senior
Consultant of Charles River Associates; Mr. Peter Chernin,
President and COO of the News Corporation; Andrew Fisher,
Chairman, Network Affiliated Stations Alliance; Jim Yager,
President and COO of Benedek Broadcasting; James Hedlund,
President, Association of Local Television Stations; John
Sturm, President, Newspaper Association of America; and
finally, Jack Fuller, the President of Tribune Publishing.
Again, we are disappointed the FCC didn't join this
excellent panel, but I am sure they are watching and listening,
and much of what you said will be noted today, and I hope you
have some comments about what the FCC is doing and why you
think they are doing it or not doing it.
We will begin with Mr. Michael Katz, senior consultant of
Charles River Associates. Mr. Katz, you are on, sir. Please
turn your mike on so the recorder can pick it up. I think it is
at the bottom.
STATEMENTS OF MICHAEL L. KATZ, SENIOR CONSULTANT, CHARLES RIVER
ASSOCIATES; PETER CHERNIN, PRESIDENT AND COO, NEWS CORPORATION;
ANDREW FISHER, CHAIRMAN, NETWORK AFFILIATED STATIONS ALLIANCE;
K. JAMES YAGER, PRESIDENT AND COO, BENEDEK BROADCASTING, ON
BEHALF OF NATIONAL ASSOCIATION OF BROADCASTERS; JAMES B.
HEDLUND, PRESIDENT, ASSOCIATION OF LOCAL TELEVISION STATIONS;
JOHN F. STURM, PRESIDENT AND CEO, NEWSPAPER ASSOCIATION OF
AMERICA; AND JACK FULLER, PRESIDENT, TRIBUNE PUBLISHING
Mr. Katz. Good morning, Mr. Chairman and members of the
subcommittee. It is an honor and a privilege to be invited to
speak before you today about the broadcast ownership rules. I
am Michael Katz, and in addition to being a consultant for
Charles River Associates, I am also a professor of business
administration and economics at the University of California.
I have submitted a rather lengthy white paper on the
subject, and I will take the chairman's words to heart and
dispense with the notes I brought. You will see what should
have been distributed to each of the members, some figures
documenting the changes that have taken place in the
broadcasting environment, and I won't review those.
I think that everyone on the panel agrees that there have
been tremendous changes, and I think almost all of us on the
panel agree that regulation hasn't kept up with those changes.
So let me get straight to the point and address one of the
rules, the national ownership cap. My analysis indicates that
relaxing the cap and eliminating it would not threaten
competition, would not threaten diversity, would not threaten
minority ownership and would not threaten localism.
Let me comment, particularly on two parts of that,
diversity. Why do I say relaxing and eliminating the cap
wouldn't threaten diversity? Because viewing and issues of
diversity are local, and the rule is a national cap. There is a
mismatch between that rule and the policy concern.
In terms of minority ownership, I think the short answer is
the rule isn't working to promote minority ownership. There
aren't very many television stations owned by minorities.
Having the cap for decades has not successfully promoted
minority ownership. I don't think there is any reason to
believe that eliminating the cap would get rid of it.
Now, while my analysis says the rule doesn't have benefits,
I think public interest analysis does indicate cost. It does
limit ability of industry to organize itself in the way that
allows it to take advantage of economies of scale, economies of
scope, economies of coordination, and that is an issue not just
for the industry but for viewers and for advertisers, because
by making the industry less efficient and by reducing the
industry's incentive to invest in high-quality programming,
high-cost programming, it is hurting viewers. And for that
reason I have concluded, based on my analysis, that the
national ownership cap should be removed.
And I will just note something I think everyone on this
subcommittee already knows is that the Commission itself in
1984 reached the same conclusion and, in fact, has reached a
similar conclusion every few years since, yet has failed to
take action; and my public interest analysis and economic
analysis indicates that it is time to take action now.
Thank you.
[The prepared statement of Michael L. Katz follows:]
Prepared Statement of Michael L. Katz, Senior Consultant, Charles River
Associates
Many of the regulations that still govern the broadcast television
industry were adopted based on marketplace analyses conducted in the
1940s and 1950s, when television was in its infancy. During much of
this period, there were only two television networks and most
communities had few local stations. There were no cable systems. There
was no such thing as satellite transmission, let alone direct-to-home
satellite video. Video cassette recorders and video games did not yet
exist. And not even academics were thinking of the Internet. In this
environment, rules restricting the ownership of broadcast networks,
stations, and certain non-broadcast media properties were deemed
necessary to restrain the exercise of network market power and to
promote competition and diversity.
Clearly, we live in a very different world today. Network
``dominance'' is a thing of the past. As documented in the accompanying
white paper, revolutionary changes in technology and competition have
fundamentally altered the competitive position of broadcast stations
and networks. In particular, these changes have dramatically increased
the degree of competition by introducing numerous new competitors to
the marketplace.
Today, there are more broadcast television networks than there were
commercial television stations when some of the rules were adopted. In
addition to a larger number of networks, stations have many non-network
sources of programming. There are approximately 1,200 commercial
stations broadcasting today, and most households are located in markets
served by 11 or more television stations. Between cable and satellite,
almost every household in the U.S. has the option of purchasing multi-
channel video programming service, typically offering dozens or even
hundreds of channels. Approximately 78 percent of television households
subscribe to some form of multi-channel video programming service. In
the first week of last month, prime time and total-day ratings for
basic cable exceeded the corresponding aggregate ratings for ABC, CBS,
Fox, and NBC. Moreover, cable's combined subscription and advertising
revenues exceed those of the broadcast networks. VCRs and video games
are ubiquitous. And the rise of the Internet is one of the biggest
economic and social developments of the past 50 years.
As a result of these dramatic changes, viewers, advertisers,
program suppliers, networks, and stations have a large and growing
variety of options available to them that were not available in the
past. The existence of these options has several fundamental
implications for the regulation of television broadcasting:
First, because broadcasters face much greater competition than ever
before, there is no longer a need for a comprehensive set of
regulations to protect viewers and advertisers from the exercise of
network or station market power. Market forces, coupled with antitrust
enforcement, will generally be sufficient to protect the public
interest.
Second, because broadcasters have alternative channels for
investment and growth, station and network owners have incentives to
direct their creative and investment efforts elsewhere if their ability
to engage in non-subscription, over-the-air broadcasting is
artificially constrained by regulation. By reducing the economic
opportunities and returns in broadcasting, regulation distorts
investment decisions and drives broadcasters to direct more of their
resources away from over-the-air broadcasting and toward cable and
other distribution outlets.
Third, because local stations have an increased number of
alternatives to affiliating with any given network, there is no need
for a comprehensive set of regulations to protect stations from the
exercise of network market power.
The national multiple ownership rule, under which a single entity
cannot control television stations whose combined coverage exceeds 35
percent of U.S. television households, serves as an instructive example
of the significance of these changes for the formulation of appropriate
public policy. While the rule was originally adopted to promote the
goals of competition and diversity, today it has no public interest
justification. This conclusion follows from two central findings
established in the accompanying white paper.
One, there is no evidence that the national station ownership cap
serves any policy goal. The available data and economic analyses
support the conclusion that:
Elimination of the cap would not threaten competition and
indeed can be expected to strengthen broadcasters as
competitors;
Elimination of the cap would not affect diversity;
The cap does not promote minority ownership; and
Owners whose station groups have broad national audience
reaches are equally if not more committed to localism than are
owners of single stations or owners whose station groups reach
smaller percentages of U.S. households.
Two, while the rule has no public interest benefits, the rule
raises costs, leads to a less efficient organization of the industry,
and therefore reduces program quality and raises the cost of
advertising. More specifically, the rule:
Limits the realization of economies of scale and scope
associated with common ownership of multiple stations, thus
raising costs and reducing the incentives to invest in over-
the-air television;
Blocks the expansion of particularly well-run station groups,
thus artificially raising costs and denying viewers and
advertisers the benefits that would come from station
management by owners who are especially able to serve viewer
and advertiser interests; and
Limits the ability of the broadcast networks to own stations,
an arrangement which would otherwise improve the coordination
between the networks and the stations that carry their
programming. Restrictions on station ownership thus limit the
returns and increase the risks of network investments in high-
quality and innovative programming. As a result, the national
ownership cap reduces the networks' incentives to make such
investments and ultimately diminishes the quality and diversity
of programming.
In short, this rule now harms the public interest rather than
protects it.
The Commission itself has repeatedly recognized over the past 15
years that limitations on national station ownership are arbitrary and
unnecessary. In fact, in 1984 the Commission decided to sunset the rule
completely by 1990, but Congressional opposition forced the Commission
to abandon the planned sunset. Subsequently, the Commission has
acknowledged that elimination of the rule would threaten neither
competition nor diversity and would lead to efficiencies that would
benefit the public. Yet, although careful and repeated analysis
demonstrates a clear public interest in eliminating the multiple
ownership cap immediately, the Commission continues to keep the rule in
place.
The retention of the cap is particularly troubling (and puzzling)
in the light of the Commission's recent decision to relax local
ownership limits. This action only confirms that national ownership
restrictions are arbitrary and unjustified. How can the Commission
rationally conclude that a group owner at the current 35 percent
national audience cap can purchase a second station in New York City
without threatening competition or diversity, but cannot purchase a
station in San Francisco, where it does not currently own one? How
would ownership of the San Francisco station adversely affect either
the diversity of programming available to New York viewers or the
options available to advertisers seeking to reach New York consumers?
Relaxation of the local ownership rule was clearly the correct
decision, but it only serves to underscore the lack of any public
interest basis for the national ownership cap.
This is not the first time that there has been concern that an
inefficient regulatory regime for broadcast television is harming the
public interest. Yet, over-the-air broadcasting has survived. So why is
there any need to act now? The answer is twofold. First, over-the-air
broadcast television faces greater competition than ever, and the
effects of that competition on the nature of programming are being felt
by broadcasters and viewers today. Networks are being outbid by cable
networks for first-run broadcast rights to movies. And cable
competition so eroded the audience for their weekday morning children's
programming that the Fox network abandoned that daypart for children's
television. Policy makers should be concerned when these and similar
developments are the result of outmoded and unnecessary regulation
rather than marketplace forces.
The second reason there is a public interest in acting now is that
current policies are creating long-term costs by distorting investment
incentives. Network owners have greater opportunities to redirect their
investment efforts (both financial and creative) than ever before. And
they are taking advantage of these opportunities. For example, ABC is
launching a new soap opera channel. But instead of taking advantage of
newly allocated digital broadcast spectrum to distribute the channel as
a non-subscription over-the-air service, ABC is putting this new
channel on cable. Similarly, when Fox decided to go into the national
news business, it launched a cable network, FOX News Channel, rather
than develop a national news programming service for its broadcast
network.
By distorting economic returns in broadcasting, regulations
inefficiently drive the networks to direct more of their financial and
creative resources toward cable properties and other distribution
platforms. That the networks are branching into other services is not
the problem--it is privately and socially valuable for them to make use
of their skills and assets in these other services. Rather, the problem
arises when regulation distorts these investment decisions. It is also
important to recognize that, once broadcasters start investing in a
particular direction, it may be hard to reverse the effects of
regulatory distortions. Consequently, the time to reform broadcast
television regulation is now.
Mr. Tauzin. Thank you. The Chair thanks the gentleman and
the Chair thanks him for his brevity.
The chairman would now recognize Mr. Peter Chernin,
President and COO of News Corporation, for his statement. Mr.
Chernin.
STATEMENT OF PETER CHERNIN
Mr. Chernin. Thank you, Mr. Chairman. Mr. Chairman and
members of the subcommittee, I thank you for the opportunity to
address you this morning. I appear before you today to urge
broad-based deregulation of the broadcasting industry,
including particularly repeal or substantial relaxation of the
35 percent national cap on television station ownership.
I would hope to make three simple points this morning:
First, the 35 percent cap is rooted in a bygone era of
media scarcity. Second, retention of this rule has absolutely
nothing to do with localism, a concept that I believe is
frequently misused in this debate. And finally, the 35 percent
cap actually disserves the public interest by distorting the
flow of both investment capital and programming away from free
broadcast television.
Free television in general and the three original networks
in particular once dominated television. As late as 1973, the
three broadcast networks commanded more than 90 percent of
television viewing time. Today, the four networks and new
startups have been reduced to mere shadows of themselves, while
thousands of new outlets have been unleashed.
In 1973 cable was in its infancy. Its main purpose was to
improve broadcast picture quality. At the network level,
virtually every network show was profitable. Computers were
giant pieces of machinery. No one owned a videotape machine.
People still changed their television with tuners. And the
Internet was yet unheard of. Suffice it to say that broadcast
television is not what it used to be.
This past July, basic cable networks beat the four, not the
three, the four major national broadcast networks in both
household ratings and share on a total basis and in prime time.
In fact, the four broadcast networks have lost 11 share points
just since the passage of the 1996 Telecommunications Act.
The most telling impact of this change is on the bottom
line. In 1998, 15 television program services generated profits
in excess of $100 million. Fourteen of those 15 were cable
networks. In fact, each and every one of those 14 cable
networks generated more profits than all four broadcast
networks combined.
Mr. Chairman, the telecommunications world obviously has
been turned upside down and there is no end in sight. In the
1996 Act, Congress recognized the rapidly changing nature of
this marketplace and instructed the FCC to review broadcast
ownership rules every 2 years and to, ``repeal or modify any
regulation it determines to no longer be in the public
interest.'' according to my calendar, the FCC should now be
preparing its second biannual review and yet they have not even
made substantial progress on their first.
The FCC established the factual basis for broadcast
deregulation in its recent local ownership decision. I quote
from Chairman Kennard. Quote, ``We are adopting commonsense
rules that recognize the dramatic changes that the media
marketplace has undergone since our broadcast ownership rules
were adopted 30 years ago. We need to provide broadcasters with
flexibility to seize opportunities and compete in this
increasingly dynamic media marketplace.'' I couldn't agree
more.
Mr. Chairman, today, the national broadcast ownership cap
has little to do with serving the public interest. It is all
about protecting one set of private business interests, and
that is all. The powerful and profitable owners of large groups
of network affiliated television stations argue that repeal of
the rule would threaten the concept of localism. In fact, the
real objective is twofold. First, they want to maintain
outmoded governmental regulations originally adopted for public
policy reasons as a way to retain leverage over the networks.
And second, they want to limit potentially competing buyers as
they seek to acquire ownership of even larger groups of
stations.
Now, I think you have to wonder exactly who are these
little guys that need protection. For example, COX, my esteemed
colleague's company, is the fourth largest cable operator in
America, has revenues of close to $5 billion, operates major
U.S. newspapers--I believe 16--is the owner of 11 stations and
59 radio stations. The Washington Post company, another little
company that needs protection, owns 6 television stations,
Newsweek magazine, 24 daily and weekly newspapers, and numerous
online holdings. The New York Times company, another little
company, the New York Times, the Boston Globe, 18 other daily
newspapers, 8 television stations, 2 radio stations. First
Argyle, 32 television stations, 7 radio stations, 12
newspapers, et cetera, et cetera, on and on. These are the
little groups that need protection in the battle for localism.
FOX is firmly committed to the concept of localism. We have
made local news a priority. Each of our stations use operations
as locally managed. In fact, in most FOX television stations,
we have doubled or tripled the amount of local news we provide.
Our opponents' argument also lacks sincerity since we
believe that 80 percent of all television stations today are
already group-owned, and well over 90 percent of all network
affiliates are group-owned. So the fact is that this 35 percent
market cap is not going to protect local stations. It is going
to protect the large station groups.
We also think that the 35 percent ownership cap discourages
the flow of capital into free television, and we think that the
largest amount of quality programming is now currently produced
for broadcast television. Our company alone produced the three
major Emmy award-winning series this past year, all for
broadcast television and not for cable. And to the degree that
we are discouraged from owning broadcasting, we will divert the
flow of our capital and our creative resources away from free
television into privately owned cable services.
Mr. Chairman, I thank you for your time.
[The prepared statement of Peter Chernin follows:]
Prepared Statement of Peter Chernin, President and Chief Operating
Officer, News Corporation
Mr. Chairman and members of the Subcommittee. Thank you for
allowing me this opportunity to address you.
I appear before you today to urge broad-based deregulation of the
broadcast industry including, in particular, repeal or substantial
relaxation of the 35% national cap on television station ownership. I
hope to make three simple points. First, the 35% cap, like other
broadcast regulations, is rooted in a bygone era of media scarcity and
is based on factual premises that no longer exist. Second, retention of
this rule has nothing to do with localism--an important concept that is
frequently misused in this debate. Finally, the 35% cap actually
disserves the public interest by distorting the flow of both investment
capital and programming away from free broadcast television and toward
pay television media such as cable networks.
a. the 35% cap is rooted in a bygone era of media scarcity and is based
on factual premises that no longer exist.
Free television in general, and the three original networks in
particular, once dominated television. The government responded to that
situation with a two-part strategy. It tightly regulated broadcast
television while simultaneously stimulating the growth of new
competition. These pro-competitive public policies combined with major
technology advancements have created a brand new media world. Suffice
it to say, the government's policy has been wildly successful. The
broadcast networks have been reduced to mere shadows of their former
selves while thousands of new competitive forces have been unleashed
and many have even reached maturity. Unfortunately, rules like the
broadcast television ownership cap tend to remain in place long after
their purpose has ended.
In 1973, broadcasting was dominated by three broadcast networks
whose locally owned and affiliated stations in most cities around the
country commanded upwards of 90% of people's television viewing time.
Cable was in its infancy. Its main purpose was to improve the
picture quality where antenna reception was inadequate, not to offer a
broad array of program services. Back then, it was virtually impossible
for a local television station to lose money, and at the network level,
virtually every show was profitable, even if it was at the bottom of
the ratings ladder. Computers were giant pieces of machinery that never
got near your home, and chips were something you ate when you watched
television.
No one owned a videotape machine, and channels were still changed
with tuners.
Today's viewer has hundreds of shows to choose from on any given
day. Consider these staggering numbers:
96% of all television households are passed by cable.
More than 78% of television households subscribe to some form
of subscription multichannel television service.
There are just under 200 different national television
networks now distributed, plus hundreds of additional movie
channels.
98% of all households have at least one television remote
control device.
94% of all homes have a videotape machine.
50% of all homes have a computer.
And, a rapidly growing 33% of all homes have access to the
Internet and its virtually infinite array of competitive
choices.
Simply stated, free broadcast television networks are no longer a
dominant force in need of regulation. The evidence is overwhelming.
Consider a recent headline from the trade publication Electronic Media.
It reads, ``As tide turns, cable sails past Big 4.'' This past July,
basic cable networks beat the four (not three), major broadcast
networks in household ratings and share both on a total basis and in
primetime. In fact, the four broadcast networks have lost 11 share
points in household primetime audience just since passage of the
Telecommunications Act of 1996.
The most telling impact of this change is on the bottom line. In
1998, 15 television program services generated cash flow in excess of
$100 million. Fourteen of those 15 networks were cable networks. Only
one was a broadcast network. In fact, each and every one of those 14
cable networks generated more cash flow than all 4 of the major
broadcast networks combined.
Many of you understand fully how much the telecommunications world
has changed and how rapidly these changes will continue going forward.
As a result, Congress instructed the Federal Communications Commission
in the 1996 Telecommunications Act to carefully examine outdated
broadcast ownership rules every two years and to determine whether they
are necessary or relevant in today's highly competitive marketplace.
The Act specifically directs the FCC to determine ``whether any such
rules are necessary in the public interest as a result of
competition,'' and further directs the Commission to ``repeal or modify
any regulation it determines to be no longer in the public interest.''
Mr. Chairman, according to my calendar, the Commission should be
preparing for its second biennial review. Yet the FCC has not even made
substantial progress on the first. While the Commission delays, the
video marketplace moves forward and broadcasters are being left behind.
I would encourage Congress to instruct the FCC to promptly conclude
its review of its national ownership rules. I am confident that upon a
thorough review of today's highly competitive marketplace the
Commission will have no choice but to conclude that the national
ownership cap specifically serves absolutely no public policy goal and
must therefore be eliminated.
The FCC has already established the factual basis for broadcast
deregulation in its recent local ownership decisions. I quote from
Chairman Bill Kennard: ``. . . we are adopting commonsense rules that
recognize the dramatic changes that the media marketplace has undergone
since our broadcast ownership rules were adopted 30 years ago . . . we
need to provide broadcasters with flexibility to seize opportunities
and compete in this increasingly dynamic media marketplace.'' I
couldn't agree more.
The FCC concluded that the marketplace has changed so dramatically
that common ownership of two stations in one market could be permitted.
How could the FCC then conclude that owning one station, each in
different markets, is more of a threat to competition and diversity
than owning two stations in the same market? Yet, that is exactly the
anomalous result of relaxing the duopoly rules but retaining the
current national ownership cap. FOX, today, could buy a second station
in Atlanta where we already own a station but would be prohibited by
the 35% national ownership cap from buying a single station in San
Francisco where we don't own any stations.
Does this result make sense? No. Simply stated, the broadcast
ownership cap is rooted in a bygone era of media scarcity and is based
on factual premises that no longer exists. Free broadcast television
networks are no longer a dominant force in need of regulation.
b. retention of the ownership cap has nothing to do with ``localism''--
an important concept that is frequently mis-used in this debate.
The powerful and profitable owners of large groups of network
affiliate television stations are among the most vocal proponents of
retention of the 35% ownership cap. They argue that repeal of the rule
would threaten the concept of ``localism.'' In fact, their real
objective is twofold: 1) they want to maintain outmoded government
regulations originally adopted for public policy reasons to serve their
private business objective of limiting what they perceive to be network
leverage; and 2) more importantly, they want this same government
regulation to limit potential competing buyers as they seek to acquire
ownership of even larger groups of stations. The truth is that the
large affiliate group owners are no more local to most communities than
are the networks. Given the realities of today's television station
ownership patterns, retention of the 35% rule has nothing to do with
the concept of ``localism.''
``Localism'' will continue to be the cornerstone of broadcasters
irrespective of the rules because ``localism'' is what sets
broadcasting apart in a multichannel, fragmented viewing universe.
Frankly, ``localism'' is our ``bread and butter'' as broadcasters. At
its core is the ideal that a broadcast station should be operated by
local management attuned to the needs and tastes of the local
community. Early in the history of our industry, it was thought that
local ownership was the best way to assure such management. However,
over time, many of the best local owners of stations acquired other
stations and grew to become owners of group stations. The FCC, itself,
has conducted analyses that concluded that group owners, including the
networks, were in fact among the best owners in terms of providing
management and service attuned to the needs of the local
communities.1
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\1\ Amendment of Section 73.3555 of the Commission's Rules Relating
to Multiple Ownership of AM, FM and Television Broadcast Station, 100
F.C.C.2d 17,20 (1984).
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FOX is firmly committed to the concept of ``localism.'' We believe
that local broadcasters should serve their local audience--it's a
matter of public interest and it's smart business. FOX has made local
news a priority of its owned station group. Each of the FOX-owned
stations' news operations is independently managed. The imposition of a
monolithic editorial viewpoint on commonly owned stations makes no
sense. To be successful, a broadcast news operation must be responsive
to local community needs, issues and concerns. All of our stations
present local morning and evening newscasts 2. Several are
in the process of expanding their morning news programs that offer the
ONLY exclusively LOCAL alternative to our competitors' national network
morning programs.
---------------------------------------------------------------------------
\2\ The FOX-acquired Denver station is in the process of building a
local news facility.
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Our opponents' argument that out-of-market ownership of a station
is bad for localism also falls flat on its face upon examination of the
facts. Today, station groups headquartered in a non-local city are
already the dominant form of television station ownership. According to
the data set forth by Dr. Michael Katz, 90% of ABC's, 98% of CBS's, 91%
of FOX's and 83% of NBC's television stations are owned by station
groups today. Lifting the ownership cap won't affect that. It's just
one group owner acquiring another group owner. Given the FCC's explicit
finding that group owners rely on local management attuned to the needs
and tastes of the community, such a transfer has no impact on the
concept of localism anyway.
The fact is that the large and powerful group owners who are the
loudest proponents of the 35% cap are no more ``local'' to most markets
than are the network-owned station groups. For example, the owner of
the FOX affiliate in San Francisco--whose company, COX, is represented
by Andy Fisher who is seated with me today--is actually headquartered
in Atlanta. The owner of the FOX affiliate in Boise is headquartered in
Toledo. The owner of the FOX affiliate in Honolulu is headquartered in
Indianapolis. The notion that FOX's acquisition of any of these
stations would have an adverse impact on the concept of localism simply
has no basis in fact.I have to wonder who exactly are the ``little
guys'' that the government is so diligently trying to protect here.
Again, I refer to Cox, which is: 1) the 4th largest cable operator in
America 3--where it operates almost exclusively as a local
monopoly; 2) a major U.S. newspaper owner--operating 16 daily
newspapers; 3) the owner of 11 television stations and 59 radio
stations. And, Cox, with an estimated $4.9 billion in annual revenues
4, is hardly unique among television station owners.
Interestingly, The Industry Standard, an Internet newsmagazine of the
Internet economy, lists Cox's top competitors as News Corporation,
Tribune Company and Time Warner.
---------------------------------------------------------------------------
\3\ 5.1 million subscribers.
\4\ The Industry Standard--The Newsmagazine of the Internet
Economy.
---------------------------------------------------------------------------
c. retention of the 35% broadcast ownership cap disserves the public
interest by distorting the flow of investment capital and programming
away from free broadcast television and toward the pay television
media.
As described in more detail in the Katz Paper, the 35% ownership
cap is not only no longer necessary; its retention would actually
disserve the public interest. One can argue that because free
television is a public good, government policy should provide positive
incentives that encourage the flow of investment capital into
broadcasting. At the very least, government policy should not
needlessly discourage and penalize the flow of capital into free
television. And yet, that is exactly the effect of the 35% ownership
cap.
Today, public policy incentives are the opposite of what they
should be. If one seeks to offer news, sports, information and
entertainment to the American people for free through broadcasting, the
government imposes a unique set of ownership and other restrictions
that do not apply to those who charge the public for access to their
television program services. The result is to distort the flow of
investment capital and programming away from free broadcasting and
toward the pay television media such as cable networks, contrary to the
best interest of the viewing public.
Today, if you offer your programs for free, the government limits
the number of channels and networks that you may own both nationwide
and in any particular market. By contrast, if you charge the American
people access to your programs, then you may own as many channels and
networks as you wish. The effect of this inverted public policy is to
limit the strength of free broadcast structures in comparison to pay
television structures. Since quality programming inevitably ``follows
the money,'' the end result will be increased investment in pay
television and decreased quality of programming on free television.
As I mentioned earlier, 14 of 15 networks earning more than $100
million in profits were cable networks. In fact, each and every one of
those 14 cable networks generated more cash flow than did all four
major broadcast networks combined. This gross earnings disparity has
begun to produce very real adverse consequences for the quality of
programming on the free medium. Increasingly, cable networks are using
their new economic muscle to purchase what traditionally had been the
free broadcast exhibition window for popular programming. For example,
theatrical motion pictures that would have been available previously on
free networks like FOX are being snatched away by cable networks.
Examples include ``As Good As It Gets,'' ``The English Patient,''
``You've Got Mail'' and ``The American President.''
To some extent, this shift of program buying power reflects the
dual revenue stream advantage of cable networks and may reflect
marketplace realities. However, it is undeniable that the 35% broadcast
ownership cap exacerbates the competitive difficulties of free
broadcasting and makes it harder for the free medium to compete against
the new pay forces. Today, the broadcast networks are not making money
at the network level, but are recouping their programming investments
through their station groups. The national ownership cap limits FOX to
owning stations reaching 35% of television households. Therefore, for
every dollar our company invests in the FOX Broadcasting network, we
are able to capture only 35% of the distribution upside.
Our aim is not to handicap cable, or the Internet, or any new
player--our only plea is that we be allowed to build free television
structures with the economic strength to stay in the game against new
pay television forces. It would be a public interest tragedy if the
free networks were forced by regulation to focus all of their
investment capital toward pay television. Paul Farhi of The Washington
Post got it right last Sunday in his editorial entitled ``Clap If You
Love Mega-TV!'' Farhi, in pointing out that the CBS-Viacom merger is
the wave of the future, explained the reason to allow vertical
integration by the networks. But, the same principle holds true for
horizontal integration as well. Farhi says, ``. . . [i]n a mega-media
future, in a 5-million-channel world, it may be the only way to keep
the humbled networks thriving.''
Each of the broadcast networks spends approximately $2 billion
annually to invest in programming that is offered to the American
viewing public for free. Cable networks don't invest anywhere near that
amount. Again, to quote Paul Farhi, ``. . . [n]o cable channel reaches
enough viewers to underwrite the same number of programs, with the same
production values, as the networks. In fact, discounting pro wrestling,
pro football and `Rugrats,' the biggest attractions on cable are reruns
of recent network shows.'' A significant part of the return on that $2
billion investment broadcast networks make comes to rest at the
affiliate stations. At some point, we will be unable to justify such
huge expenditures when our return investment is artificially limited by
the 35% ownership cap. Owning additional affiliates will enable the
networks to more fully realize the return on their program investments
and will increase the incentives to continue investing in high quality
programming for the free medium.
We think that's important, not just for the survival of network
broadcasting, but for the public and their continued access to high-
value sports, news and other programming on free television.
Thank you.
Mr. Tauzin. The Chair now recognizes, representing the
network affiliate stations' point of view, Mr. Andrew Fisher,
Chairman of the Network Affiliated Stations Alliance.
STATEMENT OF ANDREW FISHER
Mr. Fisher. Thank you, Mr. Chairman, distinguished members
of this committee, a number of whom I have had the privilege of
spending some time with. My name is Andrew Fisher. I am
Executive Vice President of Television Network Affiliates at
COX Broadcasting. But I am here today on behalf of the Network
Affiliated Stations Alliance. COX is affiliated with all four
major networks, and NASA is an alliance of the affiliates of
ABC, CBS, and NBC television network affiliate associations.
And so I am here today really representing 700 local television
stations across the country. These local television stations
represent a diversity of voices and a commitment to localism
that is truly unduplicated anywhere else in the world.
Mr. Chairman, generations of American children have grown
up believing that nothing could put Humpty Dumpty back together
again, but if the national television networks can persuade
Congress to let them increase the national cap above 35
percent, they will virtually be assured of putting back
together again even more market power than nearly half a
century of communications policy was intended to prevent.
Back in the 1960's the television networks were in a
position to demand, and they indeed did get, ownership interest
in more than 90 percent of all prime time programming. The
network control over programming was almost complete,
notwithstanding the fact that affiliates already had the right
to reject and the right to preempt network programming, and
this was so even though the networks were prohibited from
serving as advertising representatives to local stations, and
they were required to operate under a 25 percent national
audience cap.
In 1970 policymakers reacted to the developing market power
of the networks by imposing the financial interests and
syndication rules. As a result of these accumulated policies,
the network control of prime time programming was moderated and
the outcome has served the public interest. It produced a
reasonable balance of power between independent program
producers, the national networks and their local affiliates.
Mr. Chairman, about 6 years ago, the networks launched a
frontal attack against this equilibrium by challenging its very
foundations: finsyn, the right to reject, the right to preempt,
the rep rule, and of course, the 25 percent cap; and their
attack has been steadily rewarded. By arguing that the
economics of network television were no longer profitable in
the face of cable's dual revenue streams, the networks were
able to eliminate finsyn in 1995, and this has led to powerful
new combinations of national networks and Hollywood studios,
and it has led us back to the growing network ownership of
prime time programming from roughly 20 percent to more than 50
percent last year. Who can doubt that we are headed back to the
pre-finsyn levels of more than 90 percent? Yet this bonanza has
had no apparent effect on the network's claim that their
economic sky is continuing to fall.
In 1996, Congress, under this incessant pressure to do more
for the networks, reluctantly increased the national audience
cap from 25 to 35 percent, and they lifted the prior 12 station
ownership limit so that networks can own any number of stations
under the increased cap. The question is whether the networks
have allowed any of these very substantial economic benefits to
flow to their bottom line, and the answer is no.
Instead, they are diverting profits by investing, as is
their absolute right, in cable networks, radio expansion and
the Internet, but sooner or later the-sky-is-falling rhetoric
must be seen for what it is: an insatiable appetite for more
and more help from the government at the expense of free over-
the-air broadcast diversity and localism.
Mr. Chairman, this is a time when the networks as well as
other broadcasters have just been given the green light to
increase ownership concentrations of their owned and operated
station through the relaxation of the one-to-a-market and
duopoly rules. The marketplace for local television stations is
as unsettled as I have ever seen it. No one can predict the
massive changes in local television that will result, but it
will be revolutionary.
For the Congress to increase network affiliated audience
cap at this moment would be to move from revolutionary change
to chaos. It would be the equivalent of throwing gasoline on an
already raging fire of local television station consolidation.
With the now emerging economic and programming power of the
networks, consider what would happen to broadcast diversity and
localism in a world where networks can own and control more
than 90 percent of their programming, distributed through
wholly owned and operated duopolies in major markets and wholly
owned and operated affiliates reaching 50 percent of their
audience. Collectively, independent affiliates no longer will
have anything to say about program content and they will lose
whatever leverage we have.
Mr. Chairman, in 1995, some affiliates with some
trepidation agreed to the repeal of finsyn so the networks
could strengthen their economic base. We hoped this would be
enough. Indeed, FOX could not have emerged without the cap that
existed at that time, and so far as free over-the-air
broadcasting is concerned, we are at a cultural as well as an
economic crossroads. Your deliberation about this cap will
determine the outcome of whether the cherished ideals of
diversity and localism and television free to the public, as
articulated so plainly in the 1996 act, will survive.
Thank you, sir.
[The prepared statement of Andrew Fisher follows:]
Prepared Statement of Andrew Fisher, on Behalf of the Network
Affiliated Stations Alliance
Mr. Chairman and Distinguished Members of this Committee: My name
is Andrew Fisher and I am Executive Vice President, Affiliates, at Cox
Broadcasting. I am here on behalf of the Network Affiliated Stations
Alliance (NASA). Cox is affiliated with all four major networks, and
NASA is an alliance of the affiliates of the ABC, CBS, and NBC
television network affiliate associations and represents some 700 local
television stations across the country. These local television stations
represent a diversity of voices and a commitment to localism truly
unduplicated anywhere else in the world.
Mr. Chairman, generations of American children have grown up
believing that ``nothing could put Humpty Dumpty back together again.''
But if the national television networks can persuade Congress to let
them increase their national audience cap above 35 percent, they will
be virtually assured of ``putting back together again'' even more
market power than nearly half a century of communications policy was
intended to prevent.
In the 1960s the television networks were in a position to demand,
and they did indeed get, ownership interests in more than 90 percent of
all prime time programming. The networks' control over programming was
almost complete, notwithstanding the fact that affiliates already had
the right to reject and the right to preempt network programming. And
this was so even though networks were prohibited from serving as
advertising representatives to local stations and were required to
operate under a 25 percent national audience cap.
In 1970, policy makers reacted to the developing market power of
the networks by imposing the financial interest and syndication rules.
As a result of these accumulated policies, the networks' control of
primetime programming was moderated. That outcome has well served the
public interest because it produced a reasonable balance of power
between independent program producers, the national networks and their
local affiliates.
Mr. Chairman, about six years ago the networks launched a frontal
attack against this equilibrium by challenging its very foundations:
finsyn, the right to reject, the right to preempt, the rep rule and the
25 percent ownership cap. And their attack has been steadily rewarded.
By arguing that the economics of network television were no longer
profitable in the face of cable's dual revenue streams, the networks
were able to eliminate finsyn in 1995. This has led to powerful new
combinations of national networks and Hollywood studios. And it has led
us back to growing network ownership of primetime programming from
roughly 20 percent to more than 50 percent last year. Who can doubt
that we are headed back to the pre-finsyn levels of more than 90
percent?
Yet this bonanza has had no apparent effect on the networks' claim
that their economic sky is continuing to fall.
In 1996, Congress, under this incessant pressure to do more for the
networks, reluctantly increased the national audience cap from 25 to 35
percent and lifted the prior 12-stations ownership limit so that
networks can own any number of stations under the increased cap.
The question is whether the networks have allowed any of these
very substantial economic benefits to flow to their bottom line. The
answer is no. Instead they are diverting profits by investing . . . as
is their absolute right . . . in cable networks, radio expansion and
the Internet. But sooner or later their ``sky is falling'' rhetoric
must be seen for what it is--an insatiable appetite for more and more
help from the government at the expense of free over-the-air broadcast
diversity and localism.
Mr. Chairman, this is a time when the networks (as well as other
broadcasters) have just been given the green light to increase
ownership concentrations of their owned and operated stations through
the relaxation of the one-to-a market and duopoly rules. The
marketplace for local television stations is as unsettled as I have
ever seen it. No one can predict the massive changes in local
television ownership that will result. But it will be revolutionary.
For the Congress to increase the network national audience cap at this
moment would be to move from revolutionary change to chaos. It would be
the equivalent of throwing gasoline on an already raging fire of local
television station consolidation.
With the now emerging economic and programming power of the
networks, consider what could happen to broadcast diversity and
localism in a world where networks can own and control more than 90
percent of their programming distributed through wholly owned and
operated duopolies in many major markets and wholly owned and operated
affiliates reaching . . . say . . . 50 percent of their national
audience. Collectively, independent affiliates no longer will have
anything to say about program content. They will lose what little
existing collective leverage they have left through the right to reject
and preempt. Independent advertising rep firms will lose their
influence over programming as well. Program decisions about national
news and entertainment will be the exclusive domain of New York and
Hollywood. Networks will have the ability to clear their own
programming on a national basis with or without their affiliates'
blessing. And they will be able to repurpose . . . at will . . . their
program content to cable, DBS and other multichannel providers. This
will further weaken the voices and financial underpinnings of their
independent affiliates.
Mr. Chairman, in 1995, some affiliates, with some trepidation,
agreed to the repeal of finsyn so that the networks could strengthen
their economic base. The cautious hope was that stronger networks would
ensure the future of our free over-the-air system. It was assumed that
the then-25 percent national ownership cap and existing network
affiliate rules could continue to assure reasonable diversity and
localism. Indeed, the Fox network could not have emerged without the 25
percent cap. Congress had it right when it insisted on maintaining as
its primary goals, competition, diversity and localism in the
Telecommunications Act of 1996. And Congress had it right when it
categorically rejected just four years ago, as contrary to the public
interest, raising the national audience cap for broadcast networks to
50 percent. Insofar as free over-the-air broadcasting is concerned, we
are at a cultural as well as economic crossroads. Your deliberation on
increasing the cap beyond 35 percent will determine the outcome about
whether the cherished ideals of diversity and localism in television
free to the public, as articulated so plainly in the '96 Act, will
survive.
Mr. Tauzin. The Chair is now pleased to welcome the
President and COO of Benedek Broadcasting, Mr. Jim Yager.
STATEMENT OF K. JAMES YAGER
Mr. Yager. Thank you, Mr. Chairman. Let me begin by
commending you and your subcommittee for holding this hearing
today on these important issues. NAB has long championed reform
of the broadcast ownership rules, and we applaud the FCC for
taking several steps last month in the right direction, many of
which were included in Congressman Stearns' bill, H.R. 942.
Specifically, we agree with the FCC that allowing
television duopolies is a positive move. In an age of rapidly
increasing voices in the telecommunications world, the
anachronism of limiting ownership of local TV stations to one
has outgrown its usefulness.
This new rule will allow for economic efficiencies in local
markets and will strengthen the ability of both stations to
serve the public interest with local program. We also support
the ability of TV stations to merge with local radio stations.
Again, given our economic competition, this new system will
allow TV stations to work together with radio to serve their
audiences and to provide better local programming for
listeners. Indeed, we would have supported the repeal of the
old one to a market rule.
The FCC's duopoly rules put limits on radio and TV
ownership that we believe provide adequate protection for
diversity. There are plenty of other competitors in local
markets besides radio and television stations, and removal of
the radio television cross-ownership restrictions altogether
would have been appropriate. We also see no reason why the
Commission should count the number of media voices differently
for radio/TV combinations than in the television duopoly rule.
While the FCC has moved affirmatively on a couple of
fronts, there remains another issue that deserves action.
Specifically, we believe that the FCC should end the current
newspaper broadcast cross-ownership ban. Again, given the huge
increase in telecommunication voices, it seems outdated to deny
newspapers the right to have any ownership of local stations
and vice versa. We see no reason for keeping this rule in
place.
Let me also comment on two other rules that the FCC may be
looking at. The first is a national TV ownership cap which
currently limits any one company to owning stations that reach
up to but no more than 35 percent of the Nation's total
audience. As you will recall, prior to the 1996 Telecom Act, TV
owners were limited to 12 stations and/or 25 percent of the
national reach. The Telecom Act of 1996 raised that to 35
percent and eliminated the restriction on the number of
stations owned.
It is NAB's view that the 35 percent audience cap ensures
that ownership of television stations is not dominated by a few
megacompanies and that the beneficial decentralization of
ownership in television should be continued well into the new
millennium. Lacking a compelling public interest justification,
Congress should not modify the ownership cap and abandon an
industry structure based on localism in the television
marketplace, especially as we television broadcasters make the
transition to digital and the changes digital create in the
ownership landscape.
The second issue is the current cable broadcast ownership
rule. As you know, cable systems are prohibited from owning a
TV station in their local market. Here the issue is clearly the
monopoly gatekeeper role that cable plays for many households
and local markets. Congress has previously found that local TV
stations are often at the mercy of cable operators and allowing
cable systems to own local stations further concentrate that
power. Moreover, the FCC has not yet established what the must-
carry rules for digital television will be. Given that, we
believe it extremely premature to even consider allowing cable
operators to own local stations.
Mr. Chairman, we live in a rapidly changing technological
world. The emergence of the Internet is just one example of the
plethora of information and communications outlets available to
most Americans. NAB believes strongly in ownership reform, and
we support the changes that the FCC has taken. Yet we also see
the many changes our industry is going through, and we believe
that certain fundamental rules should be left alone for now
while we sort out the evolving media environment.
Again, I thank you and Mr. Stearns for your continued
interest in these important policy debates, and I welcome the
opportunity to discuss these matters further at today's
hearing.
[The prepared statement of K. James Yager follows:]
Prepared Statement of James Yager, President and Chief Operating
Officer, Benedek Broadcasting
Thank you, Mr. Chairman, for the opportunity to appear before the
Telecommunications Subcommittee today. I am K. James Yager, President
and Chief Operating Officer of Benedek Broadcasting, which owns 26
television stations in small markets across the nation. I also serve as
Joint Board Chairman for the National Association of Broadcasters
(``NAB''), on whose behalf I appear today. NAB represents the owners
and operators of America's radio and television stations, including
most networks.
My remarks today will address the Federal Communications
Commission's order adopted on August 5, 1999, which substantially
revised the television duopoly rule and the radio/television cross-
ownership rule by easing restrictions on the ownership of multiple
television and radio stations in the same local market.1 In
addition to addressing the Commission's recent Ownership Order, my
statement will focus on other broadcast multiple ownership rules that
are the subject of pending Commission proceedings.
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\1\ See Report and Order in MM Docket Nos. 91-221 and 87-8, FCC 99-
209 (rel. Aug. 6, 1999) (``Ownership Order''). On the same day, the
Commission adopted another order amending its broadcast attribution
rules, which define the types of interests that are cognizable under
the broadcast multiple ownership rules. See Report and Order in MM
Docket Nos. 94-150, 92-51 and 87-154, FCC 99-207 (rel. Aug. 6, 1999).
---------------------------------------------------------------------------
the revised local ownership rules
Television Duopoly Rule
The duopoly rule previously prohibited the common ownership of two
television stations whose Grade B contours overlapped.2 In
the Ownership Order, the Commission relaxed this standard to permit the
common ownership of two television stations without regard to contour
overlap if the stations are in separate Nielsen Designated Market Areas
(``DMAs'').3 The new rules continue to allow the common
ownership of two stations within the same DMA so long as their Grade B
contours do not overlap (which can occur in some geographically large
western states). More significantly, the Commission will now permit
common ownership of two television stations in the same DMA if: (1) at
least eight independently owned and operating full-power television
stations (commercial and noncommercial) will remain post-merger in the
DMA, and (2) at least one of the merging stations is not among the top
four-ranked stations in the market, based on audience share at the time
the application to acquire the station is filed.
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\2\ ``Grade B'' denotes a signal of a particular strength that
describes a station's coverage area. The Grade B contour of a
television station encompasses approximately a 50-70 mile radius around
the station's transmitter.
\3\ DMAs are county-based geographic areas determined by Nielsen
Media Research, a television audience measurement service, based on
television viewership in the counties that make up each DMA.
---------------------------------------------------------------------------
In addition, the Commission adopted three criteria for waiving the
revised duopoly rule. Specifically, the Commission will presume a
waiver of the rule is in the public interest to permit common ownership
of two television stations in the same DMA where:
(1) One of the stations is a ``failed'' station, as supported by a
showing that the station either has been off the air for at least four
months immediately preceding the application for waiver, or is
currently involved in involuntary bankruptcy or insolvency proceedings.
(2) One of the stations is a ``failing'' station, as supported by a
showing that the station has had a low audience share and has been
financially struggling for several years, and that the merger will
produce public interest benefits.
(3) The combination will result in the construction and operation
of an authorized but as yet ``unbuilt'' station, supported by a showing
that the permittee has made reasonable efforts to construct, but has
been unable to do so.
The Commission also determined to treat television Local Marketing
Agreements (``LMAs'') according to the same principles that already
apply to radio LMAs.4 The Commission will now attribute the
time brokerage of another television station in the same market for
more than 15% of the brokered station's broadcast hours per week, and
will count LMAs that fall in this category for the purpose of
determining the brokering licensee's compliance with the multiple
ownership rules, including the television duopoly rule. If they were
entered into before November 5, 1996, existing LMAs that do not comply
with the new duopoly rule and waiver policies will be grandfathered, at
least until the conclusion of the Commission's 2004 biennial review of
all the multiple ownership rules. However, LMAs entered into on or
after November 5, 1996, that do not meet the revised duopoly rule must
either come into compliance with the new rule or terminate by August 5,
2001.
---------------------------------------------------------------------------
\4\ A television LMA or time brokerage agreement is a type of
contract that involves the sale by a licensee of discrete blocks of
time to a broker that then supplies the programming to fill that time
and sells the commercial spot announcements to support the programming.
---------------------------------------------------------------------------
Radio/Television Cross-Ownership Rule
The radio/television cross-ownership rule (often referred to as the
``one-to-a-market'' rule) restricts joint ownership of radio and
television stations serving substantial areas in common. In the
Ownership Order, the Commission revised this rule to allow more common
ownership of radio and television stations in the same market.
Specifically, the new rules will permit a party to own a television
station (or two television stations if permitted under the modified
television duopoly rule or LMA grandfathering policy) and any of the
following radio station combinations in the same market:
(1) up to six radio stations (any combination of AM or FM stations,
to the extent permitted under the Commission's local radio ownership
rules) in any market where at least 20 independent voices will remain
post-merger;
(2) up to four radio stations (any combination of AM or FM
stations, to the extent permitted under the local radio ownership
rules) in any market where at least 10 independent voices will remain
post-merger; and
(3) one radio station (AM or FM) regardless of the number of
independent voices in the market.
In addition, in those markets where the revised cross-ownership
rule will allow parties to own eight outlets in the form of two
television stations and six radio stations, the Commission will permit
them to own one television station and seven radio stations instead.
For purposes of this revised radio/television cross-ownership rule,
the Commission will count television stations, radio stations, daily
newspapers and wired cable service as ``voices.''
The Commission specifically declined to include other types of
media (such as Direct Broadcast Satellite, Open Video Systems,
Multipoint Distribution Service systems, or the Internet) in this voice
count. As with the television duopoly rule, the Commission will permit
waiver of the revised radio/television cross-ownership rule in the case
of a ``failed'' station; however, no waiver standards were adopted for
``failing'' or ``unbuilt'' stations in the cross-ownership context.
Since 1996, the Commission has granted a number of radio/television
cross-ownership rule waivers conditioned on the outcome of its
ownership rulemaking proceeding. The majority of these conditional
waivers involve radio/television combinations that will be permissible
under the revised cross-ownership rule. For those conditional radio/
television combinations not covered by the revised rule, as well as for
those for which an application was filed on or before July 29, 1999 (if
such application is ultimately granted), the Commission will allow the
combinations to continue, conditioned on its review of the waivers as
part of its 2004 biennial review of the cross-ownership rule.
NAB's Position on Revised Ownership Rules
In the Ownership Order, the Commission recognized the continued
growth in the number and variety of mass media outlets, as well as the
economic efficiencies and public interest benefits generated by common
ownership of media outlets. NAB commends the Commission for recognizing
the significant changes in the mass media marketplace and revising the
television duopoly and radio/television cross-ownership rules to
reflect these changes. NAB believes that the Commission generally
achieved its stated goal of balancing the efficiencies and public
service benefits to be gained from joint ownership of broadcast
facilities with its continuing efforts to ensure diversity and
competition in the broadcast services. Relaxation of these local
ownership rules should also help broadcasters compete more effectively
with other telecommunications providers. NAB wants to emphasize,
however, that the Commission should have acted more boldly in its
reformation of the radio/television cross-ownership rule. NAB also
notes significant inconsistencies within the Ownership Order and the
existence of certain unresolved issues relating to the implementation
of the revised duopoly and cross-ownership rules.
Rather than merely revising the radio/television cross-ownership
rule, the Commission should have eliminated the rule entirely. NAB
believes that the television and radio duopoly rules 5 can
be relied upon to ensure sufficient diversity and competition in local
markets. Given the strict numerical limits placed on the ownership of
television and radio stations by the duopoly rules, the additional
radio/television cross-ownership rule appears redundant and
unnecessary. The cross-ownership rule is certainly no longer needed to
ensure diversity, in light of the growth in the number of traditional
broadcast outlets and alternative media since the rule was adopted by a
divided Commission in 1970.6 Moreover, elimination of the
cross-ownership rule will not adversely affect competition in local
advertising markets. Radio and television broadcast stations not only
compete with each other for advertising dollars, but also with other
media, particularly newspapers and cable. Because the television and
radio duopoly rules are more than adequate to ensure diversity and
competition in today's local media markets, which are characterized by
a greater variety of outlets than ever before, the Commission should
have repealed the radio/television cross-ownership rule in its recent
Ownership Order.
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\5\ The radio duopoly rule, 47 C.F.R. Sec. 73.3555(a)(1), restricts
the number of radio stations that any party can own or control in any
local market, depending upon the total number of commercial radio
stations in the market. This rule also limits the number of radio
stations in each service (AM or FM) that a single party can own or
control in a local market.
\6\ According to the Commission, the total number of radio and
television stations has increased by over 85% since 1970, mainly due to
the growth of the FM radio and UHF television services. See Ownership
Order at para. 29. During that time, a number of non-traditional media
delivery systems have also developed, including cable, home satellite
dishes, Direct Broadcast Satellite, Open Video Systems, Satellite
Master Antenna Television systems, Multipoint Distribution Service
systems and the Internet.
---------------------------------------------------------------------------
A comparison of the revised radio/television cross-ownership rule
with the amended television duopoly rule moreover reveals significant
inconsistencies, most notably in the differing ``voice'' count
requirements. As previously described, the Commission will permit
common ownership of a television station and a varying number of radio
stations in the same market, depending upon the number of ``independent
voices'' (television and radio stations, newspapers and wired cable)
remaining in the market after the combination. However, the Commission
will permit common ownership of two television stations in the same
market only if a minimum of eight independently owned and operating
television stations will remain in the market after the combination. In
the context of the television duopoly rule, the Commission will not
consider the other voices (radio, newspapers and cable) that it
expressly determined to consider under the radio/television cross-
ownership rule.
NAB contends that there is no justification for counting media
voices so differently in the context of two similar multiple ownership
rules. Both the television duopoly and the radio/television cross-
ownership rules are intended to promote diversity and competition in
local broadcast markets. Given the shared purpose of these rules, it
would seem logical for the Commission to consider the same types of
media when formulating the terms of both rules. NAB questions the
Commission's refusal to consider other types of media (such as Direct
Broadcast Satellite, Open Video Systems, Satellite Master Antenna
Television systems, Multipoint Distribution Service systems or the
Internet) when counting media voices in the context of the local
ownership rules generally. But even assuming that the Commission
correctly declined to consider such alternative mass media delivery
systems, NAB strongly believes that the Commission's decision to
consider cable as a voice in the cross-ownership context, but not in
the television duopoly context, was illogical and arbitrary. Clearly,
wired cable constitutes the strongest competitor to broadcast
television in the video programming marketplace, and the Commission has
recognized that the clustering of cable systems in major population
centers enables cable to compete more effectively for advertising
dollars. See Ownership Order at para. 37. For these reasons, NAB
believes that the Commission erred in the Ownership Order in its
inconsistent formulation of the television duopoly and radio/television
cross-ownership rules, and should have, at the very least, counted
cable as a voice under the terms of the duopoly rule.7
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\7\ NAB also notes that the waiver standards for the two rules
differ. As described above, the Commission provides for a waiver of the
television duopoly rule in the case of ``failed,'' ``failing'' and
``unbuilt'' stations, but will waive the cross-ownership rule only in
the case of ``failed'' stations. NAB believes this dichotomy to be
unjustified.
---------------------------------------------------------------------------
NAB is also concerned about the limits placed on the
transferability of station combinations formed under the television
duopoly and cross-ownership rules. Assume, for example, that the
licensee of a top-four ranked television station acquires a second,
low-ranked television station in the same market under the eight voice/
top four-ranked duopoly standard. The licensee then labors to make the
unsuccessful station into a top four-ranked station, and eventually
decides to sell both stations. The Commission specifically stated in
the Ownership Order that a duopoly may not automatically be transferred
to a new owner if the eight voice/top four-ranked standard is not met.
Thus, the licensee in this example would apparently be prohibited from
assigning or transferring these two top-ranked stations to a single
buyer and would be forced to split the two stations and find separate
purchasers. NAB believes such limits on the transferability of station
combinations will prove to be disruptive and will likely tend to
discourage investment in broadcast stations.
Finally, NAB notes that the Ownership Order did not resolve certain
issues relating to the implementation of the revised ownership rules
that arise, in large part, due to the overly restrictive voice count
requirements contained in those rules. The Commission itself recognized
that the rules adopted in the Ownership Order could result in two or
more applications being filed on the same day relating to stations in
the same market and that, due to the voice count requirements, all
applications might not be able to be granted. In a public notice
released September 9, 1999, the Commission proposed to use random
selection to determine the order in which applications filed on the
same day will be processed. Because the Commission has already
determined that television LMAs entered into before November 5, 1996
will be grandfathered, NAB assumes that this lottery proposal will not
adversely affect these grandfathered arrangements. Specifically, NAB
presumes that parties with grandfathered LMAs who apply for a
television duopoly under the revised rule will not be forced into a
lottery with other, non-grandfathered parties who, on the same day,
file an application seeking to create a new duopoly in the same market.
If NAB's assumption about the Commission's lottery proposal proves to
be unwarranted, then NAB would have serious reservations about the
fairness and practicality of any lottery to determine the order of
application processing.
Given the voice count requirements adopted by the Commission in the
revised television duopoly and cross-ownership rules, NAB believes that
there will be a ``land rush'' by broadcast licensees to file assignment
and transfer applications pursuant to the new rules as soon as they are
permitted (i.e., 60 days after publication of the new rules in the
Federal Register). Multi-million dollar transactions may likely depend
on how the Commission ultimately determines to resolve conflicts among
applications that cannot all be granted due to voice count
requirements. NAB intends to follow the resolution of these issues
closely.
the remaining ownership rules
The Ownership Order addressed only the television duopoly and the
radio/television cross- ownership rules. Despite the Commission's
statutory obligation to review its broadcast ownership rules every two
years, 8 the Commission has not yet completed its review of
the remaining ownership rules begun in 1998.9 NAB will now
address these other broadcast ownership regulations.
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\8\ See Section 202(h) of the Telecommunications Act of 1996, Pub.
L. No. 104-104, 110 Stat. 56 (1996).
\9\ See Notice of Inquiry in MM Docket No. 98-35, 13 FCC Rcd 11276
(1998).
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Daily Newspaper/Broadcast Cross-Ownership Rule
In 1975 the Commission adopted a rule prohibiting the common
ownership of a daily newspaper and a television or radio station in the
same locale. See 47 C.F.R. Sec. 73.3555(d). NAB opposed the regulation
at that time, and continues to believe that the prohibition should be
repealed, particularly in light of the recent changes in the mass media
marketplace.
There are today far more communications outlets than ever before,
due to technological advances and the introduction of more broadcast
facilities and alternative media outlets. This growth in the number and
variety of media outlets prompted the Commission to loosen the
television duopoly and radio/television cross-ownership rules just last
month. NAB believes that these changes in the media marketplace alone
warrant repeal of the newspaper/broadcast cross-ownership rule.
The cross-ownership rule moreover appears increasingly out-of-step
with other regulations governing common ownership of communication
outlets. By its terms, this rule singles out newspaper owners and
effectively prohibits them from obtaining broadcast
licenses.10 Not only is such a prohibition arguably
discriminatory, it is contrary to the deregulation of television,
radio, cable and telephone companies that has occurred since passage of
the 1996 Telecommunications Act. The cross-ownership rule even
adversely affects the owners of grandfathered newspaper/broadcast
station combinations by preventing them from taking advantage of the
efficiencies that other broadcasters are now permitted to achieve
through common ownership of multiple radio and television stations. NAB
can find no rational basis to support these continued prohibitions
against newspaper owners, especially in light of the recent significant
deregulation of other media entities.
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\10\ The Commission has strictly applied the newspaper/broadcast
cross-ownership rule and has granted permanent waivers of the rule very
rarely and only in extraordinary circumstances. See Stockholders of
Renaissance Communications Corporation, 12 FCC Rcd 11866 (1997)
(Commission denied Tribune Company's request for permanent waiver of
cross-ownership rule, noting that such permanent waivers had been
granted only twice in the past 20 years).
---------------------------------------------------------------------------
NAB also suggests that diversity of media outlets could actually
increase as a result of eliminating (or at least relaxing) the
newspaper/broadcast cross-ownership rule. It is not disputed that the
number of daily newspapers in this country has declined in recent
years. Other newspapers are financially challenged, due in part to the
considerable costs of newspaper printing and distribution and the
increase in competition from other media outlets for advertising
revenue. Allowing struggling newspapers to become affiliated with local
broadcast operations could bolster the newspapers' financial condition
and increase the likelihood of survival for otherwise marginal
newspapers. According to a study commissioned by NAB in 1998, these
positive economic effects associated with joint newspaper/broadcast
operations are the greatest in smaller markets where there are the
fewest newspapers.11 For these reasons, NAB concludes that
repeal of the newspaper/broadcast cross- ownership rule is fully
justified.
---------------------------------------------------------------------------
\11\ See Study to Determine Certain Economic Implications of
Broadcasting/Newspaper Cross-Ownership by Bond & Pecaro, Inc. (July 21,
1998). This study found that efficiency gains from joint ownership of
newspaper and broadcast operations could increase operating cash flow
between 9% to 22%.
---------------------------------------------------------------------------
Television National Cap and UHF Discount
The national television multiple ownership rule provides that no
person or entity may own or control television stations that have an
aggregate national audience reach exceeding 35%. For purposes of
calculating this aggregate audience reach, UHF stations are
``discounted''; specifically, they are attributed with only 50% of the
audience within their markets. See 47 C.F.R. Sec. 73.3555(e). NAB
believes that both rules should be maintained.
Prior to passage of the Telecommunications Act of 1996, the
Commission had generally prohibited any person or entity from owning or
controlling more than 12 television stations nationwide and had set the
national audience reach limitation at 25%. The Telecommunications Act,
however, directed the Commission to eliminate the restrictions on the
number of television stations that a person or entity could own or
control nationwide and to increase the national audience reach cap to
35%. NAB believes that these television ownership limits have not been
in effect long enough to warrant any modification at this time. There
are, moreover, significant developments on the near horizon for the
television industry that make any changes in the national ownership cap
ill advised.
The television industry and the public are anticipating the advent
of digital television broadcasting--providing not only far superior
picture quality, but the prospect of additional program diversity over
each channel. Broadcasters are currently in the midst of the digital
television transition, and are planning to offer expanded high
definition programming this fall. Furthermore, as a result of the
Commission's recent amendment of the television duopoly and radio/
television cross-ownership rules, NAB expects significant changes to
occur in the ownership structure of the television industry. Until the
effects of the digital transition and television regulatory changes are
evident, NAB cannot support any changes in the television national
ownership rule.
NAB also supports retention of the UHF discount rule. Although such
factors as improved receiver designs and cable ``must carry'' rules
12 may be decreasing the disparity between UHF and VHF
television stations, NAB does not believe that these changes are
sufficient to support an alteration of the UHF discount rule.
---------------------------------------------------------------------------
\12\ The Cable Television Consumer Protection and Competition Act
of 1992 required cable television systems to dedicate some of their
channels to local broadcast television stations. The constitutionality
of these must carry provisions was upheld in Turner Broadcasting
System, Inc. v. FCC, 117 S.Ct. 1174 (1997).
---------------------------------------------------------------------------
In earlier comments submitted to the Commission on this issue in
1998, NAB provided two studies that described the disadvantages that a
UHF station still has in comparison to a VHF station.13 The
first study concluded that UHF stations, across all networks and
markets, continue to face a penalty in ratings due solely to the fact
that they are UHF stations. The second study examined the financial
difficulties faced by UHF stations due to the smaller audiences that
typically watch UHF stations, and concluded that the average UHF
network affiliate generated lower net revenues, cash flow and pre-tax
profits than the average VHF affiliate. Given the findings in these two
studies, NAB argues that the UHF discount is still fully justified.
---------------------------------------------------------------------------
\13\ See The ``UHF Penalty'' Demonstrated by Stephen E. Everett,
Ph.D., Director of Audience Measurement and Policy Research, National
Association of Broadcasters (July 1998).
---------------------------------------------------------------------------
At the very least, no alteration to the UHF discount rule should be
considered until the Commission has adopted rules concerning ``must
carry'' in the digital television environment. Digital carriage rights
and the number of television stations choosing to remain on the UHF
band following the digital broadcasting transition remain undetermined.
Until the effects of these factors are known, the UHF discount rule
should not be changed.
Cable/Television Cross-Ownership Rule
The cable/television cross-ownership rule effectively prohibits
common ownership of a broadcast television station and a cable system
in the same local community. See 47 C.F.R. Sec. 76.501(a). The 1996
Telecommunications Act eliminated a similar statutory provision. NAB
does not support changes to this cross-ownership rule, given the cable
industry's position as the dominant provider of multichannel video
programming.
Currently pending before the Commission is a rulemaking proceeding
addressing ``must carry'' for local broadcast television stations in
the digital environment.14 Until the Commission establishes
a clear must carry rule benefiting all local television stations, NAB
asserts that it would be premature to allow the local cable operator to
be the licensee of any local television station. Without a firm digital
must carry obligation placed upon cable operators, there is more than
just the potential for a cable operator to abuse its ``gatekeeper''
role and give preferred carriage to its owned and operated local
station--and perhaps either non-carriage or partial carriage to local
stations owned by other entities. Although NAB supports elimination of
other cross-ownership regulations (such as the newspaper/broadcast and
radio/television rules), in none of these regulatory areas does one
competitor have the potential to eliminate or hamper the public's
ability to access another competitor. That is the case, however, with
cable television.
---------------------------------------------------------------------------
\14\ See Notice of Proposed Rulemaking in CS Docket No. 98-120, FCC
98-153 (rel. July 10, 1998).
---------------------------------------------------------------------------
Both Congressional and Commission findings indicate that relaxation
or repeal of the cable/television cross-ownership rule would be
premature. As Congress has previously noted, ``[t]he cable industry has
become a dominant nationwide video medium . . . a cable system serving
a local community with rare exception, enjoys a monopoly . . . [and]
television broadcasters like other programmers can be at the mercy of a
cable operator's market power.'' 15 In its most recent
report to Congress concerning competition in the video programming
market, the Commission found that ``cable television continues to the
primary delivery technology for the distribution of multichannel video
programming and continues to occupy a dominant position'' in the
marketplace.16 Thus, it is clear that local cable television
operators still enjoy a gatekeeper position vis-a-vis local television
broadcasters. And it is this gatekeeper role that leads NAB to oppose
alteration of the cable/television cross-ownership rule, at least
pending final decisions concerning digital must carry and other
regulatory relationships between local broadcasters and local cable
operators. Because retaining this cross-ownership rule will help
maintain a competitive balance in the video marketplace, NAB supports
retention of the rule.
---------------------------------------------------------------------------
\15\ S. Rep. No. 102-92, 102d Cong., 1st Sess., 8, 45, 69 (1991).
\16\ Annual Assessment of the Status of Competition in Markets for
the Delivery of Video Programming, Fifth Annual Report, 13 FCC Rcd
24284 at para. 6 (1998). This report also noted the continuing
difficulties in obtaining programming experienced by multichannel video
programming distributors with the potential to compete against cable
operators.
---------------------------------------------------------------------------
conclusion
In sum, Mr. Chairman, NAB applauds the recent action by the
Commission to loosen restrictions on the ownership of multiple
television and radio stations in the same market. Given the continued
growth in the number and variety of media outlets, NAB also believes
that further liberalization of the local ownership rules is warranted.
In particular, NAB supports elimination of the radio/television cross-
ownership rule and the newspaper/broadcast cross-ownership rule, as
repeal of these regulations would produce economic and public service
benefits without compromising diversity and competition in local media
markets. Again, NAB wishes to express its appreciation to the members
of the Telecommunications Subcommittee for the opportunity to testify
and for their attention today.
Mr. Tauzin. The Chair would now recognize Mr. Jim Hedlund,
President of Association of Local Television Stations. Mr.
Hedlund.
STATEMENT OF JAMES B. HEDLUND
Mr. Hedlund. Mr. Chairman, thank you. I can report to you
that unless the subcommittee keeps interrupting me with
sustained applause that I should be able to finish this within
your green light.
We are a trade association which represents the television
stations affiliated with the FOX, UPN and WB networks, as well
as some still pure independent stations. We have been on a
crusade of sorts for the last 10 years to get the FCC to relax
the local TV ownership rules, and as such, of course, we were
rather pleased with the action the Commission took last month.
We believe the FCC did the right thing in relaxing the duopoly
rule, and we commend them for that.
We commend you, Mr. Chairman, and a number of your
colleagues who made it very clear to the Commission that you
wanted deregulation on this front, and we appreciate that.
Now, while we can say we are grateful for what the FCC did
and certainly appreciate the positive steps they have taken, we
still believe they did not go as far as they should go and did
not go as far as we believe the Congress wanted them to go.
I have a number of suggestions which I will summarize real
briefly here. First, there is a so-called independent
``voices'' test in the rule for duopolies which would largely
limit duopolies, legalize duopolies to the largest television
markets. We believe this should be revised or eliminated
because, as written, it does really very little for
combinations in small media markets where the economies of
scale are even more important than they are in the largest
markets.
Second, even if one accepts the concept of a voices test,
we believe that DBS, MMDS, newspapers and cable networks should
be included in the count. It is interesting that in part of the
Commission's order, cable systems and newspapers are part of
the voice count when it comes to TV/radio ownership in the
market but they oddly disappear when it is dealing only with
the television ownership.
But even if the rule was amended so that cable counted as a
voice or duopoly rules, it is not enough to simply count cable
as one because a broadcaster does not really compete against a
cable system per se, it competes against all of the networks
that are carried by that cable system: CNN, ESPN, USA and the
5,200 other cable channels that are typically made available to
consumers.
So if there is to be a diversity of voices test for
television duopoly, we believe that count should include all
the networks available locally and not just count the number of
local TV stations. And unless this voices test is changed in
the manner I am recommending, we believe the Commission should
revise and relax its duopoly rules in small- and medium-size
markets because, as written, they would largely restrict the
common ownership in small or medium markets to include at least
one dead or terminally ill station to make it allowable.
The Commission has still not grandfathered permanently, as
Congress instructed them to do, all of the local marketing
agreements, and they should do that once and for all.
And finally, and this is a little more complex, if a voices
test survives and is sustained by the Commission, we believe
that in a number of instances there will be room in a market
for maybe 1 or 2 duopolies, and in theory you could have 5 or 6
companies knocking on the door, each wanting one when there
isn't room for that. And if that is the case, we propose that
priority be given to those stations that already have a legal
arrangement in the market, whether it is through a dead equity
combination, an LMA or what have you, with a second station in
the market.
And finally, as I think most of my colleagues have already
agreed and I know that two following will agree; ALTV strongly
supports the repeal of the newspaper television cross-ownership
ban. We think that if it ever served a purpose, it no longer
does and is outdated and should be eliminated.
Mr. Chairman, you have been very kind to hear me out. You
all have been helpful. I simply ask you now to help us. The FCC
has moved that ball down the field. We just ask you to give
them that final push to get them into the end zone. Thank you.
[The prepared statement of James B. Hedlund follows:]
Prepared Statement of James B. Hedlund, President, Association of Local
Television Stations
Good Morning Mr. Chairman and members of the Committee. As
president of the Association of Local Television Stations I am honored
to appear before you today to discuss the Federal Communications
Commission broadcast ownership rules. My testimony today will deal
primarily with the revisions made to the local television ownership
rules by the FCC in its August decision.1 The FCC's Local
Ownership Decision has changed the broadcast landscape. It is a step in
the right direction. Nonetheless, my testimony will detail several
shortcomings of the decision and outline some proposed changes.
---------------------------------------------------------------------------
\1\ Report and Order in MM Docket No. 91-221, FCC 99-209 (released
August 6, 1999) (hereinafter cited as Local Ownership Decision)
---------------------------------------------------------------------------
In addition to commenting on the Local Television Ownership
Decision, my testimony will touch briefly on the television newspaper
cross ownership rule. We believe the rule should be eliminated or
significantly revised.
i. the revised television duopoly rule
Since 1991, ALTV has been urging the Federal Communications
Commission to relax its rules governing the ownership of two television
stations in the same television market. After nearly a decade of
debate, the Commission has finally taken a step forward. The decision
is long overdue. Nonetheless, we believe the FCC should have gone
further in relaxing the rules, especially in small and medium sized
television markets.
A. Competition Is Fierce
ALTV does not mean to belabor this point. The Commission's Local
Ownership Decision does recognize that competition to free, local over-
the-air television has increased. Nonetheless, we do not believe the
FCC has truly measured the impact of this competition. This is
especially true with respect to competition from cable television.
We believe competition in the media marketplace has overtaken the
need for a local television duopoly rule. Competition for viewers and
advertising dollars in local television markets has increased
dramatically since the duopoly rule was placed into the FCC's
regulations in 1964. Since 1964, the number of commercial television
stations has increased over 100% from 582 to 1,216.2
Noncommercial stations increased by 361%, from 79 in 19674 to
369.3 There are now over 1600 low power stations which did
not exist in 1964. To date the number of stations in the top ten
markets is 13.4 stations per market. Markets 21-30 average 9.8 stations
per market and even small markets (101-110) average 5.3 stations per
market.
---------------------------------------------------------------------------
\2\ 1999 Broadcast and Cable Factbook at J45.
\3\ Id.
---------------------------------------------------------------------------
Multichannel competition has created fierce competition at the
local level. Cable has become the predominant purveyor of video product
in local television markets. The rise of clustered multiple system
operators (MSOs) and local cable interconnects makes cable systems an
intense competitor. A recent analysis by Bear Stearns more than
supports these conclusions.
Comparative Prime Time Ratings for Broadcast Networks, Pay Cable and
Basic Cable Networks
------------------------------------------------------------------------
Nov. 1982 Nov. 1990 Nov. 1997
Ratings/ Ratings/ Ratings/
Share Share Share
------------------------------------------------------------------------
Network Affiliates............ 49.6/80 38.1/61.9 30.1/45
Independents.................. 8.7/14 13.0/22 7.4/12
PBS........................... 2.4/4.0 2.3/4.0 2.5/4.0
Pay Cable..................... 3.1/5.0 3.1/5.0 3.5/6.0
Cable Networks................ 1.8/3.0 11.2/16.0 21.2/34.0
------------------------------------------------------------------------
Source: Bear Stearns, Cable & Broadcast, March 1999 at 102.
Basic cable networks now have a combined audience rating and share
close to the combined ratings and share of the big four broadcast
television networks. The audience share of the basic cable networks now
exceed that of any individual big four broadcast network. Indeed, the
ratings and share of the cable network audience exceeds the combined
Independent and PBS share. Cable's share of television advertising
dollars has exploded:
Cable Television (Percentage) Share of Total Television Advertising
Dollars
------------------------------------------------------------------------
1982 1990 1997
------------------------------------------------------------------------
Cable Networks............................... 0.5% 6.4% 12.8%
Local Cable Non Network...................... 0.1% 2.1% 5.1%
------------------------------------------------------------------------
Source: Bear Stearns, Cable & Broadcast, March 1999 at 90.
There can be no doubt that this increase has come at the expense of
free, over-the-air television. During this same period the local
stations' share of the local and national spot market declined from
54.3% in 1982 to 47.6% in 1997.4 National broadcast network
shares also declined during this period. The substitutability between
broadcast and cable programming is no longer an academic exercise.
---------------------------------------------------------------------------
\4\ Bear Stearns, Cable and Broadcast Report, March 1999 at 90.
---------------------------------------------------------------------------
Cable is not the only multichannel competitor. DBS will soon be a
major competitor to both local broadcast stations and cable systems.
The primary satellite companies, Direct TV and Echostar each provided
hundreds of video channels to their estimated 10 million subscribers in
every local market across the United States. DBS reaches every
household in the United States with about 10 million current
subscribers. There are an infinite number of channels available on the
Internet. There is no doubt that on-line streaming of video programming
will become commonplace in the very near future. The local Bell
operating companies have invested hundreds of millions of dollars in
multipoint multi-distribution services (MMDS). With digital
compression, each service is able to offer more than 120 channels over
the air. Newspapers and magazines also compete with local television
stations for advertising revenue.
We believe the FCC has underestimated the importance of these
competitive voices in the marketplace, especially as it applies to the
new duopoly rule. As I will explain below, the FCC could have gone much
further in relaxing the rule.
B. The New Duopoly Rule
Prior to the Local Ownership Decision, a single entity was
prohibited from owning two local television stations if there was more
than a diminimus overlap of the station's Grade B contours. In effect,
this meant that absent special circumstances, a single entity could not
own two stations in the same television market.
The Local Ownership Decision revised this rule in several ways.
First, it eliminated the Grade B contour overlap standard, and
redefined the television station's designate market area (DMA). Second,
it permitted the common ownership of two stations in the same market
provided a) the top four stations in a market did not combine with each
other, and b) there remained eight independently owned broadcast
television voices in a local market after the combination(s) took
place. Finally, the FCC would consider waivers of this rule in
situations involving failed, failing or newly constructed stations. The
following discussion focuses on these changes to the rule.
1. The new DMA market definition--We support the FCC's decision to
change the definition of a station's local market. Instead of relying
solely on Grade B contours, the Commission defined a station in terms
of its Nielsen designated market area (DMA). A station's DMA is a
generally recognized as the economic market for advertising and
programming sales. Under the new rule, a single entity could own a
station in Baltimore and Washington DC. Clearly these two metro areas
should be considered separate markets.
2. FCC's requirement that eight independent voices remain in a
market is problematic--We have strong reservations about the eight
independent voice standard adopted by the FCC. This standard is
arbitrary and inconsistent with the public interest on a number of
levels. The new standard articulated by the Commission makes little
sense. The Commission provides no justification for selecting eight
voices as the optimum level of diversity in a local market. Why does a
market need eight ``independent'' voices, as opposed to six, or five or
four? 5 In the fifty years of television regulation, the FCC
has never provided any evidence to suggest that eight independent
voices provides the appropriate ``diversity baseline.'' To the
contrary, employing an eight person voice test results in several
unforseen and negative results.
---------------------------------------------------------------------------
\5\ Indeed, when radio is considered the diversity baseline
increases to 20 voices in large markets.
---------------------------------------------------------------------------
First, the benefits of combined local ownership are denied to
consumers in medium and small markets. The irony is that the economics
of free television broadcasting mean that local market combinations may
be more important in small and medium sized markets than in large
market. For years, television allotments in small markets remained
vacant because the population of these areas could not support another
independently owned, advertising-based, free television service. In
fact, the pattern of LMA growth ( a surrogate for duopoly) occurred
primarily in medium and small markets.6 It is in these
markets where the efficiencies obtained from common ownership provide
the necessary economic incentives to bring new and superior television
service to the market. Absent these combinations, many of the stations
in small markets will never be built or remain on the air as marginal
players. In either case, the citizens of these small markets are denied
the benefits of a superior free, over-the-air service because of the
artificial constraints imposed by anachronistic federal rules.
---------------------------------------------------------------------------
\6\ Based on surveys filed with the FCC, 83% of current LMAs are
located outside the top 25 television markets and 54% are located
outside the top 50 markets. See: ALTV Local marketing Agreements and
the Public Interest: A Supplemental Report, May 1998 at 7 filed in MM
Docket No 91-221.
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As the FCC recognized in its decision, local market combinations
lead to improved programming and services to the public. These benefits
of improved free service should not be denied to viewers in small
markets. Unfortunately, employing an ``eight'' person voice test means
these benefits will be enjoyed only in the largest television markets.
Second, the most capricious aspect of the FCC's decision is its
determination of what constitutes a ``voice'' under the eight voice
standard. According to the Commission, only local television broadcast
stations (both commercial and non commercial) will be counted as voices
under the FCC duopoly rule.
. . . [W]e are unable to reach a definitive conclusion at this
time as to the extent to which other media serve as readily
available substitutes for broadcast television . . . Thus we
agree with those commenters who argued that different types of
media, such as radio, cable television, VCRs, MMDS and
newspapers, may to some extent be substitutes for broadcast
television, in the absence of the factual data we requested, we
have decided to exercise due caution by employing a minimum
stations count that includes only broadcast televisions
stations.7
---------------------------------------------------------------------------
\7\ Local Ownership Decision at para. 69.
---------------------------------------------------------------------------
This analysis makes little sense. The Commissions conclusion is
simply factually inaccurate. It also contradicts past FCC decisions,
current rules, and is internally inconsistent within the context of the
August Local Ownership Decision.
From a factual standpoint there is simply no basis for the FCC's
conclusion that it lacks definitive evidence as to the substitutability
of other media. As noted previously in this testimony, there is intense
competition in the marketplace--especially with regard to cable
television. The factual evidence regarding substitutability occurs
every day in the Nielsen ratings. The declines in audiences at
broadcast networks and local stations are attributable directly to
cable television. Almost every television viewer in the United States
knows that you can take a remote control and switch back and forth
between cable networks and broadcast channels. The FCC's recent
decision is simply inexplicable.
The arbitrary nature of the FCC's decision not to count cable and
others as voices in a local market conflicts with FCC precedent. In
countless decisions since the 1980s the FCC observed that competition
from cable television and other media has justified changes in the
rules governing television.8 All of these decisions are
based on the premise that cable is a substitute for local over-the-air
television. It defies logic for the FCC to now argue that it is unsure
of the substitutability between cable, broadcast and other video media.
---------------------------------------------------------------------------
\8\ For example, competition from cable served as the basis for
changes in the regional concentration rules (1984), increasing the
national ownership rules from seven to twelve stations (1984), the
financial interest and syndication rules (1994) and the prime time
access cure (1995).
---------------------------------------------------------------------------
The arbitrariness of the FCC's decision is further evidenced by its
own rules. On the one hand, the FCC does not believe that newspapers,
cable systems and radio stations are sufficient substitutes to count as
voices when analyzing a local television market under its duopoly rule.
At the same time, the FCC continues to have rules limiting local common
ownership of television stations and cable systems, newspapers as well
as radio stations. These rules are premised on the notion that these
media are substitutes in the marketplace of ideas and that common
control would give one entity too much power in a local market. Under
the August decision, however, they are not longer sufficient
substitutes.
The Commission cannot have it both ways. If newspapers, cable,
radio and other media are not substitutes for local television (hence
in different markets for diversity purposes), then there is no harm to
diversity if one entity owns a television station and any one of these
mediums. Simply stated, the Commission's refusal to count these other
media in the context of the duopoly rule, abrogates the justification
for the newspaper/television broadcast cross ownership and its new
radio/TV cross ownership rule.
The paradox of the FCC's position is painfully evident even within
the confines of the FCC's August decision. When analyzing voices for
the duopoly rule, the FCC does not count radio, believing it to be not
sufficiently substitutable. Several pages later, however, television
stations, cable and newspapers are considered substitutes for radio and
counted as voice under the one-to-a market (radio/TV cross ownership)
rule.
We will also include in our voice count daily newspapers and
cable systems because we believe that such media are an
important source of news and information on issues of local
concern and compete with radio and television, at least to some
extent, as advertising outlets.9
---------------------------------------------------------------------------
\9\ Local Ownership Decision at para 113.
---------------------------------------------------------------------------
Such a blatant contradiction cannot withstand judicial review.
Finally, while the FCC has decided that cable does count as a voice
in the context of its radio/television one-to-a-market rules, it fails
to properly consider the impact of the medium. Despite providing
multiple channels, cable is considered a single voice in the market.
There is no rational basis for this conclusion. Most cable systems
provide more than 36 channels of service, including several news
channels such as CSPAN, CNN, Fox, CNBC, and MSNBC. Moreover, many
entertainment channels such as the Family Channel, USA and even MTV
have their own news segments. Religious views are expressed over EWTN
and other religious channels. Also, entertainment channels do
contribute to the diversity of ideas in local markets. Counting cable
as a single voice in the marketplace simply ignores the reality as to
how consumers receive information.
3. FCC's waiver standards for failed, failing and new stations are
insufficient to help improve programming in many markets.--Under the
FCC's new rules, combinations in small markets will be limited to
situations where a station has failed outright or is in the process of
failing. To qualify under the failed station test the station must: (1)
have been dark for at least four months, or (2) be involved in
involuntary bankruptcy proceedings. To qualify under the failing
station standard a station must have: (1) an audience share under four
percent, (2) negative cash flow for three years, and (3) verifiable
proof that program service will be improved. Under both standards the
applicant must demonstrate that the ``in-market'' buyer is the only
reasonably available entity willing and able to operate the failed
station and that selling the station of an out-of-market buyer would
result in an artificially depressed price.10
---------------------------------------------------------------------------
\10\ Significantly, the FCC will accept petitions to deny from
parties challenging the transfer In other words, the transfer of one
station to another station in the same market may be delayed or
stopped, pending a review that there is a third party ``out of market''
purchaser waiting in the wings. This is a marked departure from most
broadcast transfers. Under Section 310(d) of the statute a transfer
generally will be denied only in situations where the basic character
of either the seller or the buyer is questioned. Now the FCC appears
willing to halt and otherwise lawful transfer on the grounds that
another party wants the station. Such a policy is untenable.
---------------------------------------------------------------------------
In effect, consumers in these markets must endure a station that is
providing little or no service for a number of months, if not years,
before the government restriction on purchasing the station is lifted.
This creates a perverse incentive where in order to harness the
efficiencies of combined local ownership, a broadcaster must wait for a
station in the market to become all but insolvent before seeking to
acquire the station. In other words, an ``in market'' station must sit
buy and watch another station in the market deteriorate before having a
chance to acquire the station and improve service. During this time,
service to the public declines and the costs to bring the station back
to a viable position escalate.
ALTV does support the waiver enacted for newly constructed
stations. We believe this will provide an excellent opportunity to
bring new service to the public, especially in small and medium sized
markets. The opportunity to employ this waiver may be limited because
most of the vacant allotment are now being used for DTV channels.
4. Lack of transferability undermines the benefits of local market
combinations--Perhaps the most puzzling aspect of the FCC's decision
are the limitations imposed on transferring newly formed combinations.
Once formed, these combinations may not necessarily be transferred as a
combination. In order to be transferred as a combination, the owners
must meet the same requirements as any newly formed duopoly. In other
words, these combinations are subject to the top four stations
limitation and they eight station voice test. If they don't meet these
requirements the combination must meet the failed or failing station
test.
This approach leads to some absurd results. For example, assume a
top four station combines with a very weak station in the market.
Through hard work the weak station subsequently becomes one of the top
four stations in the market. Under the FCC's transferability rule,
these stations could not be sold as a combination. A similar result
would occur if, during this time period, the number of independently
owned television stations dropped below the eight station threshold.
A similar result could occur in a situation where the combination
was based on the failed or failing standard. Assume a station owner
makes a significant investment in the failed station and makes the
station profitable. In order to sell the stations as a combination, the
owner would have to withdraw all financial assistance and return one of
the stations to its failed or failing status. In short, a company buys
a station to pull it up from bankruptcy and then in order to sell the
combination the station must return it to its failing condition.
This policy makes no sense from an investment standpoint. No
station owner is going to invest in a combined facility if it is forced
to break the combination apart. As with any investment, the ability to
secure investment financing is directly linked to an owner's ability to
transfer the stations. Securing up-front investors will become
impossible, if at the time of a subsequent sale, the combination must
be broken up.
ii. all local marketing agreements should have been grandfathered
permanently.
A. The 1996 Telecommunications Act Mandates Permanent Grandfathering
We continue to believe that Section 202(g) of the 1996
Telecommunications Act required the permanent grandfathering of all
local marketing agreements. The 1996 Act states:
Nothing in this section shall be construed to prohibit the
origination, continuation, or renewal of any local marketing
agreement that is in compliance with the regulations of the
Commission.
The Commission reads this language in such a way as to apply a post
hoc regulatory regime on local marketing agreements. According to the
FCC's interpretation, it has the authority to craft a set of rules in
1999 that effectively curtails the rights of pre-existing local
marketing agreements. It does so by misconstruing the last phrase of
section 202(g)--any local marketing agreement that is in compliance
with the rules of the Commission. According to the FCC's logic, it has
now crafted new standards for LMAs, that will govern all pre-existing
local marketing agreement. Under the FCC's approach it has the
authority to adopt rules that effectively eliminate new LMAs and place
new constraints on their continuation and renewal.
We believe a superior reading of the language is that the FCC
cannot impair the origination, continuation or renewal of any
television local marketing agreements that were in compliance with the
FCC's policies in existance in 1996. Such an approach is more
consistent with Congressional intent, which was focused on
deregulation. Unfortunately, the FCC has chosen to ignore such a
construction.
Further support for our construction of the 1996 Telecommunications
Act appears in the Conference Report to the 1997 Budget Reconciliation
Act.
The conferees expect that the Commission will proceed with its
own independent examination in these matters. Specifically, the
conferees expect that the Commission will provide additional
relief (e.g VHF/UHF combinations) that it finds to be in the
public interest, and will implement the permanent grandfather
requirement for local marketing agreements as provided in the
Telecommunications Act of 1996. (emphasis supplied)
Taken together, there can be little doubt that Congress intended
all existing LMAs to be grandfathered permanently. Unfortunately, the
FCC's decision doe not go far enough to comply with this Congressional
directive.
B. Contrary to the 1996 Act, the FCC's Decision Does Not Grandfather
LMAs, but Merely Grants a Five Year Reprieve.
The FCC's Local Ownership Decision does not truly grandfather any
of the existing television local marketing agreements. To its credit,
the FCC does permit most LMA combinations to remain in existence
through the end of its 2004 Biennial Review. The Commission will decide
whether to extend the grandfathering at that time. While the five year
reprieve is helpful, it is by no means the ``permanent'' grandfathering
required by the 1996 Telecommunications Act. Indeed, the FCC suggests
it will review the existing LMAs on a case by case basis according to
general criteria set forth in its decision.
C. The FCC's Decision Forces the Divestiture of TV LMAs Entered into
after November 5, 1996.
More problematic is the fact that the FCC did not provide the five
year transition period for any LMAs entered into after November 5,
1996. The FCC's decision refers to language in its Second Further
Notice warning stations that, in certain circumstances, LMAs created
after November 5, 1996 would not be grandfathered. We believe the FCC's
decision not to grandfather these ``post 1996 LMA'' is arbitrary.
Fundamental fairness dictates that the ``post 1996 LMAs should be
treated the same as all other LMAs.
First, the FCC took over three years to resolve this matter. The
government could not expect the market to remain frozen for three years
while the FCC made up its mind.
Second, there was no rule or policy proscribing LMAs. To the
contrary, LMAs were perfectly legal under the FCC rules. The LMA
relationship did not run afoul of the television duopoly rule during
this period until the FCC ruled last August.
Third, the FCC cannot rely on the so-called ``warning'' that
appeared in the Second Further Notice. A Second Further Notice of
Proposed Rulemaking is not a rule. It is simply a notification that the
government may change its rules. It does not operate as an enacted FCC
regulation or policy. Indeed, this proceeding took almost nine years to
complete, and warnings in previous notices were not enacted.
Fourth, the language in the Second Further Notice regarding LMAs
was expressly contingent on changes in the local television duopoly
rule. However, the FCC's proceeding involved a multitude of possible
changes to the rule, including permitting UHF/UHF combinations in local
markets. Thus, in 1996, it was impossible to know which LMA combination
would run afoul of rules that were not adopted until 1999. Many LMA
combinations will not have to be broken up because the duopoly rule was
changed. These combinations did not run afoul of any new FCC rule.
Finally, the public interest would not be served by the premature
termination of these arrangements. As the Commission observed, many of
these LMAs provided improved service to the public and made substantial
investments in their LMA partners. Forcing a divestiture of these
combinations in two years would reduce service to the public in these
markets. From a public interest standpoint, there is absolutely no
difference between LMAs entered into prior to November 5, 1996 and
those executed after this date.
iii. the radio/television one-to-a-market rule should be repealed
ALTV supports the Commissions decision to relax the one-to-a-market
rule. Under the revised rule, a single entity may own up to two
television stations and six radio stations in the same market, provided
there are at least 20 independent voices in the market. A broadcaster
may own two television stations and four radio stations in markets with
at least ten independent voices.
While we applaud the FCC's deregulatory efforts, we question why
the rule should exist at all. Today's media marketplace is
characterized by a plethora of voices. There is simply no reason to
believe diversity of voices will be harmed by any radio/television
combinations. Moreover, retaining the rule is somewhat contradictory
given the Commission's duopoly analysis which found that radio stations
are not substitutes for television. We simply see no need for the rule
in toady's marketplace.
iv. the television/newspaper cross ownership rule should be repealed
In 1975, the Commission enacted a ``prospective'' ban on newspaper/
broadcast combinations in the same market and forced the divestiture of
16 combinations that were considered egregious.11 This
decision was made despite the finding that ``there is no basis in fact
or law for finding newspaper owners unqualified as a group for future
broadcast ownership.12 To the contrary the Commission
praised the performance of local newspaper/broadcast combinations,
noting the high level of programming performance. The FCC's rule was
enacted in the hopes of securing additional diversity of ownership. The
justification was that ``51 voices are necessarily better than 50.''
---------------------------------------------------------------------------
\11\ Multiple Ownership Report, 50 FCC Rpt. at 1074 (1975)
\12\ Id. at 1075
---------------------------------------------------------------------------
There is little doubt that the Communications landscape has changed
since 1975. At that time, television broadcasting was the province of
three major television networks which garnered over 90% of the
television audience. There were few alternatives. Cable was in its
nascent stage and there were only a handful of independent stations.
There was no DBS, MMDS and Internet.
The concerns which drove the FCC to enact the newspaper/broadcast
cross ownership rules simply do not exist today. Given the entire media
landscape, local television/newspaper combinations cannot control the
marketplace of ideas. The rule has outlived its usefulness.
The FCC's recent Local Ownership Decision provides further
justification for eliminating the rule. In this decision, the FCC
determined that newspapers should not be counted as a voice under the
eight voice duopoly standard. As noted previously, the Commission did
not consider newspapers to be sufficient substitutes for over-the-air
television stations. If this is true, and they are not substitutes,
then there would be no harm to diversity if a newspaper and television
station were commonly owned in the same local market.
v. conclusion
As a general matter, the FCC's Local Ownership Decision is a step
in the right direction. Nonetheless, there are some significant
elements of the decision that should be revisited. ALTV recommends the
following changes to the rule.
The new duopoly rule should be revised by eliminating the
``eight'' independent voice standard. The FCC should help
foster combinations in smaller markets.
If the FCC decides to employ a voice test for the new duopoly
rule, other media such as cable television, DBS, MMDS,
newspapers and the Internet should be counted as a voice. Cable
should count as more than one voice in any diversity analysis.
Once created, there should be no restrictions on the
transferability of local market television combinations.
The failed and failing station waivers should be liberalized
to permit more combinations in smaller markets.
All local marketing agreements, even those formed after
November 1996, should be grandfathered permanently.
The FCC's general five year reprieve for LMAs should be
changed to a permanent grandfather.
The revised one-to-a market (radio/television cross ownership
rule) should be eliminated.
The local newspaper/television cross ownership rule should be
eliminated.
ALTV believes these steps will help free over-the-air television
station provide the best possible service to the American people. We
urge the Subcommittee to review the FCC's ownership decisions
carefully, and take corrective legislative action where appropriate.
Mr. Tauzin. We have heard from the networks, from the
association of affiliated stations, the NAB, and the local
affiliations of local stations. Now we hear from the
newspapers. We begin with Mr. John Sturm, the President and CEO
of Newspaper Association of America.
STATEMENT OF JOHN F. STURM
Mr. Sturm. Good morning, Mr. Chairman. I am John Sturm,
President of the Newspaper Association of America. Our members
represent approximately 87 percent of the daily newspaper
circulation in the country.
Since 1975 the FCC has prohibited common ownership of a
daily newspaper, neither a radio nor a television station in
the same market. Put simply, if this ban is not lifted
immediately, newspapers will be locked out of the imminent
scramble for broadcast stations, putting them at a permanent
and dramatic disadvantage vis-a-vis their media competitors.
This local ownership ban has always been onerous and we
have long opposed it. The FCC has ignored repeated
demonstrations and comments in related ownership proceedings
that this outdated prohibition is unnecessary and
counterproductive. The FCC has ignored its obligation under the
Telecommunications Act of 1996 to conduct a reevaluation of all
of its broadcast ownership rules, including this one, on a
biannual basis to determine whether these rules are in the
public interest. Never before, however, has the need for relief
been so great.
Last month the Commission added insult to injury by again
failing to even consider the newspaper ownership ban while at
the same time relaxing many of its other broadcast ownership
rules. Now the score is broadcast group owners, 8, newspaper
publishers, zero, as broadcast owners will be permitted to own
as many as two television stations, six radio stations in the
same local market, and newspapers remain shut out.
The recent television ownership decision is a culmination
of a series of deregulatory actions over the past decade by the
FCC and by this Congress that recognize that fundamental
changes have occurred in the media landscape, changes that are
dramatic, exponential and permanent since the early 1970's.
The new FCC rules enacted in early August are expected to
cause an intense but very short feeding frenzy broadcast
station acquisition when they take effect. A commentator
likened it to a broadcast land rush. Indeed, the race is now
underway.
As you know, Viacom last week proposed to acquire CBS, and
it appears to me we have now come full circle. When the record,
such as it is, for the newspaper broadcast cross-ownership rule
was being assembled in the seventies, the FCC was in the
process of forcing CBS to divest Viacom as part of its
regulatory scheme that has been long since dismantled and
discarded, except, of course, for the newspaper broadcast
cross-ownership rule, and newspapers still cannot even own a
single radio station in their hometowns in today's multimedia
society.
What is intensely frustrating to newspaper publishers and
blatantly unfair is that there is no demonstrable need,
rationale or basis for this rule at all. First, the FCC never
found that newspaper ownership of broadcast stations somehow
harmed the public interest. In fact, it found just the
opposite. Once upon a time it even encouraged newspaper
publishers to invest in broadcasting, and several newspaper
companies, including the gentleman's company to my left, have
become pioneers in radio and television.
Second, when the FCC rule took effect, the FCC
grandfathered many newspaper/broadcast combinations. Some of
these combinations remain today and have provided local markets
with 25 years of quality service without any finding of abuse,
domination or monopolizations in those markets.
Third, the rule also turns the notion of free speech on its
head. Newspapers should not be discriminated against. They
should be welcomed into the electronic marketplace rather than
excluded from it.
Mr. Chairman, it is unfair for the FCC to continue to hold
on to a baseless rule that walls off newspaper publishers from
the electronic convergence that you and many others have spoken
of in the past. It is unfair for the FCC to refuse to even
review this outdated rule, as it has for years, in the face of
vastly changed circumstances, numerous requests to do so, and a
directive from this Congress to justify it in the public
interest. In a nutshell, they haven't and they can't.
In August the FCC sounded the 2-minute warning in local
markets. We have sought relief from this rule time and time
again, and it has not been forthcoming. Thus, it should come as
no surprise that we greatly favor the legislation that would
lift the ban directly as the bill is introduced by two learned
members of this subcommittee.
Mr. Chairman, I appreciate the opportunity to testify
before you on this rule, and I look forward to your questions.
[The prepared statement of John F. Sturm follows:]
Prepared Statement of John Sturm, President and Chief Executive Officer
of the Newspaper Association of America
Good morning Mr. Chairman, and Members of the Subcommittee. My name
is John Sturm, President and Chief Executive Officer of the Newspaper
Association of America (``NAA''). The NAA has more than 2,000 member
newspapers in the United States and Canada, the great majority of which
are daily newspapers that account for approximately 87 percent of U.S.
daily circulation.
I appreciate the opportunity to discuss the newspaper broadcast
cross-ownership restriction with you today. In particular, I would like
to stress why it is more important today than ever before to eliminate
the FCC's outdated ban on newspaper ownership of broadcast facilities,
in light of changes in the marketplace and in the regulatory landscape.
Put simply, if this ban is not lifted immediately, newspapers will be
left out of the imminent ``land rush'' for broadcast stations, putting
them at a permanent and dramatic disadvantage vis-a-vis their media
competitors. For this reason, NAA has filed an emergency petition for
relief, in which we asked the FCC to act quickly on this issue. I have
included a copy of that petition with this statement, for the record.
Since 1975, the FCC has prohibited common ownership of a daily
newspaper and either a radio or television station in the same local
market. This ban was adopted as one of a series of ownership
restrictions that might collectively have been characterized as a ``one
media outlet per customer per market'' policy. Under that policy, the
FCC has prohibited not only the common ownership of newspapers and
local broadcast outlets, but also the common ownership of two local TV
stations, a radio station and a local TV station, a cable system and a
local TV station, or more than a specified number of local radio
stations.
The newspaper cross-ownership ban has always been onerous, and we
have long opposed it. The FCC, for its part, has ignored repeated
demonstrations in comments in related ownership proceedings that the
outdated prohibition is unnecessary and in fact counterproductive in
the contemporary information marketplace. The FCC has even ignored its
obligation under the Telecommunications Act of 1996 to conduct a
searching re-evaluation of all of its broadcast ownership rules,
including the newspaper broadcast cross-ownership ban, on a biennial
basis, to determine whether they are ``necessary in the public
interest.''
Never before, however, has the need for legislative relief been so
great. Last month, the Commission added insult to injury--and deepened
the injury--by again failing even to consider the newspaper cross-
ownership ban while at the same time relaxing many of its other
broadcast ownership rules, including both the television ``duopoly''
rule and the ``one-to-a-market'' rule. Now, broadcast group owners will
be permitted to own as many as two television stations and six radio
stations in the same local market. The recent television ownership
decision is the culmination of a series of deregulatory actions over
the past decade--by the FCC and Congress--that recognize the
fundamental changes that have occurred in the information marketplace
and the need for media owners to be freed from unnecessary 70s-style
regulation that stifles efficiencies, innovation, and the development
of new services. But for reasons the Commission has yet to explain,
newspaper publishers still will not be allowed to own even a single
radio station in their home towns.
The new rules are expected to cause an intense but short ``feeding
frenzy'' of broadcast station acquisitions when they take effect in two
months. One senior network executive compared this feeding frenzy to
``an intense game of musical chairs . . . [where] you know you may have
to get in fast.'' Another announced in a memo that ``The race is on.''
Many commentators have likened it to a ``broadcast land rush.''
And the preparations for this land rush have already begun. As
every Member of this Subcommittee knows, CBS last week proposed to
merge with Viacom. Virtually every major network and large broadcast
group owner is seeking to acquire more stations. And many
``independent'' broadcasters in major markets are working just as
feverishly to be the first to sell their stations.
A belated repeal of the ban would offer scant consolation to
newspaper publishers. The nation's largest broadcast group owners are
poised to enhance their holdings in a private but intense ``game of
musical chairs.'' Yet without immediate relief, the newspapers' sole
role in this ``broadcast land rush'' will be to report on it from the
sidelines. And there will not be a second round.
There is no need for this to happen. Indeed, there is no need for a
newspaper/broadcast cross-ownership ban at all. In fact, newspapers
have not always been prohibited from owning radio or television
stations in the same local market. Instead, from the early days of
radio in the 1920s up until 1975, the government actively encouraged
newspapers to serve as pioneers in bringing radio--and later
television--to their local communities. And newspapers heeded the FCC's
call. As the FCC later acknowledged, many newspaper-owned stations
``began operating long before there was hope of profit and were it not
for their efforts, service would have been much delayed in many
areas.''
In 1975, however, despite formally recognizing the ``traditions of
service'' of newspaper-owned broadcast stations, as well as the
enormous contribution of newspapers to the development of American
broadcasting, the FCC prohibited co-ownership of newspapers and
broadcast stations. The Commission adopted this measure even though it
did not dispute that the existing TV and radio stations owned by
newspapers generally provided better service than many other stations,
and especially excelled at providing thorough and well-balanced news
and public affairs programming. In fact, when the cross-ownership ban
was first adopted, there were 94 local newspaper/television
combinations, and 380 newspaper/ radio combinations. Because of their
superior record of service, the FCC ``grandfathered'' all but 16 of
these stations, and exempted them from the coverage of the rule.
In adopting this arbitrary ban, the FCC did not claim that the
public interest had ever been harmed by the common ownership of a
newspaper and a TV or radio station in the same market. Nor did the
Commission cite any evidence of specific anti-competitive acts by any
cross-owned station. Quite the opposite. In addition to praising the
newspapers' superior record of past service, the FCC expressly found
that ``there is no basis in fact or law for finding newspaper owners
unqualified as a group for future broadcast ownership.'' Indeed, the
FCC never even pretended that the ban was warranted by the evidentiary
record. Instead, the Commission justified its decision on the ground
that the ban might help foster ``a mere hoped-for gain'' in program
diversity.
More recently, when the FCC relaxed its other broadcast ownership
rules, it again explicitly recognized that ``the efficiencies inherent
in joint ownership and operation of [media outlets] in the same market
. . . can lead to cost savings, which in turn can lead to programming
and other service benefits that serve the public interest.'' The agency
also recognized that common ownership of media outlets creates
incentives to diversify programming content to maximize reach and avoid
cannibalizing one's own audience.
As an empirical matter, no nexus between separate ownership and
content diversity has ever been shown to exist, even where two or more
broadcast stations in the same market are commonly owned. In the
context of this rule, the connection between ownership and content
would be even weaker. Newspaper publishing and broadcasting are
distinct businesses characterized by separate operations and fiercely
independent editorial control. Common ownership would not break down
this separation. For all these reasons, the FCC's ``media diversity''
theory was a non-starter from the day the FCC first hoped that it was
true.
The ``diversity of voices'' theory, of course, was not the only
basis for the FCC's adoption of various broadcast ownership
restrictions in the 1970s. The other basis often cited by the
Commission was that of ``scarcity,'' a concept that is now outdated
empirically. In 1975, the broadcast marketplace was dominated by the
affiliates of the original Big Three networks. Most markets had only a
handful of broadcast outlets. Both the cable TV industry and FM radio
were in their infancies. And neither direct broadcast satellites nor
videotapes nor the Internet even existed. In that context, it is at
least understandable why the FCC was attracted to a ``one voice per
customer'' regulatory regime.
The current media marketplace, in contrast, is very different.
Since 1970, when the FCC imposed its first cross-ownership rule on
broadcasters, the total number of radio and television stations has
increased by more than 85 percent. Currently, 10,719 cable systems pass
92 million homes and serve more than two thirds of America's television
households. Direct Broadcast Satellite service provides up to 300
channels to nearly 8 million subscribers, and more than 2 million
households have home satellite dishes. And in the near future, the
Internet also will deliver television programming, using a new process
called ``streaming video.''
Despite these impressive statistics, however, the growth in outlets
for television programming is actually exceeded by the dynamic growth
in the radio broadcasting market. Since the adoption of the newspaper/
broadcast cross-ownership ban in 1975, the total number of licensed
radio stations in the U.S. has increased by more than 50 percent--from
8,094 in January 1975 to 12,582 in July 1999. Much of this rise can be
attributed to the rapid expansion of FM radio. The number of FM
stations licensed today (8,953) is nearly triple the number (3,167)
authorized in 1975. And the explosion in the number of the radio
stations is outpaced by the expansion of diversity of radio programming
formats. Broadcasting and Cable Yearbook, which tracked just fifteen
formats as recently as 1982, now recognizes at least sixty-four
distinct radio formats. And radio stations can now obtain programming
from over 300 syndicated program suppliers. Finally, within the past
five years, the Internet has transformed the information marketplace in
a way unimaginable when the newspaper/broadcast cross-ownership rule
was adopted a quarter century ago. It is estimated that about 106
million Americans now use the Internet'slightly more than the number
that subscribe to daily newspapers. The Internet also enables anyone so
inclined to elect themselves a publisher and communicate with a mass
audience.
Technology, however, is not the only factor that has led to
enhanced diversity in the media marketplace. Since 1975, weekly,
alternative, and special-interest newspapers and magazines also have
proliferated. And popular ``alternative newsweeklies'' contribute
substantially to locally-oriented news, public affairs, and/or
entertainment coverage. Local daily newspapers also must now compete
against national dailies, such as USA Today and The Wall Street
Journal, and special interest newspapers as well.
In all of these respects, the media marketplace today is
dramatically different than it was in 1975. Whatever basis there once
may have been to claim a ``scarcity'' of media outlets, it is today
untenable to suggest that media outlets still remain a scarce resource.
The FCC recognized this as early as 1985, when it noted that ``in
recent years there has been a significant increase in the number and
types of information sources. As a consequence, we believe that the
public has access to a multitude of viewpoints without the need or
danger of regulatory intervention.'' As the FCC again admitted in last
month's television ownership order, ``there has been an increase in the
number and types of media outlets available to local communities.''
Put simply, there is no justification for the ban. Newspaper cross-
ownership of broadcast outlets would not pose a threat to competition
in the advertising market. In last month's television ownership order,
the FCC found that newspapers and broadcast outlets are subject to
intense competition for advertising dollars, not just from other
newspaper and broadcast outlets but also from cable and satellite
television, weekly newspapers, direct mail, yellow pages, outdoor
advertising, magazines, and the Internet.
Nor would repeal of the newspaper cross ownership ban affect the
democratic process. Newspaper/broadcast combinations would not, could
not, and have not exerted undue influence over local political
processes or public discourse. It is true that the FCC has found that
newspaper-owned stations tend to provide more news and public affairs
programming than other stations. But it would be perverse to rely upon
this fact as a reason for denying newspapers the right to operate
broadcast stations.
In this environment, the newspaper cross-ownership ban is not only
arbitrary, irrational, and unfair to newspapers. It also hurts the
American public by preventing most Americans from receiving the highest
possible quality of broadcast programming--a fact the FCC has never
denied. In a recent study, the Media Access Project found that 70% of
TV stations air no public affairs programming. Newspapers, in contrast,
bring to broadcasting a journalistic tradition, extensive reporting
resources, access to capital, and community ties. They are ideally
situated to provide more and better informational and educational
programming.
The newspaper cross-ownership ban can also, in some cases, threaten
the very viability of newspapers, as in the case of the Washington
Star. For decades, the Star was owned by the same company that owned
local radio and television stations WMAL. In the 1970s, however, the
newspaper fell into financial distress. Unable to sustain further
losses, the owner put the newspaper and the broadcast stations up for
sale as a ``package deal.'' Miraculously, a ``white knight'' buyer
stepped forward, who was willing to spend the money necessary to
resuscitate the newspaper.
But, just as the sale was being consummated, the FCC adopted the
newspaper cross-ownership rule, which it applied against the Star's new
owner. In so doing, the FCC ignored that the Star and WMAL had always
been commonly owned, and would in fact have been ``grandfathered'' if
they had not been sold by their original owner. Instead, the FCC
ordered the new owner to divest either the failing newspaper or the
successful broadcast stations. The Star was sold at a fire sale, and it
folded shortly after. It is impossible to fathom how the Star's
expedited demise contributed to viewpoint diversity in the Washington
market or otherwise served the public interest.
What is more, continued enforcement of the ban violates
Telecommunications Act of 1996. In Section 202(h) of that Act, Congress
directed the FCC to review all of its ownership rules biennially,
including the newspaper/broadcast cross-ownership rule, and to repeal
those rules that no longer serve the public interest. With the end of
the millennium approaching, the FCC has yet to comply with Congress's
directive. It has not even conducted any meaningful review of the
newspaper cross-ownership ban, let alone repealed it. Instead, the
Commission has merely issued two exploratory Notices of Inquiry seeking
public comment on the issue.
Continued enforcement of the cross-ownership ban also violates the
fundamental principles of administrative law, which require agencies to
reexamine those rules whose factual or legal underpinnings may have
eroded. It is beyond dispute that the ``media scarcity'' rationale that
is the factual and legal underpinning of the cross-ownership ban has
eroded beyond repair. So in 1997, the NAA formally petitioned the
Commission to reconsider the ban. For more than two years, the FCC has
ignored our petition. The Commission's only action has been to
incorporate the petition into the record in the illusory biennial
review.
Finally, continued enforcement of the newspaper cross-ownership ban
in the current marketplace and regulatory environment violates the
First Amendment. Courts have consistently held that laws ``favoring
certain classes of speakers over others are inherently suspect'' and
that the government bears a heavy burden of justifying them. Under the
cross-ownership ban, however, all classes of speakers are favored over
newspaper publishers, who now rank with aliens and convicted felons as
virtually the only parties categorically disqualified from owning
broadcast stations. This discriminatory rule turns the First
Amendment's guarantee of ``freedom of speech'' on its head. And the FCC
can no longer carry its heavy burden of justifying the ban.
For all these reasons, NAA strongly supports legislation that would
lift the newspaper/broadcast cross-ownership ban directly, without the
need for any further FCC action, as would two bills authored by Members
of this Subcommittee.
We wholeheartedly support H.R. 598, a bill introduced by Mr. Oxley
that would simply eliminate the newspaper cross-ownership ban. Because
of the impending ``broadcast land rush,'' which I described earlier,
time is of the essence for newspaper publishers, and we urge
expeditious action. NAA also supports Section 3(a)(1) Mr. Stearns's
bill, H.R. 942, which, among a host of other provisions, also would
eliminate newspaper/broadcast cross-ownership restriction.
Both bills would remove the FCC from the process of deciding--or
not deciding--whether the cross-ownership ban continues to serve the
public interest. Both bills would be self-executing and would be
enforceable through judicial review. Both bills are clear and
unambiguous and would accomplish their objective. Most importantly,
both bills would allow the American people again to enjoy the benefits
of the journalistic tradition, extensive reporting resources, access to
capital, and community ties, that qualify newspapers to provide the
highest quality of programming.
Mr. Chairman, we appreciate your leadership in addressing these
questions. I think this is the first time this issue has been squarely
before the Congress. We also extend special appreciation to Mr. Oxley
and Mr. Stearns. We look forward to working with you on this important
issue.
Mr. Tauzin. Finally, Mr. Jack Fuller, President of Tribune
Publishing from Chicago, Illinois. Mr. Fuller.
STATEMENT OF JACK FULLER
Mr. Fuller. Good morning and thank you for inviting me to
testify about the newspaper broadcast cross-ownership ban. My
name is Jack Fuller, and I am President of Tribune Publishing
Company. I have spent most of my career as a reporter, writer
and editor on newspapers.
The newspaper business today and the kind of journalism
that it represents is under attack from some of the biggest
companies in the United States, from Microsoft to the telephone
companies. I believe we can successfully compete in the new
marketplace, but the Federal Government in the name of
protecting diversity of voices tells us that newspapers cannot
reach out to the increasing millions of Americans who choose to
get their news from television instead of the daily newspaper.
I am here to tell you that the newspaper broadcast cross-
ownership ban jeopardizes the richness of local news content
and puts at risk the very diversity the government professes to
protect.
Here is why. The cost of covering local news is increasing
as traditional core cities and suburbs give way to sprawling
multicounty metropolises. For a newspaper just to be there as
hundreds of municipal government bodies, local school boards
and other public groups meet, is itself a huge undertaking, and
that is only the start of local coverage.
In Chicago, the newspaper employs nearly 600 editorial
stafferS and hundreds of freelance writers, many times more
than any television news operation does or could. We are
working hard to find new revenue that will allow us to meet
these increasing costs without sacrificing quality, but this is
tougher than ever before because the market is fragmenting.
Americans are getting their news in more ways, from more
sources than ever before. They are turning for their news to
broadcast television, to cable television, to all news radio
and increasingly to the Internet. As we approach the new
millennium it is essential that serious news organizations use
all these media to reach their audience. This is the only way
to preserve the benefits to the whole community of the kind of
serious, comprehensive local news coverage a newspaper
traditionally is provided.
Let me give you a real-world example of how the newspaper
broadcast cross-ownership ban actually limits the quality and
diversity of information available to a community, this from
our experience in south Florida. The FCC's own research
established that south Florida is among the most competitive TV
markets in the United States. The Miami-Fort Lauderdale DMA has
16 separately owned television stations and 4 daily newspapers,
not to mention cable, satellite TV, the Internet and all the
rest.
Tribune owns the Sun-Sentinel in Fort Lauderdale, and in
1997 Tribune company acquired a group of television stations
that included a UHF station that ranked seventh in the Miami
market. The station carried no local news when we bought it. We
hoped with the help of the Sun-Sentinel to start a local news
show. It would have been a branded new full service news voice
in the broadcast market, but without a waiver of the cross-
ownership ban, we would have had to sell the station and forego
the types of joint newspaper/broadcast activities we had hoped
for.
We asked the FCC to grant a waiver and the FCC declined so
we went to court. The FCC said it would revisit the ban and
gave us a temporary waiver in the meantime, but as a condition
of that waiver we had to operate the station and the newspaper
totally separately.
Since then, the FCC has done nothing to revisit the ban.
The upshot is that now the station, our station, contracts with
the local NBC-owned station and duplicates local programming
that the NBC station creates. More perversely, as a result of
the FCC's ruling in August, CBS and Viacom, both of which own
stations in Miami, can pool their resources as they compete
against the Tribune-owned station. So much for the diversity
rationale.
Contrast this with the situation in Chicago where, with the
help of the grandfathering provision of the rule, Tribune was
able to put together a new 24-hour a day all news local cable
channel, a very new voice in the community. It permits people
who, for whatever reason, prefer to get their news on
television to get the benefits of the expansive and expensive
reporting resources of the Chicago Tribune. The new station
contributes to the diversity of the market, a new voice, and
the richness of local community content, a quality voice. I
assure you that most of the multimillion dollar companies that
are competing for our advertising revenue, especially those
with whom we compete on the Internet, have no intention of
covering local school board meetings.
I thank the committee for your commitment to seeing this
issue addressed in Congress, and in particular I thank Mr.
Oxley and Mr. Stearns for their work on H.R. 942 and H.R. 598
which would eliminate this cross-ownership ban. Thank you very
much.
[The prepared statement of Jack Fuller follows:]
Prepared Statement of Jack Fuller, President, Publishing Tribune
Company
Good morning, and thank you for inviting me to testify about
broadcast ownership regulations, including the newspaper/broadcast
station cross ownership ban.
My name is Jack Fuller and I am president of Tribune Publishing
Company, which is part of Tribune Company of Chicago, Illinois. Tribune
Company publishes the Chicago Tribune and three other daily newspapers.
It also owns 18 television stations, four radio stations and has
interests in the entertainment, sports, educational publishing and
interactive media businesses. Tribune was one of the first newspapers
that, heeding the urging of the federal government, obtained radio and
television licenses to help establish those media when they were new.
Likewise, we were among the very first to put our newspaper on the
internet.
I have been a newspaperman almost all my life. Most of my career
was spent as a reporter, writer and editor. I got into the business
because I love to write and because journalism was a way of helping a
self-governing society work. Only in the last decade or so did I move
to the business side, where my first priority is to find a way to bring
our professional newsgathering organizations through this period of
radical transformation in the information marketplace. My comments
today are addressed primarily at the newspaper/broadcast cross-
ownership ban, because that is where I have the greatest direct
experience.
As you know, Tribune has been at the forefront of the debate on
this issue because we have been among those most effected by the FCC's
ban. In South Florida, we have challenged the cross-ownership ban in
court and have reached a stand-still agreement with the FCC. In Chicago
we have operated a major daily newspaper, a radio station and a
television station for years in a way we believe has added diversity to
the market. This has strengthened our resolve to see this rule
eliminated.
Newspapers are vital to the local communities they serve. They are
a unique and critical link in informing people about what is going on
around them and in creating a real sense of community. I am here to
tell you that the cross-ownership prohibition stands as a serious
impediment to their ability to continue in these roles.
The newspaper business is today under attack from some of the
biggest companies in the United States--from Microsoft to the telephone
companies. I believe we can successfully compete in the new
marketplace, yet we are prohibited from taking logical steps to
strengthen our ability to serve our local markets. At a time when our
competitors are consolidating in huge, multi-billion dollar mergers,
like the merger of CBS and Viacom announced last week or AT&T-TCI-
MediaOne earlier this year, the federal government tells us that we may
not make even comparatively modest consolidations that will help us
serve our urban markets. At a time when media are fragmenting and
Americans are getting information in more ways and from more sources
than ever before, the rule acts as though there had been no increase in
the diversity of the marketplace of ideas in our metropolises for 25
years.
The cross-ownership prohibition reduces the ability of the daily
newspapers in our great cities to continue to deliver in the next
millennium the kind of detailed and expensive-to-gather information
that people need to make their sovereign choices as citizens and
consumers. Here is why:
The cost of covering local news is increasing as traditional core
cities and suburbs give way to sprawling, multi-county metropolitan
areas. For a newspaper to cover the hundreds of municipal government
boards, local school boards and other public bodies meet is a huge
undertaking. This is why in Chicago, for example, the newspaper needs
to employ nearly 600 editorial staffers and hundreds of freelance
writers--hundreds more than any other news organization in the area and
roughly four times more than any radio or television station. Moreover,
newspapers have had to invest heavily in plant and equipment to be able
to offer zoned editions that do justice to local news across large
areas, and they will continue to have to do so. On the broadcast side,
the increased costs often mean difficult decisions about which of the
many important local news stories gets covered at all on any given day.
We are working hard to find new revenue streams to support our
newsgathering operations and at the same time to maintain our high
standards for local news coverage. But this is tougher than ever to do
because the audience is fragmenting--people are presented with many
more choices of where to get information--and because some of our most
important revenue sources are particularly vulnerable to competition
from the new media.
Let me be more specific: Years ago people may have had to be
content with getting their news from a newspaper once in the morning
and once in the evening. Today they can go to the paper when that is
most convenient for them, or they can go to broadcast television, which
often offers substantial news shows in the morning, noon, evening and
at night. Or to all-news cable television. Or they can listen to all-
news radio while they're commuting to work or jogging or working out.
Or they can go to online services such as AOL or to the internet.
Many of these alternatives are owned by single entitles. CNN, for
example, programs Headline News, CNN, CNNfn, CNN/SI, CNN International,
CNN Espanol, CNN Interactive, and it also operates one of the most
popular news sites on the World Wide Web.
Second, advertising spending is being spread over an increasing
number of media for reaching people--not only television, radio and
newspapers but also direct mail and now, importantly, the internet. Our
newspapers have traditionally relied on advertising to support
newsgathering. But the most common forms of classified advertising--
real estate, automobiles, employment listings--are also the most
vulnerable to our internet competitors. For example, Realtor.com, the
largest resale homes listing service on the internet, boasted in June
that it lists 1.37 million homes for sale. Springstreet.com, claims to
offer 6.5 million apartments for rent. Microsoft's carpoint.com claims
to have more than 100,000 automobiles for sale. Some of those listings
represent advertisements taken away from newspaper classifieds--revenue
taken away from our newsgathering and publishing operations. And I
assure you these companies have no intention of covering municipal
board meetings or other issues of local concern.
In the future it will be essential that serious news organizations
use all media to reach the audience. It is important both for the
viability of these organizations and for the public interest. The best
approach both for news organizations and the publi is to offer
comprehensive, high quality news at any time and through whatever
distribution system the customer prefers. This offers customers
convenience and gives news organizations the chance to spread the high
costs of newsgathering across multiple distribution systems. As the
audience and advertising base continue to fragment, this is the best
way to preserve the benefits to the community of detailed, serious
local news coverage.
On the face of it, any government restriction on who can own the
means of communication offends the idea of freedom of expression
embodied in the First Amendment. Ironically, we are invited today to
provide justifications for repealing the rule, when the question that
we have been asking for years--the question we feel should be asked--is
whether there is any justification for maintaining it. The reason most
often given for it today is the encouragement of a diversity of voices.
Let me give you a real-life example of how the current rule does just
the opposite.
South Florida is among the most competitive TV markets in the
United States. The Miami-Ft. Lauderdale DMA alone has 16 separately-
owned television stations. The West Palm Beach DMA just to its north
has 10 more. Residents of the area can listen to 75 radio stations (33
of which are separately owned), and read seven local daily newspapers
(including two in Spanish), not to mention weeklies, magazines, and
specialty publications. Cable reaches 76 per cent of households, and
can deliver in excess of 55 channels (including in most cases at least
20 devoted in whole or in part to news and local community coverage).
Tribune owns the Ft. Lauderdale Sun-Sentinel. In 1997, Tribune
acquired a group of six television stations that included a UHF station
that is seventh in the Miami market. The station carried no local news
when we bought it. We asked the FCC to grant a waiver to the cross-
ownership rule, and the FCC declined. We went to court. The FCC said it
would revisit the rule--a rule it had adopted a quarter century ago
when the communications environment was very different than it is
today--and gave us a temporary waiver until it did so. As a condition
of the waiver, however, we have had to operate the station and the
newspaper separately. Since then, nothing has happened at the FCC.
We hoped to start a local news show on the television station with
the help of the Sun-Sentinel. It would have been a brand new, full
service news voice in the broadcast market. But we can't do so because
of the terms of the temporary waiver. Instead, the television station
contracts with the local NBC-owned station and broadcasts news that the
NBC station creates. More perversely, as a result of the FCC's ruling
in August, CBS and Viacom, which each own stations in Miami, can pool
their resources as they compete against the Tribune-owned station. So
much for the diversity rationale.
So the principal effect of the ban is to prevent our newspaper from
offering its newsgathering skill and resources and its local news
coverage--our voice--to persons in South Florida who choose to get
their news on television. While we can (and do) share some news
coverage in partnership with a competing broadcast station, this is
much more modest an effort than we would be able to make with our own
station.
Contrast this with the situation in Chicago, where thanks to the
company's pioneering approach to broadcasting, we own one of the oldest
radio stations in the country and one of the oldest television
stations. And because we owned them before the cross-ownership rule was
adopted, we are protected by a grandfathering provision.
In Chicago, the Tribune was able to put together a new 24-hour-a-
day all-news local cable channel, a very new voice in the community. It
makes its own news decisions. Its journalists operate--as all of ours
do at Tribune--with appropriate professional independence. Tribune
reporters and editors appear on both WGN-TV and the cable channel next
to television reporters, enriching the programming and permitting the
Chicago Tribune to reach people who for whatever reason prefer to get
their news on television.
The Chicago approach is headed in the direction the future aims us.
It is logical and in the public interest because it offers the greatest
likelihood of rich and diverse local coverage on all media. And
importantly, it does not place the heavy hand of government regulation
on newspapers and television stations as they compete with powerful but
agile new enterprises--enterprises that want our revenues but have
absolutely no interest in or commitment to local news or community
service.
I thank the Committee, in particularly Mr. Oxley and Mr. Stearns,
for their work on H.R. 942 and H.R. 598 which would eliminate this
newspaper/broadcast cross-ownership ban and for your commitment to
seeing this issue addressed in the Congress. I hope the momentum
continues.
As former Speaker Tip O'Neill often said ``all politics is local.''
Well, in a similar way, all news is local news--news about education,
crime and families; news about the people and places we live. Even
international news is most meaningful when it is related to a
community's unique interests. The cross-ownership ban impedes
newspapers from providing local news the way many people want it as we
enter the new millennium. It is a bad rule--bad for the country and bad
for the newspapers--and it should be changed.
Mr. Tauzin. The Chair thanks the gentleman.
Mr. Fuller, I might mention to you that before Harry Carey
passed away, I had a chance to be be interviewed by him one
time in Chicago at Wrigley stadium, and it was right after
Ditka moved to New Orleans. I expected all kinds of questions
about Ditka and the Saints and the Chicago Bears, and I
anxiously awaited the interview. When it started, he said, Mr.
Tauzin, ``How come my damn cable rates are so high?'' that was
all he wanted to talk about.
The Chair will now recognize members in order of seniority
and appearance and under the 5-minute rule, again. We will try
to live by it. Let me start.
First of all, when Tom Tauke and I began years ago the
effort to broadcast deregulation in this committee and with
some success, there were then three networks, a few broadcast
stations per market, no cable, no satellites, no Internet.
Nobody even dreamed about an Internet in those days. Today,
there are seven broadcast networks, plus.
There are more than half of American households that now
live within markets that have 11 or more television stations.
Over 65 percent of households now subscribe to cable.
Satellites, with the help of my good friend Mr. Markey and the
director of access provisions, now offer hundreds of channels
to almost every household; and the Internet is upon us, and
broadband is coming, and digital, transfers of Internet to
television is fast upon us. And I want to get to that real
quick.
In the newspaper business, will it not be possible when
broadband is fully deployed, for newspapers to become
broadcasters on the Internet, and the Internet itself will have
merged with television in the digital age; will you not be on
television with your news and your programming as a broadcaster
on the Internet very soon? And if that is the case, what is the
purpose of all these restrictions anyhow? Either one of you.
Mr. Fuller. Mr. Chairman, we agree with you totally. The
development of the Internet as it moves to increasing bandwidth
is going to involve the convergence of the things that we now
think of as newspapers, meaning text and static images and
video and audio actualities that we now think of as broadcast.
The Internet, as it moves to increasing bandwidth, is not
going to respect the traditional distinctions we have made
between the two, and the successful competitors and the ones
that will serve the public interest the best will be those that
can master all those resources and bring them to bear.
Mr. Tauzin. In fact, there are 1,700 radio stations now
broadcasting on the Internet. The Internet is still a limited
audience but will become a broader and broader audience; but
with real-time video possible in broadband, I suspect there
will be an awful lot of broadcasters on the Internet, with the
restriction of the copyright rules imposed nevertheless on the
plane.
I suspect we haven't even begun to think through the effect
of broadband broadcasting on the Internet and how it affects
all these rules that were designed to regulate a world of 3 or
4 networks and no cable, no satellites, no Internet.
What relevance do these rules have in that age, Mr. Fisher
and Mr. Yager, and any one of you may want to comment on that?
Mr. Yager. Well, No. 1, I think that the broadband universe
that we are looking at is going to happen. Putting a timeframe
on that broadband is very, very difficult. Television sets are
in 99 percent of U.S. households today. Computers are in
roughly 50 percent, last number I have seen, and I think that
number is kind of high.
What you are talking about in broadcast television is a
universal system, a universal system that goes into the homes
of all demographic groups, all economic groups. Now whether
broadband gets in those homes or not is somewhat----
Mr. Tauzin. Let me give you a time line. Legg Mason tells
us that in 3 years, one-half of the households in America will
have access to 2 or 3 or more providers of broadband services;
that another quarter of America will have at least one
provider. Three years from now, I am very concerned, they say
that one-quarter will have none. That concerns me deeply, but
at least in 3 years we are talking about three-quarters of
America having 1, 2, 3 broadband suppliers.
It is on us, it is here, and I am asking you when it is
fully here, when as much as three-quarters of America have
broadband access and television is migrated to the digital age
and the televisions can become the Internet monitor--in fact,
there is a company now offering access to the Internet for
children for $5 a month for the set-top box on your television
today. I mean, if it is already this close, what relevance do
these old rules of ownership structures by the FCC have in this
new world?
Mr. Yager. We are still in the world we are in, Mr.
Chairman. We can't change that, and quite honestly I would not
advocate rules for the new broadband world. It is going to be a
very competitive world. It is going to have open access and
unlimited access. In terms of radio, you can stream audio now
so you are going to have a plethora of radio stations on the
broadband spectrum. I would not advocate rules in that regard.
But we are not there, and these rules are extremely important
for broadcast over-the-air television today.
Mr. Tauzin. Anyone else want to respond before I yield to
my colleague? Mr. Chernin.
Mr. Chernin. Mr. Chairman, I think the issue is
fundamentally one of economic, and I think the rules if
anything, are more outmoded in a world where there are multiple
choices, increasing niche choices. The problem with those
niches is that they don't have the economic resources to
support genuine broadband broadcast, and so I think the people
that are most likely to serve the public are the people that
are able to aggregate local news channels, local newspapers and
supply that.
As one of the other gentleman said, there are 600 local
school board meetings. A broadband provider is not going to be
able to cover all of those.
I think what you want is you want news organizations that
are capable of flowing those news services across a
multiplicity of outlets. And so I think that where there is
going to be much more diversity, I think there are significant
economic issues that face us.
Mr. Tauzin. The Chair yields 5 minutes to the gentleman
from Massachusetts, Mr. Markey.
Mr. Markey. Mr. Fuller, do we need must-carry rules in the
age of the Internet? Should we take those off the books here as
well?
Mr. Fuller. I am a newspaper man, and I really don't know a
whole lot about the broadcast arena.
Mr. Markey. These are the rules where the Tribune stations
are automatically carried by all of the cable systems in the
communities in which they are in.
Mr. Fuller. I think that I am uncomfortable trying to
testify to what our company believes about parts of the
regulatory system that I don't know much about. In general, we
lean strongly to the deregulatory side.
Mr. Markey. So, in general, must carry.
Mr. Fuller. I didn't say that.
Mr. Markey. I appreciate that, because the Internet is
changing everything. So my amendment will be on must carry.
Mr. Fisher.
Mr. Fisher. I am a member of the NAB Board, and as such
would tell you that I have voted in favor of the must-carry
rules. It is still very unclear how matters are going to turn
out in terms of the business negotiations on digital
television.
We have invested, for example, at COX so far in converting
three of our stations at a cost of tens of millions of dollars
for digital broadcasting, and as such we do not have any
assurance that those digital signals will be carried on cable
in our local markets.
Mr. Markey. I think it is very unclear, but I am hearing
broadcasters say it is no longer necessary, some of them
anyway, in the era of the Internet.
You know, I listened to Mr. Katz talk about the efficiency
of the marketplace, and I do agree that it is highly efficient
to have 3 or 4 central sources override all local communities
in terms of what programming is appropriate. So if the success
is sex or violence, it really is inefficient to have individual
stations say, no, we don't want that in Biloxi, Mississippi, we
don't want that in our communities. From an economic model, I
agree with Mr. Katz, it is very inefficient. It adds an extra
cost, obviously, to the networks to have to listen to these
pains that are, you know, calling in from these local
communities. And it is also a pain, I guess, to listen to them
say we are going to preempt some of your prime time programming
to show this high school football game that is very important
to our local community. That is also highly inefficient.
There is no question that localism is a very inefficient
value; that it would be very efficient just to have all of the
programming all of the time be sent from New York and L.A. My
question to you, Mr. Fisher, is do the networks ever allow
their O&Os ever to preempt any of their national programming
for local programming?
Mr. Fisher. I am sure there are occasions that can be cited
where a network-owned station has preempted the network, but in
my professional history, which includes having worked for
network-owned companies as well as for independently owned
companies, I do not know of an instance where that preemption
occurred because of concern about local community values. That
appears to be the exclusive province of those who are not owned
by the network, for obvious reasons. I just don't think that a
network-owned station general manager is going to call up the
network and say, I know that was a wonderful decision for you,
I am just not going to run it.
That is just not pragmatically the way it is, and that is
in essence the issue in front of this committee. The increase
of the cap simply moves program decisions about national news
and network programming exclusively into the hands of Hollywood
and New York.
Mr. Markey. Mr. Yager, what is your experience in this
area?
Mr. Yager. Well, we own a television station, not in
Biloxi, but Meridian, Mississippi, that does not carry and has
never carried NYPD Blue because of the local climate when that
show was first announced.
Mr. Markey. Now, if you were purchased by a network, do you
think the local general manager would be able to preempt that
in Meridian, Mississippi?
Mr. Yager. Congressman, I doubt if they would be able to
preempt that. I doubt that they would. I think those program
decisions would be made in New York, as Mr. Fisher said, or
Hollywood.
Mr. Markey. Is that an important value to have, that kind
of discussion within a network, that affiliates are able to
speak back to New York and L.A?
Mr. Yager. I think it is. You mean, is it important that we
have it at the local level?
Mr. Markey. That you have that discussion at the affiliate
meetings where you have the kind of clout to be able to talk to
them in sufficient numbers that they understand your concern at
the local level.
Mr. Yager. I think it is absolutely critical.
Mr. Tauzin. The gentleman from Florida, Mr. Stearns, the
author of the legislation.
Mr. Stearns. Mr. Yager, let us just follow up, if we can,
with what Mr. Markey was pursuing. Isn't it true that the
affiliates have the legal right to preempt the national
broadcasters?
Mr. Yager. That is correct.
Mr. Stearns. If they want to go ahead and broadcast a local
football game, they have the right to do it. There is nothing
the national network can do.
Mr. Yager. Within certain limits.
Mr. Stearns. Yes, but so much allowed every year by the
affiliates to do what they want on the local level; isn't that
true?
Mr. Yager. Those baskets, Congressman, have steadily
decreased over the years that I have been in this business. We
have some stations that are allowed today under contract to
preempt only 15 hours of prime time programming a year.
Mr. Stearns. Mr. Fisher, you have argued that an increase
in the national ownership cap would harm localism. Where is COX
cable headquartered?
Mr. Fisher. I guess Atlanta. I have no close connection
with our cable company which is publicly owned, sir, but I will
do the best I can here.
Mr. Stearns. But isn't it true that COX owns stations in
eight other markets, including as far away as San Francisco?
Mr. Fisher. We own television stations in nine markets,
yes, sir.
Mr. Stearns. The fact that you are headquartered in Atlanta
and you have ownership in San Francisco, does that mean that
you are going to ignore localism in these markets?
Mr. Fisher. Of course not; no, sir.
Mr. Stearns. Okay. And if your answer to that question
obviously is no, why do you allege that other group owners or
networks would ignore localism?
Mr. Fisher. It is a wonderful question. No one who runs
network affiliates feel that the networks run bad stations. The
issue in front of the committee is how many people like us do
you want in the business. Do you want basically four folks
calling the shots in half the country, or would you like a
large number of owners with a diverse number of viewpoints who
are involved in the business?
So the issue of localism is not whether good local stations
are run. It is how many people are going to be having a voice
in the policies of the major distributors.
Mr. Stearns. So you are talking about power and economic
power is what you are concerned about--a concentration, is that
what you are saying?
Mr. Fisher. In my view, would be the diversity of
viewpoints available to influence programming and news in this
country.
Mr. Stearns. Let me go to Michael Katz. Mr. Fisher, you
just heard him testify that lifting the national caps would
make the networks too powerful and threaten the economic
viability of local affiliates. What economic incentives do the
networks have in undermining local stations? And don't they
need strong local stations in order to ensure the efficient
distribution of network programming?
Mr. Katz. I don't think that networks do have an incentive
to undermine local stations. They have every incentive to have
strong local stations and the networks have incentives to
promote localism. I don't think it is a correct statement to
say that localism is inefficient. There are market forces that
drive networks to want to serve local interests, and in fact I
am told by CBS, heard this last night, that the CBS-owned and
operated station in Baltimore preempted the network programming
to show the Orioles game.
Now, if someone was going to debate the social value of an
Orioles game, particularly since they were beating my home
team, but the fact is it is an example where the O&Os--this is
something of greater local interest and they showed it, and
that is what one would expect is their incentive, to show local
interest.
Mr. Stearns. Mr. Fuller, Hurricane Floyd in Florida was
moving ever so slowly into Florida. In my office we didn't go
to the newspapers to find out what was happening. We pulled up
the FEMA Web site. We pulled up the Florida Department of
Emergency Services Web site. We went to the Weather Channel on
the cable, and we went to Cable News Network.
Now, Mr. Markey says that he is worried about cross-
ownership. Wouldn't you agree that with this huge amount of
change, that the newspapers in themselves should be able to
participate? Or they are in an industry that is not going to be
providing information that is current; because why would I go
to any newspaper when I can go to these 3 or 4 sites and
instantaneously find out what is going on?
Mr. Fuller. Well, you are surely not going to wait until
the morning after the hurricane passes to find out where the
hurricane is going to hit. We agree with you thoroughly. The
changes in the information technology are sweeping away all of
the distinctions that have typically existed between us until
virtually the only distinctions left are in the law.
Mr. Stearns. Thank you, Mr. Chairman. I just give that
example of Hurricane Floyd and how across this country all our
citizens in this country are following and tracking it, and
that is probably a very clear example of how this industry is
changing so dramatically.
Mr. Tauzin. The gentleman from Illinois, Mr. Rush, is
recognized for 5 minutes.
Mr. Rush. Thank you, Mr. Chairman. I first want to ask Mr.
Fuller--Mr. Fuller, in light of the recent broadcast mergers,
CBS and Viacom comes to mind, how would your paper be able to
compete in this changing communications environment?
Mr. Fuller. Well, we see consolidation happening all around
us, and we also see, as you know, new competitors that can come
after sources of our revenue really quite easily thanks to the
Internet and other electronic means, and we believe that the
way we are going to be able to compete the best is to be able
to do what we do best, which is do journalism and reach people
across a variety of distribution systems so that we can reach
them with the information we have in the way and the manner in
which they want to get it. That is how we think we can compete
in a consolidating environment and we think that the public
will be served by it.
Mr. Rush. Mr. Katz, you state that the national station
ownership cap does not promote minority ownership. Can you
expound on that, please?
Mr. Katz. Yes. The reason for that conclusion is twofold.
One, there just simply aren't very many minority-owned
television stations. So, manifestly, the cap has not been
successful in promoting that goal, and I don't think that
should be a surprising finding, because what analysts have
found, what the FCC has found, is that the biggest obstacle to
minority ownership is the lack of access to capital, and the
problem is that the national ownership cap does nothing to
address that issue and does nothing to solve the problem.
Mr. Rush. Thank you, Mr. Chairman. I yield back.
Mr. Tauzin. The gentleman from Ohio, Mr. Oxley.
Mr. Oxley. Thank you, Mr. Chairman. Mr. Sturm, you
mentioned the 94 local newspaper/television combinations and
the 308 newspaper/radio combinations that were grandfathered
back in 1975, and that they were selected based, apparently, on
their superior service. Is it also a fact that they were just
in a good place at a good time?
Mr. Sturm. As I mentioned in my testimony, at one time the
Commission encouraged publishers to invest in radio and
television. As you mentioned, as a result of that, when the
Commission imposed the ban, there were several hundred
newspaper/radio primarily, as well as some newspaper/television
combinations that continued under the grandfather. My
recollection is the Commission required divestiture of just a
handful of markets where the ownership was highly concentrated,
but at the time they never found that newspaper ownership was
somehow against the public interest. What they did find is
quality service throughout the history of cross-ownership. Why
they imposed the ban under those circumstances is strange to
me.
Mr. Oxley. It does seem rather inconsistent. As a matter of
fact, one could argue, it seems to me, that if you truly
believe what apparently some folks at the FCC believe today,
that you would be in favor of rejecting the grandfather, that
is, repealing the grandfather.
Now, I am just wondering whether anybody has really thought
about that, at least to be consistent.
It seems to me if we are going to deny other newspapers the
ability to own stations based on the apparent lack of
diversity, why wouldn't we then consider simply lifting that
grandfather clause and making everybody equal?
Mr. Sturm. As I tried to point out in my testimony, the
grandfathers situation, and there are about 22 left in
television, 34 in radio, most of them have actually gone away
over the last 25 years, primarily because of the changing
marketplace and the demise of the afternoon newspapers,
unfortunately.
But if you are really serious about localism, the best
thing in the world as I see it would be to have the local
newspaper, which is truly a local medium, be able to have the
ability to own broadcast stations.
Mr. Oxley. I don't want to leave the impression I am
espousing doing away with the grandfather for the Washington
Post or the Chicago Trib, certainly. They may want to divest
the Cubs, but that is a whole other story.
Let me ask you, Mr. Sturm, you mentioned the constitutional
issue. Has a newspaper association ever gone to court to test
that issue on a first amendment ground?
Mr. Sturm. We really never have had the opportunity to test
the rule under today's marketplace situation because the FCC
has never opened a rulemaking so that we could take a final
order from the Commission. Even if we lost the final order from
the Commission we would, of course, be in court under a lot of
theories, including the constitutional aspect of it. We have
not had a chance to do so under today's marketplace situation
with the great diversity of voices that are available in every
market.
Mr. Oxley. So in essence, the court wouldn't have a
justiciable issue under current circumstances?
Mr. Sturm. When the Tribune company applied for their
waiver and appealed that case, we attempted to try to get the
court to take a look at the entire rule but they refused to do
so.
Mr. Oxley. Thank you. Thank you, Mr. Chairman.
Mr. Tauzin. The gentleman from Minnesota, Mr. Luther.
Mr. Luther. Thank you. Mr. Fisher, you stated, I believe,
that the FOX network would have never been able to get off the
ground without the 25 percent national ownership cap. Why is
that true, and what would the impact be on the emerging
networks if the cap were raised above 35 percent?
Mr. Fisher. Well, I think it is really self-evident. You do
the station count--remember that while there are an average of
11 stations in market in the United States, a number of those
in each market are public and religious. So the reality at the
end of the year is, using the current duopoly rules as has been
established, if the four owners can duopolize, that pretty well
ties up the market, and that is what you have got. You have got
the four network-affiliated stations buying the four other
stations, and it is kind of hard to imagine an independently
owned network ever being able to emerge again.
Mr. Luther. And, Mr. Chernin, I have a question of you. Did
FOX advocate for retaining the national ownership cap when it
was building its network back in the eighties?
Mr. Chernin. Absolutely not. First of all, I was there when
FOX was being grown, and I categorically disagree with Mr.
Fisher. You will notice that Mr. Fisher answered that question
not referring to the broadcast cap of 35 percent. He referred
to the duopoly rule. The fact of the matter is that the
broadcast cap was lifted to 25 percent to allow the FOX network
to grow, and I think that increasing the broadcasting cap
encourages people to enter the networking business, and I don't
see any reality to my colleague's analysis of the situation.
Mr. Luther. This would actually be to all of the panelists.
I think everyone here is aware of how the public feels about
the low marks the public gives the media today. I think they
rank the media somewhere where they rank Congress, and that is
not a good area to be in. But anyway, my sense of course is
that the public feels that those notions of the first amendment
and public spirit are sort of out the door, and it is all
completely money driven today. That is my sense in talking to
people when I have town meetings and invite my employers in;
and they are the people I represent. My sense is that they feel
that money is driving everything today.
So I guess my question to all of you is if we want to get
the public to feel better about you, to have more confidence in
you, what are the changes we ought to make? Would the changes
you are proposing today actually create greater cynicism,
greater concern on the part of the public, or would they help
alleviate that? Because I think that ought to be our goal: to
get some confidence back in the media.
Mr. Fuller. Let me answer first, in that we strongly
believe that the responsibility for getting and keeping the
public trust with the media is ours, and that the Constitution
says we ought to have the right to either gather the public
trust, gain the public trust or lose it, and if we lose it we
will lose our business. And we believe that it is fundamentally
our responsibility and not the Federal Government's.
Mr. Luther. If you have a monopoly, how do you lose your
business?
Mr. Fuller. I have never operated in a monopoly setting. I
have no idea what that feels like.
Mr. Chernin. First of all, I don't think that lifting the
cap on broadcasters is going to create a monopoly. As we have
heard from numerous testimonies, there are a huge number of
different voices in every local market, and I do agree with my
colleague that the public has an opportunity to vote every
single moment of every single day as to how they view the
performance of various broadcasters, various cable casters,
various information sources, and they have the opportunity to
watch you to the degree they think you are doing a good job and
the opportunity not to watch you. And I think that is
ultimately the best way for the public to express their true
feelings.
Mr. Luther. Anyone else wish to comment on how we are going
to improve the public's feelings about you?
Mr. Hedlund. Congressman, I would wonder if when you said
the public's opinion, the media is down about where the
public's opinion of Congress is, you know that is always true.
People say they hold Congress in very low esteem but they like
their local Congressman, and I suspect you might find the
public feels the same way. They don't like the media, but boy,
they sure like their local television stations, one.
Second, yes, as commercial businesses they are money
driven, no question about it, 100 percent money driven. But
that is the biggest guarantee of the incentive to gain the
public's confidence and trust, because if you lose it, you lose
your business or you lose the share of the business you had,
and that makes a big difference moneywise.
Mr. Luther. Thanks.
Mr. Tauzin. Thank you, Mr. Luther. I am going to test that.
I don't care how you guys feel about me, they love me at home.
The Chair recognizes the gentleman from Illinois, Mr.
Shimkus.
Mr. Shimkus. Thank you, Mr. Chairman. Localism is funny. It
is a good debate because everyone is speaking in support of
localism. Obviously there are different views, as per my
opening statement. But, Mr. Yager, let us talk about localism
in Quincy, Illinois, for a second.
Your station KHQA competes with WGEM. Do you feel that your
local station there is at a competitive disadvantage based upon
the fact that WGEM is grandfathered?
Mr. Yager. You mean the fact that the Oakley Newspaper
Group or the Quincy Newspaper Group owns the Quincy newspaper
together? They also own radio stations in the market. We bought
that station knowing full well that the Oakley family
controlled the newspaper, controlled the radio stations. That
did not bother us, and Congressman, that does not bother us
today. We are very good competitors. As a matter of fact, the
Oakley family has now bought a station in Rockford, Illinois,
where we own a CBS affiliate and compete with us there as well.
Mr. Shimkus. Thank you. I would just ask Mr. Fuller kind of
the same question in the Chicago market, and I am asking you to
speak for your competitors now obviously, because they are not
present. Would your competitors in the broadcast industry say
that you have a competitive advantage because of your other
being grandfathered?
Mr. Fuller. Well, I don't know what they would say. I don't
think that--I can't imagine that they would say that there was
market concentration in our business. I was just counting it
up. There are 10 daily newspapers in our market, not to mention
all of the television outlets and cable outlets. I mean, I
think that some of our competitors have competitive advantages
of one sort and others have competitive advantages of the other
sort.
That is not the issue. The issue is whether anybody has
market power, and I can tell you that the idea of anybody
having an overwhelming voice in a market like Chicago is just,
for those of us who have tried to get our voices heard at all,
is preposterous.
Mr. Shimkus. Thank you. Mr. Yager, let me go back to you,
and correct me if I am wrong in this initial opening little
statement. You have indicated your support for the Commission's
recent relaxation of local ownership rules and you appear to be
confident that permitting one entity to own two stations in the
same market will not reduce competition and diversity. Is that
correct so far?
Mr. Yager. That is correct.
Mr. Shimkus. Yet you do appear to be concerned that
eliminating restrictions that restrict the number of stations a
single entity can own in different markets somehow would reduce
competition and diversity. So my problem is, if there is a
problem in differing markets, if they are not competing, if
they own in a market on the East Coast and they buy into the
West Coast and there is no competing aspect, how would that
event impact a viewer and affect the competitive market?
Mr. Yager. Congressman, let me say that the new duopoly
rules which the Commission adopted prevents a diversity of
voices. You have to have so many voices. You have to have eight
different voices in that community. We disagree with the way
they count those voices. We think newspapers should count in
terms of television duopolies, as we think cable should count;
but you are really talking about in the local marketplace, that
station has to be a fourth-place station in that market for
them to have a duopoly. It can't be one of the top four, under
the new Commission rule which we support.
We operate in many, many markets. As a matter of fact, we
do not operate in any market that has a television station. So
we are not faced with the implications of that rule, and that
is primarily because the largest market we operate in is number
83 in the country.
I think that there is a great difference between a network-
owned megacompany that supplies programming to stations and
owning two stations in an individual market. One is program
supply, one is program control. The other is the operation of a
local station. I think there is quite a difference,
Congressman.
Mr. Shimkus. Mr. Katz, would you like to respond? Did you
follow our discussion?
Mr. Katz. I followed it and I have been puzzled by the
Commission's decisions and how they can square having the local
rules that they do with the national ones. It makes no sense to
me to say that owning a second station in New York is okay but
owning a second station where one is in New York and one is in
San Francisco is not. I appreciate that program supply may be
different from operating a station, but I don't see why that is
relevant to this issue.
Mr. Shimkus. And, Mr. Chairman, if I could just follow up
with one last question. I don't know if this has been asked but
it is something--and it is to Mr. Sturm--on the impact. In my
short time in this political environment, I have seen the tough
competition that the newspaper industry has in large
communities. In fact, many large communities have only one
daily paper today.
In easing some of these rules, do you think that would
bring more competition to, in large communities, of another
daily to compete in local--for example, I am in the St. Louis
metropolitan area. The St. Louis Post-Dispatch reigns supreme.
Would easing of this obviously bring competition to that one
daily newspaper?
Mr. Sturm. It is difficult to predict that necessarily. I
know in the St. Louis situation, while the Post-Dispatch is the
primary metro daily, it is surrounded by quite a few suburban
newspapers that have quite a bit of circulation in the St.
Louis general metropolitan area. If you relax this rule and
allowed the owners of those suburban newspapers, for example,
to own a television or a radio station in St. Louis, would that
perhaps allow them to expand into the center city perhaps? I
can't really predict that, but it certainly wouldn't hurt.
Mr. Shimkus. Thank you, Mr. Chairman, for the extension. I
yield back.
Mr. Tauzin. The gentleman from New York, Mr. Engel, for a
round of questions.
Mr. Engel. Thank you, Mr. Chairman. I have been studying
this issue for a while. I started off basically opposing the
raise in the cap. I have come to have the opposite position. I
think in modern days, raising the cap probably makes sense, but
I do have some questions.
I just want to follow up on Mr. Shimkus' question because
it would seem to me that if there is a concern in raising the
cap, the concern I think would be more of allowing one entity
to own a second station in the same media market. That might be
a concern, but I don't understand why it is a concern to allow
one entity to have different stations in different media
markets.
I don't understand that, and I am wondering, Mr. Yager, if
you could just continue to elaborate on that because it would
seem to me, if there is a fear, it should be one entity
gobbling up everything in one area, not if someone owns
something in San Francisco and owns it in New York. I am not
really troubled by that.
Mr. Yager. Most broadcasters do not operate in the major
markets where the rule regarding two stations is going to be
applied. The top 20 markets are primarily where you can own
more than one television station. There are some smaller
markets where you could own two television stations under the
new rule.
When you get down to controlling program distribution and
you control the ownership of television stations, you have a
dual stream of control. Those of us who elect not to sell, who
decide to maintain independence in terms of our affiliations,
in terms of the way we program local stations, with
megacompanies controlling 50 percent, will no longer be
important to the distribution system of the networks.
Mr. Engel. Thank you.
Mr. Chernin, I represent a racially diverse district in New
York City and the surrounding areas, and I want to just raise
two questions with you, and then I hope I have some time to ask
Mr. Katz a question.
Of paramount concern to my diverse constituents, of
possibly raising the national ownership cap, is the fear that
raising the cap would further accelerate both the lack of
racial and ethnic diversity of current television programs; and
B, that would make it much more difficult for minority
ownership. Can you comment on that, please?
Mr. Chernin. Well, I fundamentally think it is a very
legitimate concern, Mr. Engel, and I think it is a concern
which all of us in the broadcasting business need to do a
better job. We have pledged to do a better job. We have had a
series of meetings with various groups, particularly the NAACP
and numerous other groups. I do agree with what Mr. Katz'
earlier statement was. It is clear the current system has not
done an adequate job of promoting diversity either in
programming or in ownership of local stations. We as a company
certainly support--there has been an initiative by Mr. Karmazin
and Mr. Maze to create a fund for minority ownership. We
support that. I think tax credits ought to be looked at. We
support that. I think as a programmer we have to do a job of
serving a diverse constituency. We struggle hard to do that,
and sometimes we are more successful than others, but it is
hard for me to understand why keeping a cap at 25 percent as
opposed to owning it is going to have a material effect one way
or the other.
I think if anything, these large companies are in some ways
more responsive because we have to be. We have a greater need
and obligation to serve the public interest and I think have
more pressure put upon us, and respond appropriately to the
marketplace.
Mr. Engel. Mr. Katz, you testified that lack of a minority
ownership is in large degree as a result of a lack of capital,
and Mr. Chernin just mentioned perhaps a tax certification
program. Would you be in favor of that? Should Congress be
looking at that in order to create incentives for minority
ownership and greater diversity in programming?
Mr. Katz. Let me first do the usual economist disclaimer,
which will say as an economist I am not going to tell you that
promoting minority ownership a good or bad idea, but I am going
to take it that obviously it is a good idea, and I think then
it is important for Congress to look at various ways to create
incentives. I think it would be preferable for the industry to
be able to come up with it voluntarily. I am sure the members
would prefer the industry would come up with it, rather than
looking at new tax programs. I think we should explore all of
the possible avenues because, as I said, what we have today
hasn't been working.
Mr. Engel. Thank you, Mr. Chairman.
Mr. Tauzin. Also the gentleman from New York, Mr. Fossella,
for a round of questions.
Mr. Fossella. Thank you, Mr. Chairman.
Mr. Chernin, you claim that group-owned stations broadcast
more issue-oriented local programming than nongroup-owned
stations. What exactly about FOX demonstrates this?
Mr. Chernin. I can give you several examples. You know,
when we purchased our stations, a number of examples, four of
the stations we purchased had absolutely no local newscast when
we purchased them: Chicago, Boston and Salt Lake. Within 2 to 3
years of our purchase--and Denver--3 of those 4 stations
started airing locally produced news. We are in the process of
building a multimillion dollar state-of-the-art facility in
Denver which goes online next year to also serve that community
with local news.
In five other stations, New York, Los Angeles,
Philadelphia, Washington and Houston, arguably the most
important markets in this country, we have tripled the amount
of local news we present to the public in those markets. When
we bought those stations they had 1 hour of local news. All of
those stations now have 3 hours of local news. In three other
stations, Memphis, Birmingham and Greensboro, we have doubled
the amount of local news from 1 to 2.
In addition, as a network basis, when the FOX network was
formed we generally had a group of very small underfinanced
affiliates, few of whom offered any news at all.
One of the things I think we are proudest of is more than
100 FOX affiliates now offer a local--locally produced, locally
editorially directed newscast, and frankly it is good business
for us. These stations prosper by serving their local
community, and as the owner of those stations and as to the
degree which we are networked, our partners in those affiliate
stations, we are dedicated to those stations performing a local
service to their community. It is good business for them and we
think it helps us.
Mr. Fossella. By extension to Mr. Fisher, it is my
understanding COX owns a FOX affiliate in El Paso, Texas.
Mr. Fisher. That is correct, sir.
Mr. Fossella. What would be the impact in El Paso if COX
were to sell that affiliate to FOX and presumably break the
cap? What would happen? What would be the ramifications of that
sale?
Mr. Fisher. It is hard to predict the future, but we know
one thing and that is that the decisions about the programs
that that station clears from the network, as well as the
decisions about what programs it buys in the syndicated
marketplace, would be made in Hollywood. No longer would it be
made by an independently owned operator, and I think that is
the crucial difference here. There has been a fair amount of
conversation about the question of how a duopoly affects the
matter of network ownership.
The real issue is simply do you want four companies
deciding news and programming policies in half the country?
That is a huge change from what the Nation's cultural tradition
has been, and the essential difference in El Paso is simply do
you want that decision being made by one of many, many
independent owner organizations or do you want to tell folks
who have owned television stations for many years, your time is
over, it is now time for the networks to basically own most of
them?
Mr. Fossella. So you don't think the response from the
local marketplace to bad programming would be less viewership
on the new affiliate if presumably FOX were to buy it? That
wouldn't be a factor?
Mr. Fisher. The viewers would make their own decisions.
Mr. Fossella. Would you think that FOX, for the sake of
argument, would change their programming if their viewership
dropped or their advertising dollars generated by the shows
dropped? Would they make that decision at all, change their
decision?
Mr. Fisher. Sure. FOX, I assume--you have a gentleman here
who can answer more eloquently than I--but I am sure they will
make the most economically viable decision for their
programming. As for the editorial content of news broadcasts, I
guess you have to decide how many diverse owners do you want
making those decisions about local television.
Mr. Fossella. I am not familiar with the marketplace
totally in El Paso, but there has got to be a few stations
there, right?
Mr. Fisher. I think that there, if memory serves, are seven
commercial--in fact, I believe there are seven stations overall
in El Paso, sir.
Mr. Fossella. So if I am a resident of El Paso and I am now
watching a FOX-owned affiliate with programming from Hollywood,
if it is going to affect me so much, I have how many other
options, six other options, presumably?
Mr. Fisher. In the commercial world, I think 4 or 5.
Mr. Fossella. So you think the fact that the decisions
would now be presumably made in Hollywood, as opposed to in El
Paso by an independent operator, it would change the whole
marketplace, which would put FOX in violation of a cap, and so
we should keep it at that? That is what your argument would be?
Mr. Fisher. It already has, sir. If you take a look at the
syndicated programming decisions at the FOX station, they are
made in large steps.
Mr. Tauzin. Thank you, Mr. Fossella. Are there any other
members who wish to ask the panel any other questions? Mr.
Engel, would you like to follow up with any?
Mr. Engel. Thank you, Mr. Chairman. I just have one
question that I would like to throw out for anyone who would
like to answer. I raised the issue before of diversity, the
networks owning and buying up more cable stations. We have a
situation where a number of households in the United States do
not have cable, and they are primarily the poorer households,
and, therefore, primarily larger percentage of minorities.
Is it a concern that because the networks are not doing
well financially that if you don't allow the cap to be lifted,
that the networks may just simply transfer a lot of programming
to cable stations and, therefore, leaving the regular
broadcasting with slim pickings? Is that a concern or is that
nothing that we should be concerned about?
Mr. Chernin. Mr. Engel, I would be happy to answer that. In
fact, we are the largest producer of programming in the country
right now. We try to produce--and I think in fact there is a
pretty good argument that the health of the broadcast business
has led to quality if the Emmys are any indication of quality,
given that our company won the three major Emmys this past
week, all for broadcast programs.
The fact of the matter is that most of our investments in
recent years have been in cable networks. We started the FOX
News Channel, we started the FOX Cable Network, we started the
FOX Sports Network, we started the FOX Family Channel, because
as a responsible business organization we felt we would get a
better return on that cap that owned a cable business.
We are committed to the broadcast industry. We would like
to provide the World Series to free broadcast; we would like to
provide the Superbowl to free broadcast; we just provided the
Emmys to free broadcast. We produce close to 30 different
network television shows. But to the degree that the broadcast
business becomes economically disadvantageous, as a
responsibility to our shareholders we will have to dedicate
those production efforts elsewhere.
So I think it is a legitimate and genuine concern to serve
that portion of the population that doesn't pay $30 a month for
cable or satellite or doesn't have Internet connection or home
video, et cetera, et cetera.
Mr. Fisher. Could I comment as well?
Mr. Engel. Certainly.
Mr. Fisher. These are the same arguments the networks use
when the cap has been raised before. There is some concern that
based on the way in which networks count their profits, if they
owned 100 percent of the country, they would still be showing
today that their profits were very, very limited.
I think at some point, one has to take a deep breath and
say with the revolution that the 1996 act and now the duopoly
change has allowed, it is a moment to take a deep breath,
because once further consolidation is allowed and only four
folks are running much of the Nation's television stations, you
will never get to again find out what diversity would have
provided instead.
Mr. Katz. If I could address that, I think this issue of
whether or not the networks are making a lot of money or just
the right amount I think is a red herring. The issue is not the
overall profitability of the networks or how one does the
accounting. The issue is whether or not the networks have
economic incentives to invest in high-quality, high-cost
programming, and I think there is agreement that if the
networks owned and operated more of the stations, however the
accounting is done, that they would have greater incentives to
invest in that programming.
It seems to me that is the real issue for viewers, and that
is what I see as the public policy issue, and that is not a
question of how the networks do accounting. It is a question of
their being able to coordinate with the stations and to be able
to earn the return on their investment.
Mr. Engel. Thank you.
Mr. Tauzin. Mr. Markey, would you have any final comments
or questions, sir?
Mr. Markey. Only to say this, Mr. Chairman. We have many
important players here in the firmament of information which
ensures that our democracy thrives, and clearly we are in a new
era, and I don't think I or anyone else can deny that. The
decision made by the Federal Communications Commission in
August has opened up a Pandora's box of issues that are going
to have to be dealt with. I don't think any of us can deny
that, and I think that Mr. Fuller and Mr. Yager and Mr.
Chernin, all of our witnesses today, have made extremely good
points that I think at the end of the day are going to have to
be fully included in any deliberations of this committee or of
the Federal Communications Commission.
And I am glad that you had this hearing, Mr. Chairman,
because I think you are teeing up a very important debate and
discussion for our country.
Mr. Tauzin. I thank the gentleman.
Let me wrap up with a few comments. No. 1, let me put
something on the record to clarify an issue. The Federal
national cap is not, as some apparently believe, a cap on the
amount, the total percentage of stations, television stations
in America that can be owned by one entity. The cap of 35
percent does not mean that an entity cannot own more than 35
percent of the television stations in America. That is not it
at all. It is a cap on the percentage of the American viewing
audience that can be reached by a single entity. So that the 35
percent cap means that any network and entity is not permitted
to own stations that reach more than 35 percent of the American
audience.
It is very different than owning 35 percent of the
television stations in America, as some I think erroneously
look at this cap.
The CBS/Viacom merger presents an example of how the cap
works. CBS/Viacom together would own stations that reach 41
percent of the American audience, an audience that is reached
by many other stations. It is not a 41 percent monopoly of the
stations in America, but the 41 percent obviously would exceed
the 35 percent reach that is permitted under the current
national cap.
The merger would also include a network ownership issue, a
double network ownership issue, because apparently UPN is half
owned by Viacom and UPN is the sixth rated network as of last
year. So that there is a problem in ownership by one network of
another network, and that 50 percent ownership probably would
pose a problem in terms of approval of this merger and would
have to be dealt with.
So these old rules, the rules of caps, the rules of
ownership, directly impact how this merger proposal is going to
be handled or considered by those who have to approve it and
obviously impact upon some decisions that Viacom and CBS have
to make in connection with their merger agreement.
Let me also finally say that we are basically talking about
the ownership of delivery systems of programming. That is what
a station is, a delivery system that can deliver the newspaper,
gather news in a different way; it is a delivery system that
allows the delivery of local and national programming over
networks in one way, as opposed to a cable delivery or
satellite delivery or some other delivery system.
Just yesterday I met with officials of a company that
intrigued me when I discovered it on the Internet, a company
called Time Domain. I am not proselytizing the company, but I
want to mention it to you. Time Domain is a technology
developed by a man named Larry Fullerton out of Huntsville,
Alabama. It involves a new delivery system, a delivery system
based upon postmodulated bands of energy. It implies the
capability of very low power and very low-spectrum use of
ultra-broadband delivery on a wireless system of television,
radio, voice data, enormous amounts of information, over
networks or just specific users. It is radar through walls. It
is locatability down to the millimeter as opposed to GPS meter
locatability.
If this technology is as real as its proponents say, it is
an entirely new delivery system for all of the stuff we are
talking about today.
In that wonderful book--Mr. Markey has read it and many of
the members have read it--by Tom Friedman, The Lexus and the
Olive Tree, he says that very soon that we will either live,
all of us, not in a First World or a Third World, but in a fast
world or slow world.
Now, here is my editorial remark. I think the FCC lives in
the slow world. I really think it does. I think we all have to
be thinking about the fast world, a world where these new
delivery systems are going to be upon us rapidly, where
broadband delivered in new systems of wireless and wired and
satellite and all sorts of new mediums are going to
dramatically change the way in which Americans see, view, hear,
and deal with much of the information that many of your great
companies or affiliates provide for us in the old slow world,
the old formats. And I suspect we need to be thinking about how
these old rules, while they served a great purpose for a long
time, these really need to be rethought and reexamined in the
light of these new delivery systems.
I suspect that when, as I said earlier, Mr. Yager, when
broadband is really deployed fully to enough Americans--and I
hope we are not left out in Chackbay, Louisiana--that localism
will be the key to viewership. That is where you are going to
get eyes, and the more we are brave enough to let these new
delivery systems fully develop, fully explore their
possibilities for America and for the people of the world, the
more the contest for eyes will be fought on the basis of how
local information is; and that is good for this country and
good for everything we have fought for in broadcast and
newspapers and everything else when it comes to developing a
system of free speech in our great country.
So I just challenge you. Think, if you can, in this fast
world and help us encourage the FCC to get out of its 1930's
slow world and join the rest of us in a very fast-moving and
new fast world of communications.
Thank you again. You have contributed, as Mr. Markey said,
dramatically. We have heard some differences of opinion, and
that always helps us, because in the end we have to consider
all points of view. You have been very good about doing that
today. I appreciate it.
We will come back, I am sure, to this issue very shortly,
and we will keep the record open, and if you have additional
comments, suggestions, information, we will appreciate you
supplying it to the committee.
The committee stands adjourned.
[Whereupon, at 12:10 p.m., the subcommittee was adjourned.]
[Additional material submitted for the record follows:]
Prepared Statement of Leonard J. Asper, Chief Operating Officer,
CanWest Global Communications Corporation
CanWest Global Communications Corporation (``CanWest'') welcomes
the opportunity to present to Members of this Subcommittee its vision
of broadcasting and the foreign ownership restrictions in Section
310(b) of the Communications Act of 1934 as we enter the new
millennium. The current post-cold war international climate, an
unprecedented explosion of technology and media, the contributions
foreign participants can make in furtherance of traditional policy
goals of broadcast regulation, and recent developments associated with
foreign investment and ownership opportunities in telecommunications
services all support the conclusion that now is an appropriate time to
review and modernize the restrictions that Section 310(b) places on
foreign investment in United States broadcasting. CanWest commends the
Subcommittee for considering this important issue. CanWest believes
that the reciprocal approach contained in H.R. 942 will reasonably
modernize Section 310(b) while continuing to safeguard the core
national security interests that the law was designed to protect.
canwest has successfully brought new and diverse programming choices to
the listeners and viewers of the countries in which it has invested
CanWest, based in Winnipeg, Manitoba, was founded in the early
1970's by I.H. Asper, and has traded on the Toronto Stock Exchange
since 1991, and on the New York Stock Exchange since 1996. CanWest has
expanded by acquiring and developing underperforming broadcast assets
and through start-up of new television broadcasting properties.
Although its combined revenue for fiscal year 1998 was $871.4 million
(Canadian), the company is relatively small when compared to United
States broadcasting companies.
Today, in Canada, the company's Global Television Network
broadcasts over-the-air via eight television stations and provides
service to eight of ten provinces, 28 of Canada's 31 largest English-
language television markets, and more than 75 percent of Canada's total
population. The network is one of two national commercial television
networks in Canada. In addition to over-the-air broadcasting in Canada,
CanWest recently entered the cable arena with ``Global Prime,'' a niche
24-hour network catering to those age 50 years and over.
CanWest's business achievements are accompanied by significant
participation in community and social affairs. CanWest is a perennial
sponsor of the Broadcaster of the Future Awards which awards three
separate media-related scholarships: Broadcaster of the Future Award
for Aboriginal People, Broadcaster of the Future Award for a Canadian
Visible Minority Student, and Broadcaster of the Future Award for a
Canadian with a Physical Disability. CanWest also recognizes the
performing arts industry as a foundation of broadcasting and honors it
accordingly with substantial sponsorships and contributions. For
example, CanWest recently helped the Manitoba Theatre for Young People
construct a new state-of-the-art performing venue.
CanWest also encourages its employees to become involved in a
variety of programs and initiatives. CanWest provides employees with a
Matching Gift and Community Service Support Program. This program
establishes dollar-for-dollar matching contributions for employee
charitable donations, thereby supporting the interests of individual
employees and encouraging their community involvement.
In addition to its extensive achievements in Canada, CanWest has
made significant contributions to the media markets in Australia, New
Zealand, the Republic of Ireland, and Northern Ireland. In the early
1990s, CanWest took its first step into the international arena when it
acquired an interest in TV3, New Zealand's first private sector
broadcaster, which was in receivership. In 1997, after TV3's success,
the New Zealand government granted CanWest a license to launch TV4, New
Zealand's second privately-owned network. Also in 1997, success in New
Zealand prompted CanWest to acquire More FM, consisting of seven radio
stations operating from Auckland, Wellington, Christchurch and Dunedin.
CanWest's development of these broadcasting properties in New Zealand
has been facilitated by ownership regulations in that country that
allow CanWest to own 100 percent of the networks.
In 1992, CanWest led a consortium to acquire Australia's TEN
Television Network. CanWest holds a 57.5 percent economic interest and
a 15 percent voting interest in TEN. The Australian network reaches
about 65 percent of the country's population via five wholly-owned
stations, and another 25 percent of the population through affiliated
stations.
Most recently, in September 1998, a CanWest-led consortium launched
the TV3 Television Network in the Republic of Ireland. Headquartered in
Dublin, TV3 is Ireland's first privately-owned, national television
network. CanWest also owns 29.9 percent of Ulster Television plc,
headquartered in Belfast, Northern Ireland. Ulster TV is the most
watched television service in Northern Ireland.
Many broadcasting properties in which CanWest holds an interest
share a general programming strategy: they offer a solid programming
mix aimed primarily at specific target audiences, depending upon the
time of day. This strategy results in a diverse programming lineup and
has proven to be extremely successful for the Global Television Network
as well as for TV3 New Zealand and the TEN Television Network in
Australia. Other CanWest broadcasting properties cater exclusively to a
particular unserved or under served audience. For example, New
Zealand's TV4 is aimed at young, urban New Zealanders between the ages
of 15 and 39. Since its inception, TV4 has adopted a unique style, and
sometimes airs programs other networks are unlikely to show.
CanWest seeks to bring its broadcasting experience and innovation
to the largest English-speaking market--the United States. CanWest
however, like other foreign companies, finds its ability to participate
in the U.S. market severely restricted by Section 310(b) of the
Communications Act of 1934. CanWest believes that the present foreign
ownership restrictions in Section 310(b) rest upon concerns that were
once sound and necessary but that have become attenuated for the
reasons discussed herein.
the original rationale for section 310(b)
Section 310(b)'s restrictions on the foreign ownership of U.S.
radio facilities trace their roots to a variety of national security
concerns. The history of the foreign ownership restrictions makes clear
that Congress' foremost concerns centered on wireless
telecommunications and that concerns related to broadcasting followed
therefrom.
The military importance of wireless communications first manifested
itself with Japan's annihilation of the Russian naval fleet in 1905.
Seven years later, after efforts to place the United States wireless
industry under the control of the Navy failed, Congress passed the
Radio Act of 1912. The 1912 Act restricted foreign ownership of radio
stations in simple fashion--merely requiring that licensees be United
States citizens or United States corporations. This fundamental
restriction emerged out of a genuine concern that, during wartime,
foreign operators of U.S. radio facilities would transmit information
to enemy forces or jam American military communications.
However, the 1912 restrictions proved inadequate when two East
Coast stations licensed to American subsidiaries of German corporations
transmitted warnings to German vessels in violation of U.S. neutrality
orders in place at the outset of World War I. Because the licensees
were American corporations, they were expressly eligible for the
licenses at the time, notwithstanding their indirect German ownership.
The Radio Act of 1927 closed this loophole by extending restrictions to
the parent corporations of licensees. In the 1912 Act, the 1927 Act,
and again in the Communications Act of 1934 (which closed a final
loophole by limiting foreign investment in a parent corporation to 25
percent), Congress made the judgment that a reduction in the free flow
of capital was an acceptable sacrifice to safeguard national security.
Foreign ownership of wireless point-to-point communications
facilities presented an evident security concern in light of the state
of technology and the wartime environment earlier this century, and the
limitations on foreign investment in broadcast licensees were derived
from these national security concerns. However, in the broadcast
context, concern centered not on any direct threat to military
operations, but rather on the impact that a foreign licensee could have
on the character and content of the information delivered to the
American people. The Federal Communications Commission (``FCC'') has
observed that the foreign ownership restrictions safeguard domestic
broadcast licenses from undue foreign influence and control, and ensure
the ``American character'' of licensees. These purposes, according to
the FCC, are particularly strong when combined with national security
concerns. The legislative history supports the Commission's
interpretation and clearly indicates that the dangers of propaganda
disseminated through foreign-owned radio stations in the United States
prior to and during war contributed to the passage of the Radio Act of
1927. Although the national security concerns that undergird Section
310(b) still exist today, for the reasons that follow CanWest believes
that they have become far less acute, and therefore the relaxation of
the restrictions proposed in H.R. 942 is appropriate.
canwest believes that there are multiple reasons to review and
modernize section 310(b)
National Security Concerns Have Abated
Both technological and international geopolitical changes have
contributed to the reduction of the national security concerns that
underlie Section 310(b). The need to protect licenses from foreign
control arose from an extraordinary confluence of conflict and
technological advances that made control of communications an unusually
powerful tool in shifting the balance of world power. Today, in an era
of encryption and satellite communications, FCC licensees can hardly be
viewed as the lynchpin of military success and domestic security.
Indeed, the recent liberalization of ownership regulations for U.S.
wireless telecommunications providers, in connection with the World
Trade Organization (``WTO'') Agreement on Basic Telecommunications
Services, manifests this fact. As previously discussed, the ownership
restrictions in Section 310(b) stemmed primarily from national security
concerns associated with just such wireless operations. Yet under the
WTO Agreement, the U.S. now permits indirect foreign ownership of such
U.S. licensees up to 100 percent. Insofar as the security concerns
related to broadcast licensees were derivative of, and less acute than,
those related to wireless licensees, this change in outlook is
particularly instructive.
As we approach the new millennium, the present international
climate bears little resemblance to the global conflicts and extended
cold war that characterized much of the twentieth century. To be sure,
a number of rogue nations and terrorists continue to threaten America's
security interests. However, remedies exist to address these concerns
that are both more effective and more tailored than the blunt
instrument of Section 310(b). For example, tighter foreign ownership
restrictions, or even a complete ban could be applied to investors from
certain nations identified by the State Department (e.g., the list of
state sponsors of terrorism). Also, Section 606 of the Communications
Act continues to vest the President with the power to control broadcast
stations in the event of war or emergency.
In addition, CanWest further submits that any concerns related to
national security essentially disappear when the potential foreign
investor is Canadian. Canada and the United States share one of the
world's longest undefended borders, and the two countries have perhaps
the closest relationship of security and defense establishments of any
two nations in the world. Moreover, the Canadian economy is integrated
into the United States industrial base for purposes of U.S. military
planning, and with discrete exceptions, Canada and the United States
have made special commitments in the North American Free Trade
Agreement (``NAFTA'') to ensure North American energy security,
including nondiscriminatory access for the United States to Canadian
energy supplies. In short, severe restrictions on Canadian investment
in broadcast licensees is not only unnecessary, but incongruous when
viewed in the broader context of Canadian-American relations.
The Broadcast Medium No Longer Exercises the Degree of Control Over
Access to Information That it Did When Section 310(b) Was
Adopted
The limited number of communications outlets available even as
recently as a decade or two ago raised the specter that foreign control
over broadcast licenses could vest too much control over the flow of
mass information in interests hostile to the United States and,
consequently, grant foreigners the ability to dictate what Americans
heard, learned, and believed. Although broadcast licensees continue to
play a substantial role in informing and educating the American
public--more than 50 percent of Americans still regularly view network
news programs--the sea change in the media landscape has greatly
diminished the potential threat posed by foreign ownership of broadcast
licenses.
Today, cable television, direct broadcast satellite (``DBS'')
service, and the Internet are among the many sources providing
Americans with news and information. More than 181 cable networks exist
in the video services marketplace--more than double the amount in
existence just seven years ago. DBS subscriptions have increased by
over 1.5 million so far this year, giving DBS providers in excess of 10
million subscribers, or ten percent of all television households in the
U.S. It is predicted that there will be 18 million U.S. homes
subscribing to DBS by 2005. The percentage of Americans who regularly
get their news from the Internet has jumped from less than 10 percent
to 34 percent in just five years. Individual voice diversity is
manifested as never before over the Internet, where individuals or low-
capital companies can reach an international audience. This chorus of
voices will only grow as more and more individuals and companies craft
inexpensive Web pages that can reach anywhere in the world.
Viewing all media collectively, broadcast licensees no longer
exercise anywhere near the degree of control over key messages conveyed
to Americans that they once did. Furthermore, the ability to deliver
information to only a defined geographical area is an inherent
limitation of a single broadcast license--a limitation not confronted
by national cable networks, satellite programmers, or the Internet.
Viewed in this context, the need to safeguard the broadcast media, in
particular, and restrict the speech of non-hostile aliens is far less
apparent today than it was even a decade ago and certainly can be
accomplished with far less sweeping regulation than current law
provides.
Relaxing Section 310(b) Will Promote the Principal Values Underpinning
United States Broadcast Regulation
Over the years, the FCC has sought to fulfill its mandate to foster
a mass communications framework conducive to the ``public interest,
convenience and necessity'' by relying on two principal values:
localism and diversity. These values are distinct but mutually
reinforcing; they complement each other, as diverse groups and cultures
bring about local and regional identities. The foreign ownership
restrictions now in effect do not further either of these two principal
values.
Domestic cross-ownership restrictions and restrictions on the
number of television and radio stations that may be commonly owned in a
single market were intended to ensure that American listeners and
viewers are presented with a diversity of voices. As domestic ownership
restrictions have been liberalized, some Members of Congress have
expressed concern that the resulting consolidation will reduce the
diversity of broadcast voices. Ironically, Section 310(b) has not been
liberalized, yet doing so would create opportunities for foreign
investors who can bring new capital and new and diverse voices to the
broadcast industry.
CanWest, for example, has been successful in New Zealand,
Australia, and elsewhere, due in large measure to its origination of
new program offerings targeted at under served or unserved audiences.
Indeed, CanWest is uniquely well positioned to make a meaningful
contribution to viewpoint diversity. CanWest's ownership of media
interests in these markets around the world affords it access to a wide
array of culturally diverse programming fare and informs its
programming decisions in the communities that it serves.
In addition, while CanWest may not have well-established ties to
the foreign communities where it has media interests, that has not
precluded CanWest from making significant contributions toward
advancing the principle of localism. Though some CanWest programming
may have Canadian (or, indeed, U.S.) origins, CanWest has utilized its
capital and resources to develop locally-originated programs in
countries where it has media interests. For example, while providing
Australians with top-rated international programs such as The Nanny,
Seinfeld, Mad About You, and The X-Files over the TEN Television
Network, CanWest has also invested considerable resources in local
production to bring the best of Australia's creative talent to its
viewers. In 1999, Good News Week, featuring a range of prominent
Australian and international personalities such as politicians and
comedians, was added to the programming schedule. Another new program,
Ocean Girl, was nominated in the international category of the British
Academy of Film & Television Children's awards and supplements a
children's lineup that includes locally-produced Totally Wild and Cheez
TV. Other local programs include The Panel--a one-hour show which
reviews the week's events, a drama series entitled Breakers, and E!
News, catering to women 16 to 24. Locally-produced programs have also
found their niche on New Zealand's TV4 and TV3. TV3 presents an award-
winning localized edition of 20/20 which is complemented by an
extremely successful national evening news program and a host of
entertainment comedies, dramas, and game shows.
Notably, CanWest's contributions to localism have not been limited
to programming. In Australia, the TEN Television Network's Young
Achievement Award recognizes the accomplishments and talents of young
employees. In New Zealand, TV4 is operated by a group of New Zealand
executives recruited and trained by CanWest. Additionally, CanWest
supports Child Flight, New Zealand's first air ambulance which
transfers critically ill newborns and children up to the age of 15 to
hospitals for emergency care.
Traditional Broadcasters and Consumers Should Be Afforded the Benefits
of Open and Competitive Global Markets
As discussed earlier, in light of the intense national security
concerns once associated with foreign investment in wireless licensees,
it is notable that foreign investment in the wireless arena has been
the subject of recent liberalization while restrictions applied to
broadcast licensees continue to be strictly enforced. In the wireless
context, the Telecommunications Act's commitment to ensure open and
fair competition, and the WTO Basic Telecom Agreement facilitated the
elimination of barrier's to foreign investment in the United States. In
the WTO Agreement, sixty-nine WTO members agreed to open some or all of
their basic wire and radio telecommunications service markets. Not only
have monopolies ended in many countries, but competitors providing
services can be 100 percent foreign-owned in forty-four countries.
For U.S. consumers, the new global telecommunications paradigm
means reduced prices, increased quality, and innovative programming and
services. For United States companies, the burgeoning global
marketplace means long-awaited opportunities abroad and the
availability of new foreign capital for domestic ventures.
Significantly, many small U.S. broadcasters need an influx of capital
as they embark upon the transition to digital television. Yet, despite
the promise afforded to telecommunications companies, and the rhetoric
surrounding the WTO agreement, tight restrictions on foreign investment
in broadcast licenses remain in place, and the broadcast industry, both
domestically and globally, is being deprived of the global flow of
capital which could contribute measurably to a greater role for
broadcasting in the digital era.
Broadcasters cannot continue to be confronted with intensifying
competition--as video is increasingly provided over satellite, over the
Internet, and over wire by cable and telephone companies--while being
saddled with regulations explicitly limiting the flow of capital to
that one medium. Digital broadcasting holds enormous potential that
certainly could be realized sooner without the current stringent
foreign ownership restrictions.
the reciprocal approach contained in h.r. 942 reflects a reasonable
modernization of section 310(b)
CanWest believes that a reciprocal approach to foreign ownership is
appropriate. H.R. 942, which would allow a foreign investor to hold an
amount of capital stock of a corporation holding a broadcast license
equal to what that investor's home country allows foreign investors to
hold (up to a 40 percent limit), is a desirable and appropriate
liberalization of the present ownership limits given today's
communications marketplace.
Countries that have yet to open their markets to U.S. broadcast
investment will be forced to liberalize their restrictions if they want
increased opportunities for their own companies in the U.S. Moreover,
such action by the U.S. would validate the action of those countries
that have ``gone first'' in liberalizing broadcast ownership
regulations. Canada is one such country. In 1995, Canada amended its
1968 Direction to the Canadian Radio-Television and Telecommunications
Commission so that Canadian regulations now permit an American investor
to hold up to 33.3 percent of the voting shares of a holding company,
and up to 20 percent of the operating or licensee company, for a total
interest of 46.7 percent. Additionally, Canada allows foreign companies
to own unlimited amounts of nonvoting stock. CanWest has been at the
forefront of the effort to liberalize Canadian broadcast foreign
ownership laws, believing that increased competition strengthens
markets.
CanWest believes that H.R. 942's reciprocal approach combined with
the 40 percent maximum ownership cap will afford broadcast licenses
traditional protection. Further protections applying exclusively to
rogue and terrorist nations can provide additional security. As the
foregoing discussion demonstrates, the current post-cold war
international climate, the growth of technology and media, the
contributions foreign participants can make in furtherance of
traditional principles of broadcast regulation, and recent developments
associated with foreign investment and ownership opportunities in
telecommunications services all warrant modernization of Section
310(b). As already demonstrated in countries such as Australia and New
Zealand, rather than posing a threat to national security or American
viewers and listeners, increased opportunity for companies such as
CanWest would enhance competition, and foster new and diverse voices in
the American marketplace of ideas.
______
Network Affiliated Stations Alliance
September 29, 1999
The Honorable W.J. ``Billy'' Tauzin
Chairman
Subcommittee on Telecommunications, Trade and Consumer Protection
Committee on Commerce
U.S. House of Representatives
Washington, D.C. 20515
Dear Chairman Tauzin: On September 15, 1999, I was pleased to
testify before the Subcommittee on behalf of the Network Affiliated
Stations Alliance (NASA) regarding the critical importance of
maintaining the current 35 percent national audience cap for broadcast
ownership. In my testimony I emphasized that the more than 600 local
television stations affiliated with the ABC, CBS and NBC networks
strongly oppose any increase in the national ownership cap because it
is essential to maintaining a healthy balance between national
programming and local and diversified control of local TV stations. Our
broadcast industry has seen radical changes in the nearly four years
since the 1996 Telecommunications Act became law, and we think it would
be a dangerous time to inject more upheaval and concentration of the
media outlets of our nation.
On the panel with me was Michael Katz, an economist hired by the
networks to prepare an economic study supporting repeal of the cap.
Because we were not given the networks' study until the day of the
hearing, I am submitting this letter to respond to some of the
arguments presented by Mr. Katz. The Subcommittee should not conclude
that the analysis submitted by the networks justifies repeal or
relaxation of a rule that stands to protect diversity, localism and
competition against the very real threat posed by growing national
network power. Indeed, some of Katz's findings support the opposite
position--that the public interest will suffer and localism and
diversity decline if the networks are permitted to expand their control
over local stations without limitation.
Let's be clear: The future of free, over-the-air television does
not depend on lifting the cap. Even the networks' hired economist
admitted as such: ``The issue is not whether the networks will be
driven out of business; they won't.'' As Mr. Katz recognizes, the
networks will continue to prosper whether or not the 35 percent cap is
repealed. However, the public will suffer irreparable harm if our
unique local/national system of broadcasting is destroyed. The future
of free television hinges on maintaining the cap, not dismantling it.
``Efficiency'' Should Not Be The Only Goal In Our Media Policy.
Katz's primary argument is that the ownership cap harms the public
interest because it ``leads to a less efficient organization of the
industry'' and ``limits the realization of economies of scale and scope
associated with common ownership of multiple stations.'' Indeed,
allowing a single company to own all of the nation's television (as
well as radio) stations may be the most economically efficient model,
but, plainly, that would be inconsistent with the national interest in
encouraging many independent, antagonistic and competitive media
voices. Katz asserts that ``efficiency'' is the only yardstick to
measure the public interest. While efficiency may be a worthwhile
pursuit in the world of economics, it has never been--and should not
become--the only goal in formulating our nation's media policy. The
damage to diversity and local service that would result from a further
concentration of power in the four dominant networks cannot be
justified in the name of efficiency. Congress and the FCC have long
held that the public interest is best served by preserving localism and
diversity in broadcast media--not by a single-minded pursuit of
``efficiency'' at any cost. Indeed, more than one commenter, from
deTocqueville to Churchill to Lech Walesa, has observed that democracy,
with its pluralistic voices, is messy and inefficient but serves the
greater good and sure beats the alternatives.
Under the banner of ``efficiency,'' Katz's position would call for
the elimination of affiliates altogether, with the networks owning all
of the stations that distribute their programming across the country.
Indeed, Katz touts the elimination of arms-length negotiation between
networks and affiliates as one of the important efficiency gains to be
realized by repeat of the cap. In Mr. Katz's world, local affiliates
committed to serving their communities of license and selecting the
most appropriate programming for local tastes and concerns are a
``market interference'' or a ``market externality'' that would be
``corrected'' and made more ``efficient'' if the network O&Os were in
control because then ``coordination'' with the networks would be
easier. Thus, in the name of economic efficiency, to use Mr. Katz's own
analysis, there would be less emphasis on tailoring program offerings
to the particular communities the stations are licensed to serve
because, after all, dealing with local stations just adds up
``transaction costs.''
In this new world, no longer will the public benefit from
decentralized decision-making and localized programming decisions.
Instead, decisiomnakers in New York and Hollywood will have the final
word on programming decisions in diverse communities across the nation.
As network market power and audience reach grows, these four voices
will dampen or even drown out the many others. In Mr. Katz's sterile
view of our industry, public service and community responsiveness is a
``transaction cost'' to be eliminated rather than a value to be served.
As dedicated broadcasters, we simply disagree.
Network Power Is Not A ``Thing Of The Past.''
Katz asserts that increased competition in the video marketplace
has rendered network dominance ``a thing of the past.'' But this
economic theory ignores the day-to-day reality of local broadcasters.
Let me assure you: The networks continue to wield market power in the
free, over-the-air broadcast marketplace. As Katz admits, ``measured in
terms of revenues, the networks collectively had their best up-front
season ever in the summer of 1999.'' With the repeal of the financial
interest and syndication rule (``fin/syn''), the increasing power and
ability to move network programming to cable and satellite, and the
recent relaxation of the one-to-a-market and duopoly rules, the
dominance and economic strength of the networks will only continue to
grow.
Katz argues that ``because local stations have an increased number
of alternatives to affiliating with any given network, there is no need
for a comprehensive set of regulations to protect stations from the
exercise of network market power.'' This claim does nothing more than
demonstrate that Katz's academic analysis is woefully separated from
the real world. Networks wield enormous power because affiliation with
a major network increases significantly the value of a local station.
The question is how do the networks use this economic power. They use
it to get affiliates to reduce local preemptions and increase
clearances of network programs. They use it to reduce compensation paid
by the networks to stations to carry network commercials--which
compensation funds local news in small markets. They use it to
``repurpose'' programming from local stations to cable channels. They
even use it to impede the sale of affiliated stations by threatening to
withhold consent to the transfer of the station's affiliation agreement
if the station is sold to a third party, rather than to the network.
These are but examples from a growing list of ways the networks use
their bargaining power against diversity and localism in today's
broadcast world.
Katz claims that the profitability of affiliates relative to
independent stations demonstrates that affiliates have bargaining
power, but that fact simply illustrates that the networks hold
tremendous leverage in bargaining with affiliates. The threat of losing
an affiliation with one of the big four networks looms large for
affiliates at the bargaining table. (Affiliation with an emerging
network is hardly comparable to affiliation with NBC or CBS.) With
every station a network acquires, independent affiliates lose more of
the limited collective bargaining leverage they hold.
Ownership Cap Promotes Diversity Of News And Programming
Decisionmakers.
Katz claims that the ownership cap reduces incentives to invest in
non-subscription over-the-air television. This argument is wrong on two
counts. First, many of the networks already own stations covering 35%
of the country. The question is how much more do they need to own to
invest in over-the-air programming. Clearly, the networks want their
O&Os covering \1/3\ of the country's national audience to succeed.
Second, the huge financial windfall bestowed by repeal of the fin/syn
rule provides a powerful incentive to invest in quality programming.
Indeed, two of the biggest deals in the past decade--ABC/Disney and
CBS/Viacom--were driven by a desire to create vertical integration of
programming and networks.
Katz states: ``Elimination of the cap would not threaten
competition and indeed can be expected to strengthen broadcasters as
competitors.'' As shown by the increase in network-owned stations and
vertical integration since the 1996 Telecommunications Act, elimination
of the cap will open-wide the door for the networks to drive out
competitors--squeezing out non-network station owners and bypassing
local affiliates in favor of network-owned stations across the country.
Even if the networks retained some affiliate relationships, the
bargaining position of these remaining affiliates would be greatly
weakened. Resulting affiliation arrangements inevitably would sacrifice
autonomous, community-centered service in favor of national network
programming decisions. Elimination of the cap will result in the
concentration of industry power in the four dominant networks, driving
competitors and alternative voices out of the industry.
Katz claims that the 35 percent audience cap does not promote
diversity. Nonetheless, he concedes that the network station groups are
the ones most likely to expand if the ownership cap is lifted. Such
expansion of the network station groups will occur at the expense of
individual and smaller group station owners. Repeal of the 35 percent
cap thus directly threatens diversity of ownership in the broadcast
industry.
Contrary To The Networks' Illogical Claim, Increasing The Cap Decreases
Minority Opportunity.
Mr. Katz even goes so far as to argue that because ``few stations
are controlled by owners who are members of minority groups,'' the
ownership cap does not promote minority ownership and should be
repealed. The causality suggested by Mr. Katz puts the cart before the
horse. In essence, he argues that because other factors--such as lack
of access to capital and (ironically) the concentration triggered by
the 1996 Act--restrict minority station ownership, Congress might as
well eliminate one of the few means currently available to facilitate
it. As Katz notes, ``[i]n addition to being a small percentage of the
total number of stations, minority-owned stations tend to be in small
markets'' and ``minority station groups themselves tend to be small.''
These facts together make minority-owned stations among the most at
risk in the event of increased network concentration and power. As
network ownership grows, and the industry becomes increasingly
vertically-integrated, the small group owners will be the first to go.
Apparently, Katz would find this result more ``efficient.''
Increasing the ownership cap above 35 percent threatens the ideals
of localism and diversity that have undergirded our national/local
broadcasting service from its inception. The networks are currently
healthy and strong. They have record revenues. And they stand to
increase their economic and programming power even more as the full
force of the repeal of fin/syn, the recently increased 35 percent
national ownership cap, and the new one-to-a-market and duopoly rules
continue to be felt. Affiliates have a large stake in the success of
the networks--a healthy network benefits the local stations with whom
they affiliate, and these benefits flow to the communities those
stations serve in the form of strong and competitive local stations and
quality network programming. That is why NASA supported the repeal of
fin/syn so that networks could strengthen their economic base. Of
course, in giving this support, affiliates believed that the existing
network-affiliate rules and 25 percent national audience cap would
continue to protect diversity and localism in broadcast media.
Congress has long stood firm in its commitment to localism,
competition and diversity in the broadcast industry. We ask you to
stand firm in that commitment and retain the 35 percent cap.
Sincerely,
Andrew Fisher, Chairman
Network Affiliated Stations Alliance
cc: Chairman Tom Bliley
Rep. John Dingell, Ranking Minority Member
Rep. Ed Markey, Ranking Subcommittee Member
Members of the Subcommittee
______
COX Enterprises, Inc.
Washington, DC
MEMORANDUM
TO: House Subcommittee on Telecommunications, Trade, and Consumer
Protection
FROM: Alexander V. Netchvolodoff
DATE: September 23, 1999
Re: Clarification of certain historical aspects of the 25% national
audience cap
Last week, Mr. Peter Chernin representing Fox Broadcasting Company
stated in testimony before the subcommittee that the FCC had granted
Fox a waiver of the ``fifteen percent ownership cap'' to encourage the
development of a fourth television network. This statement needs to be
corrected for the record.
In 1985, when the Commission first adopted a national audience
reach limitation for television, it decided that the appropriate cap
should be set at twenty-five percent. See Amendment of Section 73.3555
of the Commission's Rules Relating to Multiple Ownership of AM, FM and
Television Broadcast Stations, 100 FCC 2d 74 (1985). The cap remained
unchanged for eleven years, until the 1996 Telecom Act raised the limit
to thirty-five percent. Thus, broadcasters (including Fox) have never
been subject to a fifteen percent audience reach cap. As such, there
was no fifteen percent cap that the FCC could have waived for Fox.
Instead, Mr. Chernin likely confused this matter with a programming
waiver Fox received from the FCC, which involved references to the
number ``fifteen.'' In particular, the FCC in 1990 granted Fox a
temporary waiver of its ``network rule,'' which defined a broadcast
network as an entity providing fifteen hours of television programming
per week on an interconnected basis to twenty-five or more affiliates
in ten or more states. In practice, the waiver of the network rule
enabled Fox to provide fifteen or more hours per week of programming to
its affiliates without having to comply with the FCC's prime time
access rule (``PTAR'') and financial interest and syndication rules
(``fin-syn-rules''). See Fox Broadcasting Company, 5 FCC Red 3211
(1990). The Commission concluded that this temporary waiver served the
public interest primarily because it would encourage the development of
a fourth competitive television network.
Consequently, the comment about a waiver of the ``fifteen percent
cap'' almost certainly resulted from the speaker's confusion between
the twenty-five percent audience reach cap and the fifteen-hour
threshold in the FCC's network rule.
Finally Fox took issue with NASA testimony, submitted by Andrew
Fisher, Executive Vice President of Cox Broadcasting, that the 25%
national audience cap was essential to its emergence. In 1991 Fox filed
comments in a FCC proceeding MM Docket No. 91-221 which was titled
``Review of the Policy Implications of the Changing Video Marketplace.
These Fox comments are a part of the record relied upon by the FCC in
releasing its TV ownership rules just issued last month. Fox called for
relaxing or eliminating a number of ownership and network rules for
``emerging'' networks. In arguing for elimination of the national
numerical cap, Fox noted:
``The audience cap, by itself, should be more than sufficient to
protect the Commission's interest in diversity of ownership.''
(Emphasis added)
In other words at the time of their filing (1991) Fox understood
the critical importance of the then 25% national audience cap in the
absence of numerical limits on station ownership.