[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
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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
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \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
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    \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).
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
