[Senate Hearing 107-1114]
[From the U.S. Government Publishing Office]
S. Hrg. 107-1114
MEDIA CONCENTRATION
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
JULY 17, 2001
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
ERNEST F. HOLLINGS, South Carolina, Chairman
DANIEL K. INOUYE, Hawaii JOHN McCAIN, Arizona
JOHN D. ROCKEFELLER IV, West TED STEVENS, Alaska
Virginia CONRAD BURNS, Montana
JOHN F. KERRY, Massachusetts TRENT LOTT, Mississippi
JOHN B. BREAUX, Louisiana KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota OLYMPIA J. SNOWE, Maine
RON WYDEN, Oregon SAM BROWNBACK, Kansas
MAX CLELAND, Georgia GORDON SMITH, Oregon
BARBARA BOXER, California PETER G. FITZGERALD, Illinois
JOHN EDWARDS, North Carolina JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri GEORGE ALLEN, Virginia
BILL NELSON, Florida
Kevin D. Kayes, Democratic Staff Director
Moses Boyd, Democratic Chief Counsel
Mark Buse, Republican Staff Director
Jeanne Bumpus, Republican General Counsel
C O N T E N T S
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Page
Hearing held on July 17, 2001.................................... 1
Statement of Senator Allen....................................... 84
Statement of Senator Breaux...................................... 82
Statement of Senator Burns....................................... 9
Prepared statement........................................... 9
Statement of Senator Cleland..................................... 9
Statement of Senator Dorgan...................................... 11
Statement of Senator Fitzgerald.................................. 12
Columbia Journalism Review, ownership list................... 12
Statement of Senator Hollings.................................... 1
Prepared statement........................................... 2
Statement of Senator Inouye...................................... 6
Prepared statement........................................... 6
Statement of Senator Kerry....................................... 8
Statement of Senator McCain...................................... 3
Prepared statement........................................... 5
Statement of Senator Wyden....................................... 7
Witnesses
Baker, William F., President and CEO, Thirteen/WNET.............. 64
Prepared statement........................................... 66
Frank, Alan, President, Post-Newsweek Stations, Inc.............. 26
Prepared statement and attachments........................... 28
Fuller, Jack, President, Tribune Publishing Company.............. 57
Prepared statement........................................... 59
Karmazin, Mel, President and Chief Operating Officer, Viacom,
Inc............................................................ 18
Prepared statement........................................... 20
Kimmelman, Gene, Co-Director, Consumers Union.................... 87
Prepared statement........................................... 89
Noam, Dr. Eli M., Professor of Finance and Economics, Columbia
University; Director, Columbia Institute of Tele-Information;
former Commissioner of Public Services, New York State......... 93
Prepared statement........................................... 95
Appendix
Paxson, Lowell ``Bud,'' Chairman of Paxson Communications
Corporation, prepared statement................................ 101
Wades, James A., Radio and Television Broadcast Industry Veteran,
prepared statement............................................. 102
MEDIA CONCENTRATION
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TUESDAY, JULY 17, 2001
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 9:35 a.m. in room
SR-253, Russell Senate Office Building, Hon. Ernest F.
Hollings,
Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. ERNEST F. HOLLINGS,
U.S. SENATOR FROM SOUTH CAROLINA
The Chairman. Good morning. The hearing will come to order.
I know that there is a good start there with this outstanding
panel. Let me see if I can include my full statement in the
record, and summarize it in a sense. We have a hearing this
morning, of course, on media concentration, and for years now,
the genius of the American broadcast system, which is the best
in the world, has emphasized diversity. Diversity in ownership
creates opportunities for the smaller companies, local
businessmen and women. Diversity in ownership allows creative
programs and controversial points of view to find an outlet.
Diversity in ownership promotes choices for advertisers and
diversity in ownership preserves localism, promotes
competition, and in fact, it gives us on the Committee and the
citizens, generally of the country, our freedom of speech.
I have heard, ``Wait a minute, we have got to do away with
these ownership rules to give the owner the freedom of
speech.'' The truth of the matter is that that is a temporary
license to amplify his freedom, but to make sure that it is not
exclusive, we have injected diversity for at least the past 30
years.
Now, what's happened is that we are being attacked from
every particular angle. In other words, you have got the
insatiable industry. We have got the courts and judges that
appear to be ignoring the Supreme Court when they set the
precedent about the government's strong interest in preserving
a multiplicity of information sources, and, of course, we have
had our distinguished Chairman of the Federal Communications
Commission.
And I read a quote from him at the latter part of last
year, and Chairman Powell, and I quote: ``I start with the
proposition that the rules are no longer necessary and demand
that the Commission justify their continued validity.'' Well,
that is not the law--which I read again this morning in an
article about this particular hearing that these are all rules
dating back to 1970. You should have been here, gentlemen of
the panel, in 1996, just 5 years ago. The tremendous debate
that we had about just this, these rules. We had a vote on the
broadcast ownership cap on the Senate side and it only
prevailed--at one time it prevailed one way by 1 vote, and then
on a revote, Senator Dole changed and we had the
reestablishment--reaffirmment, I should say--of these
particular rules by 2 votes.
So it had been thoroughly debated. The Congress has been
watching these, and the problem is certainly not too little
mergers, too little consolidations. But we might hear
differently. We have been preparing a bill, I have been working
with the colleagues on both sides of the aisle trying to
fashion a bill because I like to get things done, not just make
headlines, but see if we can make headway. In that light, we
really appreciate the appearance of these witnesses here this
morning. Let me stop there and yield to our distinguished
Ranking Member.
[The prepared statement of Senator Hollings follows:]
Prepared Statement of Hon. Ernest F. Hollings,
U.S. Senator from South Carolina
Today, we test the claims of those who would further consolidate
the media marketplace. We will hear from two balanced panels who will
debate whether our changed media landscape warrants the repeal or
relaxation of two existing, sensible restrictions on media ownership--
the 35 percent national television broadcast ownership cap and the
newspaper-broadcast cross ownership rule.
The last several years have wrought unprecedented concentration in
the entertainment and media industries. AOL and Time Warner have
merged, Viacom and CBS have united, and Tribune has acquired Times
Mirror. These transactions and other consolidation in the industry have
decreased, rather than increased competition among media outlets. Yet
some of these vertically integrated entertainment conglomerates would
like to grow even bigger, and are here before our Committee today
seeking to eliminate more of the remaining restrictions on media
ownership.
These ownership restrictions are based on factors outside the
bounds of a traditional antitrust analysis. For example, the national
broadcast ownership cap preserves the balance of power between the
networks and their affiliates, and thereby serves to promote localism
and diversity in individual markets. Similarly, the newspaper-broadcast
cross-ownership Rule enhances the proliferation of diverse, and
separate points of view in individual markets.
The reasons for these rules are simple, and they reflect the
underpinnings of the Commission's statutory public interest authority.
Diversity in ownership promotes competition. Diversity in ownership
creates opportunities for smaller companies, and local businessmen and
women. Diversity in ownership allows creative programming and
controversial points of view to find an outlet. Diversity in ownership
promotes choices for advertisers. And diversity in ownership preserves
localism--so individuals in towns across America are afforded access to
at least several sources for their local news and information.
The rules in question have encouraged the growth of locally
relevant, independent programmers and distributors of media content.
These critically important, independent voices energize our civic
discourse and help separate our Nation from those that prohibit the
free flow of information. And yet, we are having this hearing today,
because the rules are under attack: (1) from an insatiable industry
that is unsatisfied with the tremendous consolidation that has already
taken place; (2) in the courts from judges who appear to be ignoring
Supreme Court precedent about the government's strong interest in
preserving a ``multiplicity of information sources'' in the
marketplace; (3) and, most importantly, at the FCC, from a Commission
that seems intent on relaxing or eliminating many of the existing
ownership rules without regard to the tremendous consolidation that has
already occurred.
Last year, Chairman Powell stated, and I quote: ``I start with the
proposition that the rules are no longer necessary and demand that the
Commission justify their continued validity.''
That, my friends, is not the law. And that is why we are having
this hearing today--to set the record straight. The biennial review
process we set up in the Telecommunications Act of 1996 did not presume
that the ownership limits ``are no longer necessary,'' and must be
justified to be retained. It simply requires the FCC to review its
ownership rules in light of competition in the market and in view of
their ongoing public interest obligations, which require them to
promote and protect diversity and localism, values recognized by the
U.S. Supreme Court as satisfying a ``governmental purpose of the
highest order.''
To those who advocate further consolidation, I say, prove your
claims. The burden must lie with the proponents of deregulation to
demonstrate that a further loosening of the broadcast ownership cap or
the newspaper/broadcast cross-ownership rule would be consistent with
the public interest.
I would propose a different route. Given the consolidation that has
occurred already, I believe that we need to take a breather before
permitting further concentration to occur. Let's recall--
First, the FCC instituted the Financial Interest in Syndication
rules (Fin/Syn) in 1970, that imposed significant limitations on the
percentage of ``in-house'' programs the networks could produce. Those
rules also prevented the networks from having a financial interest in
syndicated programming on the second run market.
In the late 1970s, the Department of Justice entered into consent
decrees with the major networks to settle litigation dating back to the
Johnson Administration, that sought to also curb the networks'
ownership of in-house programming.
In 1995, the FCC eliminated the Fin-Syn rules, giving the major
broadcast networks the right to own an unlimited amount of programming
that they broadcast, and to syndicate programming by selling it
directly to stations. The DOJ consent decrees lapsed around the same
time.
A year later, in 1996, Congress raised the broadcast ownership cap
from 25 to 35 percent, allowing companies like News Corporation and
Viacom to purchase yet more TV stations.
Two years ago, in 1999, the FCC relaxed the duopoly rules to allow
a single owner to acquire two TV stations in some of the larger markets
across the country.
Last year, Tribune acquired Times Mirror and took advantage of the
FCC's weak enforcement of the newspaper-broadcast cross-ownership rule.
In practice, the FCC has allowed the owner of a broadcast station to
acquire a newspaper in the same market without applying the rule until
the station's broadcast license is renewed, which can be years later.
Finally, earlier this year, the FCC did away with a portion of the
dual network rule and permitted Viacom's UPN to exist under common
ownership with CBS.
It is directly because of these rule changes and lax FCC
enforcement that we have these massive, vertically integrated companies
like Viacom and Tribune which--because of their ability to promote and
share their content and news products across multiple distribution
platforms--are immensely profitable corporations. And yet today they
come before us and ask for more.
So we've come to a crossroads and there are two paths we can take.
One leads to further consolidation and an erosion of diversity in our
local markets. The other provides for maintenance of rational ownership
restrictions to allow local media outlets to retain some ability to
control and disseminate locally relevant news and information, as well
as programming that is uniquely suited to their particular community.
That is why I am considering legislation, along with Senators
Inouye and Dorgan, that will hopefully restore some sense to today's
debate. Our bill, which we may introduce today, requires FCC licensees
to alert the Commission when they acquire a newspaper that creates a
cross-ownership situation. The FCC is then directed to review the
appropriateness of the acquisition, and determine whether any action is
needed to bring the licensee in compliance with the rule.
In addition, our bill requires the FCC to report to this Committee,
and to the House Committee on Commerce, with any proposed rule changes
that would relax or repeal existing media ownership limits. Such
proposed changes could go into effect 18 months after we receive such a
report--which must include the FCC's explanation of how its rules
changes will promote competition, diversity, and localism in the public
interest.
I look forward to testimony from today's witnesses. These are
important topics--more important in many ways than the typical debates
between competing industry sectors. Today we debate the impact of media
ownership on the diversity of outlets, viewpoints, and ultimately, the
discourse of our democracy.
STATEMENT OF HON. JOHN McCAIN,
U.S. SENATOR FROM ARIZONA
Senator McCain. Thank you very much, Mr. Chairman. I also
welcome our distinguished panel. And I agree that this is an
important hearing. Existing regulatory caps on broadcast
station and newspaper ownership were created decades ago to
preserve competition in a mass media market consisting of a
limited number of radio stations, television stations and
newspapers. But since that time, the mass media market has
expanded exponentially. As a result, broadcasters and others
are now saddled with anachronistic ownership rules that limit
their ability to compete in the modern mass media market.
Changes in the mass media market are self-evident. To put
the matter bluntly, in the digital era, insight and commentary
on matters of public policy will no longer be dominated by
Cronkite, Brinkley, The New York Times and The Washington Post.
In their place have risen CNN, CNBC, MSNBC, Salon, Wired,
Slashdot and innumerable other sources of information and news.
Last night I was flipping through the channels and saw BBC
News. I hope that our panelists will look at BBC News and take
a page from their book and cover some foreign news for a change
as well.
This new mass media market is dominated not by broadcasters
and newspapers, but by multichannel mass media entities like
cable TV, direct broadcast satellite television, wireless
cable, and of course, the Internet. These new media are not
only powerful economic competitors, they are also driving all
forms of media to become more interactive.
Interactive communications limit mass media's ability to
dictate public opinion and they allow ordinary citizens to be
more than passive recipients of institutionalized news. Many
websites, for example, let readers respond to a story by
posting their reactions, rebuttals or questions.
In the face of these new competitors, new technologies and
new market demands, ownership restrictions on traditional media
have not only become unnecessary, they have become
anticompetitive. Faced with new sources and new methods of
competition, broadcasters and newspapers saddled with
potentially outdated infrastructure desperately need the
increased efficiency that relaxed ownership rules permit.
None of these observations are new to this debate or to
this Congress. Indeed, Congress recognized all of these points
when it enacted the 1996 Telecommunications Act that directed
the FCC to review all of its broadcast ownership rules every 2
years. But unfortunately, that directive has gone unfulfilled.
To be sure, the Commission has overhauled some of its ownership
rules, but it left others in place, including the rules that
are arguably the most anachronistic and anticompetitive, the
newspaper broadcast cross-ownership ban and the 35 percent
national broadcast ownership cap.
These actions are inconsistent with the letter and intent
of the 1996 Telecommunications Act. That Act directed the
Commission to review all of the rules every 2 years because
changes rendered those rules inherently suspect.
Unfortunately, change in the market has proved once again
that it can and will outpace change in government bureaucracy.
There are several sources feeding the bureaucratic inertia
that have kept these ownership rules in place even as permanent
and unmistakable changes in the mass media market continue to
render them obsolete. Some of these sources sprang from a
misguided notion that we should more heavily regulate
broadcasters who profit from the free use of valuable public
spectrum. Others sprang from ingrained notions about the power
of the broadcast networks and newspapers. But if we are truly
to serve the American people, then none of these concerns can
justify continued inaction.
I firmly believed that broadcasters should pay for the
spectrum they use, but burdensome and pointless regulation is
no substitute for public revenues obtained from a competitive
broadcast industry. I firmly believe that this Congress and the
FCC should remain vigilant to prevent undue concentration of
power in the mass media markets, but punishing yesterday's
victors will only aid tomorrow's would-be monopolists.
Mr. Chairman, thank you for convening this hearing today.
[The prepared statement of Senator McCain follows:]
Prepared Statement of Hon. John McCain,
U.S. Senator from Arizona
Thank you Mr. Chairman for having this hearing today regarding this
very important topic.
Existing regulatory caps on broadcast station and newspaper
ownership were created decades ago to preserve competition in a mass
media market consisting of a limited number of radio stations, TV
stations and newspapers. But since that time, the mass media market has
expanded exponentially. As a result, broadcasters and others are now
saddled with anachronistic ownership rules that limit their ability to
compete in the modern mass media market.
The changes in the mass media market are self-evident. To put the
matter bluntly: In the digital era, insight and commentary on matters
of public policy will no longer be dominated by Cronkite, Brinkley, the
Times and the Post. In their place have arisen CNN, CNBC, MSNBC, Salon,
Wired, Slashdot and innumerable other sources of information and news.
This new mass media market is dominated, not by broadcasters and
newspapers, but by multichannel mass media entities like cable TV,
direct broadcast satellite TV, wireless cable, and, of course, the
Internet. These new media are not only powerful economic competitors;
they are also driving all forms of media to become more interactive.
Interactive communications limit mass media's ability to dictate public
opinion, and they allow ordinary citizens to be more than passive
recipients of institutionalized news. Many websites, for example, let
readers respond to a story by posting their reactions, rebuttals or
questions.
In the face of these new competitors, new technologies and new
market demands, ownership restrictions on traditional media have not
only become unnecessary, they have become anticompetitive. Faced with
new sources and new methods of competition, broadcasters and newspapers
saddled with potentially outdated infrastructure desperately need the
increased efficiencies that relaxed ownership rules permit.
None of these observations are new to this debate, or this
Congress. Indeed, Congress recognized all of these points when it
enacted a 1996 Telecommunications Act that directed the FCC to review
all of its broadcast ownership rules every 2 years. But unfortunately,
that directive has gone unfulfilled. To be sure, the Commission has
overhauled some of its ownership rules. But it left others in place,
including the rules that are arguably the most anachronistic and
anticompetitive--the newspaper/broadcast cross-ownership ban and the 35
percent national broadcast ownership cap.
These actions are inconsistent with the letter and the intent of
the 1996 Telecommunications Act. That Act directed the Commission to
review all of the rules every 2 years because change has rendered those
rules inherently suspect. Unfortunately, change in the market has
proved once again that it can and will outpace change in government
bureaucracy.
There are several sources feeding the bureaucratic inertia that
have kept these ownership rules in place even as permanent and
unmistakable changes in the mass media market continue to render them
obsolete. Some of these sources spring from the misguided notion that
we should more heavily regulate broadcasters who profit from the free
use of valuable public spectrum. Others spring from ingrained notions
about the power of the broadcast networks and newspapers.
But if we are truly to serve the American public, then none of
these concerns can justify continued inaction. I firmly believe that
broadcasters should pay for the spectrum that they use, but burdensome
and pointless regulation is no substitute for public revenues obtained
from a competitive broadcast industry. I firmly believe that this
Congress and the FCC should remain vigilant to prevent undue
concentration of power in the mass media markets, but punishing
yesterday's victors will only aid tomorrow's would-be monopolists.
Again, Mr. Chairman, thank you for convening this important hearing
today.
The Chairman. Thank you.
Senator Inouye.
STATEMENT OF HON. DANIEL K. INOUYE,
U.S. SENATOR FROM HAWAII
Senator Inouye. Mr. Chairman, I commend you for calling
this hearing. I have a rather lengthy statement, but if I may,
I would like to just summarize it and ask that my full
statement be made part of the record.
Last year, we had received reports that all four networks
turned a profit. And I understand that the newspaper industry
continues to generate profits at a pace much greater than many
American industries. Therefore, Mr. Chairman, I believe that we
must be exceedingly cautious before we give into industry's
claim that absent regulatory relief, their businesses will
suffer.
In many ways, Mr. Chairman, these companies occupy a public
trust. Broadcasters, through their grant of free spectrum,
inform the public of local and national relevant news and
information; and newspapers do the same. The ownership
restrictions that limit aggregation of these businesses are
premised on the need to protect that public trust. These
ownership restrictions help preserve diversity of ownership and
viewpoints both nationally and market-by-market. In turn, that
diversity enhances a vibrant localism that keeps our citizens
informed when they pick up the morning paper and turn on the
evening news. Such localism permits the coverage in local
papers and stations to more truly reflect the communities they
serve
Mr. Chairman, I ask that my full statement be made part of
the record.
[The prepared statement of Senator Inouye follows:]
Prepared Statement of Hon. Daniel K. Inouye,
U.S. Senator from Hawaii
I want to commend Chairman Hollings for holding this important
hearing. It is past time for the Commerce Committee to examine the
vitally important issues of consolidation in the broadcast and
newspaper industries, and I look forward to the debate over these
topics on today's panels.
Over a decade ago, I chaired similar hearings in this Committee.
The tale told then was much like the one we'll hear today. The
marketplace has changed, our business is getting tougher and tougher to
run in the modern economy. Competition is undermining our profits, and
without relief, there may be fewer outlets to provide Americans with
quality news and programming. In short--let us combine so we can
compete, and if we can compete, news and programming will improve along
the way. I wish I were convinced.
Last year, all four networks turned a profit. And I understand the
newspaper industry continues to generate profits at a pace greater than
many American industries.
We must be exceedingly cautious before we give in to industry's
claims that absent regulatory relief, their businesses will suffer. In
many ways, these companies occupy a public trust. Broadcasters through
their grant of free spectrum, inform the public of local and nationally
relevant news and information. Newspapers do the same.
The ownership restrictions that limit aggregation of these
businesses are premised on the need to protect that public trust. The
ownership restrictions help preserve diversity of ownership and
viewpoints both nationally and market by market. In turn, that
diversity enhances a vibrant localism, that keeps our citizens informed
when they pick up the morning paper or turn on the evening news. Such
localism permits the coverage in local papers and stations to more
truly reflect the communities they serve.
Without these ownership restrictions, I believe that diversity and
localism would suffer. I believe that these businesses would do what I
would do--maximize returns to the detriment of our public discourse--by
reducing costs, promoting efficiencies and synergies, re-running the
same stories and repurposing the same news and information. There is
nothing wrong with that. It's the American way.
But that profit motive is in conflict with another American value--
the exchange of ideas and information that informs our cultural and
political debate. Accordingly, we have for years had reasonable
restrictions that prevented a single owner from exercising undue power
over that debate: nationally, we have prevented the networks from
owning too many stations. And locally, we restrict the joint ownership
of stations and newspapers.
These rules make sense to me. That is why I look forward to co-
sponsoring legislation with Chairman Hollings and Senator Dorgan to
bring some sense to this debate, by requiring the FCC to explain to the
Committee how relaxing the ownership limits will serve the public
interest.
I expect some of today's witnesses to feel differently about these
issues. I look forward to the debate.
The Chairman. It will be included in the record.
Senator Wyden.
STATEMENT OF HON. RON WYDEN,
U.S. SENATOR FROM OREGON
Senator Wyden. Thank you very much, Mr. Chairman. Mr.
Chairman I want to commend you because I think you are holding
hearings on an extraordinarily important subject and I just
want to walk through briefly an example of what could happen if
all of these rules on media consolidation are lifted. You are
correct in noting that there are some in this country who are
saying let us just throw them all out the window.
If that was the case, you could have AOL/Time Warner going
out and buying AT&T Cable, which would give it a huge
percentage of the Nation's cable market. That new entity could
go out and buy NBC if all the rules were lifted, and then start
snapping up individual television and radio stations until they
had a nationwide chain with a very large presence in most major
markets. That new, very large entity then could go out and buy
Gannett, giving them newspapers in many of the same markets
where they already control cable, broadcast TV, and radio.
My concern, Mr. Chairman, and why I think your hearings are
so important, is that if you just went out and lifted all these
rules as some have proposed, you could have on our watch the
most radical media consolidation in this country's history and
so I think it is important that we take the time to think
through the ramifications of this possibility, and that is why
I think your hearings are so important and I look forward to
working with you and our colleagues to examine these questions.
The Chairman. Very good.
Senator Kerry.
STATEMENT OF HON. JOHN F. KERRY,
U.S. SENATOR FROM MASSACHUSETTS
Senator Kerry. Mr. Chairman, thank you for having these
hearings. Let me just very briefly say that we have been
through this a number of times in the last years, 1996 most
recently. We saw the ownership shifted to the 35 percent from
the 25. And we have seen the shift from sort of the finite
number of stations to a percentage of national audience, and I
think that shift reflected a change in the marketplace itself
and in our perceptions of it.
Like Senator McCain, I think I would observe that the
marketplace has changed even further very significantly in a
lot of different ways, and all of us understand that this
fight, to a large degree, is over advertising revenues, and the
structure by which local affiliates are able to make their
pitch and what kind of package they can present versus the
consolidated packages that other larger, more diverse entities
are able to present. Our interest, I think, Mr. Chairman, has
to still remain to the question of protecting people's access
to diversity in information, and there is a principle of
localism which you have very articulately and forcefully
advocated both in your letter to the FCC and otherwise here
this morning. I agree with that fundamental concept of both the
diversity and localism.
On the other hand, I think it is appropriate for this
Committee at this juncture to be analyzing whether or not that
marketplace has changed in a way that the mix is different, in
the way in which diversity may be protected currently, or the
way in which people will have access to information, which is
obviously on its face so different from the original broadcast
structure that we sought to protect when the principle was
first established.
We do notice, however, that there has been this
extraordinary media consolidation: AOL purchasing Time Warner,
Viacom, CBS; News Corp. presently trying to get 10 television
stations from Chris Kraft, so that in the television broadcast
industry, you have got, I think, the percentage of commercial
television stations controlled by the largest 25 groups has
climbed from 25 percent to 45 percent since passage of the 1996
Act.
But none of that, none of those percentages adequately
reflect the other kinds of changes that have taken place in how
people have accessed information, what information they have
available to them. I have a sense this issue is probably going
to be decided either by the FCC or the courts because I think
they may do so faster than we are capable of, but it is
entirely appropriate that we look at it, and examine whether or
not any of those changes in the marketplace currently and in
the way people get information mandate that we perhaps think
differently about how we are measuring what the impact in
diversity and localism really is and how it is best protected.
So I think it is appropriate that we are measuring today, and
apologize to the witnesses and to my colleagues. We have a
markup on two trade bills in the Finance Committee in about 10
minutes, so I can't be here for all the testimony, but I will
try to come back.
The Chairman. Very good.
Senator Burns.
STATEMENT OF HON. CONRAD BURNS,
U.S. SENATOR FROM MONTANA
Senator Burns. I would just ask that my statement be made
part of the record, and I will listen to the witnesses before I
make up my mind.
[The prepared statement of Senator Burns follows:]
Prepared Statementof Hon. Conrad Burns,
U.S. Senator from Montana
Thank you, Mr. Chairman. I thank the Chairman for calling the
hearing on media consolidation today. This is certainly a topic that
warrants the Committee's full and serious attention.
I would first like to touch on the debate surrounding the current
35 percent national cap on broadcast ownership. I strongly support the
current cap, which was raised from 25 percent as part of the 1996
Telecommunications Act.
Many argue that the increasing variety of consumer choices for
video programming renders the need for any restrictions on broadcast
ownership obsolete. It is true that the array of multichannel video
media has increased significantly. Currently, many consumers can choose
from direct satellite, cable or even the Interent for video
programming. However, even when consumers do have this variety of video
distribution to choose from, many of these competing technologies are
not true alternatives to locally based programming. For rural consumers
in particular, alternatives increasingly exist only between different
national distribution networks.
Free, local, over-the-air television broadcasting still serves a
vital and unique role in providing community information. The ability
to receive local television signals is more than just having access to
local sports or entertainment programming. It is a critical and
immediate way to receive important local news, weather and community
information.
Additionally, natural tensions exist between the desire of networks
to maximize national audiences and the sensitivities of local
affiliates to their specific audiences. I am very concerned that any
lifting of the cap would significantly increase the leverage the
networks currently have in negotiations with their. affiliates and
lower the degree of flexibility that stations have in providing local
programming.
In a drastically different course of events than has taken place in
the video marketplace, the number of daily newspapers in the country
has plummeted significantly in recent years. Since 1975, the year the
ban on newspaper broadcast cross-ownership was instituted by the FCC,
the number of daily newspapers has declined from nearly 1,800 to
roughly 1,500. If community-based newspapers are to survive, they must
be given the option to increase 3 efficiencies by entering into co-
ownership with local broadcast stations.
The Commission's outdated position on cross-ownership is of great
concern to me, particularly given its failure to offer a substantive,
objective analysis of the actual effect of the cross-ownership ban in
the current media marketplace. Even though the previous Commission
announced a Notice of Proposed Rulemaking on the cross-ownership
restriction as a result of its 1998 biennial review, nothing ever
happened. I understand that the new Commission plans to rectify this
situation and I plan to follow developments in this critical area with
great interest.
Thank you, Mr. Chairman. I look forward to the testimony of today's
witnesses.
The Chairman. Very good. That is a change.
Senator Burns. Minority status does that.
The Chairman. Senator Cleland.
STATEMENT OF HON. MAX CLELAND,
U.S. SENATOR FROM GEORGIA
Senator Cleland. Thank you very much, Mr. Chairman. I
understand that antitrust is defined as, ``opposing or
intending to regulate business monopolies such as trusts or
cartels, especially in the interest of promoting competition.''
Well, these Federal laws that we are talking about were created
to protect American citizens from the concentration of power in
too few hands and govern all industries.
While these laws are enforced by the Department of Justice,
there are often other agencies involved in merger reviews with
the responsibility of examining aspects other than antitrust,
but complimentary to the merger review. With regard to
broadcasting mergers the FCC has an appropriate role of
reviewing of broadcast license transfers to ensure they are in
the public interest.
Essentially, regulations and laws like ownership caps are
designed to be additional protections for the public. In this
case, these regulations promote a diverse and free exchange of
ideas. When one entity reaches 35 percent of the Nation's
homes, is that enough to attract the attention of antitrust
officials? Maybe not. But this single entity is now able to
reach millions of homes. In this case, I believe that the law
limiting broadcast ownership enables and promotes diversity,
above that of antitrust review by itself.
However, I can certainly understand why a group would want
to exceed this cap. According to Kevin Saunter in the broadcast
television industry book, the profit margin for network-owned
and operated stations can still reach an amazing 25 percent or
more which translates into yearly profits that can be in the
tens of millions of dollars, a significant amount for networks
struggling with decreasing viewership and increasing costs.
The FCC as the guardian of the public's interest and the
public's manager of radio spectrum owes the American public an
appropriate review of the transfer of broadcast licenses.
Although multichannel service providers have increased the
number of outlets people can turn to for video information and
entertainment, about 20 percent of Americans still remain
dependent on free over-the-air television for their
information. This portion of the population should not be
overlooked when contemplating removing or increasing the cap.
I support the continuation of the FCC's biennial review of
the broadcast ownership cap and the newspaper broadcast
ownership cap as they have been directed. Although relaxation
of these two caps has been rejected up to this point, I will be
watching closely for the results of the FCC's next review.
Given the relaxation of the duopoly rules, I believe we will be
able to see more clearly the potential for greater
consolidation.
Antitrust officials play an important role in our economy,
however, there are additional factors that might be overlooked
if other agencies are removed from the merger review process.
When we are discussing the precious and finite commodity of our
national spectrum, I believe it is appropriate for the FCC to
examine these mergers.
I also believe due deference should be given to its
decisions. I look forward to the Commission's continuing
examination of ownership rules, keeping in mind that every
regulation should be continued to be examined for its rlevance
in this ever-changing world.
Thank you, Mr. Chairman
The Chairman. Thank you.
Senator Dorgan.
STATEMENT OF HON. BYRON L. DORGAN,
U.S. SENATOR FROM NORTH DAKOTA
Senator Dorgan. Mr. Chairman, thank you very much. I
apologize. I was at a leadership meeting and I missed your
opening statement, which I am sure would have been illuminating
for me.
The Chairman. I did mention your amendment. Don't you
remember, when we voted with respect to change of ownership.
Only by 2 votes did we have the 35.
Senator Dorgan. In 1996, when the Committee reported out a
bill that expanded the audience cap to 35 percent, I believe,
and I offered an amendment on the floor of the Senate which
about 4 o'clock in the afternoon prevailed, Senator Dole was on
the other side and I actually prevailed and I was the most
surprised man in Washington, DC., and then I believe Senator
D'Amato changed his vote at the request of Senator Dole so that
they can reconsider it, and then dinner intervened and several
Senators had some sort of an epiphany over their dinner and we
had a revote about 4 hours later, and I ended up losing. Such
is the work of the Senate, well within the rules, I might add.
But I felt the need to offer the amendment at that time
because I worried about what was going to happen. Even then I
was worried about what was happening, but we have had since
then as you know an orgy of mergers in this industry. I think
in 1996, the largest radio ownership group had 39 stations.
Now, 1100 stations-plus. What's happening in broadcast, in my
judgment, is unhealthy.
There are competing interests. The private interests of
those who are engaged in this and they have every right to hold
that interest and want to become big and big and bigger, and
the public interest, and I would say to the FCC, and I hope
they pay some attention to this hearing, Mr. Chairman, I am
pleased you are holding the hearing, the question of whether we
ought to have ownership limits and the question of whether
caring about localism is some old-fashioned anachronism is a
very important question. I answer it one way. Some others might
answer it another way. But I feel very strongly about it.
The FCC has a responsibility to us, a responsibility to
this country to understand that these airways belong to the
American people and that localism is not some old-fashioned
notion about what we ought to have as a public policy, and I
think the burden--the FCC somehow seems to suggest the burden
is on the Congress to demonstrate why there should be limits.
That is not the case at all in my judgment. The burden ought to
be on the FCC and the broadcasters to demonstrate why the
limits ought to be increased.
In my judgment, there is no basis and no case that can be
made to increase these broadcast limits. If anything, we ought
to go back to the 1996 limits. But I fear that that horse is
long out of the barn. Mr. Chairman, thank you for calling these
hearings. They are very important.
The Chairman. Thank you.
Senator Fitzgerald.
STATEMENT OF HON. PETER G. FITZGERALD,
U.S. SENATOR FROM ILLINOIS
Senator Fitzgerald. Well, thank you, Mr. Chairman. I would
like to welcome one of my constituents, Mr. Jack Fuller, who is
from Evanston, Illinois and President of the Tribune Company.
The Tribune, in addition to owning newspapers and television
stations, is the owner of the Chicago Cubs, a great baseball
team, and they are doing very well this year and I hope we can
have a World Series at least sometime this century. The Cubs
have not won a World Series since 1908. Anybody can have a bad
century, I guess, in Chicago.
Senator Burns. Seven years ahead of time.
Senator Fitzgerald. But anyway, I am glad that the Chairman
has called this hearing. I think it is an important issue. I do
agree that the public owns the airwaves. I do have questions,
however, as to whether the ownership restrictions make sense in
today's current climate, where you have so many media outlets,
so many cable television stations and so many satellite TV
channels and so many radio and other broadcast outlets, so I
look forward to this hearing as far as going into depth and
exploring the issue. I do wonder whether the restrictions that
date back to the late 1940s or 1946, when there were only three
broadcast networks around the country, continue to make sense.
Thank you, Mr. Chairman, for holding this hearing.
The Chairman. Thank you. In presenting these witnesses, let
me make it as part of the record, unless there is objection,
the Columbia Journalism Review ownership listing of Viacom's
assets, and the Columbia Journalism Review ownership listing of
Tribune's assets. I was just trying to summarize. For example,
Viacom has got 19 Paramount stations; and the MTV networks,
Nickelodeon channels, Showtime Networks, eight channels; Black
Entertainment Television with six channels; and Paramount
production and distribution and right on down--and publishing,
CBS television ownership of some 17 stations there. In radio,
it is just too much to count. I counted 40 different cities,
and there are several radio stations in each city.
[The information referred to follows:]
[From the Columbia Journalism Review]
Who Owns What
Viacom, 1515 Broadway, New York, NY
Broadcast and Cable
Paramount Stations Group
WUPA--Atlanta
WSBK--Boston
WWHO--Columbus
KTXA--Dallas, Ft. Worth
WKBD--Detroit
KTXH--Houston
WNDY--Indianapolis
WBFS--Miami
WLWC--New Bedford/Providence
WUPL--New Orleans
WGNT--Norfolk
KAUT--Oklahoma City
WPSG--Philadelphia
WNPA--Pittsburgh
KMAX--Sacramento
KSTW--Seattle
WTOG--Tampa
WDCA--Washington, DC
WTVX--West Palm Beach
UPN
The Paramount Channel
MTV: Music Television
M2
MTV
MTV Asia (joint venture with PolyGram)
MTV Australia (licensing agreement)
MTV Brazil (joint venture with Abril S.A.)
MTV Europe
MTV India (joint venture)
MTV Indie
MTV Japan (licensing agreement)
MTV Latin America
MTV Mandarin (joint venture with PolyGram)
MTV Productions
MTV Ritmo
MTV Rocks
MTV Russia
Nickelodeon
Nickelodeon Australia (joint venture--includes News Corp.)
Nickelodeon Germany (joint venture with Ravensburger, and Bear
Stearns)
Nickelodeon Hungary
Nickelodeon Iceland
Nickelodeon Latin America
Nickelodeon Nordic
Nickelodeon United Kingdom (joint venture with BSKYB)
Nick at Nite
Nick at Nite's TV Land
Nick Jr.
Nickelodeon Books
Nickelodeon Magazine
Nickelodeon Movies
Noggin
VH1
VH1 Country
VH1 Soul
VH1 Germany (joint venture with Bear Stearns)
VH1 United Kingdom
Comedy Central (joint venture with Time-Warner)
Showtime Networks Inc.
SET Pay-Per-View (pay-per-view marketer of Mike Tyson fights)
Showtime
Showtime en Espanol
Showtime Extreme
Sundance Channel (joint venture with Robert Redford, and
PolyGram)
The Movie Channel
FLIX
BET--Black Enteratinment Television
BET on Jazz: The Jazz Channel
BET Action Pay Per View
BET International
BET Movies/STARZ!
BET Pictures I
Viacom Interactive Services
Viacom--Film & Television Production/Distribution
Paramount Pictures
Paramount Television
Paramount Home Video
CIC Video (joint venture)
Viacom Productions
MTV Films
MTV Productions
Nickelodeon Studios
Nickelodeon Movies
Wilshire Court Productions
Spelling Entertainment Group (80%)
Spelling Films
Spelling Television
Republic Entertainment
Big Ticket Television
Worldvision Enterprises
Hamilton Projects
Viacom--Video and Music/Parks
Retail
Blockbuster Video
Blockbuster Music
Viacom Entertainment Stores
Paramount Parks
Paramount's Carowinds (located in Charlotte, NC)
Paramount's Great America (located in Santa Clara, CA)
Paramount's Kings Dominion (located in Richmond, VA)
Paramount's Kings Island (located in Cincinnati, OH)
Paramount Canada's Wonderland (located in Toronto)
Raging Waters (located in San Jose, CA)
Star Trek: The Experience (located in Las Vegas, NV)
Other
Viacom Consumer Products
Famous Music (copyright owners)
Viacom Interactive Services
Star Trek Franchise
Viacom--Publishing
Anne Schwartz Books
Archway Paperbacks and Minstrel Books
Lisa Drew Books
Fireside
The Free Press
MTV Books
Nickelodeon Books
Simon & Schuster Consumer Group
Simon & Schuster
Simon & Schuster Audio Books
Simon & Schuster Children's Publishing
Simon & Schuster Editions
Simon & Schuster Interactive
Simon & Schuster Interactive Distribution
Simon & Schuster Libros en Espanol
Pocket Books
Scribner
Star Trek
Touchstone
Washington Square Press
Viacom--Theaters and Film Distribution
Paramount Theaters
Paramount (Europe)
United Cinemas International (UCI) (joint venture with
Universal)
United International Pictures (UIP) (joint venture with
Universal)
Music
Famous Music
Famous Players
CBS Television
Television-owned and operated stations
WCBS--New York
KCBS--Los Angeles
WBBM--Chicago
WCCO--Minneapolis
WFRV--Green Bay
WWJ--Detroit
WJZ--Baltimore
WBZ--Boston
KCNC--Denver
WFOR--Miami
KYW--Philadelphia
KDKA--Pittsburgh
KUTV--Salt Lake City
KPIX--San Francisco
KEYE--Austin Cable
TNN: The Nashville Network
CMT: Country Music Television
Group W Network Services--technology services for the cable and
broadcast
industries
New Media--Online
CBS.com
CBSNews.com
CBSSportsLine.Com (partial)
CBSMarketWatch.com (with Pearson PLC)
CBSHealthWatch.com (partial)
Office.com (33.3% with Winstar)
ThirdAge (30%)
Big Entertainment--Hollywood.com (30%)
Contentville.com (35% with Brill Media Holdings 34%, Primedia
Inc., NBC,
Ingram Book Group and EBSCO)
StoreRunner.com (partial)
CBS Radio--Infinity Broadcasting
Atlanta: WAOK-AM; WVEE-FM; WZGC-FM
Austin: KJCE-AM; KAMX-FM; KKMJ-FM; KQBT-FM
Baltimore: WJFK-AM; WLIF-FM; WXYV-FM; WQSR-FM; WWMX-FM
Boston: WBZ-AM; WODS-FM; WBCN-FM; WBMX-FM; WZLZ-FM
Buffalo: WECK-AM; WBLK-FM; WJYE-FM; WLCE-FM; WYRK-FM
Charlotte: WFNZ-AM; WGIV-AM; WBAV-FM; WNKS-FM; WPEG-FM; WSOC-FM; WSSS-
FM
Chicago: WBBM-AM/FM; WSCR-AM; WXRT-FM; WCKG-FM; WJMK-FM; WUSN-FM
Cincinnati: WGRR-FM; WYRQ-FM; WYLX-FM; WUBE-FM
Cleveland: WDOK-FM; WQAL-FM; WZJM-FM
Columbus: WLVQ-FM; WAZU-FM; WHOK-FM
Dallas: KHVN-AM; KLUV-FM; KOAI-FM; K000-AM; KRBV-FM; KRLD-AM; KVIL-FM;
KYNG-FM
Denver: KDJM-FM; KIMN-FM; KXKL-FM
Detroit: WWJ-AM; WVMV-FM; WKRK-FM; WOMC-FM; WXYT-AM; WYCD-FM
Fresno: KMJ-AM; KOOR-AM; KNAX-FM; KOQO-FM; KRNC-FM; KSKS-FM; KVSR-FM
Greensboro, NC: WMFR-AM; WSJS-AM; WSML-AM
Hartford: WTIC-AM/FM; WZMK-FM; WRCH-FM
Houston: KILT-AM/FM; KIKK-AM/FM
Kansas City: KBEQ-FM; KFKF-FM; KXMV-FM; KOZN-FM
Las Vegas: KSFN-AM; KXNT-AM; KLUC-FM; KMXB-FM; KMZQ-FM; KXTE-FM
Los Angeles: KNX-AM; KFWB-AM; KCBS-FM; KTWV-FM; KLSX-FM; KRLA-AM; KROQ-
FM; KRTH-FM
Minneapolis: WCCO-AM; KSGS-AM; KMJZ-FM; WLTE-FM
Monterey-Salinas: KLUE-FM
New York: WCBS-AM/FM; WINS-AM; WNEW-FM; WFAN-AM; WXRK-FM
Orlando: WJHM-FM; WOCL-FM; WOMX-FM
Palm Springs: KEZN-FM
Philadelphia: KYW-AM; WPHT-AM; WOGL-FM; WIP-AM; WYSP-FM
Phoenix: KMLE-FM; KOOL-FM; KZON-FM
Pittsburgh: KDKA-AM; WBZZ-FM; WDSY-FM; WZPT-FM
Portland: KUPL-AM; KBBT-FM; KINK-FM; KKJZ-FM; KUFO-FM; KUPL-FM
Riverside: KFRG-FM; KXFG-FM
Rochester: WCMF-FM; WPXY-FM; WRMM-FM; WZNE-FM
Sacramento: KHTK-AM; KQPT-AM; KZZO-FM; KNCI-FM; KRAK-FM; KSFM-FM; KYMX-
FM
San Diego: KPLN-FM; KYXY-FM
San Jose: KEZR-FM; KBAY-FM
San Francisco: KCBS-AM; KFRC-AM/FM; KITS-FM; KYCY-FM/AM; KLLC-FM
Seattle: KRPM-AM; KBKS-FM; KMPS-FM; KYCW-FM; KZOK-FM
St. Louis: KEZK-FM; KYKY-FM; KMOX-AM
Tampa: WQYK-AM/FM
Washington, DC: WHFS-FM; WJFK-FM; WPGC-AM/FM; WARW-FM
West Palm Beach: WEAT-FM; WIRK-FM
Westwood One (equity interest-radio network syndicated program/producer
Metro Networks
TDI Worldwide--outdoor advertising
Outdoor Systems
Production
CBS Production
EYEMARK--marketing and production of syndicated programming
King World Productions--first-run television syndication
Tribune Company, Chicago, IL
Broadcast and Cable
WPIX--New York
KTLA--Los Angeles
WGN--Chicago
WPHL--Philadelphia
WLVI--Boston
KDAF--Dallas
WGNX--Atlanta
KHTV--Houston
KTZZ--Seattle
WBZL--Miami-Ft. Lauderdale
KWGN--Denver
KTXL--Sacramento
WXIN--Indianapolis
KSWB--San Diego
WTIC--Hartford/New Haven
WTXX--Hartford
WXMI--Grand Rapids
WGNO--New Orleans
WPMT--Harrisburg
WBDC--Washington (not owned, but operated under a Lease
Managment Agreement)
WNOL--New Orleans
Tribune Entertainment--production and distribution
Qwest Broadcasting LLC
Tribune Co. holds a 25% stake in Time Warner's WB Network
Cable
CLTV--Chicago area 24 hour news and sports
TV Food Network (31%)
Central Florida News 13 (CFN 13)--24 hour local news channel--
joint venture between Tribune and Time Warner Communications
Radio
WGN--AM (Chicago)
KKHK--FM (Denver)
KOSI--FM (Denver)
KEZW--AM (Denver)
Tribune Company--Publishing
Daily Newspapers
Chicago Tribune
Fort Lauderdale Sun-Sentinel
Orlando Sentinel
South Florida Newspaper Network
Daily Press (Hampton Roads, VA. and area)
The Advocate (Stamford, CT)
The Baltimore Sun
Greenwich Time (CT)
The Hartford Courant
LaOpinion (50%, Spanish language newspaper in Southern
California)
Los Angeles Times
Los Angeles Times Syndicate (syndication service)
Los Angles Times-Washington Post News Service (50%)
The Morning Call (Allentown, PA)
Newsday (Long Island, NY)
Tribune Media Services--syndicated content for print and online
On The Mark Media
TMS TV--television programming information
TVData--television programming information
Zap2it.com--Website offering TV listings
Online Publications
Black Voices--Afro-centric news and information
Exito--South Florida Hispanic community news
Relcon--listing of Chicago area apartments
US/Express--weekly entertainment news
Digital City Atlanta
Digital City Boston
Digital City Chicago
Digital City Denver
Digital City Hampton Roads
Digital City Los Angeles
Digital City Orlando
Digital City South Florida
cars.com--national Web site for vehicle listings--venture with
Times Mirror and Washington Post Co.
apartments.com--national Web site for apartment listings--
venture with Times Mirror and Washington Post Co. (cars.com and
apartments.com are part of Classified Ventures LLC)
CareerBuilder.com (16%)--online employment information
Tribune Company--Other
Sports Franchise
Chicago Cubs
Tribune Ventures: Investment in and partnerships with the following
ventures; percentage indicates how much ownership Tribune Co.
has with:
America Online (1.5%)
CheckFree (1.0%)--electronic payment processor
Digital City (20.1%)--local interactive content
Excite (4.3%)--World Wide Web search engine
ImageBuilder Software (23%)--software developer
Discourse Technologies (14%)--multimedia education products
Infobeat (12.6%)--customized content
iVillage (7.8%)--online content
Lightspan Partnership (6.6%)--new--media education products
Open Market (2.6%)--electronic commerce
Peapod (10.7%)--online grocery shopping service
Picture Network International (NA)--online content
The Learning Company (11%)--multimedia education products
SoftKey International (NA)--digital education products
StarSight TeleCast (NA)
Interealty Corp. (25%)--real estate information
Knight--Ridder/Tribune Information services (50%)--news wire
Baring Communications Equity (Asia--Pacific) Ltd. Fund (NA)
Classified Ventures LLC (33%)
The Washington Post Co., Washington, DC
Newspapers
The Washington Post
The Washington Post National Weekly Edition
The Washington Post Writers Group (syndication)
The Herald (Everett, WA)
Gazette Newspapers, Inc. (community weekly newspapers and a
monthly business publication, in Maryland; 11 military
newspapers)
International Herald Tribune (50%)--with The New York Times
Company
Los Angeles Times--Washington Post News Service (50% with
Times-Mirror)
Enterprise Newspapers--4 weekly community newspapers in
Snohomish County, WA
Magazines
Newsweek
Newsweek International
Newsweek Japan (Newsweek Nihon Ban)
Newsweek Korea (Newsweek Hankuk Pan)
Newsweek En Espanol
Itogi--Russian language newsweekly
Tempo--Greek language newsweekly with New Communications, S.A.
Post-Newsweek Business Information--trade magazines and trade
shows
Television
Post-Newsweek Stations, Inc.
WDIV--(Detroit) (NBC)
KPRC--(Houston) (NBC)
WPLG--(Miami) (ABC)
WKMG--(Orlando) (CBS)
KSAT--(San Antonio) (ABC)
WJXT--(Jacksonville) (CBS)
ACTV, Inc. (20%)--Interactive television for entertainment and
education
Newsweek Productions
Cable Operations
Cable One--MSO based in Phoenix, AZ
Other
Kaplan Educational Centers
Digital Ink Co.--new media and electronic publishing
Classified Ventures--with Times-Mirror and Tribune Co.
LEGI-SLATE--online Federal Government and regulatory
information
Robinson Terminal Warehouse--newsprint facility in Virginia
Capitol Fiber--recycling center in Washington/Baltimore area
Bowater Mersey Paper Company (49%)--newsprint manufacturer in
Nova Scotia
Dearborn Publishing Group, Inc.--a publisher and provider of
licensing training for securities, insurance and real estate
professionals
The Chairman. So, but excuse me, Mr. Karmazin, you are
behind Tribune. You got to play catch-up ball with the Tribune.
I am putting them in there also. Let me present and introduce
Mr. Mel Karmazin, the President and Chief Operating Officer of
Viacom; Mr. Alan Frank, the Chief Executive Officer of Post-
Newsweek Stations; Jack Fuller, President of Tribune
Publishing; William Baker, President of WNET in New York. The
Committee is indebted to each of you for coming.
Mr. Karmazin, we will start with you, sir.
STATEMENT OF MEL KARMAZIN, PRESIDENT AND
CHIEF OPERATING OFFICER, VIACOM, INC.
Mr. Karmazin. Thank you, Mr. Chairman, Senator McCain and
other Members. I really appreciate the opportunity to be here
today. I did not think you wanted to hear what I was going to
say. I am sorry.
The Chairman. I would love to hear what you are going to
say. If I were running CBS, I'd hire you this afternoon, so do
not worry about that.
Mr. Karmazin. By way of background, I do go back a long
time in the broadcasting business. I went to work in 1967 for
Mr. Paley's CBS and had as mentors Mr. Paley and John Kluge.
Both of those fine broadcasters. And, I like to call myself a
broadcaster who has talked about localism and diversity, so let
there be no mistake; obviously we are very interested, as are
all of our television stations and all of our radio stations in
localism, and certainly are prepared to demonstrate our
localism in our communities, whichever community you are
sitting with, as compared to any other broadcaster, whether or
not they live in the market or do not live in the market.
Certainly, localism and diversity are something that we think
is very important.
I'd like to go back to those days, by the way, if you can
mandate it, to where there were only three networks, and the
diversity was just those three. So I do not think that, Senator
as you said, the horse left the barn. But I think those days
are gone. When I first started in the business, there were
three networks, 9 out of 10 people watched prime time on
network television. The average viewer had seven television
stations available to them, and there was no VCR.
Today, the three networks, together in prime time, have
less than 35 percent of the audience on television. The average
home has 54 channels available to them. There are VCRs in
almost 90 percent or actually over 90 percent of the country.
There are items like TiVo and UltimateTV and the Internet. But
even more important than what's here today, is there are more
choices coming and the changes are going to be even more
dramatic. There is going to be available very soon in every
car, satellite radio, so that you will be able to receive 100
radio stations in your car here in Washington, DC. in CD
quality, controlled by one company. It will be a subscription
service, so the American public is going to have to pay to
receive those 100 different radio stations and we, free over-
the-air broadcasting, are going to have to compete with them.
There is also, if you follow what's going on with
technology, the Internet which is also going to be available in
your car. Internet access is available today on your PDA. It is
available on your cell phone. It is going to be available in
your car. There are 4,000 radio stations on the Internet that
you are going to be able to reach in your home or you are going
to be able to reach in your car, and the whole world is
changing. Technology is changing dramatically. We are not just
in a vacuum. Consolidation is taking place in every industry,
so we are now competing to get advertising dollars from banks
that are consolidating. We are competing to get advertising
revenue from airlines that are consolidating. Our advertisers
have consolidated. There are fewer and fewer of them, as have
the advertising agencies consolidated.
And that consolidation is continuing. You mentioned earlier
AOL/Time Warner, and alluded to the possibility that AT&T might
do a transaction and possibly AT&T could do a transaction with
Comcast. And it is possible that DirecTV, which has access into
100 percent of the homes in America, might even combine with
News Corp., so we are not sitting here suggesting those things
should not be allowed to take place. They are wrong to take
place. But in order for us to compete against them, we need to
have a stronger, free over-the-air broadcasting system and I
believe that we need to see changes that have to be made in
order to be able to have a fair seat at the table with these
companies that have consolidated.
A lot has been said about radio consolidation so let us
talk about that. There is a little over 10,000 radio stations
in the United States. One company, not ours, owns a little bit
over 1,000. That is 10 percent of the stations, so the largest
company in this industry owns 10 percent. To some people, that
might seem like a lot. To me, it is not Microsoft, as far as a
consolidated position in this country.
But the effect of consolidation has not been less
diversity, it has been more. To take Washington, DC., the same
number of radio stations exist today that existed in the past.
Fewer operators, more programming choices. There are far more
programming choices available today to the people of Washington
than existed prior to the 1996 Telecommunications Act.
I think that consolidation, deregulation has been good for
the American public. I think we need to see the world where we
can own two networks. We are channel 350 on DirecTV. We are
channel 20-something here in Washington on some cable systems.
We are on another channel with DishTV. There needs to be
consolidation on the network side of things. We need to see
that 35 percent arbitrary cap removed so that we can make money
on our TV stations, so we can bid for programming, so we can
afford to keep good programming on free over-the-air
broadcasting, and we need to see further deregulation in the
radio industry to compete with the technology that is
satellite.
If somebody is concerned about too much concentration, for
30 years, I have been dealing with the Justice Department. They
are pretty good at doing their job, and obviously there is a
mechanism for unfair consolidation or too much consolidation. I
see my time is up, so thank you.
[The prepared statement of Mr. Karmazin follows:]
Prepared Statement of Mel Karmazin, President and
Chief Operating Officer, Viacom, Inc.
Good morning, Chairman Hollings, Senator McCain, and Members of the
Committee. I am Mel Karmazin, President and Chief Operating Officer of
Viacom. Thank you for this opportunity to testify before you today on
the topic of media consolidation and broadcast ownership.
Instead of ``media consolidation,'' I prefer to call it ``media
competition,'' because that's what consumers are enjoying today. Over
the last decade, consumers have reaped the benefits of a tremendous
amount of change in the media industry: the meteoric growth of cable,
the explosion of the Internet, the expansion of broadcast networks from
four to at least nine, the birth of DBS, and the proliferation of new
media devices, such as cell phones and personal digital assistants,
which are allowing consumers to access information when and how they
want it.
It is no coincidence that this enormous growth in content and
distribution platforms has taken place during a time of consolidation
in our industry. Horizontal and vertical combination is businesses'
response to consumers' ever-multiplying demands for more information
and entertainment tailored to their lives. Given today's marketplace,
we have seen content providers expand to keep up with the change: This
personalization of information and entertainment is made economically
possible through mergers, such as that between Viacom and CBS last
year. Scale allows companies to accept risks associated with spiraling
costs of programming, from the cost of talent to sports rights, and
other costs, such as those required to market, brand and promote our
products. And scale in the broadcast business brings consumers, for
free, greater entertainment, sports and news programming choices than
ever before.
If we are to understand the media industry, we cannot examine it in
a vacuum. Because what happens in other industries unquestionably
affects us in the media, particularly at companies like Viacom, where
half of our revenues depend on advertising. As airlines merge, as banks
merge, as consumer product companies merge, the number of our
advertising customers also declines. Where before, for example, our
company might have approached Airline X, Airline Y, and Airline Z as
separate advertisers, we now have one fewer client and, as a result,
one fewer source of advertising revenue. And, today, the agencies that
represent the Nation's advertisers have also declined, meaning that
mergers in that industry have forced us in the media to negotiate with
only a handful of firms for a crucial part of our business.
In a world where AOL and Time Warner can combine, where Comcast may
end up owning AT&T's cable systems, and where News Corporation could
control DirecTV, it is ironic that today's hearing focuses largely on
maintaining harmful restrictions on the only news and information
medium that remains free to all Americans--broadcasting. Right or
wrong, subscription-based cable MSOs and DBS providers are permitted to
operate without the myriad ownership restrictions that hinder
broadcasters. Yet, in a cruel twist of fate, these pay television
services rely on broadcast television as a key component of their
offerings: some 80 percent of Americans now tune into their broadcast
television stations through their cable or satellite provider. Thus,
while the services that require American consumers to pay fees for
access to them continue to consolidate largely unchecked, broadcasters,
of which we are a proud member, face the prospect of being more and
more marginalized. Television and radio broadcasting are the only media
today that remain hamstrung by rules governing ownership--of television
and radio stations locally and nationwide and of broadcast television
networks--in ways that are far more onerous than those affecting their
competitors.
Despite the hyper-competitive state of the television industry, it
is bewildering and astounding that there is a debate raging anew here
in Washington over the limits on national broadcast television station
ownership, which currently prohibit a group owner from reaching more
than 35 percent of television households. Some, including the broadcast
networks (ABC, CBS, Fox and NBC), want these limits pared back or
repealed. Others, including some of the largest media conglomerates in
the United States (such as Post-Newsweek, Cox, Belo and Hearst-Argyle),
which count among their holdings broadcast network-affiliated
television stations, as well as newspapers, cable systems and radio
stations, are fighting hard to retain the status quo.
The proponents of the status quo in this debate are clearly
motivated by an overwhelming fear that their television business is
changing and that freezing ownership at today's levels is the panacea.
But we all must recognize that the broadcast business is dramatically
changing all around us: Our audiences are dwindling, our margins are
contracting and our share of advertising revenues is declining. The
impact on consumers, who should be central to this debate, do not
benefit from the status quo when it is irrational, anticompetitive, and
an obstacle to expanded choice. After all, it is change and
deregulation that have brought about the almost dizzying array of video
and audio options Americans enjoy today.
History instructs us that the fear of change is best confronted
with a generous helping of flexibility and an invigorating dose of
innovation. For instance, take the radio industry in the early 1940s,
when many feared that a gadget called television would steal away its
audience. Well, the coming of television did affect the radio business,
but not in the way those fearful of change imagined. Instead,
innovative managers prodded radio to recreate itself in the face of
television's competitive threat, changing it over time from a center-
of-the-living room, sit-down form of entertainment to one that went
with consumers as they pursued their daily activities. And, as such,
radio prospered as never before.
Or look at the broadcast television industry in the 1950s, when it,
in turn, feared a new technology that took TV station signals and
delivered them by cable to homes too far away to receive them over the
air. Broadcasters fought the new technology because they saw it as a
threat to free, over-the-air television and localism. Yet, today, more
consumers are able to watch over-the-air television stations with a
clear, sharp picture than would ever have been possible using rooftop
antennas and rabbit ears. And over-the-air television stations have
profited as a result.
History teaches us that change is uncomfortable and unnerving to
both government and business as we all undergo the turbulence of moving
from the older to the newer technologies. But in the end, when the
change has occurred, we see that consumers have benefited from the
upheaval because they have been empowered as never before. With
hundreds and hundreds of programming choices available at their
fingertips, consumers are the final arbiters of which of these services
will succeed and which will fail.
Change is something my company deals with day after day. At Viacom,
our broadcast networks, our cable networks, our video rental business,
our publishing arm, our movie studio, and our radio stations are all by
necessity constantly practicing the arts of futurism and
prognostication, trying to figure out the next new technologies,
trends, and regulatory schemes, and strategizing as to how we will
adapt our business models to keep them relevant in any given new
environment. Obviously, Viacom is not alone. Any business that is to
survive must be three steps ahead of the curve or risk obsolescence.
This includes big media companies with newspaper and television
interests like Belo, Cox, Hearst-Argyle and others, which have been
pushing for relaxation of the current restrictions on common ownership
of a daily newspaper and a television station in the same community as
one way to realize necessary economies in the face of the continuing
decline in newspaper circulation. These companies advocating for a
liberalization of local restrictions are, of course, the very same ones
fighting deregulation of television ownership on a nationwide basis.
I empathize with the frustration of these newspaper conglomerates--
deregulation is important for each of our businesses. But the common
ownership of two television stations and of multiple radio stations in
a local market consolidates advertising revenues far less so than the
combination of a daily newspaper and a television station in one
market. Thus, lifting the newspaper limit should occur only after the
national television cap is lifted, the dual network rule is modified
and the local ownership limits on television and radio are relaxed. It
is these latter changes that promise greater benefits to ensure the
future viability of the free delivery of entertainment, news and
information to the American public.
Over the last decade alone, a worldwide technological tsunami has
crashed upon the world, flooding the broadcast industry with
competition in unprecedented proportions. Broadcast radio now competes
head-to-head with Internet radio websites that offer customized music,
sports and news. Where offices once turned on a radio for background
music, individual employees are now ``tuning in'' to favorite websites
on their PCs for their all-day listening pleasure. And one day soon,
when wireless Internet access is ubiquitous, people driving in their
cars may opt to listen to radio websites instead of their local
broadcast radio stations. Satellite radio, which has been in the
planning stages for years and is just now launching, is a new form of
``radio'' which will provide a subscriber with not just one program
format as do traditional radio stations, but a whole range of them.
Unlike traditional radio, which can reach only as far as a terrestrial
broadcast signal, the new technology will let drivers travel far and
wide without ever losing the clear reception of these satellite
``stations.'' As for broadcast television, it competes directly with
cable, which was originally created only to serve as a conduit for
broadcast signals. That service, subscribed to by nearly 70 percent of
the country's households, has developed into a multi-channel video
programming distribution platform that not only carries hundreds of
cable networks but serves as a high-speed gateway to the Internet and
the literally millions of websites that offer personalized
entertainment, news, weather and sports. The World Wide Web itself,
born around 1994, spawned nearly three million sites from 1999 to 2000
alone. Direct broadcast satellite, another competitor to broadcast
television, delivers hundreds of crisp digital programming channels to
more than 10 percent of the country and also offers high-speed Internet
access.
In 1996, Congress fully recognized this formidable competition to
broadcasters when it passed the Telecommunications Act. Among other
deregulatory actions, that law eliminated all limits on the national
ownership of radio stations, raised from 25 percent to 35 percent the
national ownership limit on television stations while deleting the
numerical cap of 12 stations, and mandated that the FCC review
broadcast ownership rules every 2 years.
Those who fear the further deregulation of television often point
to the state of broadcast radio ownership in an attempt to paint a
bleak picture of media concentration. In so doing, they note that the
largest radio station group owns some 1,200 stations, that this group
and a handful of others control a large portion of the radio
advertising market, and that stations in these groups play the same
programming formats from central feeds in their distant, big-city
headquarters.
While their raw numbers are accurate, they give a completely
misleading picture of a radio industry that is in reality vibrantly
competitive and is certainly more diverse than the industry serving
consumers in the pre-Telecommunications Act era. There are more than
10,500 commercial AM and FM radio stations in this country, so the top
group owns only about 11.4 percent. The fourth largest radio group in
terms of numbers, Viacom's Infinity radio division, owns 184 stations,
representing a mere 1.7 percent of all commercial radio stations. The
audience for the average radio station in this country is miniscule.
And, the radio advertising market is so small--totaling only about 8.5
percent of all ad expenditures nationwide across all media (newspapers,
magazines, billboard, Internet, cable, television, etc.)--that even if
a single entity owned every radio station in the country, it still
would control only a small portion of the advertising pie. In fact,
under an antitrust review, one owner could not buy every radio station
nationwide, because there would be limits on the number of outlets that
that party could own on a local basis. Newspapers, by the way, still
garner about 21 percent of total ad spending.
And what of the argument that ownership consolidation limits the
diversity of formats? No basis in fact whatsoever. That is because the
multiple owner seeks to diversify formats in order to garner the widest
cross-section of listeners.
All we need do is look at the radio scene here in Washington's own
backyard to see this theory spun into practice. In 1993, the 53
commercial and noncommercial radio stations in the Washington, D.C.
market were owned by 39 licensees, who offered 19 different formats.
Today, 5 years after the Telecommunications Act's liberalization of the
radio ownership rules, these 53 stations are owned by fewer licensees--
27 to be exact. But these 27 offer more formats: 22 instead of 19, a
nearly 16 percent increase. Radio listeners in Washington can now tune
in to a Korean language station, a Mexican station, two ethnic
stations, a full-time smooth jazz station and a business news station,
none of which was available 8 years ago or so.
Consumers in Columbia and Greenville, South Carolina enjoy even
more diversity of formats--about 45-58 percent more than they could
choose from before passage of the Telecommunications Act. Since 1993,
the number of owners of radio stations in Columbia has decreased from
20 to 13, but the number of formats has increased from 11 to 16,
including seven new formats and one new Spanish-language station. In
Greenville in the same time period, the number of owners has gone from
27 to 23, but the number of formats has gone from 12 to 19, including
ten new formats and two new Spanish-language stations. Radio
programming, in short, has become more--not less--diverse, and
consumers enjoy the fruits of Congress' deregulatory efforts. Moreover,
broadcast radio is now better poised to compete with the new
substitutes of the Internet and satellite radio.
As in the case of radio, we must parse the naysayers' arguments
against deregulation of the national television ownership cap. Their
primary contention, intended to incite fear among policymakers, is that
localism will fall if the cap is lifted. Major media companies such as
Cox, Belo and Hearst-Argyle--headquartered in Atlanta, Dallas and New
York, respectively--each operates tens of stations in markets very far
flung from their home bases. Yet, somehow these huge media companies
shamelessly argue that they are ``local'' in every market where they
own a television station while we are not. This pretzel logic does not
end there. These same companies further contend that because CBS, for
example, has its headquarters in New York, the stations it owns in
other markets cannot be ``local,'' and decisions about local news and
information must be orchestrated from corporate offices in New York.
This despite the fact that CBS's local station in Boston is just as
``local'' as the station owned in that market by New York-based Hearst-
Argyle.
In fact, all we need do is look at a sampling of states to see that
television stations in only a minority of cases are even owned by
companies headquartered in the same state. In Massachusetts, of the 13
commercial television stations licensed there, none is owned by a
Massachusetts broadcaster. Of the 14 television stations in West
Virginia, two are owned by in-state broadcasters. And in Kansas, only
one of the 11 television stations is owned by a Kansas broadcaster.
The real story is that CBS, like every other broadcaster, knows
that localism is what makes broadcasting unique and a worthy competitor
in the burgeoning video programming marketplace. While offering local
news and public affairs programming may make us good citizens, it is
also no secret to networks, group owners and individual station owners
that local programming is a key competitive advantage that attracts
viewers and differentiates broadcast television from cable channels,
which are distributed nationally. CBS' owned-and-operated stations
individually determine how much news they will air, what stories they
will run and when they air them. As with our Infinity radio stations,
there is no corporate dictator in New York who orchestrates the
stations' local news programs. In fact, it's quite the opposite. Our
stations' news directors have complete freedom locally. This is a
fundamental CBS policy. And it is good business.
On average, each of our CBS stations airs 25 hours of local news
and public affairs programming each week, with actual amounts in some
markets surpassing every other station. And our stations do not flinch
from covering stories of local interest, even if it means preempting
network programming. Just this past May in Minneapolis, for example,
our WCCO-TV preempted 3 hours of primetime network programming to run
an emergency weather newscast. For the past 20 years, WBZ, our Boston
station, has preempted primetime network shows to air the Boston
Children's Hospital Telethon. WBZ also aired complete coverage of
Congressman Joe Moakley's funeral, preempting programming from 10 a.m.
through 4:30 p.m.
Many of CBS's general managers, news directors and other staff were
raised in the communities where they work and, as a result, know these
communities intimately. For example, Peter Brown, the news director of
WBZ in Boston was born in Newton, Massachusetts and has worked at our
station for 19 years as of this Labor Day, having worked his way up the
ranks. And Brian Jones, the general manager of KTVT in Dallas,
graduated from Plano High School, attended the University of Texas and
has spent all of his working life in the state. He has been with KTVT
for 14 years and started there as the station's national sales manager.
In addition to covering local events, our stations heavily
participate in public service activities. For example, for the past 10
years, KPIX in San Francisco and, for the past 20 years, WBZ in Boston,
have separately aired an adoption series that features local children
in need of adoption. The KPIX series has led to the adoption of 86
percent of the children featured.
As with radio, consolidation in the television industry can result
in significant benefits to the consumer. Viacom's merger with CBS
brought under one roof a group of television stations affiliated with
UPN and a group affiliated with CBS, with overlap in six markets. In
five of these duopoly markets, we are airing or are about to launch
half-hour newscasts or hourly updates on stations where none existed.
As a result, diversity has expanded in Boston, Dallas, Detroit, Miami
and Pittsburgh, where viewers now have access to more unique local
news, weather and sports.
The ``localism-is-dead'' issue, therefore, is a transparent
distraction from the affiliates' true fear: the inevitable change to
the broadcast business model which has in the past delivered to
affiliates a steady, now unrealistic level of revenue. Under the
traditional business model over the past few decades, networks have not
only provided affiliates with a multi-billion dollar schedule of
entertainment, sports, news and public affairs--all free of charge--but
also cash compensation for carrying that programming. This in addition
to the commercial positions within network programming which are made
available to affiliated stations to sell for their own account,
producing advertising revenues over and above those which they receive
from the sale of time during non-network programming--revenues which go
straight to the bottom line.
Look behind the dust being kicked up in Washington by affiliates
and what you see is a bold request for government creation of a world
where the network bears the entire risk and expense of developing
programming with no countervailing obligations on affiliates--such as
simply fulfilling their contractual commitments to air this
programming. If the affiliates get their way, the public will not,
because networks will be discouraged from engaging in the even more
expensive and riskier enterprise of creating new shows the public
wants.
The broadcast network makes money through only one source, the sale
of national advertising. Compare this single-revenue business model to
the dual revenue stream of cable networks, with whom broadcast networks
compete: A cable network relies on ad sales, too, but is also paid by
cable operators for carriage of its programming--the exact opposite of
the relationship which prevails between broadcast networks and their
affiliates. Moreover, while the ``Big 4'' broadcast networks are
prohibited from combining, cable networks are subject to absolutely no
ownership restrictions.
Broadcast networks, which provide programming free to consumers and
are limited by regulation in what other television stations or networks
they can own, cannot continue to compete based on these old and
outdated paradigms. When the profits made by the top 15 cable networks
dwarf the earnings of their over-the-air competitors, it is unrealistic
to continue to restrict combinations between broadcast networks when no
such restriction exists for cable networks. And when the profit margins
of network-affiliated stations are several multiples of those of the
networks that supply most of their programming, it is unrealistic and
unfair to artificially restrict the number of local stations that the
networks themselves can own to amortize their enormous programming
costs.
With fewer viewers watching more expensive broadcast television
programming and advertisers unwilling to spend more to pay for it,
broadcasters must be permitted to participate in the economies of scale
enjoyed by their competitors. For example, in addition to its
operations in New York, CBS News staffs bureaus around the world to
produce network news. If our company were able to own and operate
another major broadcast network, we could use the combined resources to
operate more efficiently and to provide more news more often on both
networks--to all Americans and still free of charge. Even with two such
networks under one roof, the combined ratings and advertising revenues
would not come close to dominating the literally hundreds of remaining
television programming competitors.
Maybe it's the golden years of television that opponents of
relaxing the national broadcast television station ownership cap really
yearn for. And why not? Life was easier then for the few of us in the
media business. Even in 1976, in the afterglow of those golden years,
CBS, along with the only other broadcast networks at the time, ABC and
NBC, claimed nine out of 10 viewers each night. The average home at
that time had seven channels to choose from. And the VCR was not
commercially available. That is a status quo any business would want to
preserve.
Nostalgia may make us feel better for a time, but neither time nor
technology stand still. Almost 5 years later, in 1980, there were 734
television stations, 21 percent of all homes subscribed to cable, 16
national cable networks existed, and the average home received nine
channels of programming. In 1991, Americans could select from 33
channels of programming, the broadcast networks had lost one-third of
their audience, and VCRs were in 70 percent of all homes.
Today, there are 1,663 TV stations, 9 broadcast networks, 70
percent of all homes subscribe to cable and another 10 percent pay for
DBS. There are 281 national cable networks and the average home
receives 54 channels of programming. A viewer can tune into several
all-news cable channels, both national (such as CNN, MSNBC and the Fox
News Channel) and regional (such as NY1 News in New York and News
Channel 8 in Washington). Or a viewer can choose to watch an all-golf
channel, an all-cooking channel, or an all-history channel. Or,
perhaps, check in on the deliberations of this Committee on C-SPAN. And
then there is the Internet, a medium none of us can ignore. According
to the Pew Research Center, as many Americans--33 percent--receive
their news from online sources as from broadcast networks. For younger
people, the trend toward new media sources for news and information is
even more pronounced: more college graduates under the age of 50
receive news from the Internet than from television news.
As a result of this robust competition, six of the broadcast
networks today, the ``Big Three'' plus Fox, the WB and UPN, jointly
garner only about 35 percent of TV households in prime time. Although
the population of the United States has grown significantly, fewer
people watched the final episode of Seinfeld in 1998 than watched the
final episode of M*A*S*H in 1983. Whereas broadcast network television
was once the common experience that bound the nation, it is now just
one of a myriad of television programming choices.
In the aftershock of such seismic growth in competition, all
broadcasters, networks and affiliates alike, should embrace change and
join in advocating rules changes that will put us at regulatory parity
with our competitors and help to preserve free, over-the-air television
as a vibrant part of our remarkable media marketplace. Let's start with
the fact that the 35 percent cap imposed on broadcast television is an
unrealistic and arbitrary limit. Limiting broadcast television
ownership doesn't affect competition or diversity in any market at all.
Viewers watch stations only in their local markets, and consolidation
in different markets has no impact on competition.
Congress in its wisdom has always understood that regulatory
regimes must move in synch with the dynamism of competition. In the
Telecommunications Act of 1996, Congress directed the FCC to review its
rules on a biennial basis to ``determine whether any of such rules are
necessary to the public interest as a result of competition.'' Given
the undeniably robust State of competition in the video marketplace
today, it is unjustifiable that television broadcasters continue to be
unfairly impaired by an onerous regulatory regime attached to no other
telecommunications segment. Instead, television broadcasters must be
positioned to withstand economic challenges, as businesses are now
experiencing in this downturn, in order to compete against the ever-
multiplying array of competitive video program distributors, and to
commit the huge investments needed to make the transition to digital.
We therefore urge that the FCC make important changes in its
upcoming biennial review. First, the national broadcast television
ownership cap must be lifted. Second, one major broadcast network
should be permitted to combine with another. And, third, local
television and local radio ownership should be based on a percentage of
the market, not on the number of stations and arbitrary numbers of
``voices.'' We hope that this Committee will support the FCC as it
undertakes these significant actions.
Eliminating ownership restrictions, which attempt to regulate by a
prophylactic method that often ensnares the wrong targets, will not
mean the end of any review of mergers, of course. Our nation's
antitrust laws require intensive review by the Department of Justice or
the Federal Trade Commission on a case-by-case basis to determine
whether consumers will be harmed by a particular combination. These
arms of the government, which have the authority and expertise to
assess concentration, should be permitted to do their jobs rather than
having arbitrary rules applied that may actually work against
consumer's best interests. Such tailored assessments of the impact of
media transactions promote, rather than stifle, competition.
There is only one status quo we should all fight to maintain, and
that is the world-class quantity and quality of media choices available
to Americans. A healthy broadcast industry that delivers entertainment,
sports and news for free to all Americans is a critical element of our
society and is only made possible by the incredibly competitive media
landscape that is uniquely American. It should not be left to struggle
under the weight of rules that favor a select group of broadcasters at
the expense of the American viewing public.
The broadcast industry is at a critical juncture. This Committee
has the opportunity to make an historic contribution by embracing the
future and unlocking the shackles that threaten to extinguish
broadcasting and its essential role in creating and maintaining an
informed and diverse citizenry. We are prepared to take the economic
risks to make this new world of choice a continuing reality and to
follow your lead into a more competitive future that will result in
empowering Americans more than at any time in the history of this great
nation. Now is the time to reject interests of the few for the benefit
of the many.
Thank you.
The Chairman. Mr. Frank.
STATEMENT OF ALAN FRANK, PRESIDENT,
POST-NEWSWEEK STATIONS, INC.
Mr. Frank. Good morning, Mr. Chairman and Members of the
Committee. My name is Alan Frank. I am the President of Post-
Newsweek Stations, chair of the Network Affiliated Stations
Alliance, representing more than 600 local television stations
affiliated with ABC, CBS and NBC. I also serve on the NAB
board.
Both NAB and NASA strongly believe that the national
television ownership cap should not be increased. We appreciate
the recent letter from Chairman Hollings, Senator Stevens, and
other Members of the Committee emphasizing that the 35 percent
ownership cap should be retained.
The question facing the Committee as it reviews media
concentration is not whether I am a better broadcaster than Mel
Karmazin. I run a high-quality television station in Detroit
that competes with one of the CBS O&Os, and even though Mel's
station does no local news, it is a pretty good question. The
question instead is sometime will there continue to be a
variety of companies, Mel Karmazin's, my company, Cosmos,
Benedict, Fisher, Hubbard and dozens and dozens of others
making critical news and programming decisions in America, or
at the next ownership hearing 5 years from now, will Mr.
Karmazin be here alone, one person able to testify for the
entire broadcast industry because the networks run out of New
York and Hollywood will own most of the country.
Localism and diversity are at the core of the American
broadcast system. Local affiliates are the embodiment of these
principles. When NBC told its affiliates last fall to air Game
One of the American League Playoffs instead of the first
Presidential debate, it was the affiliates that complained and
ultimately the network relented and allowed affiliates to
preempt the baseball game for the debate.
Allowing the networks to own more stations means that next
time there will be no local pressure to correct the network's
bad judgment.
Limits on national television ownership sustain our unique
form of American broadcasting. Other countries like Japan or
Britain or France have no such thing as local news. What
happens in Tokyo or London or Paris sets the agenda. There is
no community or regional coverage. Increase the ownership cap,
and you place in peril our balanced national local system of
strong networks and strong local affiliates.
Since the ownership cap was increased to 35 percent, the
networks have gained substantial power, power that is been used
to diminish the role of affiliate stations. We believe the cap
should be at 25 percent and the legitimate question for the
Committee is why not move the cap back to 25 percent, a number
which many of you supported in 1995. Certainly any increase
beyond 35 percent would jeopardize localism and diversity. As
you review the current state of media ownership, please
consider these three points.
First, the more stations the networks own, the more they
will nationalize and homogenize news and programming. The
networks have one goal. To make certain that 100 percent of
their programming is carried by affiliate stations. There is
tension between the network's business model and business
objective, which is maximum exposure, and my business and legal
objective, which is to meet the needs of the community I serve.
My written testimony has several examples of how we preempt
network programming to meet community needs.
Let me give you one here. At our television stations in
Jacksonville, Miami and Orlando, we preempt hours of network
programming each year to carry the Children's Miracle Network
Telethon. This program and others like it reflect local
interests, local concerns and local needs. We make these
decisions not because we want to harm the network's bottom
line, but because we seek to meet the special needs of our
communities.
If the ownership cap is relaxed further, the networks will
buy more local stations. How will that change their operations?
Think about the general manager of an O&O in South Carolina or
Montana, or Oregon, or Mississippi, who has to decide whether
to preempt network programming to go carry a local ballgame or
candidate debate. Trust me. No GM of an O&O wants to call Mel
saying that the station won't be showing a network program in
order to carry a debate or high school ballgame.
Second, I want to dispel the myth propagated by the
networks that the future of free over-the-air broadcasting is
at stake unless the cap is raised. Quite to the contrary.
Localism and diversity are at stake if the cap is raised. In
1996, when the ownership cap was being debated, the networks
complained that they were going broke in the network business
and needed to own more stations. They were granted their wish,
but are now back repeating this plea. This claim suffers from
the fallacy of Hollywood accounting. It fails to take into the
account the profits network companies earn from program
syndication, cable, and their own television stations.
The networks are doing just fine, thank you. Wall Street
reports show that the four networks collectively in the year
2000 had profits of over $4 billion. Free over-the-air
television does not need more network ownership to survive.
And finally, the dramatic changes in the broadcast industry
since 1996 show that the cap must be retained. Since then, Fox
has agreed to buy Chris Kraft; Disney bought ABC Cap Cities;
Westinghouse bought CBS; CBS bought Infinity Broadcasting and
Viacom bought CBS and this doesn't even touch on the networks'
aggressive move into the programming and syndication markets
following the repeal of Fin-Syn, where most of the competition
has been eliminated. These developments led the FCC to report
recently that since 1996 competition in the broadcast industry
was reduced rather than increased.
In conclusion, while the world of television has changed
substantially, the need for safeguards has not. In fact, it has
increased. Whether it is local weather or news or candidate
forums or sports or charity events, local broadcasters remain a
trusted source of information and other important service to
their communities. And for those millions of Americans who do
not subscribe to pay TV, local broadcasters are their sole
source of news and programming.
So although it is easy for the networks to say these
network rules do not make sense in Internet time, the truth is
that values of localism and diversity endure and are as much in
need of protection today as they have ever been. Thank you, Mr.
Chairman.
[The prepared statement of Mr. Frank follows:]
Prepared Statement of Alan Frank, President, Post-Newsweek Stations,
Inc.
Mr. Chairman and Members of the Committee: My name is Alan Frank. I
am President of Post-Newsweek Stations and chair of the Network
Affiliated Stations Alliance (NASA), a group that represents the more
than 600 local TV stations across America that are affiliated with the
ABC, CBS, and NBC networks and that strongly opposes any increase in
the national television ownership cap. I also serve on the Board of the
NAB, which shares our view that the ownership cap should not be
increased. I am pleased to appear at this hearing on behalf of the
local affiliates in this country who work every day to operate quality
local stations that present a blend of local programming, news,
syndicated programming and national network programming. I'm also
pleased to be here with Mel Karmizan. We want the networks to grow and
prosper, because their doing so will make them stronger and more valued
partners to the affiliates. CBS and the other networks have to be vital
partners in providing our communities with successful programming.
Before I launch into the views of local broadcasters on the
important matter of ownership rules, it may be helpful to put some
basic industry facts on the table, since I appreciate that you have
lots of industries to keep track of within the broad jurisdiction of
this Committee. The broadcast television networks are in the business
of acquiring or producing prime time entertainment, news and sports
programming, selling advertising time to national advertisers for
insertion inside the programming, distributing that programming and
advertising to local stations, and owning some television stations,
mostly in major markets, to carry that programming and advertising. The
television networks are anxious to reach 100 percent of the audience,
because that helps them charge higher rates to advertisers. To
accomplish this goal, in each of the two hundred or so television
markets in the country, the networks either own a station, known as an
owned-and-operated station (O&O), or they enter into a contract to have
a local broadcaster act as an affiliate. Under current law, no network
is permitted to own stations that reach more than 35 percent of the
national audience; thus, 35 percent is the national television
ownership cap.\1\ As a consequence, local stations that affiliate with
a network are an important part of the networks' business model. My
company has a typical arrangement--we run six stations and have
affiliate agreements with each of the three major networks. In addition
to arranging to carry network programming, we also produce our own
local news, public affairs and entertainment programming; we carry some
local sports; we carry charity telethons and other specials such as
``Billy Graham Specials;'' and we buy syndicated programming, which
includes everything from ``Jeopardy'' to ``Frasier'' reruns. We are
also responsible for selecting the mix of these ingredients based on
informed views of what best serves the public in our community.
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\1\ The Telecommunications Act of 1996 set the national television
broadcast ownership cap at 35 percent, and this cap is reflected in the
rules of the Federal Communications Commission (FCC).
Telecommunications Act of 1996 Sec. 202 (c)(1)(B); 47 C.F.R. Sec.
73.3555(e)(1). Since the early 1980s, the national ownership rule has
moved from 7/7/7 (7 AM, FM and TV stations), to 12/12/12 (12 AM, FM,
and TV stations, with a limit on the aggregate reach of the 12
television stations to 25 percent of the national audience), to 35
percent of the national audience.
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The system that I just described provides strength and flexibility
to our broadcast service. Indeed, Chairman Hollings, Senator Stevens,
Senator Inouye, Senator Burns, Senator Lott, Senator Dorgan, Senator
Cleland, Senator Boxer, and Senator Edwards, joined by an equally
bipartisan number of House colleagues, recently made this same point to
Chairman Powell: Two of the hallmark principles of the Communications
Act are localism and diversity, and our uniquely American form of
broadcasting, with its combination of national networks and local,
independently owned and operated broadcast outlets, reflects these core
principles. We are committed to making sure that as the media industry
evolves and consolidates, the voice of local broadcasters is not
stifled or silenced. The national ownership cap at its current level
serves a critical role in preserving localism.\2\
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\2\ Letter to Chairman Michael Powell from Senators Hollings,
Stevens, Inouye, Burns, Lott, Dorgan, Cleland, Boxer, Edwards, Helms,
and Represenatives Dingell, Markey, Burr, and Pickering (Attachment 1).
---------------------------------------------------------------------------
We commend Chairman Hollings and the many Members of the Committee
for this strong letter in support of localism and against any increase
in the national television ownership cap. That view, which also is
backed by NASA and the National Association of Broadcasters (NAB),
sends a powerful message to Chairman Powell and the FCC as they review
the broadcast ownership rules.
The question facing the Committee as it considers the matter of
national television ownership rules is simple: Will there continue to
be a variety of companies--Mel Karmizan's; my company; Jim Keelor's
company, Cosmos; Jim Yager's company, Benedek; Ben Tucker's company;
Stan Hubbard's company; and dozens and dozens of others--making
critical news and programming decisions in America? Or at the next
ownership hearing held 5 years from now, will Mr. Karmizan be here
alone, one person able to testify for the entire broadcast industry
because the networks, run out of New York and Hollywood, collectively
will own most of the country (and will be able to take the rest for
granted)?
This scenario cannot be dismissed. Consider how quickly the
industry has changed in just a few years. Today, Mr. Karmizan has
stations reaching 41 percent of America. His colleagues at ABC, Fox,
and NBC control stations reaching 24 percent, 41 percent, and 27
percent respectively. By contrast, my company has stations reaching 7
percent, and no affiliate group has stations that reach more than 30
percent. This growth in network power is remarkable and is felt in
significant ways across the broadcast community. Before the 1996 Act
was passed, the three major networks reached no more than 1 in 5
households through their O&O stations.
The networks were able to expand their audience reach because in
1996, the national broadcast ownership cap was increased from 25
percent to 35 percent. NASA, along with Senators Dorgan and Helms and
many others, wanted to keep the cap at 25 percent. Many of the members
of this Committee expressed concern about the repercussion of
increasing the cap to 35 percent. While we appreciate the compromise
worked out by Chairman Hollings, Senator Dorgan, Senator Lott and
others during debate of the 1996 Act, I can tell you that your fears
were well founded. Make no mistake: as a result of that change the
networks have increased their holdings and their power just as the
leadership of this Committee predicted. The result is that today local
broadcasters have less independence, less ability to make sound
programming decisions for their local communities. An increase to 45
percent or 50 percent would be a disaster and I believe that even at 35
percent we are at risk of becoming passive conduits for the networks'
daily feed of news and programming.
As the recent letter from many members of this Committee clearly
stated to Chairman Powell: The national ownership cap is vital to
ensuring that television programming decisions remain in the hands of
local broadcasters, and that media power does not become concentrated
in New York or Los Angeles. The national broadcast ownership cap is
not, as some wrongly suggest, just about competition. Local input helps
keep our broadcast system responsive to the views of local communities
across the country. That diversity of viewpoint benefits our
democracy.\3\
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\3\ Id. at 2.
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The local affiliates share this view that localism is the core of
our broadcast system and that any increase in the national ownership
cap puts those values at risk. We greatly appreciate the strong
leadership that Chairman Hollings and so many distinguished members of
this Committee have demonstrated on this issue. We also welcome the
opportunity to set out the case in detail why the networks' bid to
increase the ownership cap should be rejected. In the past, the
networks have asserted four reasons why the ownership cap should be
lifted or repealed: (i) the financial health of the networks and the
future of free, over-the-air television are at stake; (ii) the world of
television has changed in recent years and the rules are unnecessary
and antiquated; (iii) national ownership rules do not promote localism
or diversity; and (iv) the ownership cap is unconstitutional. Let me
consider each of these issues in turn.
I. The Networks Do Not Need To Own More Stations To ``Save Free, Over-
The-Air Television''
In 1996, when the ownership cap was being debated, the networks
complained that they were going broke in the network business and
needed to own more stations. They were granted their wish and now are
back here a few years later, repeating their plea: somehow the future
of free, over-the-air television is again at stake unless Congress
increases the ownership cap. This claim suffers from what I call ``the
fallacy of Hollywood accounting.'' In making this claim, the networks
are asking you to myopically focus on the artificial accounting system
they've set up, a system that separates the part of the business that
buys and distributes programming from the part of the business that
makes, owns, or syndicates programming, from the part of the business
that owns TV stations, from the part of the business that makes money
from cable and Internet programming. But this argument proves too much.
If a single network owned 100 percent of the stations in America, it
still would show only moderate network profits because the profits from
syndication, cable and Internet services do not flow to the network
portion of the balance sheet. For a more accurate picture of network
profits, one needs only review their financial reports to Wall Street
analysts. Even a cursory review of those financial reports, shows that
their vertically integrated programming and distribution businesses are
highly profitable. CBS Network enjoyed a 19 percent increase in profits
from 1999 to 2000 after a 59 percent increase in profits from 1998 to
1999 and a 19 percent profit increase from 1997 to 1998.\4\ The four
networks, collectively, have 2000 profits (even with ``Hollywood
accounting'') of over four billion dollars!
---------------------------------------------------------------------------
\4\ CBS figures for years 1996-99 represent the revenue and profit
data reported for CBS' ``television segment'' in the Forms 10-K and 10-
K/A for CBS Corp. filed on March 29, 2000 and August 5, 1999,
respectively. According to these reports, the television segment of CBS
Corp. for years 1996-99 consisted of three integrated operations: the
CBS television network, the CBS owned and operated television stations,
and CBS' television syndication operations.
On May 4, 2000 CBS Corp. merged with Viacom Inc. CBS figures for
year 2000 represent the revenue and operating income data reported for
Viacom's television segment in the Form 10-K for Viacom Inc. filed on
March 28, 2000. The television segment for Viacom Inc. consists of the
CBS and UPN television networks, 39 owned and operated television
stations, Viacom's television production and syndication business.
---------------------------------------------------------------------------
Over the past decade the networks have benefited from a number of
rule changes that have allowed them to strengthen their competitive
position. Remember, in the late 1980s and early 1990s, the networks
argued for repeal of the financial interest and syndication (``fin/
syn'') rule, which prohibited the networks from producing and
syndicating their own shows. After much discussion and with some
trepidation, the local affiliates supported the networks on that issue
and the FCC repealed the rule. How has this rule change benefited the
networks? Today, the networks own a substantial part of the programming
they distribute and many independent programmers have exited the
market. Some critics have complained that the fact that the networks
own the programming may affect their judgment, leading them to keep a
show on the air so that they get to the magic number of 100 episodes
needed to take the show into syndication. At the moment, there's an
active debate on whether network ownership of shows impacts the
primetime schedule and causes independent producers to be squeezed out.
These debates will cease if the networks owned more local TV stations,
because the O&O stations will just be passive and quiet conduits for
the network programmers.
The networks also benefit from their affiliates when a program is
made popular by affiliate carriage then goes into syndication. For
instance, I and other affiliates carry a CBS program such as
``Everybody Loves Raymond,'' which helps make it a popular program and
enables CBS to take it to the syndication market. Once a show goes into
syndication, I could well face a situation in which I have to compete
against a station across town that is carrying a syndicated CBS program
that I helped make popular. How did that program become so valuable in
the market? Because I carried it for CBS. Now, it is true that the
owners of programming taken into syndication always reaped the
financial benefits, today the networks gain substantial revenue because
they now own a significant portion of the programming. This same
reasoning applies to network programming that is ``repurposed'' and
distributed on a cable network. The networks reap the value of national
distribution and branding that the affiliates make possible.
In short, the networks and their related businesses are growing and
prospering financially. Because of lifting the fin/syn rule and the
ownership cap to 35 percent, along with other rule changes over the
past 5 years such as relaxing the dual network and duopoly rules, the
networks are doing quite well, thank you, and as a byproduct of these
changes are expanding their dominance over affiliates. The networks'
position is that free, over-the-air television is at stake if the cap
is not lifted, whereas the fact is that localism and diversity are at
stake if the cap is not retained.
II. The World Of Television Has Changed, But The Networks Continue To
Hold Substantial Power
On one point, the networks are right. The world of television has
changed substantially in recent years. Since the last time a
representative of the network affiliates appeared before this Committee
to testify on broadcast ownership rules, 6 years ago, the following has
taken place: Disney bought ABC/Cap Cities, a move that was a direct
result of repeal of the fin/syn rule; Westinghouse bought CBS, and then
dropped the Westinghouse name; CBS of course bought Mr. Karmizan's
company, Infinity Broadcasting; Viacom bought CBS; Fox has agreed to
buy Chris-Craft. This flurry of deals led the FCC to report recently
that thanks to mergers and acquisitions, competition in the industry
lessened rather than increased since the Telecommunications Act of 1996
was passed.\5\
---------------------------------------------------------------------------
\5\ Biennial Review Report, at Sec. Sec. 27-28 (Excerpts in
Attachment 2). Former Commission Chairman William E. Kennard said that
the consolidation that has occurred since 1996 in the television
industry, both horizontal and vertical, has been ``unprecedented.''
Sallie Hofmeister, ``FCC to Propose Easing Broadcast Ownership Rules,''
Los Angeles Times, May 31, 2000, at A-1 (quoting Kennard).
---------------------------------------------------------------------------
In response to this argument, the networks say that this is just an
intramural squabble about relative bargaining power inside an industry
that is challenged to keep pace with the dynamic of competing media,
and therefore they argue that neither Congress nor the FCC should get
involved. Thus, the networks focus almost exclusively on the general
market for video news and entertainment and conclude that any increase
in television network ownership will not alter the broader competitive;
landscape. This argument is off the mark because it ignores three
markets in which competitive conditions have a direct bearing on the
continued justification for the national ownership rule: (1) what the
Commission has termed the ``market where networks meet stations,'' (2)
the market for syndicated programming, and (3) the market for
advertising.
(1) Network/Affiliate relations. Under our system of broadcasting,
networks and local stations are both collaborators and competitors. If
I have a CBS affiliate (and I have two in Jacksonville and Orlando), in
many ways I'm in business with Mel Karmizan. When he gets a hit show, I
benefit. When he needed to spend money for the NFL football package, I
helped pay for it. In fact, when the bill for the NFL package came due,
Mel Karmizan emphasized that we were collaborators. But this is
supposed to be collaboration, not capitulation. Under the strict terms
of the law, written by Congress into the Communications Act of 1934 and
reflected in the FCC's rules, I am not supposed to turn over the keys
to my stations to CBS. I'm there to run local stations. Sometimes I
produce programming myself, sometimes I buy it from others, and some
parts of the day I depend on network programming. In that way, we are
collaborators. Just as I want the network to be successful, my network
wants me to run good stations.
But at the same time, we're also business competitors. I
periodically sit across the table from network executives and negotiate
affiliation agreements. These are tough, long, important negotiations.
The competition is not just at contract negotiation time, however. The
competitive tension between the networks and affiliates is present
every day. That competitive tension is understandable because the
business goal of the network is different from the goal of a local
station operator. CBS has one goal: to make certain that 100 percent of
their programming is carried by CBS affiliated stations and to achieve
high ratings for that programming. One hundred percent clearance of a
program helps generate higher ratings. It also helps CBS if it owns a
stake in the program. And it helps when it sells time to national
advertisers. The tension lies between the network's business objective,
maximum exposure, and my business--and legal--objective, to meet the
needs of the community I serve. In Detroit, we preempt network
programming to carry the local Thanksgiving Day parade. In Houston, we
preempt network programming for rodeo coverage and for the Muscular
Dystrophy telethon. In Jacksonville, Orlando and Miami we preempt hours
of network programming to carry the Children's Miracle Network. In the
Carolinas, carrying ACC basketball is popular, and some of those games
occur during prime time. For some Mississippi stations, the Billy
Graham Special a couple times a year gets a big audience. In Montana,
the state high school sports finals generate lots of viewers. These
programs reflect local interests, local concerns, and local needs.
Whatever the reason--and yes, the reason can be that another
program is more popular and thus more remunerative--a local broadcaster
makes a decision not to carry the network feed. Local broadcasters make
these decisions not because they want to harm the network but because
they seek to meet the unique needs of their community. (A local
broadcaster should not have to prove they lost money to justify a
preemption; indeed, getting a big audience is in many ways the best
vindication that it was a ``good'' preemption.) The competitive tension
that I describe here has always been part of our business, but in
recent years the pressure not to preempt network programming has grown
intense and has been reflected in affiliation agreement provisions that
are too restrictive. Clearances of network programs are up; affiliate
preemptions are down. Affiliates are being ``muscled'' to carry network
shows that they otherwise would not choose to air and their role as a
disciplining force to the networks is being diminished. Their voices
against unsuitable network material have become muted. Their
suggestions for improving network news and other shows grow fewer and
fainter.
These trends have increased dramatically since the cap was raised
to 35 percent and have adverse consequences for the quality of the
public's broadcast service (whether the viewer is served over-the-air,
or by cable or satellite). If the ownership cap is relaxed further, one
of two consequences will result. First, if the networks buy lots of
stations then the general manager of an O&O in Raleigh or Columbia or
Jackson or Decatur who has to make the decision of whether to run a
local basketball game or Children's Miracle Network telethon or a
special will be answering to Mel Karmizan. Trust me: no G.M. working
for Mel will want to call him saying that they won't be showing his
network program to carry a high school basketball game. Alternatively,
as the networks buy up more and more stations and network power
increases, the number of independent voices will dwindle and if my
station remains independently owned, it will become more difficult to
speak out without the fear of repercussions from the network.
As this analysis makes clear, increasing the ownership cap would
harm the vitally important relationship between broadcast networks and
their affiliates. We're not alone in this view. The FCC reported last
year that raising the ownership cap would ``increase the bargaining
power of networks over their affiliates, reduce the number of
viewpoints expressed nationally, increase concentration in the national
advertising market, and enlarge the potential for monopsony power in
the program production market.'' \6\ Because of further consolidation,
that statement is truer today than it was 12 months ago.
---------------------------------------------------------------------------
\6\ Biennial Review Report, at Sec. 26 n. 78 (Excerpts in
Attachment 2).
---------------------------------------------------------------------------
(2) Syndicated programming. With regard to syndicated programming,
both Congress and the FCC have recognized that the state of competition
in that market has a direct impact on whether to repeal or modify the
broadcast cap. On the supply side, repeal of the Fin-Syn rule has
allowed networks to purchase major syndicatios or develop their own
syndication divisions, thereby taking control over a greater proportion
of non-network program hours. As a result, the number of syndicators
that control significant amounts of content has declined--from dozens
in 1996 to a handful today--and most of those that remain are tied to
the networks.\7\ In addition, on the demand side, further nationwide
consolidation of station ownership will mean that there are fewer
viable purchasers for syndicated programming aside from the dominant
national networks. Repeal or relaxation of the national broadcast cap
would thus exacerbate both supply side and demand-side concentration in
the syndication market.
---------------------------------------------------------------------------
\7\ See David Hatch, ``Independents Fight the Good Fight,''
Electronic Media (Jan. 29, 2001) at 1.
---------------------------------------------------------------------------
(3) Advertising. With regard to the advertising market, the FCC
concluded recently that an expansion of the 35 percent cap would harm
competition by ``increas[ing] concentration in the national advertising
market.'' \8\ In the current marketplace, independent advertising sales
representatives serve as intermediaries between local stations and
national advertisers. These ``reps'' are capable of assembling enough
independently owned affiliates and other local stations to compete with
the networks as sellers on the regional or national spot advertising
market.\9\ Because O&Os; do not sell advertising in competition with
the networks that own them, the national broadcast reach cap is
essential to protecting the ability of affiliated stations to maintain
healthy competition in these markets.
---------------------------------------------------------------------------
\8\ Biennial Review Report, at Sec. 126 n.78 (Excerpts in
Attachment 2).
\9\ See generally Review of the Commission's Regulations Governing
Broadcast Television Advertising, Notice of Proposed Rulemaking, 10 FCC
Rcd 11,853 (June 14, 1995).
---------------------------------------------------------------------------
In sum, though the world of television has changed substantially,
the need for safeguards has not. In fact, it has increased. Though
over-the-air television does not hold the position it once held in
American society, its impact still looms large. Whether it's local
weather or news or candidate forums or sports or charity events, local
broadcasters remain a trusted source of information. And for those
Americans who don't subscribe to pay-TV service, local broadcasters are
the sole source of news and programming. So though it is easy for the
networks to say that these ownership rules don't make sense in Internet
time, the truth is that the values of localism and diversity endure and
are as much in need of protection today as they were years ago. And the
power and proclivity of the networks to override them are greater.
III. The National Television Ownership Cap Promotes Diversity
and Localism
The foundation of the Communications Act of 1934, and every
amendment since then, is that a person who holds a spectrum license is
obligated to use the nation's airwaves to serve the public and to
maintain control of the station's operations. Since its inception, the
FCC has applied special rules to the nation's broadcast system with one
overriding goal in view: service to the public. Central to that goal is
the principle that the local licensee must be free to choose the
appropriate mix of programming for the community it serves. As Congress
has recognized, the balanced system of national networks and local
affiliates has ``served the country well'' by combining the
``efficiencies of national production, distribution and selling with a
significant decentralization of control over the ultimate service to
the public.'' \10\ To further the public interest, broadcasters of
free, over-the-air television have long been charged with serving the
diverse needs of local communities, for example by providing
programming that is responsive to the issues facing those communities
and affording equal opportunities and reasonable access to candidates
for public office.\11\
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\10\ H.R. Rep. No. 100-887, pt. 2;, at 20 (1988). See also Turner
Broadcasting System, Inc. v. FCC, 512 U.S. 622, 663 (1994) (``Congress
designed this system of allocation to afford each community of
appreciable size an over-the-air source of information and an outlet
for exchange on matters of local concern.'').
\11\ See In re Review of the Commission's Regulations Governing
Television Broadcast, Further Notice of Proposed Rulemaking, 10 FCC Red
Sec. 524 at 66 (1995). Notwithstanding competition from cable, DBS, and
the Internet, broadcast television remains the dominant medium for
video programming. In 2000, network affiliates and other broadcast
stations accounted for some 60 percent of television viewership
nationwide. See Seventh Annual Report, In re Annual Assessment of the
Status of Competition in the Market for the Delivery of Video
Programming, CS Docket No. 00-132, at Sec. 22 (Jan. 8, 2001). In a
recent ratings period, only two of the 100 top-rated prime-time shows
were cable programs, rather than broadcast. See TVB Press Release,
Broadcast Television Continues Lead Over Cable Through March (April 18,
2001).
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One of the most effective ways to protect viewpoint diversity is to
safeguard the important partnership between broadcast networks and
their affiliates. The ownership cap is a vital way to ensure the
delicate balance in the network-affiliate relationship is maintained.
For example, a network-affiliated broadcaster must have the freedom to
respond effectively and comprehensively to its community by
interspersing programming responsive to its local community with the
national programming provided by the network. Even with the cap at 35
percent, the affiliates' freedom is in jeopardy. The FCC, which has
studied the industry closely, agrees.
The Commission stated in its Biennial Review Report: The national
networks have a strong economic interest in clearing all network
programming, and we believe that independently owned affiliates play a
valuable counterbalancing role because they have the right to decide
whether to clear network programming or to air instead programming from
other sources that they believe better serves the needs and interests
of the local communities to which they are licensed.
Biennial Review Report, at Sec. 30 (Excerpts in Attachment 2).
The bargaining power of the networks has increased dramatically
since 1996. For example, the current network affiliation agreements
typically provide that a network affiliate risks loss of affiliation
and other serious penalties if it ``preempts'' more than a few hours of
network programming over an entire; year without the network's
approval.\12\ This shift in the balance of power threatens the ability
of consumers to view local programming that meets community needs.
Concern about this overreaching led the affiliates to ask the FCC to
rule that the networks' new practices are inconsistent with existing
Commission rules and the Communications Act, and should stop
immediately. We have submitted substantial evidence to the FCC on this
issue, but let me share with the Committee one well-publicized example.
Last fall NBC told its affiliates to air Game One of the American
League Division Series rather than the first of the 2000 Presidential
debates.\13\ Ultimately, after hearing repeatedly from the NBC
Television Affiliates Association, the network relented and allowed
affiliates to preempt the baseball game for the debate. Fox, meanwhile,
insisted that its affiliates air the sci-fi series ``Dark Angel''
instead of the debate, and Fox did not back off. Allowing the networks
to own more stations means that this tendency to hew strictly to the
network programming line-up will be spread among more stations and will
affect more communities and viewers.
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\12\ Affiliate agreements must be filed with the Commission
pursuant to 47 C.F.R. Sec. 73.3613(a).
\13\ See Michael Camey, ``NBC's Swing Vote: Network To Skip Debate
For Baseball,'' Washington Post, Sep. 23, 2000, at C1. Fox insisted
that its affiliates air the sci-fi series ``Dark Angel'' instead of the
debate.
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Two networks--Fox and CBS--already exceed the 35 percent reach cap;
indeed, if the ``UHF discount'' is disregarded, each of these networks
already has an audience reach of close to 50 percent.\14\ By owning
more stations, especially in major markets, the networks directly
control the distribution of information to an increasing percentage of
the American public, who as a result forego the benefits local licensee
judgment traditionally exercised by the independently owned network
affiliates. Network O&Os, for sound business reasons, rarely preempt
network programming for local programming; of greater interest to their
local communities. Even when airing a program of local interest would
be more economically beneficial to the local licensee than clearing
network-owned programming, the networks have a strong incentive to
broadcast their own programs via all of their O&Os and affiliates, for
two reasons. Their ability to sell nationwide advertising time depend
on their ability to garner high ratings; and also, as the networks
continue to purchase or develop their own syndication operations,
nationwide clearance increases the national ``aftermarket'' value of
their programs. Non-network-owned stations, by contrast, are not
similarly constrained because their sole interest is in how well the
programs perform in the local community.
---------------------------------------------------------------------------
\14\ See ``Sly Fox buys big, gets back on top,'' Broadcasting &
Cable, Apr. 23, 2001, at 60. Under the Commission's rules, the audience
reach of an UHF station in calculating the national ownership cap is
reduced by half, due to the traditional weaker coverage of an UHF
signal.
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The result of all of these changes in the market is two-fold.
First, the more stations that the networks own, the more you'll see the
nationalization or homogenization of programming. The networks have a
strong business incentive to deliver a national feed all the time.
Nationalization of our broadcasting system sets back the cause of
localism and diversity. Second, as I explained above, the affiliates
are at risk of losing power to stand up to the networks, to informally
ride herd on issues of suitability and taste in programming. We may not
always succeed, and you may not agree with our judgment, but I'll tell
you that a critical part of the job of the affiliate boards is to carry
complaints about programming and how it is promoted to the networks.
The result is a healthy debate on what is good television. That
beneficial influence would be lost if the affiliates become, as
Congress feared, mere ``passive conduits for network transmissions from
New York.'' \15\
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\15\ H.R. Rep. No. 104-204 at 221 (1995).
---------------------------------------------------------------------------
Let me emphasize that I think Mel and the other networks generally
run good local stations. The question is not whether I'm a better
broadcaster than he is. The question is whether we as a society are
better off having three or four people making those decisions from New
York or Hollywood, or dozens and dozens.
IV. The Television Ownership Cap Set By Congress Is Constitutional
Contrary to the contention of the networks, the recent decision in
Time Warner Entertainment Co., L.P. v. FCC, 240 F.3d 1126 (D.C. Cir.
2001) (``Time Warner II'') does not affect the validity of the 35
percent national broadcast ownership cap. In the first place, the same
court had already held that a cable ownership cap was constitutional
and that the FCC was empowered to establish a cap. Instead, the problem
was the lack of justification for the 30 percent cap that it selected.
In contrast to the horizontal cable rule addressed by the court in
Time Warner II, the 35 percent ownership cap was set by Congress. The
statutory backdrop to the horizontal cable rule could scarcely have
been more different from the one at issue here. In the Cable Television
Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385,
106 Stat. 1460 (``Cable Act''), which authorized the rulemaking at
issue in Time Warner II, Congress delegated to the Commission the
authority to set ``limits on the number of cable subscribers a person
is authorized to reach through cable systems owned by such person, or
in which such person has an attributable interest.'' 47 U.S.C.
Sec. 533(f)(1)(A). Moreover, Congress declared that in setting such
limits the Commission must ``ensure that no cable operator or group of
cable operators can unfairly impede, either because of the size of any
individual operator or because of joint actions by a group of operators
of sufficient: size, the flow of video programming from the video
programmer to the consumer.'' Id. Sec. 533(f)(2)(A).\16\
---------------------------------------------------------------------------
\16\ In addition, Congress in the 1992 Cable Act expressly required
the Commission to ``account for any efficiencies and other benefits
that might be gained through increased ownership or control.'' Id.
Sec. 533(f)(2)(d). The 1996 Act contains no equivalent requirement.
---------------------------------------------------------------------------
Acting pursuant to this delegated authority, the Commission set a
30 percent limit on the number of subscribers that may be served by a
single cable operator, justifying this limit in part by pointing to the
risk that several cable operators might independently deny carriage to
a given programmer. A 30 percent cap would ensure the presence of at
least four cable operators in the marketplace, the Commission reasoned,
reducing this risk and increasing the diversity of media voices
available to the public. Time Warner 11, 240 F.3d at 1134. In Time
Warner II, the court concluded that the Commission was not authorized
to protect diversity by taking into account the potential for non-
collusive action by multiple cable operators, because Congress in the
Cable Act had given the Commission a more limited mandate. Id. at 1135-
36.
By contrast, Congress established the 35 percent national
television ownership cap by statute. The Commission's authority to
regulate broadcast station ownership in the interests of diversity and
localism is clear. Moreover, the 35 percent rule does not abridge any
speaker's First Amendment rights. Unlike the cable must-carry rules
legislated in the 1992 Cable Act, it is a restriction on ownership, not
a restriction on (or a compulsion of) speech. The networks have tried
to claim that as a result of the ownership cap, they are barred from
speaking to 65 percent of the potential television audience nationwide.
That is not the case. Apart from the fact that broadcast networks are
free to own cable programming networks (as all the networks do) and
radio stations, each of the networks operates a national broadcast
television network. Through their O&Os and their affiliates, NBC, CBS,
and ABC now reach over 98 percent of all television households (a
figure that approaches 100 percent when their owned cable and satellite
networks are added to the equation) and Fox reaches well over 90
percent. A rule change allowing them to own additional stations would
not enable them to speak to a single viewer they cannot reach now.
We agree with the conclusion that many members of this Committee
communicated to Chairman Powell on this question: In writing the
Telecommunications Act of 1996, Congress itself set the national
television ownership cap and incorporated it in the statute for the
same reasons the court [in the Time Warner case] found to be important
governmental interests in the recent litigation addressing the cable
ownership cap: to promote diversity in ideas and speech and preserve
competition.\17\
---------------------------------------------------------------------------
\17\ Letter to Chairman Michael Powell, at 2 (Attachment 1).
---------------------------------------------------------------------------
NASA, joined by the NAB, has vigorously defended the
constitutionality of the ownership cap before the D.C. Circuit in a
suit filed by the networks. Given the statements by the court in both
Time Warner decisions, we're confident that we'll prevail. However, I
suspect that regardless of how the court decides this issue may be back
before the Committee.
My company and all the members of NASA are in the broadcast
business because we want to be local broadcasters. We want to be
partners with the networks; I want them to succeed and I hope they want
me to succeed. We want them to offer quality programming but ultimately
we want the ability to carry out our legal mandate to make decisions
about what works best for each of our communities. Increasing or
repealing the national ownership cap puts at risk our system of
diversity and localism. As demonstrated above, all of the networks'
arguments for altering the ownership cap lack merit. For the sake of
the public interest and the health of the American system of
broadcasting, we strongly urge this Committee to preserve and affirm
the national television ownership cap.
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The Chairman. Thank you, Mr. Frank.
Mr. Fuller.
STATEMENT OF JACK FULLER, PRESIDENT,
TRIBUNE PUBLISHING COMPANY
Mr. Fuller. Mr. Chairman, as a newspaper man ordinarily I
wouldn't be here on Capitol Hill asking for anything but
information, but because of the ongoing revolution in the way
Americans get their information, I am here to ask you that you
permit newspapers to compete freely with other media for a
share of the fragmenting news audience unhampered by legal
restrictions on ownership of the means of communication.
Since the cross-ownership rule was established nearly three
decades ago the news business has been transformed. In addition
to newspapers, magazines, broadcast television and radio, now
Americans can get news from a proliferation of national all-
news cable operations such as CNN, Fox News and so on, as well
as from local cable operations such as New York One News and
News Channel 8 here in Washington.
On the Internet, they can get news from a wide variety of
sites all over the country and all over the world. With a few
keystrokes, they can search the World Wide Web for news that
interests them--from what you have said in the Senate and the
way you cast your votes to information about local schools and
parks.
This profusion of news sources is good for the country, but
it is a challenge for newspapers whose readership has been
under pressure because of media fragmentation and whose
advertising revenue is targeted by every new competitor as well
as by the old ones. This has put newspapers under some
financial stress. You have probably seen reports of significant
cutbacks most have had to make in this period of economic
softness.
The cost of covering the news, however, is not declining.
It is increasing. Covering the meetings and activities of
hundreds of municipal government bodies, local school boards,
and other public policy events is a huge and expensive
undertaking. Building teams of journalists who are capable of
understanding the complexity of public policy issues today and
translating them for lay people is not easy or cheap. Not to
mention the cost of serious, sophisticated original coverage of
the Nation and the world as Tribune newspapers are committed to
providing.
In Chicago alone, The Chicago Tribune employs nearly 700
editorial staffers and hundreds of freelancers, most of them
devoted to news of local interest. In Los Angeles, the numbers
are higher--1,130 editorial staff of the Los Angeles Times.
Even in small markets such as Newport News, The Daily Press
employs 155 full time editorial staff, which is nearly 3 times
the size of a broadcast news operation even in the metropolitan
areas.
The question is whether in a fragmented media environment
we will be able to find the economic model to continue to
support local coverage at this level. I believe we can, but it
will mean spreading the cost of high quality journalism over
more than one distribution channel. We will have to reach new
audiences in the many new ways that people like to receive
their news. And to do so we have to have the burden of the
cross-ownership rule lifted.
In an environment where people's choices for obtaining
information have radically multiplied, there is no risk of one
voice dominating in the marketplace of ideas. In fact in the
clamor of cities like Los Angeles, Chicago, New York and others
it is frankly a challenge for any voice, no matter how booming
it may seem, to get itself heard. So long as distribution
channels continue to proliferate, and the explosion of
bandwidth guarantees that they will, the public's demand for a
diversity of voices will always be satisfied.
The public interest is served by freeing newspapers to
compete in the new highly competitive news environment. Let
firms own newspapers and broadcast television stations and
people who get all their news from broadcasting today will hear
new voices. Let the cross-ownership rule fall and you'll see
enriched newscasts.
Here is an example of what's possible. It comes from
Chicago, where the Tribune's ownership of the Chicago Tribune
and WGN have been grandfathered under the cross-ownership rule.
Last year, more than 40 reporters, editors and visual
journalists from the Chicago Tribune, WGN, and CLTV which is
our local all-news cable channel, worked together on a series
of stories entitled ``Gateway to Gridlock,'' about the effect
of air traffic snarls at O'Hare Airport on people's lives all
over the country. Stories appeared in every medium, each medium
telling the story as it was best for that audience. The public
was the beneficiary and the Chicago Tribune was honored with a
Pulitzer Prize for the effort. No broadcast, cable, or Internet
news operation alone could have devoted the resources it took
to research, write, edit, and package ``Gateway to Gridlock.''
So with cross-ownership, public access to high-quality
local news increases. It does not decrease. And that is why
neither your files nor those of the Federal Communications
Commission are filled with complaints from the communities
where cross-ownership now exists. In contrast, in South
Florida, the ban on cross-ownership has actually impeded the
introduction of new voices in broadcast news.
Just to put the situation in historical context when the
cross-ownership ban went into effect, there were seven over-
the-air television stations in Miami; cable was in its infancy
and had little impact there. The Internet information
superhighway wasn't even a dirt road.
Today, residents of Miami can watch 15 over-the-air
television stations. They can choose from 8 daily newspapers,
or listen to one of 67 radio stations. Cable delivers in excess
of 75 channels, including all the news channels. Tribune owns
the Sun-Sentinel in Ft. Lauderdale, and a while back, it
acquired a group of stations that included small UHF stations
ranked seventh in the Miami market. That station programmed no
local news when we bought it. At the close of the transaction
we got a waiver of the cross-ownership ban from the FCC, but
the waiver forbade us from putting any local news from the Sun-
Sentinel on the channel.
So instead of partnering with the Sun-Sentinel and
providing broadcast viewers access to the work of 370 members
of the newspaper editorial staff, our television stations had
to partner with the local NBC affiliate airing that station's
newscast.
The combination of two television stations is permitted by
law, as is ownership of television by the Internet companies,
by cable providers, by telephone companies, by wireless service
providers. Anybody, it seems, can own a television station
except aliens, drug dealers and newspaper publishers.
I believe the cross-ownership ban is anachronistic in
today's world. I believe it is making it much more difficult
for newspapers, which are vital to serve communities with news
and public service journalism, to compete, and I believe it is
time for it to be lifted. Thank you, Mr. Chairman.
[The prepared statement of Mr. Fuller follows:]
Prepared Statement of Jack Fuller, President, Tribune Publishing
Company
Good morning. My name is Jack Fuller and I am President of Tribune
Publishing Company, the newspaper subsidiary of Tribune Company.
As a newspaperman, ordinarily I wouldn't be here on Capitol Hill
asking for anything but information. But because of the ongoing
revolution in the way Americans get their information, I am here to ask
that you permit newspapers to compete freely with other media for a
share of the fragmenting news audience, unhampered by legal
restrictions on ownership of the means of communication.
The time has come for the elimination of the newspaper-broadcast
cross-ownership rule. There are many reasons why--from the
constitutional to the historical to the practical. Let me concentrate
on the practical.
Since the cross-ownership rule was established nearly three decades
ago, the news business has been transformed. In addition to newspapers,
magazines, broadcast television and radio, now Americans can get news
from a proliferation of national all-news cable operations such as CNN,
Fox News, and MSNBC, as well as from local cable operations such as New
York 1 News and Newschannel 8 here in Washington. On the Internet they
can get news from a wide variety of sites from all over the country and
all over the world. With a few keystrokes, they can search the
Worldwide Web for news that interests them, from what you have said in
the Senate and the way you have cast your votes to information about
their local schools and parks.
This profusion of sources of information is good for the country,
but it is a challenge for newspapers, whose readership has been under
pressure because of media fragmentation, and whose advertising revenue
is being targeted by every new competitor--as well as by the old ones.
This has put newspapers under financial stress. You have probably seen
reports of the significant cutbacks most have had to make in this
period of economic softness.
The cost of covering the news, however, is not declining. It is
increasing. Covering the meetings and activities of hundreds of
municipal government bodies, local school boards, and other public
policy events is a huge and expensive undertaking. Building teams of
journalists who are capable of understanding the complexity of public
policy issues today and translating them for lay people is not easy or
cheap. Not to mention the cost of serious, sophisticated, original
coverage of the Nation and the world, as Tribune newspapers are
committed to providing.
In Chicago alone, the Chicago Tribune employs nearly 700 editorial
staffers and hundreds of freelancers, most of them devoted to news of
local interest. This compares to the 50 or 60 reporters and editorial
staff typically employed by local television news stations in Chicago.
In Los Angeles, the numbers are even higher--1,130 editorial staff at
the Los Angeles Times. Even in the smaller markets, the size of our
newsgathering operations is significant. In Newport News, Va., for
example, the Daily Press employees 155 full-time editorial staff, three
times the size of a broadcast news operation in one of the major
metropolitan markets.
The question is whether in a fragmenting media environment we will
be able to find the economic model to continue to support coverage at
this level.
I believe we can, but it will mean spreading the cost of high
quality journalism over more than one distribution channel. We will
have to reach audiences in the many new ways that people now like to
receive their news. And to do that, we will need to have the burden of
the newspaper-broadcast cross-ownership rule lifted.
In an environment where people's choices for obtaining information
have radically multiplied, there is no risk of one voice dominating the
marketplace of ideas. Today in clamorous cities like Los Angeles,
Chicago, and New York, it is frankly a challenge for any voice--no
matter how booming--to get itself heard. So long as distribution
channels continue to proliferate--and the explosion of bandwidth
guarantees that they will--the public's demand for diversity of voices
will always be satisfied.
The public interest will be served by freeing newspapers to compete
in the new highly competitive news environment. Let firms own
newspapers and broadcast television stations and people who get all
their news from broadcasting today will hear new voices. Let the cross-
ownership rule fall and you will see enriched newscasts. Here's an
example of what is possible. It comes from Chicago, where Tribune's
ownership of the Chicago Tribune and WGN television and radio is
grandfathered under the cross-ownership rule.
Last year, more than 40 reporters, editors, and visual journalists
from the Chicago Tribune, WGN-TV and CLTV, our 24-hour cable news
channel, worked together on a series of stories entitled, ``Gateway to
Gridlock,'' about the effect that air traffic snarls at O'Hare Airport
were having on people's lives all over the country. Stories appeared in
the newspaper, on television, on cable, and on the Internet. Each
medium told the story in the way best suited to its audience. The
result was wide dissemination of a thorough analysis of an important
local and national issue. The public was the beneficiary, and the
Chicago Tribune was honored with a Pulitzer Prize for the effort.
No broadcast, cable, or Internet news operation alone could have
devoted the resources it took to research, write, edit, and package
``Gateway to Gridlock.'' So with cross-ownership, public access to
high-quality local news increases. It does not decrease. And that is
why neither your files nor the Federal Communications Commission's are
filled with complaints from the communities where cross-ownership now
exists.
In contrast, in South Florida, the ban on cross-ownership has
actually impeded the introduction of new voices in broadcast news.
Just to put the situation in historical context, when the cross-
ownership ban went into effect, there were seven over-the-air
television stations in Miami. Cable was in its infancy and had made
little impact there. The Internet information superhighway wasn't even
a dirt road.
Today residents of Miami can watch 15 over-the-air television
stations. They can choose from eight daily newspapers or listen to one
of 67 radio stations. Cable delivers in excess of 75 channels,
including CNN, Fox News Channel, C-SPAN, CNBC, and MSNBC.
Tribune owns the Sun-Sentinel in Ft. Lauderdale. In 1997, it
acquired a group of stations that included a UHF channel ranked seventh
in the Miami market. The station programmed no local news when we
bought it. To close the transaction, Tribune got a temporary waiver of
the cross-ownership ban. But the waiver forbade Tribune from any
newspaper-broadcast joint operations. So instead of partnering with the
Sun-Sentinel and providing broadcast viewers access to the work of 370
members of the newspaper editorial staff devoted to covering the local
community, our television station has had to partner with the local NBC
affiliate, airing that station's newscast.
And if that were not enough, CBS/Viacom owns two stations in the
same market, and will program news on both in competition against the
Tribune-owned station.
The combination of these two television stations is permitted by
law, as is ownership of television by Internet companies, cable
providers, telephone companies, wireless service providers. Anybody, it
seems, can own a television station except aliens, drug dealers--and
newspaper publishers.
A lot of serious people are asking today what is going to become of
newspapers in the communications revolution. They worry about this
because they realize that good newspapers are vital to the health of
communities and to the health of the national public debate as well.
I am actually very confident of our ability to get through the
revolution and still be able to provide the kind of high quality,
comprehensive news reports that Americans need in order to make their
sovereign decisions. But we have to be able to adapt to a new, highly
competitive environment of the sort I described in South Florida, and
we have to be able to deal with powerful organizations such as AT&T,
which is the sole provider of cable services to virtually the entire
Chicago Tribune market area and which sells zoned advertising on 35
channels. In this kind of environment we have to be unencumbered by
anachronistic government restrictions that are based only on the fact
that we own printing presses.
Great newspapers can survive the information revolution, but not
with a weight shackled to their ankles. The public interest and the
Constitutional ideal of free expression demand that the shackle be
removed.
[GRAPHIC] [TIFF OMITTED] T9019.022
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[GRAPHIC] [TIFF OMITTED] T9019.024
The Chairman. Thank you, sir.
Mr. Baker.
STATEMENT OF WILLIAM F. BAKER, PRESIDENT AND CEO,
THIRTEEN/WNET
Mr. Baker. Chairman Hollings and distinguished Senators,
thank you for inviting me to speak today here about an
important issue that cuts to the very heart of our national
spirit and our public vitality. I am President and CEO of
public television station Thirteen WNET in New York. Before
coming to Thirteen, I served a dual role as President of
Westinghouse television from 1979, and then Chairman of Group W
Satellite Communications, the cable programming businesses,
from 1981.
During my years at Westinghouse, five cable networks were
launched, including Discovery Channel and Disney Channel. We
also established the successful national ``PM Magazine''
program and introduced Oprah Winfrey, along with Alan Frank's
help, as a talk show host. I'm author of ``Down the Tube: The
Failure of American Television.''
This background in public and commercial television
broadcasting has given me some perspective on the issues the
Committee is facing today. Arguably, the most important
entitlements America possesses are the rights to free speech
and an independent press. These rights are pillars of our
Constitution and make our way of life a model that is admired
in every corner of the planet. Today, however, trends in the
media industry and regulatory policy are severely threatening
free independent and diverse expression in America. The two
rules being examined by this Committee, national television
station ownership caps and cross-ownership of television and
newspaper outlets in the same market, were put in place for a
simple and essential reason, to ensure that control over news,
information and the expression of ideas did not fall into the
hands of a few powerful players. But this is exactly what's
happened in a few short years.
In 1983, 50 companies controlled more than half of the
media in the United States. On paper at least, a mere 50
companies controlling most of American media would seem to be a
cause for concern in itself, but today, just 20 years later,
the number has dropped to six. Six gigantic corporations
control the vast majority of television, cable, radio,
newspapers, magazines and the most popular Internet sites, and
consequently, the majority of information, public discourse,
and even artistic expression in the United States.
We have on our hands what one might call a merger epidemic
in the media industry, and like any other epidemic, this is an
unhealthy one. If ownership caps are repealed, television will
surely follow the example of radio. Since the passage of the
1996 Telecommunications Act, 10,000 radio station transactions
worth approximately $100 billion have taken place. As a result,
there are 1,100 fewer station owners today, down nearly 30
percent since 1996.
Before 1996, the largest owner of radio stations in America
controlled 60 stations. Now one company owns 1,200 and two
others own about 200 each. Consequently, in nearly half of the
largest markets, the three largest companies control 80 percent
of the radio audience.
The numbers show that competition is not increasing. While
the numbers of channels may be slightly on the rise, the number
of owners is dropping, and where free and independent media is
concerned is the number of owners, not the number of stations
or channels or formats that matter. The media hold a special
place in our society. By helping us learn about the world,
exchange ideas and understand who we are, they help us enable
our conscience as individuals, and as a free people. When they
are treated as mere economic products, they simply cannot play
the vital role, social and cultural role that make them so
central to our way of life.
When the local newscast focuses on the real life story
behind the evening's movie of the week sent down from the
network, shouldn't we raise our eyebrows? If a television news
editor is under pressure from top brass to increase ratings,
which of the following stories will she give priority: Julia
Roberts' new boyfriend or a school board debate over teaching
standards? As one independent journalist has written, ``when
commercial interests are set against democratic or professional
values, it is predictable that the interests of the market take
priority. This is self-evident.''
Cost-cutting to improve margins diminishes diversity.
Throughout America, media giants are closing newsrooms, merging
staff, producing multiple newscasts on different stations from
the same source. A healthy trend for the corporate bottom line.
But where does it put local viewers looking for varying
perspectives? Logically we must also be wary of cross-ownership
between broadcast media and newspapers. There are more and more
one-newspaper towns.
Although some have argued that the two industries are
distinct and should be treated separately, I believe that the
final measure should be the overall quality, diversity, and
objectivity of information being delivered in a given market.
We need various print and broadcast outlets to serve as local
critics of one another. Can we truly expect the management of a
company that owns both a broadcasting station and a newspaper
in the same market to operate those media outlets with
distinct, discrete and independent editorial voices?
If the answer is no, and I think it could be, then when
that situation exists in a given market, we have lost a pair of
diverse and antagonistic voices in that market and therefore,
we have lost what the Supreme Court views as essential
conditions for a vigorous marketplace of ideas.
The underlying motivation for commercial producers is to
increase shareholder returns. Good business? Yes. But
broadcasting is not only a business, and it must not be allowed
to become only that. It is a public trust. Like our national
parks, the airwaves belong to the people. The people have
granted commercial broadcasters free license to this precious
national resource, with the understanding that they will be
used in the public interest. This was established by the
Communications Act of 1936.
Deregulation has made fundamental changes in the industry,
and ramifications extend throughout the national and global
economies. With you, it is not too late to stop, or slow or, to
even reverse the trend that has been threatening the very
foundation of free uninhindered independent media in our
Nation. Thank you.
[The prepared statement of Mr. Baker follows:]
Prepared Statement of William F. Baker,
President and CEO, Thirteen/WNET
Chairman Hollings, Distinguished Senators, thank you for inviting
me here to speak about an issue that cuts to the very heart of our
national spirit and public vitality.
I am president and CEO of public television station Thirteen/WNET
New York. Before coming to Thirteen, I served a dual role as President
of Westinghouse Television, Inc. (from 1979) and Chairman of Group W
Satellite Communications (from 1981). This background in public and
commercial broadcasting has given me a broad perspective on the issues
before this Committee today.
Arguably the most important entitlements Americans possess are the
rights to free speech and an independent press. These rights are
pillars of our Constitution and make our way of life a model that is
admired in every corner of this planet.
Today, however, trends in the media industry and regulatory policy
are severely threatening free, independent and diverse expression in
America. The two rules being examined by this Committee--national
television station ownership caps and cross-ownership of television and
newspaper outlets in the same market--were put in place for a simple
and essential reason: to ensure that control over news, information and
the expression of ideas did not fall into the hands of a few powerful
players.
But this is exactly what has happened in a few short years. In
1983, 50 companies controlled more than half of the media in the United
States.\1\ On paper at least, a mere 50 companies controlling most of
American media would seem to be cause for concern. But today, just 20
years later, the number has dropped to six. Six gigantic corporations
\2\ control the vast majority of television, cable, radio, newspapers,
magazines and the most popular Internet sites--and consequently, the
majority of information, public discourse, and even artistic
expression--in the United States.\3\
---------------------------------------------------------------------------
\1\ ``The Media Monopoly,'' Ben Bagdikian.
\2\ AOL-Time Warner, Disney-ABC, General Electric-NBC, Viacom-CBS-
Westinghouse, NewsCorp-Fox, and Bertelsmann. (Cited in ``Legal Project
to challenge Media Monopoly'' by Dorothy Kidd, in Media Alliance's
MediaFile , May/June 2001.)
\3\ ``Each of the dominant six firms now owns the major companies
that create the content of the mass media, like newspapers, magazines,
book publishing houses, and movie and TV production studios. Each of
them has also acquired the next step, the national delivery systems for
the programming they control or lease, like broadcast networks and
cable. And finally, each has acquired or shared ventures with the
ultimate delivery mechanism into each American home and office, the
telephone company lines, cable systems and satellite dishes. (Ben H.
Bagdikian, The Media Monopoly. Beacon Press, Boston, 2000. p. xvii.)
---------------------------------------------------------------------------
We have on our hands what one might very well call a ``merger
epidemic'' in the media industry. And like any other epidemic, this is
an unhealthy one.
If ownership caps are repealed, television will surely follow the
example of radio. Since the passage of the 1996 Telecommunications Act,
10,000 radio station transactions worth approximately $100 billion have
taken place. As a result, there are 1,100 fewer station owners today,
down nearly 30 percent since 1996.\4\
---------------------------------------------------------------------------
\4\ According to BIA Financial Network, as cited in ``One Big Happy
Channel?'' by Eric Boehlert (Salon.com, June 28, 2001)
---------------------------------------------------------------------------
Before 1996, the largest owner of radio stations in America
controlled some 60 stations. Now, one company owns about 1,200 and two
others own more than 200 each. Consequently, in nearly half of the
largest markets, the three largest companies control 80 percent of the
radio audience.\5\
---------------------------------------------------------------------------
\5\ ``Making Media Democratic'' by Robert W. McChesney (Boston
Review, November, 1998)
---------------------------------------------------------------------------
The numbers show that competition is not increasing. While the
number of channels may be slightly on the rise, the number of owners is
dropping. And, where free and independent media is concerned, it is the
number of owners, not the number of stations or channels, that matters.
The media hold a special place in our society. By helping us learn
about the world, exchange ideas and understand who we are, they help
enable our conscience as individuals and as a free people. When they
are treated as mere economic products, they simply cannot play the
vital social and cultural roles that make them so central to our way of
life.
I ask you this: Can a journalist objectively cover the news when
his parent company is one of the world's largest conglomerates, with
financial interests in nearly every corner of the national and global
economies? When a local newscast focuses on the ``real-life'' story
behind that evening's ``Movie of the Week'' sent down from the network,
shouldn't we raise our eyebrows? If a television news editor is under
pressure from top brass to increase ratings, which of the following
stories will she give priority: Julia Roberts' new boyfriend or a
school board debate over teaching standards? As one independent
journalist has written: ``When commercial interests are set against
democratic or professional values it is inevitable that the interests
of the market take priority.'' \6\
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\6\ Bettina Peters, ``Corporate Media Tends in Europe, `' (The
Campaign for Press and Broadcasting Freedom, November 2000.)
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This is self-evident. Cost-cutting to improve margins diminishes
diversity. Throughout America, media giants are closing news rooms,
merging staff, and producing multiple newscasts on different stations
from the same source. A healthy trend for the corporate bottom line,
but where does it leave local viewers looking for varying perspectives?
Quality is another casualty. When the main objective behind every
minute of airtime is to maximize profits, standards take a back seat to
better margins. Trawling for eyeballs becomes commonplace. No wonder
the airwaves are seething with sensationalism and empty technical
glitz. Barely concealed behind every new blockbuster series is the
fevered battle of media titans over ratings and ad dollars.
Logically, we must also be wary of cross-ownership between
broadcast media and newspapers. Although some have argued that the two
industries are distinct and so should be treated separately, I believe
that the final measures should be the overall quality, diversity and
objectivity of the information being delivered in a given market. We
need various print and broadcast outlets to serve as local critics of
one another. Can we truly expect the management of a company that owns
both a broadcaster and a newspaper in the same market to operate those
two media outlets with distinct, discreet and independent editorial
voices? If the answer is no, and I think it clearly is, then when that
situation exists in a given market, we have lost a pair of diverse and
antagonistic voices in that market. And therefore, we have lost what
the Supreme Court views as essential conditions for a vigorous
marketplace of ideas.
The underlying motivation for commercial producers is to increase
shareholder returns. Good business? Yes. But broadcasting is not only a
business. And it must not be allowed to become only that. It is a
public trust. Like our national parks, the airwaves belong to the
people. The people have granted commercial broadcasters free license to
this precious national resource with the understanding that they will
be used in the public interest. This was established by the
Communications Act of 1934.\7\
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\7\ Peter Franck, of the National Lawyers Guild Committee on
Democratic Communications, quoted in ``FCC Says to Hell with the Public
Interest'' by Camille Taiara (Media Alliance's MediaFile, December
1999.) ``The 1934 Public Broadcasting Act very clearly declared
airwaves to be public property,'' says Franck. ``It's a natural
resource that exists by the laws of physics. Yet these corporations
got, for nothing, spectrum worth millions and millions of dollars.
That's just welfare for the already very rich.''
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Deregulation has made fundamental changes in the industry and
ramifications extend throughout the national and global economies. But
it is not too late to slow, stop and even reverse the trend that has
been threatening the very foundations of free, unhindered, independent
media in our nation.
The Chairman. Thank you very much, Mr. Baker. I am learning
new words today. Everything is ``exacerbating, egregious.'' You
have a ``dichotomy.'' The best word I learned--and at the time
I learned it, they eliminated it--that was ``honorarium.'' But
now it is ``anachronistic,'' old hat, I guess, outdated, never
considered, nonsense. We debated it and we had the most
vigorous debate and hangup on the 25, 35 percent. Mr. Frank has
testified, he would like to go back to the 25.
The reason we went to the 35 was to get the bill passed.
When we got that bill out, there were a lot of compromises. We
had 95 votes, bipartisan, in 1996, but it wasn't an
anachronistic situation with respect to ownership and the
numbers. It is not an arithmetic problem. We used to have in my
hometown three radio stations. All three had news, one had
popular music and the other two had rock. Now I have got 11
stations. But I can tell you right now, there is no choice at
all, other than the public radio.
In fact, I never before used that little tape deck for
music. Now I am buying tapes and everything else because aside
from public broadcasting, there are no worthwhile programs. It
is interesting. I listen to the music because the other 10
stations have got out of California, and they are hollering at
each other and debate, they have got an epileptic fit, they are
swallowing their tongues and everything else, about to die. I
can't get music out of it and so I buy a music tape. So the
fact that I have got 11 radio stations--do not give me the
numbers problem.
Back now to Mr. Fuller. Well, for example, when they put
these limitations on the cross-ownership of a newspaper and a
TV station, the FCC said, and I quote: ``It is unrealistic to
expect true diversity from a commonly-owned station/newspaper
combination.''
Now, go fast-forward here to just a couple years ago and
the American Journalism Review article entitled ``Synergy
City.'' It describes the Tribune Company's attempts to
repurpose its news content across all its properties, and the
article states, and I quote: ``entering the news room of the
Chicago Tribune, your eye is drawn to a massive multimedia
desk, around which are arrayed editors from WGN TV, WGN radio
and so forth, the 24-hour local cable news channel, the
Tribune's Internet edition. In most companies, a Berlin Wall
separates the different media. At the Tribune, all media units
report to David Underhill, Vice President for Video and Audio
Publishing. `The goal of our unit,' says Underhill, `is to be a
synergy group. I love the word.' ''
So you can see, the genius--namely, diversity--is not
anachronistic at all, it is disappearing. Why you have that
with the Tribune because of lethargic FCC. They are not calling
the rule about cross-ownership because they are waiting for the
time for relicensing every 8 years, otherwise, they should have
called the rule. If somebody is speeding, you do not wait for
next year's new Chairman of the Highway Commission. You arrest
him. You stop it. That is a violation right now. Not the case
with the FCC. They have given everybody--and I do not blame you
at all, Mr. Karmazin, but like I say, I would hire you. Where
is that thing, I mean, here, look at the success here.
The Quarterly Report for CBS network and I quote:
``achieved double-digit revenue growth in prime time with
increased ratings and pricing in the first quarter of 2001.''
On May 28th, in the edition of Broadcasting and Cable reported
``fiscal 2000 was a profitable year for ABC, CBS, Fox, and NBC
with decent profit margins.'' The article indicated that in
2000, the CBS network enjoyed $200 million in profits. Your own
TV stations enjoyed $775 million in profits, and your TV
production and syndication businesses enjoyed $450 million in
profits.
Well, it doesn't sound to me like CBS and Viacom need any
more relief. In fact, I hope Sumner gives you a raise. Please
comment if you will.
Mr. Karmazin. Senator, I didn't think making a profit is
something that I should be embarrassed about.
The Chairman. I am proud of it. You are not embarrassed,
are you?
Mr. Karmazin. Not at all. And by the way, I think that what
you need in order to make investments is profits. So, I think
that the profit margin, since you are bringing it up, on a
television network, is in the single digits. Marginally
profitable. Not a lot of money for the invested capital. We
spend about $3 billion a year for programming on our network,
and news, and of that $3 billion--let us assume that $200
million number were accurate--that isn't the best return on
capital that a company could get.
I think the first point that I would like to make is that
there are some facts that were wrong, though. We do news in
Detroit on our television stations. We did it as a function of
consolidation and we managed to do it as one of the benefits
that we have, but the sense for me is that in 1996, it was
probably OK, what the deregulation was.
Since 1996, a lot has changed in America. The pipe has
gotten broader. There have become many, many more competitors
in that market, so there needs to be--as was the intent at the
time--a biennial review of the rules, because even at that
time, it was believed that the FCC should take a look every 2
years to see whether or not there should be any further
relaxation. Regarding the programming in South Carolina, sir, I
don't own any radio stations, but if you would give us some
further deregulation, I will put more stations to your choosing
on in South Carolina.
The Chairman. Very good.
Senator McCain.
Senator McCain. Thank you, Mr. Chairman. I think we can
agree or disagree on this specific issue we are discussing
today. I don't think we disagree that the information
technology has profoundly affected the way we live, work, are
entertained and receive information, and a lot of it is in the
eye of the beholder.
Mr. Frank, you pointed out that in your statement today,
Mr. Karmazin's station is reaching 41 percent of America's
population, and its' colleagues--ABC, Fox, NBC-controlled
stations--reached 24, 40, and 27 percent respectfully. To
balance that statement out, I think it is important to
recognize prime time viewership among the top six broadcast
networks has declined from 71 percent in 1996 when this law was
passed to 58 percent in the year 2000. Cable has made
tremendous inroads. Now 70 percent of American TV households,
compared to just 13 percent in 1975. Satellite. Internet. The
list goes on and on.
I appreciate, Mr. Frank, your powerful argument in support
of localism, and against any increase in the National
Television Broadcast Act, and obviously, for local news,
sports, weather coverage. Yet in your organization, NASA, five
companies alone that belong to your organization have a
combined $14.4 billion dollars in revenue, reach 63 percent of
the Nation. These companies own or have financial stakes in
cable companies, newspapers, radio stations, magazines,
websites, and publishing houses.
Companies that belong to NASA include: Belo, Hearst,
Argyle, Cox, Gannett, Washington Post. You own stations in
cities such as Palm Springs, Jacksonville, Seattle, Louisville
while their corporate headquarters are located in New York,
Atlanta and Dallas. Is it your belief that these stations,
including the ones you own, in five different cities across
America, are able to maintain localism while their headquarters
are located elsewhere?
Mr. Frank. Senator, the question about localism is not
necessarily local ownership. Localism is not the same as local
ownership, and it is more than local programs. The question is
where are the incentives for the local community, and it has to
do with a mindset. If the O&Os have different business
interests as opposed to local groups that own stations, you
know, our objective is to serve the local community, period.
Post-Newsweek as a for instance, sir, has six stations
around the country and we have two things that unite us. One is
strong journalism, because we are, after all, a Washington Post
company, and the other is a belief in serving local
communities. Therefore, our station in San Antonio looks very
different from our station in Jacksonville, looks very
different from our station in Detroit or Houston or Orlando. We
do not have a Post-Newsweek set. We do not have Post-Newsweek
pins, we don't have Post-Newsweek blazers. Because each station
reflects the community it serves and is run by the local
general manager.
Senator McCain. So you have that commitment, but the other
people who own stations across the country do not have that
commitment. Or are headquartered away from Jacksonville, San
Antonio, Orlando, Miami, Ft. Lauderdale, Houston and Detroit.
Stations that you own. You are committed to localism, but CBS
affiliates, they aren't.
Mr. Frank. Senator, the question is not us versus them. I
said before, Mel Karmazin is a good broadcaster. We have no
problems with the way he runs stations. What I said in my
testimony, by the way, was that that CBS-owned station in
Detroit does not have its own news department. They now do
carry a newscast, as Mel said, from the Paramount station. They
still don't have their own news department.
It is not a question of whether they are good broadcasters.
The question has to do with diversity and the number of
ownership and the number of owners throughout the country. We
just do not believe if the cap is raised obviously you are
going to have fewer owners. We don't believe that's good
policy, we don't believe that's good for the country, we say
diversity. We say the more the merrier at the table. Others say
``mine, mine, mine.'' We think the more the merrier is the
answer. Not fewer.
Senator McCain. I won't belabor the subject, but it is
pretty obvious to me that your commitment to localism because
you own stations all around the country should not be any
different from that of others who own perhaps more stations
around the country.
Let me move to Mr. Fuller very quickly.
Mr. Fuller, you are a Pulitzer Prize-winning journalist and
you have been in journalism over 30 years, as you stated. First
of all, what was the state of competition when you entered the
business compared to the state of competition now? What
specific trends are you seeing given the emergence of new
technologies, particularly the Internet? If I want to know
what's in your newspaper tomorrow, I can go the early evening
news--I do not have to buy your paper at the local news-stand.
I can also go online, the same way with The Washington Post and
the same way with every other newspaper in America. I would be
interested in your comments on the state of competition and how
it is going to affect your business.
Mr. Fuller. When I began working in the newspaper business,
in order to start a newspaper, you had to have tons and tons of
newspaper presses, a huge facility, a fleet of trucks, and a
distribution system that got to everybody's doorstep in the
morning before 6 o'clock. Today all it takes to get into my
business is a server, a staff to write and report the news, and
an Internet connection. It is vastly different. That is not
even to speak of the national distribution of newspapers that
did not used to be available in other cities. It is also not to
speak of the proliferation of cable news. CNN did not exist
when I started in the newspaper business. There were three
networks.
The fact is, from where I sit, we are not in a period of
concentration. We are in a period of radical fragmentation, and
what you are seeing is serious journalistic organizations
trying to find ways to deal with that so they can continue to
support serious journalism for their communities.
Senator McCain. I thank you, Mr. Chairman.
The Chairman. I thank you.
Senator Wyden.
Senator Wyden. Mr. Karmazin, Mr. Fuller, is it your
position that there should be no ownership restrictions at all?
Mr. Karmazin. I think that my viewpoint is that the
Department of Justice should measure what is unfair
competition, and that there is the opportunity within that
Department to assess whether or not one company is buying too
many. Right now, we go through that process whenever we make an
acquisition and in a number of acquisitions that we have made,
they have determined we had too much control in a given
position and we had to make divestitures.
What we are saying is, today the concept of the 35 percent
cap, and the concept of owning one network of the full
broadcast networks, that rule should go away. I have no horse
in the race on newspaper-television cross-ownership. I would
support that relaxation.
Senator Wyden. You would be troubled, then, by the scenario
I painted, because the scenario I painted in my opening
statement is if you have all of these ownership rules lifted,
you could have a single massive media company in this country.
Mr. Karmazin. No, you couldn't, sir, with all due respect.
Senator Wyden. We have done some checking and if you take
this proposal where you throw all of the rules out the window,
you start with Time Warner/AOL buying AT&T Cable.
They could do that--we have reviewed this. They could buy
NBC and then they start in with newspapers, radio and TV, and
your theory is that somehow somebody at Justice is going to
block some of this. But our analysis is if you get rid of all
the ownership rules whatsoever, you could have this single huge
media entity. I am curious whether you think there would be any
down-sides in that for the American people?
Mr. Karmazin. With all due respect, I don't think that you
could say without the Justice Department. I mean, there is a
Justice Department. There is a whole lot of control that would
potentially stop that from occurring, so I do not think you
have to worry that is going to happen. I also do not believe
that the marketplace is going to let that happen.
What we are saying is that there is probably, between no
regulation and where it is today, room for significant
improvement. There is a difference between the scenario you
outlined and the scenario that exists today. There is a huge
gap.
Senator Wyden. There may be grounds, then, for coming up
with a bipartisan proposal, because what concerns me is that I
have asked about what's going to happen if you lift the rules
completely. I am convinced we will have scenarios like I
described, not very many, maybe two of them, but we will have
them, and there may be something in between that and leaving
everything exactly the way it is. That was why I wanted to
explore it with you.
Mr. Fuller.
Mr. Fuller. Well, I am most concerned about the
restrictions on newspapers which are hobbling our capacity to
compete in the current environment. My inclination is that
antitrust law is an effective instrument against undue market
power. It has worked for more than 100 years in this country,
and it will work in this industry as well. Frankly, it seems to
me that the least justifiable place for special restrictions is
in the area of expression. It is not the most justifiable area,
it is the least justifiable area. We are willing to live with
antitrust constraints as we are happy to live with them.
Senator Wyden. You have to have tools that have the
opportunity to be effective and if the U.S. Congress or the FCC
steps in and says the sky is the limit, which is what I have
been concerned about in terms of those who say there should be
no rules at all, I think we are headed for trouble. Just a
couple of other questions, if I might, Mr. Chairman.
When the cap is lifted, Mr. Karmazin, is there any question
that what will happen is the major networks will require the
affiliates around this country rather than having to deal with
independent stations?
Mr. Karmazin. Yes. I think there is a big question about
that because if you take a look at where NBC and ABC are today,
they are not anywhere near the 35 percent cap. So if, in fact,
there was such an appetite for that to happen, I would suspect
that you would be finding all of these companies at the 35
percent cap level, and in fact, NBC and ABC are not.
I think the concept of an affiliate that is willing to
preempt the network and the fact that our own stations aren't
looking to improve their local relationship is silly, because
we, too, preempt the network at our local stations. They are
encouraged to do whatever is serving their local community. The
other thing that really has come up that is inaccurate, I wish
we were sworn in for this testimony, you know. The other thing
that was inaccurate is what happens when there is a merger.
As Mr. Baker is aware, we own two radio stations in New
York City. They are all-news radio stations, WCBS and WINS.
Those two news stations have not consolidated. Those two news
stations are operated independently. They have a totally
separate viewpoint and I have not been in the newsroom of those
two stations or CBS ever, other than to congratulate them.
Senator Wyden. One last question, if I could. Mr. Karmazin,
I want to make sure it is your view that when networks own
distribution channels, if these changes go through, network
owns the local station. In your view, this would not end up in
any significant changes with respect to priorities for local
programming in this country?
Mr. Karmazin. That is correct. Because I think the only way
that a television station can be successful, the only way we
can justify what will be these extraordinary prices that the
people who choose to sell their stations are going to get, the
only way you are going to justify those prices is if, in fact,
you are able to grow that business. The way you grow the
business is by getting higher audience, and by having better
programming, so I think the effect is better programming.
Just one example, if I may. We got back into the business
of carrying the NFL a few years ago. You know, I guess there
may be an argument that says it doesn't matter whether the NFL
is available on free over-the-air broadcasting or is available
on cable. We happen to think that it should be on free over-
the-air broadcasting and did our part. The way we justified the
price was not the amount of money we would make at the network,
because we lost money at the network. At the network level from
an accounting point of view--legitimate point of view, not
Hollywood accounting, we lost money. But what we did do was the
stations that we owned contributed toward that profit, as well
as our affiliates.
I think you need to look at the importance of the CBS-owned
television stations and the profits that they make in
supporting the news operation. We have 1,500, 1,600 at CBS
News. It is not being supported based on the half-hour newscast
that we run at night. In part, it has contributed to these
other assets that the company has.
So no, I don't think there is a weakness. I think it is
better programming. I think if were you to look at the effect
of deregulation on the radio industry, which consolidated more
than the television business, today, there are a little over
1,000 television stations. We own 3.5 percent. We have 35
television stations. You know, there is room for that and,
between that and the egregious scenario that you are
discussing.
The Chairman. Very good.
Senator Burns.
Senator Burns. I think what we have seen here is a classic
discussion between Mr. Karmazin and Mr. Fuller. As one looks at
it from a news standpoint and service to the public and the
other one looks at the bottom line, and in a way that is the
way it should be. We have always had that clash. And also when
you had trouble, it is hard, it seems a fruitless exercise to
lock the barn after the horse is gone. Well, the horse is gone
and we have been left with what we are left with sometimes.
Mr. Fuller, the FCC has an obligation--although we all deal
with it every day. I hate to pass that up. It is a great line.
Anyway, the FCC has an obligation under the 1996
Telecommunications Act to review all of its broadcast ownership
rules on a biennial basis. In closing out that 1998 review in
May of 2000, the FCC put in an order that they would begin
rulemaking on broadcast newspaper cross-ownership. Can you tell
us what they have done to date and when you expect them to act
and to what do you attribute the delay?
Mr. Fuller. Well, they have not done it. There has been a
change in administration. That slowed things down. I think that
all we have been asking for is that that process go through so
that we will all have a chance in the Commission to have our
say. They will be able to evaluate the current state of the
information market and make a decision as to whether these
rules are out of date or not.
Senator Burns. I want to bring up something else. I heard
everybody is saying that have you an obligation because radio
and television broadcast companies who operate free over-the-
air, are using the spectrum at no cost, and the American people
gave it to you. I think we tend to look back in history, back
when radio was started, the government asked radio stations to
go on the air. They said you take the spectrum and you put it
on the air. In the 1950s, they did the same thing to
television. Take this spectrum, put it on the air, and
especially your company like WGN. I wish I had Mr. Baker's
pipes. I would still be back in the farm broadcast business.
There are only two guys that have got pipes like that that
I know of and Orrin Samuelson is one of them, you know, a
Wisconsin kid there. But the government urged you to do that,
to put these radio stations on the air. Now, both WGN and even
your publication companies in Chicago, they have positions of
great prestige. You are looked at as a pace-setter in the
industry.
Then they came up with a cross-ownership rule in 1975. What
has changed in the business that would prompt them to look at
that differently now?
Mr. Fuller. Well, at the time of the cross-ownership rule
and I think we have given you statistics on this, most
metropolitan areas, including Chicago, had three or four VHF
stations, a UHF station or two, and that was it. The newspaper
had no competition for its want ads. The newspaper had no
competition for retail business, with the exception of the
over-the-air television which does a different kind of
advertising. It was a very stable situation. Today it is a very
unstable situation.
We have huge organizations going after our classified
advertising business. Microsoft is in the automotive classified
business. Monster.com is the biggest provider of online
recruitment classified in the country. By the way, it provides
no public service journalism for anybody.
These changes have been enormous. I, for one, have spent
much of the last 10, 15 years trying to figure out, to the
Chairman's point, how to make our organization a synergistic
one, because I did not want to leave behind an organization
that was the journalistic equivalent of the railroads. They did
not change and adapt to a new environment, a new competitive
situation, and ended up coming to you to rescue them
financially. That would not be a good outcome from my
standpoint, and so we are doing what we can to continue to
build the economic model for doing great journalism.
Senator Burns. Well, I appreciate that answer very much
because I think journalism with a great deal of credibility is
very, very important right now. What I see happening in the
journalistic end of the world, Mr. Baker would probably agree
with some of this and Mr. Karmazin would, too, that we seem
like we have people who are in the reporting business that want
to be the story instead of report the story, and we have to put
up with that every day. Everybody wants to get their name on a
byline above the fold on the front page, and that is very, very
competitive as anybody knows. So sometimes we embellish. We
want to be the story instead of report the story, and I have
fought that.
I wanted to say before this Committee, on any poll that you
take in the broadcast industry--and I am very proud of that
organization that I used to be in and I am still a member of.
But they always carried a great deal of credibility, and that
is the National Association of Farm Broadcasters, and because
we are a specific little market, niche market out there. But
those people who we serve depend on that news and information
almost on an hourly basis anymore. We carry a great deal of
credibility in our business and we take it very, very seriously
and we also take the business side very seriously because that
is what enables us to get the news out. I wanted to ask you one
question while we are in the yellow zone.
Given the choice, would you rather have the ownership caps
lifted or cross-ownership allowed? And I will let any of you
just take a shot at that.
Mr. Karmazin. This will be obviously self-serving, because
I am not in the newspaper business, so clearly I would like to
have the ownership rules lifted. But you know I think the
competition, as they found out in 1996, was on the local level.
In other words, The Washington Post may be very important here
in Washington, but it is less important in Milwaukee, so the
cap issue is on a national level. There isn't the same degree
of concentration as there is at the local level, so I think
there is a greater argument for the national cap to be lifted.
But I would also support cross-ownership being gone, too.
Mr. Fuller. You won't be surprised, Senator, that I am
focused on the newspaper broadcast cross-ownership, and if I
could get one done, it would be that, in the interest of future
health of the newspaper business.
Mr. Frank. Senator, NASA, which I represent, deals with
network affiliate relations and has no purview at all in
newspaper cross-ownership and so we are here to talk about
holding the cap on station ownership and retaining the cap at
35 percent.
Mr. Baker. Senator, I do not have a dog in either of these
fights except I would be delighted to take a job in the farm
broadcasting business. I am sure it pays better than public
television. But it is my feeling that neither should be lifted.
Senator Burns. Thank you, Mr. Chairman.
The Chairman. I have got to correct the record. We did not
swear the witnesses because we know the witnesses and that they
will tell the truth. But the government did not ask the radio
to go on the air. Wasn't it David Sarnoff on the top of that
Wannamaker building that picked up the signal from the sinking
Titanic? I think it was. But in any event, from 1912 to about
1924, when Herbert Hoover was the Secretary of Commerce, all
radio stations, wireless came on, jammed each other and the
radio industry came to the government and said ``Please, for
Lord's sakes, regulate us, otherwise nobody is going to be
heard.''
The government did not ask the radio to go on the air. The
radio asked the government to please get us on the air because
we were jamming each other.
Senator Burns. I don't remember it.
The Chairman. Senator Dorgan.
Senator Dorgan. Mr. Chairman, thank you. I might add also
the government instituted something called a public interest of
convenience and necessity test along with that.
The Chairman. That is a big difference. I was going to get
to that with Mr. Karmazin. You all go running around now with
the Department of Justice. This Committee has already
confronted the Department of Justice on the test for the
Sherman Antitrust, whereas in the airline industry, business
predatory pricing ordinarily is not predatory, because the last
seat of it is a de minimis cost.
The Antitrust Division has nothing to do with diversity.
The Antitrust Division of the Justice Department has nothing to
do with the public interest. We have the public interest charge
and we have the diversity charge and have had it unless we do
away with it. Excuse me.
Senator Dorgan. Mr. Karmazin, I was thinking if someone had
walked in the door when you said you had 3.5 percent of the
television stations they would have thought you a bit player in
this debate, an interesting way to describe your position, I
might say.
I want to ask you about where you think all of this would
move in about 5 years if we had unrestrained ability to buy and
sell in these industries. Let me preface it by saying that I
think the antitrust law enforcement in this country has been a
new nearly constant and pathetic failure. A decade or so ago, I
threatened to put pictures of antitrust lawyers on the sides of
milk cartons because I knew we were paying them, but there was
no evidence they were showing up for work. I have not changed
my mind much about that. I think antitrust law enforcement has
been a pathetic failure.
But let me ask you this, assuming that there are no limits,
where do you think we end up 5 years from now?
Mr. Karmazin. Well, I think we have a better chance of
preserving free over-the-air broadcasting than if there are no
changes and that we are now forced to deal with the fact that
the consolidation has totally taken place all around us in this
non-regulated area, so there is nobody that's regulating
whether or not, to your point of the Justice Department about
these airlines consolidating and we are losing advertisers and
the banks are consolidating and the advertising agencies are
consolidating. How does a small--relatively to these other
companies that are consolidating--how do you sit at the table?
So now let us assume for the moment that somebody acquires
AT&T, and let us assume hypothetically it is one of the
existing MSOs.
We now have to sit with them and get our channel carried
because we have 80 percent of our viewers who choose to get
their programming that way. The chance of the American public
being better served exists for us to be able to sit at the
table with having it be a level playing field. I believe that
there is so much competition out there, there are so many
choices for the American public.
I think sports rights, I think good programming, I don't
want to take our most desirable programming and put it on
cable, because I will have two streams of revenue. Because we
could do that. There is nothing really that would stop us. Or
radio, putting it on satellite radio or taking it and putting
it on Yahoo or taking it and putting it on AOL. But the reason
you put it on free over-the-air broadcasting is you can make
some money that way.
And the way you make money in this world--there are still
24 hours of the day--so if we now accept that there are 24
hours of the day, there are more choices that people have. They
are spending less time with everything. Advertisers are
spending less money. Well, how do you grow your business? Well,
one of the ways you do it is through efficiency and one of the
things that consolidation allows is it allows you to be more
efficient.
Senator Dorgan. I must say I watch the television in the
morning while I shave and brush my teeth and it is hard for me
to really relate to the notion there are more choices. It
doesn't matter which knob on the dial you turn, you are hearing
exactly the same thing. Mr. Baker, Mr. Karmazin in some ways
makes my point about lack of antitrust enforcement, I think. He
says there has been this robust merger activity in banks,
enormous merger activity in airlines and therefore, we must do
it.
My point is that antitrust enforcement has been pretty
pathetic in all these areas, but Mr. Karmazin says just take
all these limits off and if you did not have limits, the market
system would work just fine and have Justice be the referee
over here. What do you think happens in 5 years if all
ownership limits are removed at this point?
Mr. Baker. Well, I think we already have seen incredible
massive consolidation, and earlier we were talking about the
differences between a local broadcaster of the kind that Post-
Newsweek stations, Alan Frank's stations are, and more powerful
vertically integrated companies like television networks and
larger broadcasting entities.
I think that being scrupulous and looking at these
regulations and in watching how companies can utilize their
massive power across multiple distribution systems is one that
we have to have great concern about in the American public.
When I was a producer back in my hometown in Cleveland,
Ohio, 30 years ago, there were 16 radio stations. There still
are today. This is kind of like Senator Hollings' story. When
it rained in Cleveland, almost all the owners of the stations
got wet. There were 10 owners and 9 newsrooms. Now these 16
stations have 5 owners and 3 newsrooms. So this consolidation
is a serious business right now.
Mr. Frank. Senator, if I may. Currently, as to what folks
can own, what individual companies can own, the networks can
own, is an interesting list. Here's what can be owned today:
Enough TV stations to cover 35 percent of the Nation's
households, all the radio stations they can afford limited only
by the local radio television cross-ownership rules. All the
cable systems they can afford, limited only by the local cable
television cross-ownership rules. All the satellite systems
they can afford, all the wireless cable systems they can
afford, all the cable network channels they can afford, all the
satellite program channels they can afford, all the movie and
television production studios and facilities they can afford,
all the television syndicated program companies they can
afford, all the Internet program production and distribution
facilities they can afford, all the newspapers they can afford
limited by local television newspaper cross-ownership rules,
all the magazines they can afford.
It seems to us what is available now under the current
rules, to try and lift the cap on local television stations and
putting localism and diversity at risk, it may be more
efficient to have bigger companies, but it is not the
democratic way. It is not the American system of broadcasting
where the local licensees, the heart and soul of what the
American system is built on, it just doesn't fit.
A network president said to me at one point--not for Mr.
Karmazin's network--that his vision of a network affiliate was
to be a McDonald's franchisee. And I would say, that's not our
vision. Our vision is that we are broadcasters. We are there to
serve the local communities. We think that the cap is the
minimum protection we need in this environment.
Senator Dorgan. Mr. Chairman, if I may just ask one
additional question. I thank you for your responses.
Mr. Fuller, you raised the issue of ``serious journalism.''
Thomas Jefferson described the role of the free press in the
sustaining of a democracy and how important it is. In your
judgment has ``serious journalism'' suffered in the last 5
years?
Mr. Fuller. It is a very mixed picture. We were just
talking about this when we were coming over to the hearing.
Many of the great newspapers of the country at the time when I
started in the business did things that would make us blush
today.
Senator Dorgan. I am talking about the last 5 years,
however. I am talking about since the 1996 Act, all this merger
activity.
Mr. Fuller. I don't think in the newspaper business there
has been any significant change in the quality of journalism
over the last 5 years. There has been cost pressure in some
places, but I think the standards have been upheld pretty well.
Senator Dorgan. Just to make an observation. In Grand
Forks, North Dakota, I think it was last week or the week
before, there was a picket line including reporters, outside of
a newspaper that is owned 1,500 miles or 2,000 miles from Grand
Forks--which is the case of most newspapers in my State, they
are owned by out-of-state interests. They were constantly
cutting and cutting and cutting, and finally we had this
spectacle which you rarely see in North Dakota of people
holding pickets outside of a Grand Forks newspaper.
Mr. Baker, would you just answer the same question with
respect to serious journalism?
Mr. Baker. That is a fair question, but a tough one to
answer, so I don't really have an answer to that. All I can say
is that certainly pressure on the bottom line at every level in
journalism, in electronic journalism, in newspaper journalism,
I think it has been widely reported that this is a serious
matter. People just do not have the time. There are fewer
people doing more work. My brother, who has been a TV news
cameraman like these fellas here for the last 35 years in Ohio,
said that he is now doing the news for two television stations.
He says he just doesn't have enough time to get the job done
the way he would like to get it done.
Senator Dorgan. I thank the panel very much.
The Chairman. Senator Fitzgerald.
Senator Fitzgerald. Thank you, Mr. Chairman. I wonder if
any of the panel that is speaking with respect to the cross-
ownership rule would know whether there was some industry or
group of individuals that was lobbying the FCC to impose that
cross-ownership rule back in 1975? Would anybody know the
answer to that?
Mr. Fuller. I really do not.
Senator Fitzgerald. Nobody knows. Because just from my
experiences around here, most of these ideas for these
regulations or restrictions do not just pop into some
regulator's head. There is normally somebody advocating them. I
am struck, I guess, by the fact that at one time back in the
1940s or late 1940s, the FCC was actually encouraging
publishers to buy broadcast stations or invest in broadcast
stations. That is how Colonel McCormick at the Chicago Tribune,
started WGN. Is that correct?
Mr. Fuller. That is exactly right. He was a pioneer and
bought an experimental radio station at WGN radio, which wasn't
requested by the government. But later, at the beginning of the
television era, the government did encourage publishers to
start experimental stations, and the Colonel did start WGN
television.
I suspect that those early enterprises were like Internet
enterprises are today. They weren't very profitable. They were
probably big losers for a long time. And what the government
was attempting to do was get people with some financial
resources to give it a jump-start.
Senator Fitzgerald. So there were no restrictions, then,
until 1975 when the cross-ownership rule was established. Are
you aware, Mr. Fuller, of any finding of abuse or domination or
monopolization in a market by any of the existing companies
that have cross-ownership that were grandfathered from the
original rule?
Mr. Fuller. To my knowledge, there has not been any
significant complaint from the few markets that have had cross-
ownership. Typically, those television stations have been
pretty good ones and served the communities well, and there has
just not been a lot of complaints.
Senator Fitzgerald. None of them have had their licenses
yanked?
Mr. Fuller. Not that I know of.
Senator Fitzgerald. Does the Tribune favor lifting the cap
entirely or relaxing the cap to some extent?
Mr. Fuller. You know, the fact is I only really know for
sure the kinds of markets that we are in. We typically are in
pretty big major metro markets. That is pretty much where our
focus is, and I know for sure in those markets, there is really
no justification that I can see for the cross-ownership rule.
My inclination is that everywhere there has been a
proliferation of means of people getting information. Even in
my grandparents' old home in central Illinois, where we
practically had to listen to WGN for anything in those days,
now everybody has computers operating. They are getting farm
information and so forth from hundreds of different places. I
suspect that it is probably the same in most places. Certainly,
in the big metro markets it is a foolish rule.
Senator Fitzgerald. Mr. Baker.
Mr. Baker. Yes, Senator, I do not know what the answer is
to, this, but I would just like to add this thought, and that
is tied to this concept of the Supreme Court of diverse and
antagonistic voices in a market. It just strikes me--and I just
ask this Committee to think about this--it just strikes me that
if reporters are from the same company, a television station
and a newspaper, and they both get compensated with bonus stock
options or bonuses at the end of the year, and they attend the
corporate Christmas party, you know, is it possible, it
certainly is possible, I suppose, to be antagonistic to one
another and to show totally separate points of view. But it
might be a bit harder, and I just ask you to think about that
issue.
Mr. Fuller. If I can give a couple of examples. In Chicago,
WGN television, our great partner, took considerable glee, at
least by the lights of the editorial department of the Chicago
Tribune, when one of the editors of the Tribune was arrested in
a humiliating way. The story led the newscast of WGN television
at 9 o'clock at night. I don't think you would find WGN
believing that our television critics are overly kind to WB
programs. I know that if you ask most Cubs fans whether the
Tribune is slanting it toward the Cubs, you would hear very few
people saying they thought it was doing that. In fact, most
people think we are more antagonistic toward the Cubs because
we own them.
Senator Fitzgerald. Mr. Karmazin, with respect to the
ownership caps nationwide. The cap is now at 35 percent, and
that 35 percent means that you cannot be available to more than
35 percent of the Nation's market. But at any one time, what
percent of the market, of the whole country is actually
watching one of the stations that you own?
Mr. Karmazin. Unlike the rule as it applied to cable which
the court just set down, you can own 30 percent. In that
particular case, the cable system is reaching fully the 30
percent of the households, because in every market, there is 80
percent of the people in that market that are subscribers to
the cable system or 70 percent. We would typically have an
audience that might be 10 or 12 percent, so within the market,
if in fact, New York City accounts for 6 percent of the
population, we may be reaching 15 percent of that 6 percent. So
realistically, we are not reaching 35 percent of the country
with our local programming.
Senator Fitzgerald. That would be less than 30 years ago,
too, wouldn't it, where you are actually reaching?
Mr. Karmazin. It is far less today than it was when I first
started in the business.
Senator Fitzgerald. If I think about an analogous situation
in banking, I have a background in the banking profession,
there is a Justice Department rule that no bank may have 10
percent of the deposits in a given area. But that is how they
phrase it. You cannot have the actual deposits, but as far as
being available to people in the area, I would think there are
companies like Citibank that would be available to almost
everybody in Chicago, available probably almost to everybody in
a major metropolitan area anywhere in this country.
Would it make more sense to structure the rule, instead of
who your stations are available to, to look at who is actually
watching it, because you are going to be available to lots of
people who aren't actually watching it.
Mr. Karmazin. Senator, we truly believe that the arguments
are there for the cap to be just eliminated, and that there
should be no national restriction.
Senator Fitzgerald. Have you done a First Amendment
challenge like the cable owners did successfully?
Mr. Karmazin. Well, I can't tell you successfully, but the
court has stayed the enforcement of the 35 percent cap, and
that is why we have 41 percent currently. We believe that we
have oral arguments, I believe in September on it, so we are
optimistic. But we would like to see there be no cap. But, if
what you are talking about the proposal as it related similar
to Citibank, is certainly more workable than the 35 percent cap
is, because it is just a misnomer. We are not reaching 35
percent of the people. There is no television station that
reaches 100 percent of its market.
Senator Fitzgerald. Right. That would seem to make more
sense if the cap were not lifted entirely.
Mr. Karmazin. I see that viewpoint, sir.
The Chairman. Go ahead.
Mr. Frank. The way the measurements work, a show like
``Survivor'' comes along and the ratings of CBS, thankfully for
the CBS affiliates that we have, go significantly up. The
system we operate on has been in place for many years and, in
fact, if you do reach--the networks reach almost 100 percent of
all the available audience every week--and that is good for the
country.
The problem with raising the cap, or eliminating the cap,
is that you are talking about a different subject here. You are
not talking about reach, because CBS is into 100 percent; NBC,
ABC, they are into basically 100 percent of the homes now with
their affiliates. What you are talking about is changing the
balance of the local American system of broadcasting, which is
based on strong networks and healthy, strong affiliates as
well. If you do not have the balance of power between them, if
you raise that cap at all then the local affiliates have no way
to participate in that.
In fact, if the cap went to 45 percent--just as a for
instance--that would mean that a network could own stations in
the top 20 markets, every one of those markets and that would
mean then that, in fact, the affiliates would have no say at
all at the table, no moderating influence, no discussion at all
about things like a baseball game.
Senator Fitzgerald. Could I follow up. I know my time is
expired.
The Chairman. Go right ahead.
Senator Fitzgerald. The networks have always had a dominant
share of say national news, the NBC, ABC, and CBS Nightly News.
They basically had a monopoly on that 30 years ago as far as
television, broadcast, national news. The local news is
Balkanized, because there are local media markets. In my State,
there are 9 television markets. You seem to be concerned not
with any kind of a domination at the national level, because as
you pointed out, the networks reach into virtually 100 percent
of the homes. You are not concerned about them controlling
national news, but you are concerned about them controlling
local news?
Mr. Frank. Well, the fewer owners that you have of local
stations, you lose the ability of making independent decisions.
You have fewer people at the table.
Senator Fitzgerald. Why are you concerned about the local
news and not the national news?
Mr. Frank. We are not. Nationally it is what it is at the
moment, and the cap has no effect on how that operates at this
moment. What you are talking about--the ownership cap--is the
percentage of stations that one company can own throughout the
country.
Senator Fitzgerald. But shouldn't you, to take your logic
to be perfectly consistent, you should not only want to
continue the ownership restrictions so that there is not a
domination around the country in the small market, but you
should want to do something to address the monopoly on national
news that I think the networks really have. And certainly had
to a far greater extent many years ago.
Mr. Frank. Again, sir, we believe that the ownership cap
issue has to do with diversity and localism and the ability of
having many owners participate in the choices made by people
around the country and not a few.
Senator Fitzgerald. Thank you, Mr. Chairman.
The Chairman. Senator Breaux.
STATEMENT OF HON. JOHN B. BREAUX,
U.S. SENATOR FROM LOUISIANA
Senator Breaux. Thank you very much. I have two points I
want to get into. First, I think the argument of localism is a
smokescreen. Because in my State of Louisiana, I got about 30
stations. The vast majority of them owned by people in New York
and California and Texas, whether it is a CBS affiliate in New
York or whether it is a Hearst Argyle conglomeration of
affiliates around the country.
I think the real issue here is the bargaining power between
the affiliates and networks. I think you can always talk about
localism. We have more local views now on stations in my State
and everywhere else. It is good because the station, whether it
is affiliate-owned or network-owned, is good broadcasting. It
is good business. People buy ads when you see local news being
covered and community affairs being covered. That is true
whether it is a CBS-owned station, NBC-owned station, Hearst
Argyle station, Post-Newsweek station, they are going to put
local stuff on because it is good business.
I cannot fathom an argument that somehow some large
affiliate group in New York owns stations in Louisiana that
somehow Louisiana is being better covered from a local
standpoint because someone in New York owns them, versus CBS in
New York. They are both in New York. And they both carry local
stuff because it is good business. It is good policy. You sell
ads, people want to see what's on the local news. They love the
local newscasters, they love seeing local community affairs
covered.
So I think this whole argument of localism is a smokescreen
as far as the real issue being the marketing power between the
networks and their affiliates. I understand that. But I don't
think localism is any better served by a group in New York that
owns my stations in Louisiana.
Mr. Frank, can you comment on that?
Mr. Frank. Thank you, Senator. I have said all along during
the hearing that this is not anti-network. We appreciate people
like Mr. Karmazin, they are true broadcasters. The question is
how many people, how many owners are you going to have? Who is
going to make the programming decisions in America? It just
seems to us that it is clear that the fewer owners you have,
the fewer people make the decisions, it is simply not good
policy.
Affiliates are good moderating influences with the network.
They are disciplining influences and this happens every day
between the affiliate boards and the network. Every week, we
talk about different things. Networks make decisions. For
instance, NBC fed the XFL games this year, and in spite of
affiliate protests, there was one feed, an 8 o'clock game every
night for 15 or 13 weeks, whatever the season was. That meant
on the West Coast those games started at 5 o'clock. In spite of
heavy affiliate protest, that meant that every week throughout
the season there was no local news on any NBC station because
they were carrying XFL.
Senator Breaux. Mr. Karmazin, can you comment on that?
Mr. Karmazin. Sure. I guess this proves this has nothing to
do with the ownership cap, because right now, NBC is 25 percent
of the country and obviously, if the existing relationships
between the network and the affiliates are so strong this way,
then why did they not have the influence against NBC? I think
it has to do with some group owners who do not want us to
compete to buy TV stations, because if we are not at the table
competing, maybe they can get it smaller. Because I guess it is
possible for one group owner, under 25 percent, to own maybe
100 television stations in the smallest markets in the country.
So there you would have one person have 100 stations and that,
I guess, would be OK, because it is not the ones that are the
ones that the major group operators are interested in.
I think the localism, you know, is absolutely not accurate.
I would argue that when we look at a Post-Newsweek station, a
great TV station in Jacksonville, and we have a great TV
station in Baltimore, you could not tell which one is a Post-
Newsweek station, which is a local station. Both preempt when
appropriate, and both are serving their respective communities.
Senator Breaux. Let me ask the second point. Is the
question of the cap, and I think Senator Fitzgerald talked
about this. It used to be you could only own three stations,
then we moved it up, I think, to seven stations, then we moved
away from this concept of how many stations you could own to
what percent of the audience in the market versus the country
that you could potentially influence, and we are now at 35
percent. But it seems to me that the 35 percent is a number
that has no meaning.
Mr. Karmazin, you had talked about CBS having 10 percent of
the actual viewership. The Nielsen ratings that we have seen
say we are going to tell you it advertises that, but it is less
than that. All the networks, 3 percent of the actual audience
watches that station and that feed from that network, as
opposed to--you may be in a market that you are covering 35
percent potential audience. But if you have got cable in that
area, which you would with 125 different channels at any one
time, you probably average out maybe 3 percent of the actual
viewing market. I think the 35 percent, if you are going to
have a standard, I think it ought to be based on something that
is realistic, i.e. what percent of the market actually looks at
the broadcasters or affiliates in that area.
Is there any way we are going to have a cap that would be
more accurate a reflection of the market influence and
potential other than just a number that only relates to
potential owners?
Mr. Karmazin. Well, taking a look at the radio industry as
an example and taking a look at what was thought about in 1996,
the belief was that the area of concern was not the absolute
number, you know. So what if somebody owns a station in every
single market in the United States.
Senator Breaux. If nobody listens to it.
Mr. Karmazin. There is so much other competition, there are
so many other choices. That did not seem to be a problem. So
again, our viewpoint is if, in fact, we owned a television
station in every market in the United States--something that we
would not have a business interest ever doing, we would like to
be in big cities and big markets. If we own 212 television
stations that would not present, in any given market, any
concern to anybody locally in that market, because there would
be so many other competitive choices. Our position would be
that there should be no cap. If there were a cap, it should be
more related to what we reach, not the hypothetical number of
how many people live within that market who conceivably could
get that station.
Senator Breaux. Thank you, Mr. Chairman. Thank you.
The Chairman. Thank you very much.
Senator Allen.
STATEMENT OF HON. GEORGE ALLEN,
U.S. SENATOR FROM VIRGINIA
Senator Allen. Thank you, Mr. Chairman. Let me commend you
on holding this hearing on these important issues. Let me say
at the outset, I very much value local broadcasters. As
Governor--and I know Senator Hollings when he was Governor--I
understood the value of local broadcasting for the local
events, the news, natural disasters, local causes, and so
forth. I think that is very important and I have come from that
point of view.
I also think it is just great for consumers these days, all
the competition there is with satellites and cable and it is
not just the three networks. There is now Fox, CNN has done a
great job. I think people love contentiousness. That is why
``Crossfire'' does so very well and ``Capital Gang'' and so
forth, and then people like diversity.
In fact, it all started on PBS with the ``McNeil/Lehrer
Report.'' They liked people arguing and giving a point of view.
There is plenty, like the Family Channel, and Nick, which my
children thrive on, as well as the Nature channels, and sports.
I do watch the networks mainly for local news and sports, so it
is smart of you to get the NCAAs and the NFL, as far as I am
concerned. And I do watch WGN, because I like to watch the Sox
and the Cubs. There is the variety of others.
At any rate, the issue here is the broadcast cap, the
newspaper cross-ownership issue and the third issue, where
listening to all of you all talk about wanting to get into the
big markets is an issue that has arisen in broadcasters from
our Commonwealth of Virginia and smaller markets that have to
do with a small market ownership restriction rule, so they call
them duopolies, and I'd like to hear your views on that.
Senator McCain and Senator Breaux and Senator Fitzgerald
went through the litany of how things have changed. Things have
changed and we need to be realistic on it as far as the smaller
market share for national broadcasters. There is more
competition. There is more choice for viewers.
On the issue of the newspaper cross-ownership, newspapers
have faced some challenges with all this competition. There are
fewer newspapers, and yes, they are more consolidated, but
nevertheless, I see no logic in restricting a broadcaster from
ownership of a broadcasting station to be owned by a newspaper.
I see absolutely no logic whatsoever. Just as a matter of
philosophy and principle, what does it matter with all this
choice and competition? I do not know what the legislation will
come up with, but certainly on cross-ownership of newspapers
and broadcasting, I see no reason why that outmoded approach
would stand and I think it actually would benefit consumers,
where broadcasters and newspaper owners face financially
challenging conditions in the newspaper business and also in
the local broadcasting area.
That brings me to the issue that I am personally interested
in. If legislation is going forward in this area, I think it is
closely related, and that is, folks that were talking to new
broadcasters from generally the Southwest Virginia/Tennessee
area, the Bristol/Kingsport area, or the Tidewater area, or the
Roanoke/Lynchburg area where there are specific restrictions on
these small market owners that if you have fewer than 8
stations, you cannot have cross-ownership. Their concern is
that these restrictions that are put on small markets restricts
them from producing quality programming for that community,
whereas the big city areas, the larger markets do not have
these same restrictions. I think that these local television
managers confirmed, and in some cases would limit facilities
and getting revenue sharing that would help keep struggling
stations alive with better programming and more diversity, as
well as the quality available to the viewers in some of these
small markets.
I would like to see if we can seek some redress to that to
treat smaller areas, smaller-market ownership the same as all
the big areas or larger markets. So in sum, I very much agree
with some of the comments of Senator McCain and Breaux and
Fitzgerald. Some of these matters are addressed by the must-
carry rules on cable. There is pending litigation of the issue
of the 35 percent cap. I am going to continue listening to
that. I have not made a decision one way or the other on that
particular issue, but I have been listening to all the
arguments on the issue of newspaper cross-ownership. Boy, that
is an archaic rule, and I think that ought to be removed if it
takes legislation. I do think we need to relax the restrictions
on smaller market ownership. I look forward to working with
Members of the Committee on a variety of issues here, and I
commend the Chairman for having this hearing.
I would just like to ask, since you all have given your
views on the caps and the cross-ownership issue--and in
listening to you, Mr. Fuller, carrying on very persuasively,
expressing your views on restrictions--I would ask Mr. Frank
and Mr. Karmazin as well, what would your views be on relaxing
these restrictions on small market so-called duopolies? Would
you all support addressing that?
Mr. Fuller. Tribune has supported relaxation of the duopoly
rules.
Mr. Karmazin. Again, we do not have any stations in the
small markets, but we fully support it. I think there may be a
situation where if there are 5 stations in a market and they
cannot take advantage of duopoly and consolidation and they had
5 newsrooms in those stations, there is a risk there will be
zero newsrooms as compared to there being one or two. I think
that small market television, small market radio--my son owns
five radio stations outside of Madison, Wisconsin, and his
total revenue for his five stations is like about $2 million,
and believe me, he needs consolidation in order to be
successful, so I would definitely support it.
Senator Allen. Mr. Frank.
Mr. Frank. Senator, NASA has not taken a position on
duopoly. It is a matter of wide debate. Personally, I testified
against duopoly some years ago in front of the FCC, but once
the rule is passed, obviously it is the rule that we have and
many broadcasters participate in it. And people are looking
into ways to make it work.
Senator Allen. If I may, Mr. Chairman, so your position
personally is that you personally do not like that restriction,
but your association has not taken any position in favor or in
opposition of any changes to it?
Mr. Frank. Yes, sir. That is correct. Our association deals
with network affiliate relations and concerns and duopoly is
not on that list.
Senator Allen. Thank you, Mr. Chairman.
The Chairman. Let me, on behalf of the Committee, thank
each of you for your valuable contribution. We appreciate your
appearance, and we will keep the record open for any further
questions by the other Members who could not attend, and very,
very much thank you.
We have a very important second panel: Gene Kimmelman of
the Consumers Union and Dr. Eli M. Noam, a Professor of Finance
and Economics and the Director of the Columbia Institute of
Tele-information.
Dr. Noam, Mr. Kimmelman, it is unfair. With these large
Committees, we used to have 6 and then 13, now we have 23
Members. With the questions and the answers from the complete
panel, we never can really get past one panel. But we are
grateful for your patience. I will be glad to hear, Mr.
Kimmelman, if you can start us off, and Dr. Noam. The reason I
am hastening along, too, is because I understand they may have
a roll call at 12 o'clock.
STATEMENT OF GENE KIMMELMAN,
CO-DIRECTOR, CONSUMERS UNION
Mr. Kimmelman. Thank you, Mr. Chairman on behalf of
Consumers Union, publisher of Consumer Reports, I appreciate
the offer to testify and we want to, on behalf of Consumers
Union, support your efforts to ensure that before these very
important media ownership rules are adjusted, modified or
eliminated, that the expert agency, the Federal Communications
Commission, has actually done its homework and evaluated the
market realities in media markets.
All the witnesses, and I believe, all the Members of the
Committee, have endorsed the very principles that consumers
believe are at stake here: promoting competition, diversity of
ownership, and meeting local community needs. And these media
ownership rules have been absolutely critical and have met
those goals in the past.
But the market has changed, as many of you have pointed out
today, but not quite in the way that some would have you
believe. To understand how these markets work, you cannot just
throw everything involving media together and say everything is
equal.
Mr. Karmazin spoke quite a bit about outlets, but it is
interesting when his boss, Mr. Redstone, comes before Congress
or files an antitrust lawsuit, he highlights market share and
influence. That is what Viacom looks at when it evaluates
markets, and it is what the Committee and the FCC should look
at instead of media outlets
Nightly broadcast network news has 25 million viewers every
night. All of the other cable news channels, all put together,
three million. Add the Internet, hardly anything more.
Newspapers are monopolies. Monopoly outlets in 98 percent of
communities in this country. Statistics show that the two most
important means by which consumers receive news and information
are television and newspapers. So this isn't an issue of
whether a lot of broadcasters should own a whole lot of
newspapers in the community. There is only one newspaper. If
that newspaper owns a broadcast outlet, that is the issue.
Whether you support giving away the airwaves or auctioning them
off, it is not the broadcasters who talk about that. It has
been in the newspapers where that debate has occurred and the
danger of lifting that restriction right now involves the loss
of newspapers challenging broadcasters' business practices.
We have heard a lot of talk about variety. There is
enormous variety out there. But that is not the important issue
when you are promoting a diversity policy at the FCC. The issue
is who owns it? You can have all the variety you want from a
monopoly and unless you have a benevolent dictatorship, you do
not necessarily meet community needs. We have a lot of variety
on the Internet, but AOL/Time Warner now controls a third of
the hits on the Internet. If you look at prime time television,
that is what people watch the most. That is predominantly owned
now by the national broadcast television networks. And you add
together the top cable companies and top broadcast networks and
almost all of the most popular 10, 20, 30, 50 channels are
controlled by those national networks and the largest cable
companies.
When we hear talk about the First Amendment, it is
important to consider not just the corporate free speech
rights, but the public's rights as you have pointed out, Mr.
Chairman, to an open marketplace of ideas. The corporate rights
are given through privilege by this Congress, the rights to use
the public airwaves and rights-of-way. You can and have
restricted their use and the courts have supported Congress in
doing so. You could have made cable and wireless common
carriers, just like telephone companies are.
Telephone companies cannot control what goes over their
networks, and the courts have said that is within the purview
of the Commerce Clause rights of Congress to regulate for the
public's interest. You could do that here, too, since what is
at stake is the public's right to free speech.
Let me explain why the variety of outlets do not solve
consumer problems. Everyone recalls the dispute between Time
Warner and ABC about carriage of Disney programming. Mr.
Karmazin is talking about competing against cable. If Time
Warner had won that battle, consumers would have lost
programming. But Time Warner could have still raised their
cable rates. If ABC won, which it finally did, and had its
programming on Time Warner cable, Time Warner could just keep
on raising rates.
What we have in these markets is not direct competition. We
have separate market segments adjacent to each other and what
we are seeing more and more without competition in transmission
or distribution is that the giants in the media business are
not competing for consumers' interests. They are not competing
to drive down prices and to offer consumers more of what they
want. It is a competition of sorts. It is a fight. It is a
fight over who divides monopoly profits, and that is the
problem here. We need to go back and look at market structure
to understand how broadcast and cable fail to compete.
Now, it is our view that it is absolutely critical for the
Federal Communications Commission to go back and do a careful
analysis of these markets. It has not done so in the recent
past. It is now time to do that. But before the FCC considers
changing these media ownership rules, we want to make sure that
any alteration, any modification or elimination still meets
those public interest goals of competition, diversity of
ownership and meeting local community needs. Chairman Powell
has indicated that the marketplace is good enough.
As you point out, Mr. Chairman, I am not sure that is
consistent with the law. But I know one thing, the empirical
research does not support the view that the marketplace itself,
and it certainly never has in the past, provided diversity of
ownership automatically, or meets local needs automatically.
And in this case we do not have anywhere near a competitive
market. We have massive consolidation within each
communications and media sector which tends to extend monopoly
control of each sector rather than compete head-on.
So Consumers Union very much supports your effort to make
sure that before the FCC modifies these rules, it gets the
facts, gets the facts right and makes sure that we are still
represerving these important public interest principles.
Thank you.
[The prepared statement of Mr. Kimmelman follows:]
Prepared Statement of Gene Kimmelman, Co-Director, Consumers Union
Consumers Union \1\ is concerned that meaningful public policy
debate about the need for media and communications ownership
restrictions has been distorted by ideology and the business interests
of the commercial players who stand to gain or lose by manipulating
this debate. We urge policymakers to reaffirm the goals of promoting
competition, diversity and meeting community needs, and to refocus the
ownership debate on the fundamental attributes of the various
communications and media markets. While the antitrust laws can
effectively prevent substantial reductions in competition, they are not
effective tools for dismantling monopolies, promoting competition or
preserving other public interest values. We believe that consumers'
interests will best be served if the Federal Communications Commission
(FCC) is instructed to maintain previous media ownership rules, until
it can demonstrate how the public interest in more competition, diverse
ownership and the needs of local and minority viewpoints can be met by
altering or eliminating these rules.
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\1\ Consumers Union is a nonprofit membership organization
chartered in 1936 under the laws of the State of New York to provide
consumers with information, education and counsel about goods,
services, health, and personal finance. Consumers Union's income is
solely derived from the sale of Consumer Reports, its other
publications and from noncommercial contributions, grants and fees. In
addition to reports on Consumers Union's own product testing, Consumer
Reports with approximately 4.5 million paid circulation, regularly
carries articles on health, product safety, marketplace economics and
legislative, judicial and regulatory actions that affect consumer
welfare. Consumers Union's publications carry no advertising and
receive no commercial support.
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The recent explosion of media and communications technology was
expected to deliver consumers a brave new world of competition across
all telecommunications and media markets. There is no doubt that today,
consumers have the option of receiving news, information, entertainment
from a far greater variety of media--newspapers, radio, television, the
Internet--than ever before. Unfortunately, this growth in variety has
not been accompanied by a comparable growth of independent, diversely
owned competitive communications services and media voices.
Rather than the cross-market competition envisioned with the
enactment of the 1996 Telecommunications Act, virtually every
communications and media sector has witnessed an explosion of
consolidation. The study attached as an appendix to this testimony,
``Mapping Media Market Structure at the Millennium,'' provides the
detailed empirical and analytical analysis upon which our testimony
relies. The two major communications wires into the home, telephone and
cable are now controlled by a few super-regional companies that focus
their business on dominating their respective markets rather than
challenging each other's core business. Long distance companies have
not been able to crack the local phone companies' stranglehold on
consumers, and the satellite companies still cannot compete on price
with cable monopolies. Radio and newspaper chains grow larger, and
national broadcast networks continue to buy more local broadcast
stations. And on the Internet, where ``the number of potential online
channels is infinite,'' about one-third of user minutes were controlled
by cable giant AOL Time Warner last year.\2\
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\2\ ``Online Media Consolidation Offers No Argument for Media
Deregulation,'' Jupiter Media Metrix, Inc. June 4, 2001.
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Has this consolidation opened the door to new competition? Hardly.
Contrary to the claims of the major players in each communications
sector, Internet service providers, national broadcast networks,
newspaper and radio chains, and cable companies do not compete in a
meaningful way against each other for consumers' news, information,
entertainment and other communications needs.
A careful market analysis reveals that there are several kinds of
media markets (e.g., national v. local, primetime television v. daytime
TV, national network news v. all other news programming), which support
different business models (e.g., subscription-based v. advertiser-
based). These markets are adjacent to each other rather than in
competition with each other. This is not to say that there is no form
of competition or rivalry across media, but newspapers' classified
advertising cash cow in no way resembles the high-priced pharmaceutical
and auto advertising splashed across national television network
primetime programming. These are separate markets that are not yet
substitutes for one another. For example, the enormous growth of the
Internet provides no basis for relaxing the national television
broadcast ownership cap, given that only about half the country is on
the Internet, and the Internet does not provide a service comparable to
broadcast television.
And in moderately or highly concentrated media and communications
markets, vertical integration--the combined ownership of content and
distribution channels--can skew incentives to undermine journalistic
independence. For a news program at a station that is independently
owned and operated, the overriding concern should be credible and
professional reporting that will bring viewers back. However, when a
large media conglomerate gobbles up that same station, it becomes
unlikely that the station will cover its parent aggressively when
inevitable conflicts of interest arise. In markets with few direct
competitors, this bias is more likely to go unnoticed and unchallenged.
Even when it appears that the giants in one media sector are
squaring off against the giants in another, each invoking the
consumer's interest as its sole motivation in battle, often the
consumer is more a hostage than the beneficiary of the warfare. For
example, when ABC, backed by its parent, the Walt Disney Company
(Disney), squared off against cable monopoly Time Warner over carriage
terms for Disney's programming, consumers faced the following
prospects: either Time Warner would win and consumers would still pay
inflated cable rates without receiving Disney programming, or Disney
would win, and Time Warner could increase consumers' rates in return
for carrying Disney programming. And when cable and Internet giant AOL
Time Warner sounds like it wants to challenge the national broadcast
networks' dominance in TV news coverage through its popular CNN and
Headline News cable channels, analysts believe this really means that
AOL Time Warner wants to merge or partner with either ABC News or NBC
News.\3\
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\3\ Jim Rutenberg, ``Mix, Patch, Promote and Lift.'' New York Times
(July 15, 2001).
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The fundamental failure of media and communications policies to
develop competitive transmission/distribution systems has left
consumers at the mercy of powerful content and transmission companies
whose most antagonistic, ``competitive'' behavior consists of fighting
with each other over who gets the larger share of monopoly profits from
consumers, and who often control content delivered to consumers.
As the FCC reviews its national television broadcast ownership cap,
and newspaper/broadcast cross-ownership rules, it is critical that the
Commission take a careful look at the fundamentally different
characteristics of each media and communications market, in determining
what regulations are appropriate to meet Congress' goal of protecting
the public interest. And Consumers Union believes that it is important
for the Commission to preserve critical elements of previous judicially
and Congressionally approved definitions of the ``public interest''--
promote diversity based on independent ownership designed to expand
competition, meet local community needs, and protect the viewing/
listening public's First Amendment rights to hear and be heard--rather
than drifting toward a definition where variety (even if owned and
controlled by few) equals diversity.
Past Commission reviews of these ownership rules have involved only
cursory analysis of the most critical economic forces at play in media
markets and we believe it is time to correct that flaw. Especially at a
time when the D.C. Circuit Court of Appeals can find a way to read an
act of Congress (the 1992 Cable Act, Public Law 102-385, which was
designed to promote cable competition by limiting concentration of
ownership) as potentially allowing a single cable company to own
systems serving as many as 60 percent of all cable customers, \4\ it is
obvious that Congress' expert communications agency must do a better
job in gathering data, analyzing market forces, and then demonstrating
how congressionally mandated rules address market dysfunction.
---------------------------------------------------------------------------
\4\ Time Warner Entertainment v. Federal Communications Commission,
No. 94-1035 (D.C. Cir., Mar. 2, 2001).
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However, we are troubled that the FCC's current Chairman has
characterized the broadcast ownership cap as based on ``a romantic
notion, an emotional one,'' \5\ that limits ``are almost always poorly
calibrated'' \6\ and that ``there is something offensive to First
Amendment values about that limitation.'' \7\ We certainly hope that
Chairman Powell will engage in a thorough analysis of the market forces
that are affected by this rule and all others, rather than reach
conclusions based on past shortcomings in the FCC's research. And we
hope the Chairman has not forgotten than the First Amendment protects
the public's free speech rights, not just the more limited right of
commercial media enterprises.\8\ As we point out above, just because
many media ownership rules are old and markets have changed does not
mean that markets, without these rules, can adequately promote
diversity of ownership and competition.
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\5\ Labaton, Steven, ``F.C.C.'s Chairman Would Curb Agency,
Reach,'' New York Times, Feb. 7, 2001.
\6\ Srinivasan, Kalpana, ``FCC Chief Wary of Broadcast Rules,''
Associated Press, April 25, 2001.
\7\ Id.
\8\ Red Lion Broadcasting Co., Inc., et al v. Federal
Communications Commission et al, 395 U.S. 367 (1969).
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Recent research on the economics of radio and newspaper markets
raises fundamental concerns about whether deregulation of ownership in
media markets can produce the kinds of consumer benefits and a robust
marketplace of ideas, that are usually associated with competitive
markets.\9\ For example, data show that people whose tastes in radio
programming differs from the largest group of listeners in a community
tend to receive less content than they desire in the marketplace, and
that this is likely the case for other media:
---------------------------------------------------------------------------
\9\ Waldfogel, Joel and George, Lisa, ``Who benefits Whom in Daily
Newspaper Markets?'' National Bureau of Economic Research (2000).
Waldfogel, Joel, ``Preference Externalities: An Empirical Study of Who
Benefits Whom in Differentiated Product Markets'' National Bureau of
Economic Research (1999).
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A consumer with atypical tastes will face less product variety than
one with common tastes. The market delivers fewer products--and less
associated satisfaction--to these groups simply because they are small.
This phenomenon can arise even if radio firms are rational and entirely
non-discriminatory.
The fundamental conditions needed to produce compartmentalized
preference externalities are large fixed costs and preferences that
differ sharply across groups of consumers. These conditions are likely
to hold, to greater or lesser extents, in a variety of media markets--
newspapers, magazines, television, and movies.
Radio programming preferences differ sharply between blacks and
whites, between Hispanics and non-Hispanics and (to a lesser extent)
across age groups.\10\
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\10\ Waldfogel, ``Preference Externalities'' at 27-30.
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These findings indicate that, given the large fixed costs involved
in offering media services, the wide variety of tastes in media
markets, and the drive to maximize profits through maximum advertising
revenue/audience size, market forces are likely to leave more local
tastes under-satisfied by national firms, and more minority tastes
under-satisfied even in local markets. It is therefore necessary for
the government to continue regulating--either through structural
constraints like ownership caps, or behavioral requirements like
``equal time,'' ``reasonable access,'' or network/affiliate rules--to
pursue the public interest goals of meeting local community needs and
promoting diversity of views in media markets, even where competition
exists.
Consumers Union therefore believes the FCC should leave the current
national television broadcast ownership cap in place, while it
initiates a much more detailed and extensive analysis of market
structure than it has in the past. The current cap, which allows a
national broadcast company to own local television stations that reach
as many as 35 percent of the national television viewing audience, is
already set at a level that often triggers antitrust scrutiny over the
ability to control programming decisions in the marketplace. With four
national television networks already dominating primetime television
viewing and the massive advertising dollars that come with it, there is
a substantial danger that further ownership of local stations would
lead to increased pressure on local stations to carry nationally
oriented programming which maximizes national advertising revenue, at
the expense of locally oriented programming. And the fact that the
national television networks, no longer constrained by limits on
vertical integration (the financial interest and syndication rules),
have a financial incentive to favor programming they produce and
syndicate is likely to increase pressure on local stations to carry
network owned rather than locally popular programming. Certainly the
local network affiliates--who may also be doing less than they should
to meet community needs--are complaining about an excessive national
profit orientation by the networks at the expense of local programming
needs.\11\
---------------------------------------------------------------------------
\11\ Network Affiliated Stations Alliance, ``Petition for Inquiry
into Network Practices.'' (Federal Communications Commission, Mar. 8,
2001).
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Consumers Union urges the FCC, as part of its review of the
broadcast ownership cap, to initiate an investigation which answers the
following critical questions:
1. Since the national television broadcast ownership cap was raised
from 25 to 35 percent, how much has local programming designed to meet
community needs suffered?
2. How much has elimination of the financial interest and
syndication rules affected local station's ability to preempt network
programming to show programs that reflect community tastes?
3. How much does l, as opposed to theoretical, enforcement of the
Commission's network/affiliate rules protect local broadcasters from
unfair leveraging by the national broadcast networks?
4. Are these rules adequate, without a national ownership cap, to
prevent unfair leveraging?
5. When there is no interference from the national broadcast
networks, are local broadcast licensees meeting their obligations to
serve local community needs, or is greater public intervention
necessary to ensure diversity of local programming?
The FCC's newspaper/broadcast cross-ownership rule plays a very
different role from the national broadcast cap in promoting a
marketplace that protects the public interest. Consumers Union believes
that this prohibition on a local newspaper owning a local broadcast
outlet in the same community has much more to do with promoting checks
and balances in media coverage of news and information (including
matters affecting the business interests of newspapers and
broadcasters) than competition. The fact that virtually every community
in this country has only one financially stable community-wide
newspaper, and that broadcast does not compete effectively with
newspapers, should give the FCC pause as it considers relaxing or
eliminating the cross-ownership rule:
Wasn't it television and radio that were going to kill newspapers?
``I don't really consider them competition in that old-school way,''
stresses Florida Sun-Sentinel editor Earl Maucker. ``They reach a
different kind of audience with a different kind of news--
Publisher Gremillion, a former TV executive himself, seconds the
point, ``I don't believe people are watching TV as a substitute for
reading the newspaper--'' --Many newspapers are increasingly writing
off local TV news as a serious threat, treating local stations instead
as potential partners who can help spread the newspapers' brand name to
new and bigger audiences.\12\
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\12\ Stepp, Carl Sessions, ``Whatever Happened to Competition,''
American Journalism Review (June 2001).
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It is difficult to imagine the Thomas Paine pamphleteer tradition
of print journalism--considered so valuable to our core beliefs that
the Supreme Court granted it the most far reaching First Amendment
protections \13\ will be able to survive in a world where newspapers
become marketing devices for broadcasters. Print journalists often
assert an allegiance to their almost century-old creed:
---------------------------------------------------------------------------
\13\ New York Times Co. v. Sullivan, 376 U.S. 254 (1964).
---------------------------------------------------------------------------
I believe in the profession of journalism. I believe that the
public journal is a public trust; that all connected with it are, to
the full measure of their responsibility, trustees for the public; that
acceptance of lesser service than the public service is a betrayal of
this trust.\14\
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\14\ Kunkel, Thomas and Roberts, Gene, ``The Age of Corporate
Newspapering; Leaving Readers Behind,'' American Journalism Review
(2001) citing Walter Williams, The Journalist's Creed (1914).
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Compare these journalistic values with the image presented by
Tribune Company executives, describing how the Chicago Tribune and
Chicago television station WGN, among other media properties, view
their business: ``Tribune had a story to tell--and it was just the
story Wall Street wanted to hear. In charts and appendices, they showed
a company that owns four newspapers--and 16 TV stations (with shared
ownership of two others); four radio stations; three local cable news
channels; a lucrative educational book division; a producer and
syndicator of TV programming, including Geraldo Rivera's daytime talk
show; a partnership in the new WB television network; the Chicago Cubs;
and new-media investments worth more than $600 million, including a $10
million investment in Baring Communications Equity Fund, with dozens of
Asian offices hunting out media investments.
``There was an internal logic and consistent language to their
talk: Tribune, said the four men, was a ``content company'' with a
powerful ``brand.'' Among and between its divisions, there was a
``synergy.''
``It was a well-scripted, well-rehearsed performance, thorough and
thoroughly upbeat. And the word ``journalism'' was never uttered, once.
``Even apart from TV and new media--at the Tribune papers
themselves--the editor in chief rarely presides at the daily page one
meeting. The editor's gaze is fixed on the future, on new zoned
sections, multimedia desks, meetings with the business side, focus
group research on extending the brand, or opening new beachheads in
affluent suburbs. ``I am not the editor of a newspaper,'' says Howard
Tyner, 54, whose official resume identifies him as vice president and
editor of the Chicago Tribune. ``I am the manager of a content company.
That's what I do. I don't do newspapers alone. We gather content.''
\15\
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\15\ Auletta, Ken, ``The State of the American Newspaper.''
American Journalism Review (June 1998).
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In highlighting the Tribune Co., we do not mean to suggest that
there is anything wrong with the company's behavior. On the contrary,
economic ``synergies'' may certainly help Tribune improve the quality
of its media products. And we do not mean to suggest that other
factors, like newspaper consolidation and newspaper ties with other
corporate entities, do not also challenge print journalist's ability to
follow their creed. However, when the two largest sources of news and
information--television and newspaper \16\ come under the same
ownership roof, there is special cause for concern about business
pressures that could undermine the free marketplace of ideas.
---------------------------------------------------------------------------
\16\ Media Studies Center Survey, University of Connecticut, Jan.
18, 1999.
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Consumers Union believes that, particularly where there is only one
local newspaper, the public interest is best served by prohibiting that
newspaper from owning a local television broadcast outlet. Dangers
ranging from favorable newspaper reviews of a broadcaster's
programming, to positive editorials/opinion articles about business
interests of a broadcaster or politicians who favor such business
interests would be difficult to prevent if cross-ownership is broadly
permitted:
Down in Tampa, Media General has gone so far as to put its
newspaper, the Tampa Tribune, in the same building with its local
television station and online operation, the better to exchange stories
and, ostensibly, resources. (It's still unclear what the newspapers get
out of the bargain other than garish weather maps sponsored by the
local TV meteorologist.) Tampa's has become the most sophisticated
model of this kind of thing, and as such is drawing enormous interest
from other newspaper companies.
Under the Tampa model, and presumably in most major city rooms of
the future, news decisions for all these outlets are made in a
coordinated way, sometimes in the same meeting. In effect the same
group of minds decides what ``news'' is, in every conceivable way that
people can get their local news. This isn't sinister; it's just not
competition.\17\
---------------------------------------------------------------------------
\17\ Kunkel, Thomas and Roberts, Gene, ``The Age of Corporate
Newspapering; Leaving Readers Behind.'' American Journalism Review
(May 2001).
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Except where there is meaningful competition between local
newspapers, we believe that lifting the newspaper/broadcast cross-
ownership ban would significantly undercut the watchdog role that
newspapers play over broadcasters and thereby undermine--particularly
in the realm of political speech--Congress' goal of ensuring an open
marketplace of ideas.
It is time for the FCC to engage in a careful analysis of media and
communication markets, before it considers altering current ownership
rules. Consumers Union believes that such a analysis will demonstrate
the need to preserve the national broadcast network ownership cap and
newspaper/broadcast cross-ownership rule in order to promote the
publics interest in more media and communications competition,
diversity of ownership, and protecting the First Amendment rights of
citizens whose tastes do not correspond to those of the majority
nationwide or in a particular community.
The Chairman. Very good.
Dr. Noam.
STATEMENT OF DR. ELI M. NOAM, PROFESSOR OF FINANCE AND
ECONOMICS, COLUMBIA UNIVERSITY; DIRECTOR,
COLUMBIA INSTITUTE OF TELE-INFORMATION; FORMER COMMISSIONER OF
PUBLIC SERVICES, NEW YORK STATE
Dr. Noam. Thank you very much, Senator. Thank you for
dealing with this important issue. Yes, there has been a lot of
mergers. Some are troubling and some are not, but going beyond
the specific deal, the more important question is whether, in
the aggregate, American media have become more concentrated.
Because if we deal with that question, maybe we can relax a
little bit about the issues before us.
Despite the conventional wisdom about media concentration,
the answer is not an obvious yes. Because while the fish in the
pond have grown in size, the pond grew even faster.
Second, there have been a lot of new fish. Some of the
giant companies such as AOL or Microsoft or Viacom or Qwest
hardly existed 20 years ago or did not exist at all. And at the
same time, some of the old media empire giants have imploded,
companies such as RCA, the original CBS, Hearst, or AT&T. I
wouldn't be surprised if in the future we will say the same
thing about Fox, Disney, Time Warner, or Viacom. Companies are
growing more than they can manage, around some kind of
charismatic leader who puts it all together, but when he steps
off the scene, companies often cannot manage the way they did
before.
When it comes to concentration, there are strong opinions,
but the numbers are scarce. Therefore, we have conducted a
study at Columbia, and collected market share numbers industry-
by-industry, company-by-company, for 52 media and information
subindustries--from book publishing to film production to
Internet service providers and consumer electronics--in order
to trace the concentration trends since the early 1980s after
the AT&T divestiture. It is probably the most detailed study of
media concentration in America, and is generally confirmed by
another empirical study at Penn State.
Unfortunately, I was invited here only 3 days ago, so my
data is not quite up to date. But what we did find was that the
overall concentration of the entire information sector, which
includes mass media, telecommunication, and the IT sector, did
not increase, but declined somewhat over the past two decades.
At first, it went down, and then it rose again, but by 1998 not
quite to the level that existed in 1984 right after the AT&T
divestiture.
Now, if this surprises you, just remember that 20 years
ago, in that supposedly Golden Age of unconcentrated media we
seem to have lost, there were three major television companies,
one computer company, and one telecom company. While today,
nobody would argue that the communications industry is greatly
fragmented, there certainly are more participants than used to
be, although a bit less than 2 or 3 years ago. For the classic
mass media, such as broadcasting, cable television and print
media, concentration has increased, but not in every segment.
Radio is the classic example everybody gives for an
explosion of ownership. Its concentration more than doubled in
the last 5 or 6 years. But at the same time, the largest of the
companies owns only 11 percent of all stations and it accounts
for 15 percent of all revenue according to a DeutscheBank-Alex
Brown study. Furthermore, there are other audio delivery
technologies.
I, for example, listen to radio more on the Internet than
over-the-air, and the reason is partly because I like country
music and in New York City, despite 35 stations, you usually
cannot get country music over public radio. A few stations have
tried, but dropped out. But if Mr. Karmazin doesn't give this
music to me, Yahoo does. Obviously, I can't do this in the car
yet, although this too, will come and there are alternatives
such as satellites. So the real issue of radio ownership is
actually not so much the national ownership issue, but it is
local concentration. It is whether one company should have 8
stations in the same market.
Now, does that mean that there is concentration problems?
No. As I said it is probably more local concentration in
newspapers, in telecommunications, and in cable television.
That is why a cap on national cable ownership can be more
justified than for broadcasting, where no local market power
exists in the aggregate that could exclude channels in the way
that the largest of the cable companies could.
When it comes to the broadcast industry, a national
ownership cap will not do very much. Today, the four major
networks have barely 50 percent of the prime-time audience.
Their share keeps shrinking, and they are only a shadow of
their former domineering self. Most of the audience is watching
their programs over cable, not over-the-air, and if one
additional Supreme Court Justice changes his view and votes
against broadcast TV's must-carry rights, the broadcast
industry would be going into a tailspin.
Cable operators will then do separate deals with the major
networks and syndicators for direct program feeds, bypassing
local broadcasters, and will create or contract with local
providers such as newspapers for the news programs. Broadcast
station's spectrum rights will be their most important asset,
not their broadcast operations.
If you truly want very badly to achieve local content, a
direct approach is better than working through ownership. You
could, hypothetically, require a certain amount of local
program production as a prerequisite for license renewal. You
could set an open broadcast time slot for local access to
television. You could license low-power television. Now, those
might not be things that we want to do, but the fact that most
industry proponents of localism do not advocate such direct
policies toward localism tells me that this fight isn't really
about localism. And if that is the case, then government
officials should not be the arbiter between several media
industries on how to split the pie between them, tempting at it
might be. Similarly, media industries that cherish their
independence should not call for the government to regulate
them. It is really asking for trouble.
Therefore, I would not perpetuate the old rules of national
broadcasting ownership caps in an environment of new media.
I thank you, Senators, for your kind attention.
[The prepared statement of Dr. Noam follows:]
Prepared Statement of Dr. Eli M. Noam, Professor of Finance and
Economics, Columbia University; Director, Columbia Institute for Tele-
Information; Former Commissioner of Public Services, New York State
Chairman Hollings, Senator McCain, members of the Commerce
Committee, I am grateful to join you in discussing the important topic
of media concentration and ownership rules. Let's start by agreeing
that we all share an intense desire not to let the diversity of media
voices be strangled by a few big companies. But the question is how to
go about it.
There are many elements of ownership rules. Caps, cross-ownerships,
foreign-domestic, minority. Each raises different issues. I will focus
here on the national cap for TV broadcasters, though I'll be happy to
address other issues as well later.
It would probably help us all if we first looked at the extent of
media concentration, because that would take the edge of alarm off.
Yes, there have been lots of mergers. Some are troubling, some are
not. Going beyond the specific deal, the more important question is, in
the aggregate, have American media become more concentrated?
Despite the conventional wisdom, or books based on anecdotes rather
than data, the answer is not an obvious ``yes.'' First, while the fish
in the pond have grown in size, the pond did grow, too, and faster. The
growth of the information industry has been 8 percent faster than
inflation since 1987. Second, there have been a lot of new fish. Giant
Companies such as AOL, Microsoft, Viacom, Qwest, hardly existed a few
years ago. Foreign companies such as Bertelsmann and Vivendi are
contesting the American market. Third, there are new and rapidly
growing ponds, like the internet; and fourth, all these separate ponds
are becoming more of a large lake, as the technological and regulatory
dikes between them fall.
When it comes to concentration, views are strong, but numbers are
scarce. Therefore, at one study at Columbia we collected market share
numbers, industry by industry, company by company, for 60 media and
information sub-industries from book publishing to film production to
internet service provision and consumer electronics, in order to trace
the concentration trends since the early 1980s, after the ATT
divestiture. This is probably the most detailed study ever of media
concentration in America. It is confirmed by another study, by Ben
Compaine, formerly of Harvard. Unfortunately, we did the study 3 years
ago. I am updating it, but I had only 3 days since your invitation,
including the weekend. But I will provide you with them when we have
updated the work.
What did we find? Surprisingly, the overall concentration of the
entire information sector, defined to including also telecommunications
and the IT sector, did not increase, but declined somewhat in the past
two decades. Or rather, first it went down, then it rose, but not to
the level that existed before. If this surprises you, just remember
that 20 years ago, there were 3 major TV companies, 1 computer company,
and 1 telecom company. The combined share of the top 10 companies in
the U.S. information industry declined from 59 percent in 1987 to 39
percent in 1998, even as the total size of most companies increased.
If one looks at the classic mass media industries alone, they did
indeed increase in concentration but remained unconcentrated by Justice
Department standards. (I should add that I do believe that for media,
antitrust standards should be interpreted more stringently than for
other industries because of their special importance, and because of
the undesirablility and unconstitutionality of direct regulatory
interventions). The weighted average of 4 firm market share for the
mass media industries was 33 percent in 1986. It then fell to 27.5 and
rose to 40 percent again.
For the 3 networks, it declined from 70 to 53 percent. For local TV
stations, the top 4 firms share rose nationally from 15 to 26 percent.
For cable TV distribution, it rose from 37 to 60 percent.
The main factors increasing the rise in the mass media
concentration figures were cable television systems (accounting for
half) and home video (accounting for 20 percent). Concentration also
increased in TV station ownership and retail bookstores, and more than
doubled in radio station ownership and book publishing. There is one
very large owner of radio stations. But even it owns only 11 percent of
all stations and accounts for 15 percent of revenues. And the number of
radio stations grew by 800 in the past 3 years. The number of TV
stations increased since 1984 by 37 percent, or about 400 stations. The
top four firms still have only about quarter of these markets, as
measured by revenue. In other industries, concentration held relatively
steady. Film production remained fairly concentrated but steady, with
the top four firms controlling 60 percent. The national movie theater,
newspaper and magazine markets remained relatively unconcentrated, with
the top four firms accounting for a quarter of sales.
Therefore, it cannot be said that U.S. media have become, in
general, more concentrated. Some segments have, others have become less
concentrated. Still, the next question then must be raised: even if a
firm does not dominate any specific market, could it not be
overpowering by being a medium sized firm in every market? The fear is
that vertically integrated firms will dominate by having their
tentacles in each pie. But in economic terms, this can only happen if a
firm has real market power in at least one market, which it then
extends and leverages into other.
But where markets are competitive, vertical integration makes
little sense. Disney should not earmark its best programs for ABC if
other networks offer more money. Conversely, for Disney to force its
lemons on the ABC television network would only hurt the company.
Does this mean there is no concentration problem? No. But the real
problems in media concentration are not national, but local, 98.5
percent of American cities--though less of a share of people--have only
one newspaper. (But you rarely will find editorials castigating this
concentration). Most American homes have no choice in their cable
provider, though DBS is changing that. This is why a cap on cable
ownership can be more easily justified than for broadcasting, where no
local power exists that in the aggregate could exclude channels the way
that the largest of cable companies could. Alternative local
residential phone service may be coming, but is not here yet. That's
why local interconnection is regulated. And the absence of competition
in local telecommunications might justify a higher cap on cable where
it becomes an active rival to telecom, as in ATT's original strategy.
Local radio concentration has increased considerably since the
Telecommunications Act of 1996 relaxed local ownership ceilings, and
may become more of a problem than national radio concentration. On the
other hand, the ownership of multiple radio outlets in a community has
also increased program diversity, because a firm that buys an
additional station in a market will target new audiences rather than
cannibalize its existing ones.
In broadcasting, we've had a set of rules established when two-and-
a-half TV networks, all headquartered in Manhattan within a few blocks,
supplied the TV programming for most Americans. But the ownership rules
didn't really change that. What did create the change was the entry of
cable television that now provides almost 70 percent of households with
a menu of about 55 channels, on average. Satellite TV reaches another
15 percent or so of households. Both of these media can program scores
of channels, and can also charge subscription and per view fees, which
gives them a much stronger base than advertising revenues. Today, the
top 4 networks have barely 50 percent of the audience and keep
shrinking inexorably. There are over 200 cable channels being offered.
Thus, broadcasting is a pale shadow of its former self. Only a small
audience slice watches the classic over-the-air VHF TV. If one
additional Supreme Court justice changes his view and votes against
broadcast TV's must-carry rights, the industry will be going into a
tailspin. Cable operators will do separate deals with the major network
and syndicators for direct program feeds, bypassing local broadcasters,
and will gradually create or contract with local providers such as
newspapers for the news programs. And as that happens, broadcast
stations' spectrum rights will be its most important asset, not its
broadcast operations.
And that's just today's challenge. In the near future, with high
speed internet rising in penetration; it will become an additional
medium for the distribution of mostly national and even global
programs, often of new and interactive kinds, which are not possible
for broadcasters.
Broadcasting has now been given a second chance, through digital TV
with its multicasting potential. So far, this has been a total failure.
But the concept of broadcast TV as a multi-channel medium with each
station broadcasting half a dozen of programs may become the lifeline
for that industry as it competes against cable. It is also a high cost
proposition that will challenge the smaller firms.
The increasing fragmentation of audiences through narrow casting
also leads to a decline of localism. Local programming, outside the
news, was always more asserted than practiced, with some noteworthy
exceptions. The economics here are basic. Any professional TV program
is expensive to produce but cheap to reproduce. Therefore, national
networking is the economically logical way to go. It's been that way
since early radio. And if audiences get fragmented locally, they have
to be aggregated nationally. So there are fundamental and increasing
incentives toward national electronic media. Conversely, whatever local
production or preemption or syndication that draws audiences will be
practiced by stations based on local conditions, whatever the ownership
is, since they have to contest nightly for audiences.
So this is an industry in intense transition, much more in trouble
than it often recognizes itself, and this then leads to fundamental
restructuring as a response. You can constrain it, but then you might
end up with the electronic equivalent of the railroads and other
rustbelt industries.
I am more concerned with the question of impact on minority
ownership. But here, even under the old system, minority ownership has
been miniscule, and if one wants to achieve it one should find other
ways.
There are also costs to this cap restriction. It prevents larger
companies from seeking new licenses, or acquiring weak UHF stations,
because they count as part of aggregate ownership. Just as cross-
ownership restrictions can reduce the number of stations, as well as
sometimes of second-tier newspapers. And this deprives communities of
additional stations and voices.
Much of what this fight over ownership caps is about the relative
bargaining strength between station groups and networks. That's vital
to the participants, but does not obviously an issue of issue of
protection of local content. It's ultimately an empirical matter for
study, whether local programming in a competitive local market is
affected by ownership or cross-ownership at all. Since we have various
exceptions for every rule around the country, this can be determined.
To conclude, it seems to me that if you want to achieve local
content, there are approaches that are more direct than working through
ownership, such as a certain amount of local program production as a
requirement of licensing, or an open a time slot for local access to
TV, or the licensing of additional broadcasters such as LPTV, or the
right to reply. The fact that most proponents of localism do not
advocate such direct policies toward localism tells me that this fight
isn't really about localism.
And if that's the case, you should not become the arbiter between
several industries, TV networks, station groups, and Hollywood
syndicators. Media industries cherishing their independence should not
call for the government to regulate them. It's asking for trouble. But
if one can show clear and convincing public harm, that's one thing. If
one can show local media power that permits its vertical extension,
then some protective rules may be in order. But in the absence of such
showing, I would not perpetuate old rules of national broadcasting
ownership caps in an environment of new media.
Thank you very much for your kind attention
The Chairman. Thank you very much.
Senator Breaux.
Senator Breaux. Thank you very much. Mr. Chairman. I did
want to hear both of these gentlemen because neither one of
them have an economic stake in this. I mean, everybody else at
the previous table represented millions of dollars and
legitimate interests. What we do here--and both of you can sort
of stand back and give us a perspective that is not influenced
by the bottom line of what happens with regard to the ownership
issue.
Dr. Noam, if I pronounced it correctly, you have in your
statement something that I had said and I did not notice it
before. I said that local ownership really is a fight, not so
much of local content, but really on the bargaining power
between the affiliates and the networks. What do you mean by
that? I mean, I agree with it. It is what I said. It is in your
testimony. Can you explain and elaborate what do you mean by
that statement?
Dr. Noam. There are several industries involved. The
providers of syndicated programs would like to deal with a
large number of local stations rather than with a smaller
number of buyers who would have a greater bargaining power.
The medium-sized station groups do not want to compete for
station acquisitions with the large. And the network affiliates
more generally want to have station groups, more bargaining
power relative to the networks. From their perspective, it is a
perfectly logical behavior.
But I do not think that there is a great deal of public
interest in terms of diverse content that is attached to that.
I can agree with the point that you made earlier, namely, that
if a station, regardless of the ownership, should more or less
follow some very similar principles of what the audience wants
to see because they are competing nightly and daily for
audiences. There shouldn't be any difference on content. If the
networks do not serve local markets well, they aren't doing a
good business and eventually they will lose audiences. There
are self-correcting market forces here.
Senator Breaux. I used a station, whether a station in
Louisiana is owned by CBS in New York or owned by Hearst Argyle
in New York. It seems to me that it is a New York-owned station
and what they are going to do is try and serve the needs and
local market in Louisiana in the most profitable manner that
they can and obviously, that means having a lot of local
content. Do you have any problems with that as a principle? It
seems to me it doesn't matter whether Hearst Argyle or CBS owns
it. They have to do what's best to be successful in running
that station.
Mr. Kimmelman. I think that is a good point. There is an
economic factor missing from the equation. That is a national
broadcast network that has lost 50 percent market share, but
remain the biggest player in prime time, the big bucks, the big
advertising dollars. They need to get their programming on,
period. Their programming is preeminent. Even a New York-owned
set of stations trying to meet local needs has slightly
different economic incentives. They want maximum eyeballs,
maximum viewership in that particular community or 5 or 6 or 8,
but not nationwide and that can have a very significant impact
on the programming you select during prime time when most
people are watching.
The Chairman. Would the Senator yield on this important
point? Isn't it a fact, Senator Breaux and panel, on whether or
not you own content. You have mentioned CBS. They have got
content. The Fin-Syn rules have been abolished. So they are
pushing content. Whereas Hearst, you said, they are both in New
York, but these group ownerships, they do not have content so
they are not pushing it. I find from the local folks, and
everything else of that kind, if they can get and adhere to the
localism, which we both agree is of tremendous value, that has
been put in. You used to have to come up and justify your
relicense and ensure how many public interest shows you had and
everything else. But where they have got just affiliates, and
the affiliate is being harassed by the network owner because
they have got content, it is just like the morning programs and
the evening.
They are advertising movies all over the place. I couldn't
go on ``Who Wants To Be a Millionaire.'' I think I could do
pretty good on the answers, but not with the movies. They are
getting rid of me about the third or fourth question: ``who
played the leading part in such-and-such a movie.'' They are
promoting them regularly. More people are going to them, and it
is a money-making promotional proposition of content which is
taken away.
It is not that both of them come from New York, and it is
an affiliate link. But John, isn't it an affiliate fight
because they do have content where Hearst doesn't, and they
just want to see the station succeed and as you and I both
agree, localism counts.
Senator Breaux. The Senator makes a good point. The fact is
if you do not like what the network has programmed, you have
got 125 channels you can go to on your cable and look at
something else. In New Orleans, for instance, I think I am
correct, but I think WWL Channel 4 is a Hearst Argyle station.
Does anybody out there in the audience know? Anyway, it is
a CBS affiliate. They do not like the CBS ``Morning Show,'' so
they just do not carry it. And they carry their local news for
the whole entire 2-hour block in the morning because they think
that that is a local--and the network cannot make them do it.
So they have to appeal to a local audience and if the local
audience doesn't like the national programming, it is not going
to carry it. I mean, no one wants to do that.
The final point is 35 percent limitation. It seems to me
that it was spelled out at a time when you just looked at the
potential market, but now with 125 stations on the cable, the
actual numbers of people watching the networks probably average
out from the Nielsen ratings about 3 percent. You can have a
station in Los Angeles which has huge potential market, maybe
20 percent of the whole country where nobody watches your
station, your penetration may be almost zero or 3 percent,
which is average. So the question is, is there a better way of
gauging the media dominance in an area other than just
selecting the total number of people that live in the area.
Shouldn't it be based on the number of people that watch a
particular network affiliate?
Mr. Kimmelman. Senator Breaux, I think it is a very good
point. The difficulty is, it changes all the time. Every one of
these stations has different ratings for different days,
different months. We do measure differently in different areas.
I think this is something that is absolutely critical to look
at. I think you should make the Federal Communications
Commission look at it. It is easy to challenge a number. Why
not 36 or 40. The issue is how does some other number provide
for promotion of localism, competition and ownership. That is
what we have not seen from the FCC.
They can raise concerns about a number, it is easy to
nitpick, but no one has come up with a better alternative. It
is a very hard point. It is hard to measure. Mr. Karmazin has
talked about his low numbers. Some programming gets a 25
percent market share and that is the big advertising dollars,
but it won't necessarily get it every day or every week.
Senator Breaux. Dr. Noam, do you have any comments on that
thought?
Dr. Noam. I'd like to comment on the question of national
content or local content. As we have 200-plus cable television
channels offered, localism is really in trouble. As one
fragments audiences, one must aggregate them nationally, and it
is very expensive to produce programs. It is expensive to
produce programs, but cheap to reproduce, and therefore a
national distribution takes place. That has been the way from
the beginning of radio.
To use an analogy: In New York, zoning laws restrict large
supermarkets. The background is the desire to protection
smaller stores on social policy reasons. But the result is to
have many inefficient small stores that still sell virtually
the same mass products like Campbell's soup, Coke, and Haagen-
Daz. People pay more but do not have more choice. The economic
forces for media work similarly. So we should worry about local
programming. But ownership rules are an ineffective way to deal
with the issue.
The Chairman. Thank you very much. The roll call is about
to go on, so the Committee is indebted to both of you, Mr.
Kimmelman, Dr. Noam. We appreciate your appearance. The record
will stay open for questions. The hearing will be in recess
subject to the call of the chair.
[Whereupon, at 12:03 p.m., the hearing adjourned.]
A P P E N D I X
Prepared Statement of Lowell ``Bud'' Paxson, Chairman of Paxson
Communications Corporation
Paxson Communications Corporation is the largest television station
owner in the country and the creator of the newest over-the-air
television network. We would request that the following statement be
submitted for the record of the July 17, 2001 Senate Commerce, Science
& Transportation Committee hearing on broadcast ownership.
This statement sets forth our position on the current national
television ownership cap. Our position is simply stated and, we
believe, legally compelling. The FCC's current 35 percent television
cap should be completely eliminated and the issue of television
concentration on a national level should be left to Federal antitrust
authorities.
The 35 percent television cap is a totally arbitrary number bearing
no relation to any antitrust or even public policy concern, it was
adopted without record support and it fails to accurately measure the
viewership reach of any television group owner. For these reasons, it
cannot and will not survive review by the Court of Appeals in
Washington, DC. But, neither this Congress nor the FCC should wait for
such an adverse decision. The time is now for the repeal of this
antiquated rule.
First, a brief history of the 35 percent rule. During the
deliberations leading to the 1996 Telecommunications Act, a group of
television broadcasters, including Paxon, formed the Local Station
Ownership Coalition which lobbied for televison duopoly and local
marketing agreements, i.e. LMAs. The Coalition supported H.R. 1555
(entitled ``The Communications Act of 1995'') which was voted out of
the House Commerce Committee by a 38-5; vote. This bill raised the
television audience cap to 35 percent for one year and then to 50
percent thereafter.
However, when the Bill went to the House floor, the Coalition
became aware of efforts to amend the bill to set the television
ownership cap at 35 percent. The Coalition members convened by
telephone conference and agreed to accept the reduction in the
television cap in return for keeping the support of the House members
for H.R. 1555. The Coalition's views were then communicated to key
Representatives on the House Commerce Committee who were sponsoring the
local television ownership changes. The Coalition's position on this
issue was dictated by the intense desire for local television and LMA
rule relaxation and not by any analysis of the consequences of a 35
percent vs. a 50 percent audience cap. In short, the 35 percent number
was ``plucked out of thin air'' as the Court of Appeals noted recently
in striking down the cable ownership rule.
The second point worth noting is that the 35 percent audience cap
does not actually provide a meaningful measurement of anything. As
NBC's President, Bob Wright, has explained in testimony before
Congress, although NBC's 13 owned television stations reach about 25
percent of the country's television households (as measured by the
current FCC rule), only 2-3 percent of those homes are actually
watching NBC on average, so that NBC's owned stations garner about 6
percent of television viewers nationwide.
The 35 percent rule is simply arbitrary and capricious and it
fundamentally restricts the right of television owners to speak to
their viewers. Local television markets are very competitive nowadays
and we face competition from many sources including other television
stations, cable, cable networks, Microsoft's Web TV, TIVO, Ultimate TV,
radio, newspapers, DBS, magazines, billboards, the Internet, direct
mailings, etc. Notwithstanding this intense competition, a television
owner at the 35 percent cap cannot buy a television station in a new
market simply because of its ownership somewhere else. There is no
logic to this and it is violative of that owner's First Amendment free
speech rights. And let's be honest, the issue is not local ownership
vs. out-of-market ownership. First there is no legally justifiable
reason for favoring local ownership of broadcast stations and most
stations are owned by group owners, not individual local owners. The
issue is how the station is operated and how responsive it is to its
obligations as a licensee. Second, most viewers do not know, or care,
whether a television station is owned by a local group, a national
network or a newspaper group from another state. It is simply
irrelevant.
In summary, Paxson Communications urges Congress not to wait until
further Court rulings striking down the 35 percent cap and other
ownership restrictions but to take the lead and eliminate these
antiquated, useless, and constitutionally infirm rules now so that our
television industry can meet the new competitive challenges. All
existing antitrust laws are fully capable of protecting the consumer
and preventing anti-competitive conduct.
__________
Prepared Statement of James A. Wades, Radio and Television Broadcast
Industry Veteran
As a nearly 20 year veteran of the Radio and Television broadcast
industries, I feel it is my duty to offer input to the Committee on the
issue of Media Concentration, a trend that has, over the past decade,
resulted in a significantly reduced level of quality broadcast service
to communities throughout these United States.
Historically, the regulatory approach affecting the electronic
media has been based in the public interest. This approach began during
the 1920s under then-Secretary of Commerce Hoover and has been
consistently reaffirmed under countless administrations as well as
through three distinct government agencies charged with the
responsibility of regulating broadcasting activities (e.g. Department
of Commerce, Federal Radio Commission, Federal Communications
Commission). Unfortunately, it appears that recent regulatory decisions
have resulted in a climate that de-emphasizes the requirement for
licensees to act in the public interest.
Impact on Local Service
Over the past decade, the vast majority of local radio stations
have eliminated any meaningful commitment to local community affairs.
While serving as a consultant to a large number of AM and FM broadcast
stations throughout the Great Lakes Region, I have watched as local
stations have been consistently absorbed by large media conglomerates.
The result has been, almost without exception, the elimination of local
news directors and community affairs positions within these stations.
Whereas stations formerly owned by local community investors often
maintained ties with numerous organizations and local government
entities, stations managed from outside the area often fail to identify
the potential value of coordination with the local community. The
results are often subtle, but nonetheless important. For example, I
have seen many stations de-emphasize the importance of Emergency Alert
System bulletins, such as Tornado Warnings, Flash Flood Warnings, and
similar local emergency information simply because it does not fit into
a prefabricated format developed thousands of miles away at a corporate
headquarters.
Media Concentration encourages the development of generic radio
programming transmitted to local affiliates via satellite. While this
offers significant profitability advantages for large corporate owners,
such formats discourage the dissemination of local community
information and programming.
Media Concentration Discourages Cultural Diversity
Media concentration has resulted in the creation of generic radio
formats, which are unable to offer a range of choices to the local
consumer. With programming standards concentrated in the hands of a few
large corporate entities, the natural business tendency toward
decreasing operating overhead results in the elimination of local
positions formerly held by qualified programming experts. Instead of
local broadcasters developing formats, which respond accurately and
rapidly to the desires of a local community, the local listener must
choose from a limited variety of programming designed to appeal to the
``lowest common denominator.'' In many cases, one can hear identical
programming at multiple locations on the dial. This programming often
originates from a single location and is then rebroadcast through
multiple transmitter sites with overlapping coverage areas.
Those local investors that do attempt to compete with concentrated
media entities often meet with minimal financial success. Not only does
an erstwhile attempt to develop programming tailored to local needs
result in higher overhead in the form of employment expenses, but it
also becomes difficult to capture scarce advertising revenue. In simple
terms, larger advertisers and agencies find it easier to deal with a
few large corporate entities rather than to work with numerous
independent broadcast stations. This situation has become even more
serious as local businesses are destroyed or marginalized by the
invasion of large corporate chain stores, most of which purchase
advertising only through large agency representations.
I have spoken with many individual station owners who have ``sold-
out'' to media conglomerates simply because they were no longer able to
generate sufficient revenues in competition with concentrated media
power. The result has been a consistent lack of local programming and
community involvement.
Media Concentration Limits the Voice of Minority Interests
Ethnic and minority owned broadcast stations are consistently
marginalized by media concentration. Many of these broadcast stations
are often operated by individuals who have a sincere desire to serve a
unique community, which lacks a voice or cultural perspective in
traditional mass media. Such stations find it difficult to compete with
duopolies and media consolidations within their communities.
I have watched as minority-owned stations struggle to generate
advertising revenue when faced by competition from one or two
companies, which often own all remaining viable stations in a broadcast
market.
Such stations are likely to be further marginalized by the ill-
advised decision of the Commission to create low-power FM broadcast
stations to serve unique communities. Such stations offer little in the
way of coverage area and they often lack the necessary capitalization
and revenue stream necessary to adequately serve their community with a
quality product. However, they do serve to drain valuable advertising
revenue away from viable minority-owned stations. As a result viable
ethnic or minority-owned stations often find themselves caught between
the excessive revenue flow to local duopolies and competition from
ineffective low power UHF TV and FM stations that offer only
``lipservice'' to broadcast diversity.
Media Concentration Lowers Technical Standards
My experience indicates that many stations owned by large corporate
entities pay little attention to those FCC regulations designed to
insure that the interference between stations is limited and the
average listener receives a consistent, quality, broadcast signal.
I have observed AM Directional Antenna systems operating out of
tolerance for weeks, if not months on end, resulting in interference to
co-channel stations in other parts of the country. I have observed
over-modulation, off-frequency operation, and over-power operation at
both AM and FM stations throughout the Great Lakes Region. Many of
these stations are operated under a management structure that views FCC
technical standards as a cost-center and threat to the shareholder.
In some cases, stations consistently fail to meet technical
standards simply because they have employed one under-qualified
technician to maintain multiple studio and transmitter sites within the
same market. Whereas each station formerly employed a competent
broadcast engineer or maintained a viable service contract with an
outside consulting engineer, consolidation often results in a single
salaried technician burdened under an impossible workload.
Contract and Consulting Engineers are often harmed by the same
economic forces resulting from media concentration. Prior to the most
recent wave of media consolidations, there were significant benefits to
contracting one's engineering services through a local engineering
company. This allowed stations to maintain their facilities on an as-
needed basis. Today, large media groups often find it is in their best
interest to avoid engineering contracts. It is simply cheaper to hire a
single, minimally competent technician on salary and then insist that
he work an almost unlimited number of hours. If compliance with
Commission Rules is impossible, it matters little. Congress
consistently fails to authorize adequate funding to the Commission for
reasonable inspections of broadcast stations and other licensed
services. Therefore, there is little risk of being caught.
Media Concentration Encourages Unhealthy Speculation
Unlike most businesses, the unique nature of broadcasting, combined
with the current regulatory environment, has resulted in many broadcast
properties having two unique and distinct values. The first value is
that of an operating business, offering investors a net profit or loss
based on available revenue and expenses. Unfortunately, broadcast
stations also have a ``speculative value,'' much like real estate.
The analogy to real estate is instructive. Like real property, an
FCC broadcast license serves as a ``deed'' to a property. It defines
and protects a unique coverage area as well as a location within the
radio frequency spectrum. Therefore, like real estate, the license has
value simply as an investment property, even if the business occupying
that property is not viable.
It is my opinion that much of the media concentration is not
motivated by a desire or need to compete with technological or
marketplace innovations, but rather through a desire to speculate, and
perhaps profit, on the future value of ``real estate.'' As more
broadcast properties are concentrated in the hands of a single group of
investors or a publicly held company, the aggregate value of the real
estate increases. Investment in the media consolidation occurs simply
because the value of this finite resource is likely to increase over
time.
As in the case of real estate, it is often desirable to limit any
costs associated with the property while it is accruing in value. Such
costs are usually associated with the production of a quality broadcast
product and the maintenance of reasonable technical standards.
In the past, Congress and the Commission recognized that this
factor resulted in the degradation of broadcast products and community
service. Limits had been placed on the frequency with which an investor
could transfer a broadcast property. In recent years, these limitations
have been removed resulting in ``trafficking'' in broadcast station
licenses. Further deregulation has allowed consolidation of properties
and even greater speculation.
Media Consolidation is a Threat to Balanced Political Coverage
During the 1930s, Powell Crosley, Jr. was licensed to operate a
super-power station capable of dominating the broadcast marketplace, as
it then existed. Evidence soon emerged that Mr. Crosley was dictating
policy to news personnel in an effort to insure that his personal
viewpoints were favored. The Commission soon ended its experiments with
such authorizations in order to insure that no single person or
business entity could control public access to news and information.
While it is true that the electronic media is more technologically
diverse today than at any time in the past, the fact remains that
broadcast media maintains considerable power to shape ideas and values
within our society. Even the Internet, with its unprecedented growth,
lacks the ability of broadcast media to encourage consensus and the
convergence of ideas.
Media concentration places unprecedented power in the hands of the
few. These individuals will not only have the ability to influence
political debate, but also to shape the individual values of our
children through the control of popular culture and entertainment.
While the extent of the ability of popular culture and entertainment to
shape individual values is debatable, few would argue with the
suggestion that its influence is significant. The current lack of
stewardship and social responsibility on the part of mass media should
be obvious to the thinking person. Does the existing track record
justify increased trust and confidence?
We Are at a Crossroads
If Congress allows the Commission to authorize greater media
concentration, we will be taking one more step away from the tradition
of viewing radio frequency spectrum as an asset to be managed in the
public interest on behalf of the American people. We have already set a
dangerous precedent by auctioning spectrum to the highest bidder, an
action which, by the way, is a significant departure from a nearly 75
year history of spectrum management.
Unlike manufacturing or service industries, most of which can be
largely regulated by the market place, broadcast media investors are
given the privilege to serve the community while engaged in a useful
business enterprise. Congress must insure that public resources are
utilized in a manner that benefits the Nation as a whole, while
allowing shareholders to maintain a reasonable margin of profit. Any
attempt to compare broadcast media with other business activity is, by
definition, incorrect. No other business has similar access to a
resource traditionally viewed as public property.
Further media concentration will result in additional inequalities
in the market place and will serve only to silence the few local voices
left within the electronic media. The pressures on locally owned
broadcast stations and those employed by them will ultimately result in
business failure and the need for local investors to sell-out at
whatever price they can obtain.
There is not substitute for an effective free press in the form of
diverse, locally owned broadcast media. Media concentration will only
result in cultural narrow-mindedness, a lack of economic diversity, and
a dangerous consolidation of political and cultural power in the hands
of a few. It is my sincere hope that Congress will take whatever steps
are necessary to encourage true diversity in the broadcast marketplace.